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Central Banks Concerns About Rising Crypto Adoption Report Paradoxically Depicts Bullish Outcome For Crypto

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Central Banks Concerns About Rising Crypto Adoption. Report Paradoxically Depicts Bullish Outcome For Crypto

Crypto adoption is on the rise, and it may well be argued that the central banks don't like that fact. Recently, the BIS, monikered as the so-called ‘Bank for Central Banks,’ published a report claiming that crypto adoption causes financial instability in developing countries, where adoption is happening the most. 

Central banks of the United States, Mexico, Brazil, and other major Latin American countries conducted the report. Their concerns about crypto adoption paint a surprisingly bullish picture. This article provides an overview of this report, explains the significance of what's being said, and tells you what it could mean for the crypto market.

The report summarized here is titled “Financial Stability Risks from Crypto Assets in Emerging Market Economies.” It was published by the Bank for International Settlements (BIS) in August 2023. The report begins with a foreword that analyzes crypto adoption in developing countries. It includes recommendations on how to keep crypto under control. 


Source: Cointelegraph

BIS member central banks of Argentina, Brazil, Canada, Chile, Colombia, Mexico, Peru, and the United States wrote the report. The representatives set up a task force led by the BIS Americas Office as the secretariat. It seems to claim that crypto adoption in developing countries is high because these countries generally have low financial literacy. This starkly contrasts with a recent study by a U.S. university, which found that crypto adoption actually increases financial literacy. This makes sense, considering that you must understand crypto before adopting it. 

About The Report

The report's first section provides a summary of the key findings. The authors are hyper-focused on the rise and fall of the crypto market. They don't seem to care about why people are adopting crypto but simultaneously acknowledge the reasons why. For example, As quoted, “Proponents of crypto assets claim that they offer lower transaction costs, faster payments, no intermediation, anonymity, and potentially high returns on investment. Whether they deliver on these claims is another matter.” 

The second part is surprising, as they refuse to argue against it. Moreover, it states, “For some users, crypto assets provide an alternative to limited investments and savings instruments, while for others, they offer a seemingly safe haven against volatile domestic currencies.” 

Now, this conflicts with what the authors implied in the forward. They know those adopting crypto are informed. In other words, they know exactly why people in developing countries embrace crypto; because their fiat currencies suck. Instead of addressing these shortcomings, the authors essentially conclude that something must be done to keep crypto under control because of supposed financial stability risks. 

The authors then highlight several risks, in particular, market risks due to volatility, liquidity risks due to a lack of transparency, credit risks due to a lack of governance, AKA control, operational risks due to cyberattacks, currency substitution risks, and capital flow risks, due to crypto’s use in cross-border payments. 

The irony is that many assets are more volatile than crypto. The existing financial system is even less transparent than the crypto industry, traditional finance (TradFi) has exponentially more credit risk than decentralized finance (DeFi), and cryptos are more resilient to cyber-attacks because they're more exposed; they are literally tested every day. This underscores the fact that the only risks the authors are concerned about are currency substitution and capital flows. 

To address these risks, they claim that “Authorities can consider selective bans, containment, and regulation,” a classic starting point for these BIS reports. For those interested, here is a summary of another crazy BIS report from last year.

The report begins with an introduction where the authors explain cryptos and how they work. They then divide crypto into two categories for their analysis: stablecoins and unbacked crypto assets, which means everything else: Bitcoin, Ethereum, et al. For context, central banks hate stablecoins, probably because they’re direct competitors to Central Bank Digital Currencies (CBDCs). Interestingly, governments seem to like stablecoins because they're backed by government debt. This means they can use stablecoins to subsidize their spending. 

The authors explain that this report builds on recent work by the Financial Stability Board (FSB), a subsidiary of the BIS. Notably, the FSB’s crypto recommendations become regulations in its member countries, namely the G20. The work the BIS is building on is a crypto framework put together by the FSB, which can be seen in the image below. This infographic is ironic because it notes that stability risks only flow from crypto to TradFi. As we've seen with the banking crisis, the stability risks come from TradFi, not crypto.


