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No DMR today. Back Tuesday. Happy Fourth of July, everyone.
(USAGOLD – 7/2/2020) – Gold tracked marginally lower in quiet pre-holiday trading. It is down $4 at $1769. Silver is down 9¢ at $17.99. Bank of America recently upped its forecast for gold over the next 18 months to $3000 per ounce. “If you put the three together – extremely lax fiscal policy, extremely lax monetary policy, and a huge increase in bank deposits,” says Francisco Blanch, head of derivatives research at the Bank of America, in a Bloomberg interview yesterday, ” I think there is a pretty good chance here we will see a big rotation into gold driving prices a lot higher. Investors are confused. They do not know what to do with their asset allocations and I think a lot of them will choose to go for the yellow metal as an alternative to cash in their portfolios … and by the way when I say investors, I don’t just mean retail investors, I also think institutional investors are going to make that choice.” Blanch forecasts a return of inflation pointing out that the Fed has “done in 18 days what it took almost nine months to do in 2008 and 2009.”
Chart of the Day
Chart courtesy of Scott R. Baker and the St. Louis Federal Reserve [FRED]
Chart note: The St. Louis Fed’s Uncertainty Index, now at all-time highs, is based on newspaper coverage frequency. “Our US index,” says the authors, spikes near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt-ceiling dispute and other major battles over fiscal policy. Using firm-level data, we find that policy uncertainty raises stock price volatility and reduces investment and employment in policy-sensitive sectors like defense, healthcare, and infrastructure construction. At the macro level, policy uncertainty innovations foreshadow declines in investment, output, and employment in the United States …” Superimpose the price of gold and you see that the most vertical aspect of its response post-2008 came well-after the Uncertainty Index peaked. A trend line for gold similar to what we saw in 2009-2010 is developing now. Also, note the St. Louis Fed’s addition of a grey recession bar in 2020.