INFLATION EXPECTATIONS DRIVING GOLD & SILVER UP Despite Hedge Fund Manipulation

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by Dave Allen, The International Forecaster:

Once again, it’s time to keep our keen eyes on the target — gold’s and silver’s long-term price appreciation.

With inflation on the rise (you decide whether it’s temporary or ongoing), keeping real interest rates ultra-low, these metals are poised for a ride to the moon and beyond.xt.

Readers of my blogs know that I’m generally not one to over-rely on the perspectives of big-name Wall Streeters.

Sometimes, however, their words matter, especially in the context of discussions that impact gold and silver.

INFLATION IS RISING FAST

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Big Dog Investor Warren Buffett is the latest major player to weigh in on inflation — saying at last weekend’s Berkshire Hathaway annual meeting that he and his team are “seeing substantial inflation.”

As Axios’ Dion Rabouin reports, concern about inflation is spreading and growing louder among investors and consumers alike.

That’s even as the Fed and many mainstream economists vow that price hikes will be temporary and shouldn’t be a cause of worry.

Buffet told his shareholders, “People have money in their pocket, and they pay higher prices… it’s almost a buying frenzy.

We are raising prices. People are raising prices to us, and it’s being accepted.”

(As an aside, Berkshire Hathaway bought back $6.6 billion in shares of its own stock last year after a record $27.4 billion in repurchases — in the heat of the pandemic.

All corporate stock buybacks are expected to swing back into high gear after increasing by 28.2% in 2020’s 4thquarter over the 3rd.)

The Fed’s monthly M2 money supply chart shows U.S. money stock reaching just shy of $20 trillion in March. That’s up over one-quarter (29%) from $15.5 trillion as of March 1, 2020.

That’s a lot more cash in the economy for such a short period of time.

JOBS & HIGHER WAGES DRIVING EXPECTATIONS

And with investors looking for any piece of good news to keep the ball of irrational exuberance rolling in the paper markets, expectations are sky high for this Friday’s payrolls report.

In fact, some economists expect it could show the U.S. adding jobs in April at a pace not seen since last year’s record-setting hiring spree in May and June.

While it’s not expected to hit last June’s 4.8 million, some economists believe we could see more than 2 million jobs added, intensifying the momentum from March 2021, when American employers added 916,000 jobs.

On top of that, last week’s initial jobless claims report marked the third straight week that the claims were below 600,000, their lowest since early last year.

Adding to the strong hiring trend, more companies reportedly are giving out pay increases. Holy smackeroos, Batman! Could it actually be true?

Amazon said last week that more than a half million employees would receive pay raises of between 50 cents and $3 an hour, while Walmart and Costco announced wide-ranging pay increases earlier this year.

But even after March’s strong jobs report, the labor force participation rate remains at its lowest level, excluding the pandemic, since 1976; one estimate has 4.6 million workers out of the labor force due to the pandemic.

And there were still 8.4 million fewer people employed in the U.S. as of March than there were in February 2020.

So, what does all of this have to do with gold and silver? Both were up sharply today and hit nine-week highs.

Jim Wyckoff of Kitco News reports they were boosted by “bargain hunting amid bullish forces that include a weaker U.S. dollar, firmer crude oil prices and a dip in U.S. government bond yields.”

He added, “[T]he gold and silver bulls have quickly regained the overall near-term technical advantage and have restarted price uptrends on the daily charts.”

Gold got to within about two dollars of $1,800 by late morning today, before settling down to the lower $1,790s, in an attempt to break out of its multi-month trading range.

Several precious metals analysts say the key macroeconomic release to keep a close eye on this week is the April jobs report.

Chris Weston of Pepperstone believes, “The risk is for a hotter number, but will good numbers lead to a broad risk-off vibe, as traders’ price in higher rate expectations, and the USD rallies?

“Or will good numbers lead to positivity based on a strong economy? I suspect we’re getting to a point where really good data could start to become bad for markets.

“If that’s the case, Kitco’s Anna Golubova says “gold could benefit and see higher prices in response to the fresh data.”

Weston wonders “whether inflation will indeed prove to be as transitory as the Fed and others believe — that isn’t a question we’ll learn anytime soon though, even if the markets think 18 months ahead.”

Translation: uncertainty and volatility for investors is poised to continue for some time.

WHAT ARE THE HEDGERS DOING?

Many analysts have emphasized that gold remains an attractive long-term hedge against rising inflation; it’s only the speculative capital that typically flows to where the short-term momentum is.

Golubova reports that in the last full week of April, money managers increased their speculative gross long positions in Comex gold futures by 301 contracts to 117,144.

At the same time, short positions rose by 6,074 contracts to 66,493. Thus, gold’s net length currently stands at 50,651, a long-to-short ratio of 2.3 to 1.

That’s down 10% from the previous week but still suggests a bullish position for gold in the coming months.

Despite the current disappointment in the gold market, many analysts say that a break of $2,000, $2,100 and even $2,200 — much less $1,800 — is inevitable as inflation pressure continues to rise, keeping real interest rates at historically low levels.

And while hedge funds are unsatisfied with the price action in the gold market, they’re increasing their bullish bets in silver.

The same CFTC report shows money-managed speculative gross long positions in Comex silver futures rose by 2,790 contracts to 64,769. At the same time, short positions increased by only 221 contracts to 28,213.

Thus, silver’s net length currently stands at 36,556 contracts, up 7.5% from the previous week, also suggesting a long-to-short ratio of 2.3 to 1 — its highest level since late February.

Once again, it’s time to keep our keen eyes on the target — gold’s and silver’s long-term price appreciation.

With inflation on the rise (you decide whether it’s temporary or ongoing), keeping real interest rates ultra-low, these metals are poised for a ride to the moon and beyond.

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