Source: BIS Papers: Financial stability risks from crypto assets in emerging market economies.pdf

Before breaking down the alleged risks crypto poses to TradFi, the authors make another eye-opening claim, 

“The crypto universe was built on the promise of an efficient, decentralized, low-cost, inclusive, safe and open monetary system, but structural vulnerabilities in the design and operation of crypto asset markets make them unsuitable as the basis for a monetary system.” 

The key word here is ‘monetary’; the central banks oversee the monetary side of the financial system. In practical terms, this means raising or lowering interest rates through various mechanisms to affect the amount of currency in circulation. It's clear that they do not want to lose control of this ability. 

The Alleged Risks

Market Risk
As stated above, the first crypto risk is market risk. Firstly, the authors implied that publicly traded crypto companies are inherently risky. They also take issue with the fact that some cryptos are held mainly by a handful of wallets. They provide some fascinating statistics to back up their claims, 

“In 2020, an estimated 10,000 individuals owned about a quarter of all outstanding Bitcoin. Satoshi Nakamoto, the anonymous creator of Bitcoin, is the largest holder, with more than 1 million stored in different wallets (around 5% of the total). Other tokens show similar concentration. For example, fewer than 100 participants control over 51% of the value in Dogecoin, ZCash, and Ethereum Classic.”

So, at first glance, these statistics are concerning, but it's easy to forget that there's even more extreme wealth concentration in other asset classes. It exemplifies the top 1% reportedly earned more than the rest of the world combined over the last two years. Why isn't the BIS raising this point? 

The second thing worth noting is that most of the authors' concerns around market stability are directed at stablecoins, which should come as no surprise, given that they are competitors to CBDCs, as mentioned earlier. 


Source: Bitcoin Treasuries 

What is surprising is that the authors also target spot Bitcoin ETFs, quoting, “Bitcoin ETFs could potentially pose a market risk in emerging market economies (EMEs) by lowering the barriers to entry for less sophisticated investors and increasing investors' direct and indirect exposure to crypto assets.” 

Oddly enough, the authors are concerned about the wealth concentration Bitcoin ETFs could cause. Here are a few more statistics; “As of end-March 2023, ETFs owned a combined 819,125 BTC, 3.9% of the total bitcoins to be issued (21 million). The largest Bitcoin ETF is Grayscale Bitcoin Trust (GBTC), which owns 643,572 BTC, or nearly 3% of the total supply. In total, ETFs, governments, and public and private companies own more than 1.6 million BTC, approximately 7.8% of the total supply.”


Source: Bitcoin Treasuries 

Liquidity risk
The second crypto risk is liquidity risk. The authors note that most of crypto’s trading volume occurs on offshore exchanges such as Binance. What's odd is that they include Huobi Global as one of the top crypto exchanges and a potential point of concern when it's no longer that large.

 


Source: Coinmarketcap.com

Oddities aside, the authors also aim for Tether and allege that its USDT stablecoin is still insufficiently backed. They missed the memo that USDT is now backed almost entirely by US Government debt, like all the other major stablecoins. It appears that the BIS is making arguments using outdated data. 

Anyhow, there’s something else that the authors point out, which is quite essential: money market funds were a significant source of market instability in 2008 and 2020. For those unfamiliar, money market funds are kind of like TradFi stablecoins. The difference is that you earn a yield on them. 

Naturally, the authors note that stablecoins are similar and that if they were to experience a run, this could create problems for the assets that back these stablecoins, namely government debt. The thing is that most money market funds are significantly more extensive than most stablecoins and, therefore, riskier. 

Credit Risk
In any case, the third is credit risk. The authors define credit risk in the context of crypto as “The potential that a counterparty in crypto-asset markets or directly exposed to crypto assets could fail to meet its obligations in accordance with agreed terms.”

Areas of concern include interconnectedness between crypto companies, citing FTX and Alameda Research. Also, lack of governance and disclosures, quoting DAOs and leverage, citing DeFi. They also included crypto exchanges having access to bank accounts, citing Chilean authorities, who forced banks to bank crypto exchanges. 

