Comment of the Day
Big Picture Long-Term Video February 11th 2022
A link to this week's Big Picture Long-Term Video is posted in the Subscriber's Area.
Gold Set for Best Week Since May on Inflation Hedge Appeal
This article from Bloomberg may be of interest to subscribers. Here is a section:
Gold surged, heading for its best week in more than three months as concerns over red-hot inflation boosted demand for the metal as a store of value.
A surprise jump in U.S. inflation sparked rate-hike speculation that the Federal Reserve may act more aggressively to contain rising prices. Gold extended gains Friday as U.S. stocks fell to session lows and Treasuries rose after the U.K. told its citizens in Ukraine to leave the country, adding to worries over long-simmering tensions with Russia. The Kremlin has repeatedly denied that it plans to attack Ukraine.
Bullion’s appeal as an inflation hedge is outweighing worries that rising interest rates will erode demand for the metal, which doesn’t offer a yield.
Gold’s ability to defy gravity amid rising U.S. yields is driven by its credentials as “an inflation hedge as well as a defensive asset during a period of elevated stock and bond market volatility as the market adjusts to a rising interest rate environment,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S.
Hansen sees inflation to remain elevated with rising input costs, wages and rentals being a few components that may not be lowered by rising interest rates. This helps gold as a hedge against the view that central banks will be successful in bringing down inflation, according to him.
Spot gold gained 1.7% to $1,858.41 an ounce by 1:57 p.m. in New York, the highest intraday level since Nov. 19. Prices are up 2.8% this week, heading for the best week since May 7. The Bloomberg Dollar Spot Index fell 0.1%. Silver and palladium also rose, while platinum was little changed.
My view - Gold is unloved and if recent subscriber emails are any guide, even the faithful have given up hope. That’s usually an indication that leverage has been squeezed out of the market. When that kind of action occurs and prices don’t give up their gains, it suggests a willingness by other investors to buy dips and keep on accumulating regardless of volatility.
Ted Spread Anomalies
Heading into the credit crisis, the TED spread and the OIS spread took on almost legendary status as predictors of future troubles in the financial sector.
The Ted spread is the difference between 3-month LIBOR and 3-month Treasury yields. Since LIBOR is a measure of what rate banks are willing to lend to one another, when the spread widens it is viewed as a measure of perceived risk in the sector.
The LIBOR-OIS spread is the difference between 3-month LIBOR and 3-month Overnight Index Swap. It’s another measure of health in the financial system.
Both spreads jumped higher in 2007 and spiked in 2008. Two things are worthy of consideration at present.
OPEC+ Supply Shortfall May Push Oil Price Higher, IEA Warns
This article from Bloomberg may be of interest to subscribers. Here is a section:
“If the persistent gap between OPEC+ output and its target levels continues, supply tensions will rise, increasing the likelihood of more volatility and upward pressure on price,” the Paris-based agency said in its monthly report.
Still, the economic shock could be averted if those members of the Organization of Petroleum Exporting Countries that possess extra reserves deploy them.
“These risks, which have broad economic implications, could be reduced if producers in the Middle East with spare capacity were to compensate for those running out,” the agency said.
Saudi Arabia, OPEC’s de facto leader, holds the bulk of the group’s spare capacity. It has so far resisted the idea of tapping those reserves more quickly, contending that the individual quotas set by the OPEC+ agreement should be respected.
Despite the IEA’s warnings, its forecasts still indicate that world oil markets will tip back into surplus for the rest of this year as supplies outside of OPEC+ pick up. The agency revised up its forecast for U.S. oil supply growth in 2022 by 240,000 barrels a day to 1.2 million barrels a day.
The agency also made substantial increases to its historic demand estimates for the past few years, with an upgrade of 1 million barrels a day for 2021. The revision helps account for a discrepancy between the IEA’s theoretical estimate of changes in stockpiles and what could be detected.
My view - Major oil producers appear to be in no hurry to increase supply. That’s particularly true when the announcement of any plan to expand production is greeted by media coverage akin to the murder of innocents. What is perhaps more important is governments are increasingly walking back their commitments to an energy transition agreed to at COP26. This is one more example of incompatible trends. The world cannot both use more oil and gas, and produce less.
The Chart Seminar 2022
With global vaccination rates rising, the prospect of anti-COVID pills on the horizon and the promise of travel restrictions being dropped, it is time to start thinking about venues for The Chart Seminar in 2022.
Please drop sarah@fullertreacymoney.com a line if you would be interested in attending an event next year, as well as your preferred location.
At present I am looking at a late May date for a London seminar and I am open to other times and locations subject to demand.
Eoin's personal portfolio: short reopened February 2nd 2022
One of the questions subscribers as most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.