September 2024 - Week 3 Edition

Gold Tops $2,600 and Silver Surpasses $31: What’s the New Story (If Any)?

Gold topped $2,600 at the start of this week, most likely in anticipation of the first Federal Reserve interest rate cut on Wednesday, September 18. It bounced around $2,600 before holding about $2,600 on Friday. Partly because of lower rates, but also due to a rise in central bank and ETF buying, many institutional analysts have come out in gold’s favor. One is Bank of America’s analyst Jason Fairclough, who was impressed this week that gold began trading above $2,600 per ounce even before the Fed began cutting rates, justifying the Bank’s expectation that gold will reach $3,000 in 2025.

Bank of America doesn’t see stocks rising as the Fed cuts rates. In fact, they see a selloff in the S&P 500 sooner rather than later, so Bank of America instructed investors to “do what central banks are doing ... buy gold,” just like we have been advising here for years. They also pointed out (as we did recently) that, “Gold is now the second-largest reserve asset (16.1% vs. 15.6% for the Euro) among all central bank reserves.”

The rise in silver came as more of a surprise. Some say it stemmed from a new report by the Silver Academy that sang the praises of Samsung’s new solid-state batteries that could replace the more costly lithium-ion batteries in electric vehicles (EVs) over time. The report estimates that the annual silver demand could increase by up to 25,400 metric tons if a significant portion of these vehicles adopt this technology. This number would slightly eclipse current annual global silver production of about 25,000 metric tons, thereby causing a huge new demand, driving up the price of silver.

I wouldn’t jump on this bandwagon quite yet, for two reasons – first, price and supply dynamics, then EV demand: First, I must underline the fact that this technology is currently hypothetical and likely will take years to develop. I have seen many such reports over the decades, raising the hopes of silver investors. We need to take time to analyze the feasibility of this technology and how its use would change the various price levels of competing minerals in the real world

Second, with so many EVs sitting around unsold in so many car dealerships today, demand for EVs may have peaked. As a result of lower demand, the big car companies are canceling their EV production, so any demand for these new mega-batteries may be lower than projected. Fewer than one in 10 new car sales are now EVs and Michigan Rep. John James has sponsored a bill to block or ban the Biden mandate for producing a rising market share of EVs.

This new battery might work out if EV demand suddenly revives and the technology works and is cost-competitive but those two possible impediments might take a year or two to analyze.

The Fed Passes a Half-Point Rate Cut and Gold Rallies

At 2:00 pm (Eastern time) Wednesday, the Federal Reserve’s Open Market Committee (FOMC) made a somewhat surprising decision to cut their key Fed funds rate by 50-basis-points (0.50%).  Most observers expected a 0.25% cut since the Fed seldom wants to look like they are in a panic mode, overreacting to current events. In truth, they should have started cutting rates earlier, as we previously noted, so this may be a “make-up” cut for not starting their rate cuts in their July 30-31 meeting. last (July 30-31) meeting.

The immediate market reaction was super-bullish for the precious metals and most stock market indexes but first reactions don’t generally mean a lot, since the market tends to digest its various reactions, up and down, over the next two or three days.  Initially, gold on the futures market rose $30, from $2,594 at 1:57 pm EST to $2,624 (+1.2%) at 2:05 p.m. EST, after the announcement was made. In the same few minutes, silver futures rose from $30.69 to $31.22 (+1.7%), partly because lower rates promote faster economic growth. Platinum rose from $973 to $986 (+1.3%).  Later on, the metals retreated but this is normal behavior during any Fed press conference.

The S&P 500 shot up from 5,635 to a record high 5,689 (+1%) in a few minutes but it couldn’t hold on to that sharp peak, as some profit-takers quickly cut those gains in half.  The same trading pattern was true in the Dow Jones Industrials and NASDAQ: Up, down, up, then down.  By the end of the trading day, most of the stock market indexes were down for the day.  The U.S. Dollar Index (DXY) fell but not by much (-0.5%), then it rose back to breakeven for the day.

In his post-announcement press conference, Fed Chairman Jerome Powell confirmed what most observers expected, the Fed had to focus more on keeping unemployment low, as well as making inflation fall, since those are its two equally important mandates – inflation and jobs.

There was some dissent in the decision – the first official dissent since 2005 – but it was only one person out of 19, so there was no major rebellion by the FOMC. The group called for two more cuts in 2024, with the next rate cut coming the day after the November 5 election.

As we have said for almost a year now, we align with Steve Forbes, who we met with in October 2024 – that gold would reach $2,500 this year (a “done deal” now) and much higher if “the wrong team wins” in November. Right now, the mainstream media seems to be promoting Kamala Harris, asking her no tough questions, giving her a pass on avoiding formal press conferences on all issues, but especially on policy or the country’s direction. The press has also allowed Harris to avoid any scrutiny of weak economic plans and “word salad” answers to softball questions about a new vision (that apparently only she can see) for a prosperous future.

So, we could see a major boost for gold if the Democrats win on November 5^th and the Fed cuts rates another half-point on the day after the election, never minding the massive continuing deficit spending.

Call your representative today because you can never really have enough gold in your portfolio when you are sincere about protecting your other investments and the overall financial future for you and your family.

Gold Stays Above $2,600 an Ounce

Gold Rose to Over $2,600 on Monday, September 16 in the futures market, then it dipped on Tuesday, then surged back above $2,600 on the Federal Reserve’s large (0.5%) Fed funds rate cut on Wednesday. Gold is still trading above $2,600 on the spot market up from $2,500 on Monday, September 9. Silver has risen 10% in the last week, from $28 on September 9 to $31.33 on September 20.

This week I was fortunate to talk with a prominent republican governor. He and I both agree that Vice President Harris has her issues but Trump does too, when he gets off-message and doesn’t stick to his talking points. Those are the economy, inflation, peace around the world and immigration issues. Basically, are you better or worse off than you were four years ago? Some of our customers said they would vote on the cost of gasoline alone over the past four years, with Washington still over $5 a gallon when I visited a month ago. At the same time, in Texas, which is devoid of many of the democratic regulations along the West Coast, gasoline was below $3 a gallon.

Going back to November 2020, two days before the presidential election between Joe Biden and Donald Trump, the price of gasoline in Baytown, Texas, was $1.74 per gallon at the Shell station on Interstate 10. Two days after Biden took office, the price of gasoline at the Chevron station, located on the 610 Loop near the NRG Stadium in Houston, has risen to $2.05 per gallon. A year into his presidency, on January 20, 2022, the gasoline price for regular unleaded at the Exxon station in Lumberton, Texas, was $2.85 per gallon.

If Harris wins, I predict even higher gas prices in the future, and I am just as confident of that as I was in October 2023, with my prediction of gold rising above $2,500 an ounce.

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