Despite favorable crypto regulations, crypto companies and projects in pro-crypto jurisdictions still have difficulty opening bank accounts. This is likely due to the Financial Action Task Force (FATF), but this pressure could be from the central banks.

Operational Risk
Regardless, the fourth crypto risk is operational risk. The authors take issue with the fact that cryptos use blockchains, quoting, “One of the key features of blockchain technology is its irreversibility. Once a transaction is recorded on the blockchain, it cannot be undone. This feature can be problematic in situations where transactions need to be reversed, such as in the case of a hack or fraud.” 

News flash: If crypto transactions could be reversed, then there would be no point in having crypto because governments, central banks, and Wall Street could manipulate it. Just like they do with money and other assets. In case it wasn't clear enough, they want to be able to do this with crypto, too. 

Disintermediation Risk
The fifth crypto risk is bank disintermediation risk. This includes both currency substitution and reserve currency substitution, which are significant concerns for the central banks. The authors admit that crypto could “..reduce the monetary authority’s control over liquidity in the economy, thus weakening the effectiveness of monetary policy…” 

The authors reiterate why people would substitute their fiat currencies with crypto. These reasons included not trusting the fiat currency, crypto being more efficient than fiat, and crypto being more private than fiat, which isn't accurate, at least in the case of cash. 

The reserve currency substitution section is where things get seriously bullish for crypto. They quote, “…if crypto assets become mainstream, they could also replace the global reserve currency as a perceived store of value…” The report denotes this substitution process as cryptoization 2.0. Put simply, the authors speculate that crypto could compete with reserve currencies, like the US dollar, if they see enough adoption.

The caveat is that they're saying this in the context of developing countries, where they think crypto will be used to evade capital controls. Even so, this pertains to something speculated about in a previous article about the BRICS countries.  It’s possible they could adopt a cryptocurrency as their common currency. The fact that BRICS’s current and future members fit the profile of the countries described in this BIS report underscores this possibility. 

Capital Flow Risk
The final crypto risk is capital flow risk, another big concern for the central banks. That's because crypto allows people to move their money around without asking for permission from Big Brother; that's not allowed in the modern financial system. The report’s authors are frustrated about the fact, quoting, 

“Crypto assets can operate offshore and hence beyond regulatory oversight. Crypto assets can be traded and stored on a global network of computers, often offshore servers and digital wallets, making it possible for them to operate beyond the jurisdiction of any one country.”

They're also upset that, quote, “…a person can create a digital wallet on a computer or mobile device and store crypto assets in it, without having to go through any formal registration process or identity verification.” Note that they want to connect all crypto wallets to digital IDs eventually. 

To drive the point home about crypto capital flows being a risk, the authors provide another statistic, saying: “One of the biggest Mexican crypto exchanges claimed that in the first half of 2022, it processed remittances for $1 billion in crypto assets, approximately 3.6% of the total flow in that period.” This is bullish for crypto.

Crypto Risk Connection To TradFi

This begs the question of how these crypto risks could spill into the traditional financial system. The third part of the report has all the answers from the perspective of the BIS. These are summarized in a single infographic (below) that shows the connection between crypto and TradFi. These include crypto to fiat, on and off ramps, stablecoins backed by government debt, etc. 


Source: BIS Papers: Financial stability risks from crypto assets in emerging market economies.pdf

What's crazy is that the authors suggest that even if crypto risks don't spill over into TradFi directly, they could spill over indirectly. The report states, 

“Disruptions in the cryptoasset market can potentially spill over to other financial markets through confidence effects. For example, a sharp drop in the value of crypto assets could erode investor risk appetite. This could lead to outflows from the traditional financial system and tighten financial conditions.”

Put differently, if the crypto markets crash, this could spook investors in TradFi, and that would cause issues; therefore, crypto must be regulated, contained, banned, etc.; it’s madness. It also makes no sense because the opposite is true; stocks influence crypto’s price action, not vice versa. 

