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Recent Bullion Price Weakness Will Too Pass

Summary

  • Reuters reports a poll of 123 economists, suggesting the Federal Reserve won't cut interest rates until June 2024.
  • Financial markets expect a delay in rate cuts, previously anticipated for March.
  • Economists predict four rate cuts totaling -1% for 2024.
  • Concerns arise about the U.S. debt surpassing $100 trillion and interest payments exceeding $1 trillion annually.
  • The gold market's medium-term outlook is questioned due to potential interest rate cut delays.
  • David McAlvany shares insights on short-term bearishness for gold, additional thoughts on silver, and China's rumored stimulus.
  • China's central bank expands its balance sheet, considering a $278 billion stock market rescue package.
  • Challenges in Western banks, such as the EU central bank monitoring social media for signs of bank runs.
  • U.S. commercial real estate faces bankruptcy, with 14% of CRE loans and 44% of office building loans in negative equity.
  • The silver and gold markets show slight gains, with Chinese buyers capitalizing on silver price weakness.

Reuters reported this week a poll of 123 unnamed economists with a less dovish view that the fiat Federal Reserve will not begin cutting interest rates until June of this year 2024.

This would be a delay in the financial market's recent expectations that rate cuts will begin in March only a month and some weeks from now.

The majority of Economists polled believe there will be four rate cuts, -1% or 100 basis points in total cuts for this year 2024.

Leads me to wonder what economists might have predicted back around 1964 when Constitutional silver got taken out of our nation's circulating currency supply. Wonder if they could've dared guessed that only a decade and a half later interest rates would have to balloon to nearly 20% to help bring then persistent price inflation down.

Of course this time is different in that the United States debt and unfunded liability piles are combined beyond $100 trillion in net present values. Interest payments at the moment are already over $1 trillion per year on our over $34 trillion Federal debt.

Younger generations should be of course concerned. But not to worry, this ballooning debt and interest payment problem will likely only get worse in time.

If we assume steady growth rates of gov't expenditures, GDP, and general price increases. Even with the absence of either war or recession, multi-trillion dollar deficits and their cost to service them are being forecast to still balloon sky high ahead.

In the medium term for the gold market, what does the potential delay of interest rate cuts mean for spot prices to come?

David McAlvany had a reasonable take on that question this week, have a listen.

David McAlvany: Bearish Short-Term On Gold

David didn't stop there, he had additional thoughts on silver and a rumored oncoming China stimulus which we will get into further factual detail following his upcoming outlook.

China's central bank has been ballooning its balance sheet since September of last year 2023, now nearing the size of the fiat Fed's reported current balance sheet of nearly $7.7 trillion.

Reports are that China is considering a $278 billion stock market rescue package given its recent terrible performance from the start of 2021 to now.

Of course, unlike the United States, the stock market in China is dwarfed by their internal real estate market. At the moment the stock market in China is less than 4% of total global stock market valuations.

Of course global stock market valuations do not capture the global economy if we simply compare them on the left hand side versus the gross domestic product data on the right hand side. But since the start of the 20th Century and following the 1920s US stock market bubble, the United States has remained the dominant stock market in valuation terms globally.

The physical Chinese gold market was strong last year. Setting aside the fact that their central bank admittedly added an additional 225 metric tonnes of gold bullion to their official reserves last year even with record high price points. The local citizenry did similar.

Of the near 1,100 tons they bought last year mostly in high grade gold jewelry, nearly 300 tonnes of the physical gold sold in China 2023 was in gold bullion bar and coin formats. An increase of over 15.7% in troy ounces of gold bullion sold, just over 9.6 million ounces of gold bullion sold.

To put that into a US perspective, that is over 6.5Xs the amount of gold bullion the US Mint sold last year. 

So even with local prices for gold rising last year in fiat Chinese yuan renminbi terms, the self propelling fear and greed driven drive to buy more gold even as local numbers went up, continued onward and upward.

On the other side of the coming break we will get into further detailed dynamics regarding China and the overall global gold and silver price discovery dynamics at large. 

But before we break a few further disconcerting facts about banks in the western world. Specifically in Europe and here in the United States.

As price escalations for shipping containers globally have begun a recent climb from fallouts in the Red Sea, Suez and Panama canal continue.

The central bank of the EU is now asking some lenders to monitor social media for early signs of bank runs.

On the US side of coming banking troubles commercial real estate has yet to come to terms with how bankrupt it is becoming especially in the office building side of their industry.

"14% of all commercial real estate (CRE) loans and 44% of office building loans are now in "negative equity."

That is, the debt is now greater than the property value on 14% and 44% of these respective properties.

Currently, US banks hold over $2.9 trillion of CRE debt, the majority of which is held by regional banks.

Office building prices are down -40% from their highs and CRE as a whole is down over -20%.

All this as interest rates have risen at a recent record pace higher, and many of these loans are due to be refinanced.

I wonder how many of these interested people if polled by Reuters would beg for rate cuts, sooner rather than later.

The silver and gold markets climbed slightly over this week in trading.

The spot gold price closed again for the 10th week in a row above the $2,000 oz building support level.

While the spot silver price finished the week just below $23 oz in recent resistance.

The spot gold silver ratio lowered to finish at 88 on the week.

While western precious metals analysts appear puzzled as to why silver has been having price weakness of late. 

Chinese silver bullion buyers in Shanghai this week took full advantage of recent silver price weakness buying bullion at premiums above LBMA price points not seen since the Covid spot price crash between the $12-14 oz low hit in early 2020.

Local traders were willing to pay spot plus an over 10% additional premium for large industrial sized silver bullion bars

The dramatic escalation in solar panels in China and all other myriad industrial inputs from their rapidly expanding car market share globally. To other modern technological gadgetry they manufacture internally. This simply means they see silver spot prices at the moment as cheap and likely worth stockpiling more physical silver now versus later on.

Massively leveraged COMEX and London continue trading paper derivatives over actual bullion in outsized fashion and our supposed eastern enemies are taking full advantage. Last year LBMA traded to the tune of 104 times global silver production in 2023. And over 71 times global gold production last year in notional derivatives allegedly helping to discover the world's ongoing gold price.

A 2009 cable from the US Embassy in Beijing, China captured the increasing common knowledge published in a local newspaper stating the following.

"The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold."

Russia also knew this and did similar, both using the west's ongoing attempts at suppressing gold and other precious metal values against them.

Our video on how a former long time London gold trader who started his career there in the 1980s, by July 2022. Openly admitted to the western public that gold and precious metals prices writ large are an ongoing sham. Basically stating that anyone armed with the ongoing facts would go out and buy bullion now, not later. Kind of like the Chinese and Russians have been doing for over a decade running.

Recent and even coming price weakness will too pass. The question of when, the how's, and the why's are quadrillion in numbers mostly still growing. Hopefully you out there have got prudently positioned using ongoing phony price discovery discounts at your long term advantage too.

That will be all for our weekly SD Bullion Market Update. 

As always to you out there, take great care of yourselves and those you love.

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James Anderson
James Anderson
Senior Market Analyst & Content

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...

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