Crypto Adoption In Developing Countries

All of these allegations about crypto risks could be intended to prime the reader for the fourth section, which is crypto adoption in developing countries. After all, if they believe crypto is so risky and harmful, they will need to ensure those unfortunate folks in the global South are extra protected. Quips aside, the authors detail four so-called risk catalysts for developing countries regarding crypto. 

  1. Crypto adoption
  2. Inflation and a lack of central bank credibility
  3. Lack of payment infrastructure and financial literacy (Arguably not true)
  4. A lack of crypto regulation (or rather, the lack of anti-crypto regulation that central banks want to see)

Recommendations For Controlling Crypto

Following a lengthy overview of all the crypto regulations in select North and South American countries, the authors provide recommendations about controlling crypto in the fifth part of the report. They start by saying that there are three approaches to managing crypto: bans, containment, and regulation. 

They say that many authorities have argued that crypto should not be regulated because regulations would give the industry a seal of approval that could lead to more adoption. Regulations mean institutions and institutions represent lobbying for better regulations. Believe it or not, the authors aren't in favor of a crypto ban because it would mean no oversight of crypto. They also do not favor containment, i.e., keeping crypto separate from the financial system, because they know secret connections would inevitably manifest. 

So, the one option remaining is to regulate crypto, specifically with the same risk and regulation principle. If you've read this article about crypto regulations, you'll know that this principle could turn crypto into another arm of the existing financial system, which would defeat its purpose. One of the entities pushing this principle the hardest has been the World Economic Forum (WEF), which the authors cite many times in this report. 

For developing countries specifically, the authors recommend they get their monetary business in order so that there's no incentive for crypto adoption. Indeed, if the central banks and governments manage their currencies properly, crypto probably wouldn't exist because it wouldn't need to exist. They only have themselves to blame at the end of the day, and with a bit of luck, crypto will force them to be somewhat more responsible going forward. 

What Does It Mean For Crypto?

What does all of this mean for the crypto market? In short, it's very bullish. The central banks are aware that crypto adoption is growing fast and is ultimately due to deficiencies in the existing financial system, which they know they probably can't fix. These deficiencies are especially acute in developing countries, and for good reason. 

The US dollar is the world's reserve currency, and it's used in up to 96% of international trade in some regions. Unless a country has many resources, it has difficulty getting its hands on US dollars. These countries can only get US dollars by requesting an IMF or World Bank loan. These loans come with many conditions, which are typically in favor of the US and US-based corporations. 

Now, the consequence of this is that these indebted developing countries just can't get ahead. As pointed out by macro analyst Lyn Alden, only a handful of developing countries have managed to become developed over the last 50 years. For the ones that manage, it was due to their natural resources, especially oil. Some of the only exceptions are South Korea and Taiwan,  both of which have received significant support from the US over the decades, probably for geo-political purposes. 

The rest of the developing world has been stuck in the same place, sometimes worse, and they're starting to understand why. Consider that even the BIS referred to "The global reserve currency in their cryptoization 2.0 prediction.” The keyword is ‘The’一it's singular. Logically, it's a reference to the US Dollar.  Assuming it is and probably is, the BIS’s cryptoization quote reads: "If cryptocurrencies achieve mainstream adoption, they could replace the US dollar as the world's reserve currency.” 

Now consider that this is something that many central banks could be interested in; remember that the BRICS are a thing. This would explain the somewhat paradoxical conclusions of the BIS report, which is to regulate crypto even though they know that it will inevitably result in more crypto adoption. 

When you combine this conclusion with the fact that the BIS will allow central banks to hold up to 2% of their balance sheets in crypto starting in 2025, you begin to realize that some central banks might be breaking ranks. In fact, it's possible they're all breaking ranks except the Federal Reserve. That would be truly something, wouldn't it? 

 

 

 

Editor and Chief Markethive: Deb Williams. (Australia) I thrive on progress and champion freedom of speech. I embrace "Change" with a passion, and my purpose in life is to enlighten people to accept and move forward with enthusiasm. Find me at my Markethive Profile Page | My Twitter Account | and my LinkedIn Profile.

 

 

 

 

Tim Moseley

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Gold bulls can look forward to a bright future despite headwinds – Heraeus

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Gold bulls can look forward to a bright future despite headwinds – Heraeus

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Even as markets watch gold prices fall into the low 1830s as the fourth quarter gets underway, interest rate history favors gold bugs in the medium and long term, according to the latest precious metals report from Heraeus.

“The gold price tends to rise following the first cut of US interest rate cycles,” the analysts write. “On average since 1984, one calendar year after the Federal Reserve first cuts its rate after a hiking cycle, gold is 10% higher than the day of the decision to reduce interest rates, and after two years is 18% higher. The dollar tends to weaken, yields on U.S. Treasuries fall, and the economy tends to have deteriorated. All of these elements can act as a tailwind for the gold price.”

The analysts say that after the yield on the 10-year treasury note peaks, it’s only a matter of time before Fed Chair Jerome Powell begins to cut. “The last rate hike of the cycle also tends to coincide with the peak in the yield on 10-year U.S. Treasuries,” they write. “Since 1984, interest rate cuts have never lagged the peak in 10-year U.S. Treasury notes by more than one year and seven months – this being the outlier in 1989. Excluding 1989, cuts have followed the peak by an average of ~10 months.”

They note, however, that this does not constitute a guarantee. “Two years after the first interest rate reduction in 1995, gold was 16% lower at $325.50/oz,” they say. “On the other hand, gold’s relative performance to the upside following interest rate cuts has grown since the 2001 cycle.”

U.S. government bond yields are now at the highest rate in 16 years, hitting a fresh high of 4.7% just after noon EDT on Monday. “The yield on longdated US Government debt has not hit 4.5% since September 2007, the month that interest rates were lowered 50 bp from 5.25% to 4.75% and the US was on the brink of recession,” note the Heraeus analysts. “This suggests the higher-for-longer message from the Fed may now be sinking in for investors, and raises the expectation that for this cycle there could be a more prolonged period before interest rates begin to fall.”

They acknowledge that gold’s short-term outlook is challenged by the surge in yields. “The average rate tightening cycle has lasted for 21 months with a total Federal Funds increase of 3.02%, but this point is clearly past,” the analysts write. “Historically, long-term yields peak shortly before the Fed stops increasing short-term rates. Inflation may continue to climb well after the Fed curtails rate hikes. The uptick in consumer prices in August highlights that despite a Fed pause in September, inflation may not be tamed just yet, and that gold is likely to face headwinds until at least the new year or until yields flag.”

Another key headwind for the yellow metal is the strength of the U.S. dollar, which continues to outperform, with DXY flirting with 107 on Monday afternoon, a level it has not breached since Nov. 22. “The strength in the U.S. dollar in the last week may be a sign that traders are beginning to accept that interest rates may be higher for longer,” they write, noting that the dollar index “is up ~7% since mid-July, against other major currencies.”

The Heraeus analysts believe the next significant technical support for gold is all the way down at $1,800 per ounce, a price the precious metal has not seen since the days before Christmas last year.

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Ernest Hoffman

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

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Analysts expect gold to kick off Q4 with gains while retail investors are evenly split

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Analysts expect gold to kick off Q4 with gains, while retail investors are evenly split

Gold prices underwent a dramatic selloff this week, continuing and accelerating the downtrend that began after the Federal Reserve left interest rates unchanged on the 20th and reiterated that rates would remain higher for longer than previously anticipated.

The latest Kitco News Weekly Gold Survey sees most market analysts optimistic that gold will see a bounce in the near term, while retail investors are more evenly divided after experiencing seven straight sessions of losses.

Everett Millman, Chief Market Analyst at Gainesville Coins, attributed gold's recent slide largely to seasonal factors and options contracts expiring, and sees the precious metal rebounding to start the fourth quarter.

"My initial reaction to the downturn this week was that it had a lot to do with the options expiry on Comex, which does usually lead to a lot of downside volatility as people are closing out or rolling over contracts," he said. "But given that this price action continued throughout the rest of the week, I'm also going to attribute that a bit to seasonality. The gold market usually goes into a slumber in the late summer, early autumn months. We saw that exact same pattern last year. Unless markets are interpreting the FOMC to be extremely hawkish, which I don't think is what's going on, I think you have to chalk it up to seasonality and just the regular trading dynamics that come at this time of year."

"Usually October, the beginning of the fourth quarter, is when you see the tide turn the opposite direction," Millman said. "It's when we get a lot of gold buying events out East, in both India and China. India has the Diwali festival coming up in early November, a lot of buyers over there start accumulating gold in the weeks preceding that."

"I would expect to see gold, if not at the beginning of October, certainly by the beginning of November, to see prices on the rise again."

James Stanley, senior market strategist at Forex.com, believes gold could fall further in the first week of October. "The rates theme has markets on edge and gold's behavior since FOMC has been aggressively bearish with both spot and futures taking out a number of supports along the way," Stanley said. "There's no evidence that's finished yet."

This week, 13 Wall Street analysts participated in the Kitco News Gold Survey. Seven experts, or 54%, expected to see higher gold prices next week, while four analysts, or 31%, predicted a drop in price. Only two analysts, or 15%, were neutral on gold for the coming week.

Meanwhile, 540 votes were cast in online polls. Of these, 245 retail investors, or 45%, looked for gold to rise next week. Another 219, or 41%, expected it would be lower, while 76 respondents, or 14%, were neutral about the near-term prospects for the precious metal.

Kitco Gold Survey

Wall Street

Bullish54%

Bearish31%

Neutral15%

VS

Main Street

Bullish45%

Bearish41%

Neutral14%

The latest survey shows that retail investors expect gold to trade around $1,872 per ounce next week, which is $64 below last week's prediction, but which would still represent a gain of $23 from the current spot price.

The coming week will see the release of the ISM Manufacturing and Services PMIs for September along with over a dozen speeches by U.S. and European central bankers, including Fed chair Jerome Powell and ECB president Christine Lagarde. The highlight of the week will be the Nonfarm Payrolls report for September, which is slated for release on Friday morning, but which could be canceled if the U.S. government shuts down.

Mark Leibovit, publisher of the VR Metals/Resource Letter, sees gold prices rising next week as the greenback pulls back. "Bullish, as it appears the U.S. dollar may be forming a trading top," he said.

Darin Newsom, Senior Market Analyst at Barchart.com, shared a technical case in favor of gold gaining ground next week.

"While the long-term trend and intermediate-term trends remain down, Dec gold's short-term daily chart is showing the contract to be sharply oversold," Newsom said. "Daily stochastics established a bullish crossover below 20% at Thursday's close, a signal the short-term trend is set to turn up. It's possible, maybe not probable, Dec23 completes a bullish 2-day reversal Friday. To do so, it would need to rally and close near the daily high. If that doesn't happen, a bullish reversal pattern will be delayed for a bit."

Marc Chandler, Managing Director at Bannockburn Global Forex, also sees upside potential for gold as the fourth quarter gets underway. "I look for gold to bottom shortly," Chandler said. "Soft US core inflation helping US rates stabilize and the dollar's pullback should help the yellow metal. Month-end and quarter-end flows may be distorting the immediate picture, but the headwinds on the US economy look set to intensify: tightening of credit, the cumulative effect of rising rates, deposits still leaving banks, the resumption of student debt servicing, the likely partial closure of the US federal government, and the high energy price may sap the strength of the US economy."

Looking at the technical picture, Chandler said, "I would be inclined to buy gold on further weakness and look for a move to $1885 to stabilize the technical tone and a move $1892 to boost confidence a low is in place."

"Funds are still holding a net-long futures position, not changing it much over the course of September," Newsom noted, "so with the end of the quarter in sight, it could lead to some long-liquidation."

Adam Button, Chief Currency Analyst at Forexlive.com, still believes bonds and the U.S. dollar will dictate the precious metal's trajectory in the near term, but he sees a silver lining to gold's recent weakness.

"There's a wonderful seasonal gold trade that kicks off in November, and this is setting up very nicely for a test of $1800, and then strength November through January," Button said. "Obviously the bonds are the catalyst here. Right now, you can buy a three-month T-bill, five and a half percent, 10-years, four and a half percent, and gold still yielding zero. The yield difference between gold and other traditional safe havens is painful at the moment, especially in an environment with a rising dollar."

He said gold bulls believed the Fed would be signaling an end to rate hikes by this point. "Instead, there was talk this week about extending the hiking cycle into 2024, Kashkari was a pretty big catalyst saying that, a 40 percent chance that they have to keep hiking, perhaps significantly, in 2024."

Button believes gold will need to see weakness in U.S. economic data before any kind of sustained rally. "I suspect it's coming, but we may not be getting any economic data starting next week if the shutdown happens, at least not the top tier data," he said. "That stokes some economic weakness later. But now, say the shutdown last two weeks in October, then can you really trust the October data? Because it's all going to be skewed. I don't know… I think the market will probably figure out whether it's real or fake weakness, but it might look like weakness at least, which should be bullish for gold."

Button also agreed that quarter-end factors were in play this week, and he thinks there's a decent chance gold sees a bounce early next week. The price action today isn't particularly promising, but the day's not over," he said. "I don't have a huge amount of confidence we'll get a big bounce, but I'd say I'm neutral for next week."

And Kitco Senior Analyst Jim Wyckoff sees downside risks for the precious metal. "Steady-lower. Technicals bearish," Wyckoff said. "That means the path of least resistance for prices remains sideways to lower."

Gold prices are currently down 0.84% on the day and 4% on the week, with spot gold last trading near session lows at $1,849.09 an ounce at the time of writing.

By

Ernest Hoffman

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

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GOLD FIXES

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GOLD FIXES

For almost 100 years, the main gold benchmark price was set by the London Gold Fix. The price was determined in a closed physical auction among bullion banks. A price is determined after most buy orders matched most sell orders.

These auctions would take place twice daily, once in the morning and once in the afternoon in London, England.

However, the London Gold Fix shut down in 2015 and the responsibility for maintaining the process fell to the LBMA, which created the LBMA Gold Price on March 2015. The association shifted the price matching mechanism from a physical auction to an open electronic auction among its members.

The benchmark is still set twice a day at 10:30 a.m. and then at 3 p.m. London time.

There are thirteen participating banks, including the Bank of China, Bank of Communications, China Construction Bank, Goldman Sachs International, HSBC Bank USA NA, ICBC Standard Bank, JP Morgan, Morgan Stanley, Société Générale, Standard Chartered, The Bank of Nova Scotia – ScotiaMocatta, The Toronto Dominion Bank and UBS.

Time to Buy Gold and Silver

Tim Moseley

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Corrective price gains for gold silver on short covering

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Corrective price gains for gold, silver on short covering

Gold prices are a bit firmer and silver solidly up in early U.S. trading Friday. Short covering in the futures markets is featured after December gold hit a 6.5-month low Thursday. A lower U.S. dollar index and a dip in U.S. Treasury yields today are friendly daily outside market elements for the metals markets. December gold was last up $5.60 at $1,884.20 and December silver was up $0.519 at $23.26.

Asian and European stocks were mixed to firmer overnight. U.S. stock indexes are pointed to higher openings when the New York day session begins. The stock indexes are seeing corrective rebounds from recent selling pressure. Reads a Wall Street Journal headline today: "The 2023 stock market rally sputters in new world of yield.";

Today is the last trading day of the week, of the month and of the quarter. That makes it an extra important trading day for markets, from a technical perspective.

The clock is ticking at the month of September winds down and the U.S. Congress has not come to agreement to fund the U.S. government. A shutdown looks likely this weekend. This matter still has traders and investors more risk averse.

In overnight news, the Euro zone September consumer price index came in at up 4.3%, year-on-year, compared to the August reading of up 5.2%. The August CPI was slightly below market expectations.

  Gold's selloff doesn't change the long-term bullish outlook – Saxo Bank

The key outside markets today see the U.S. dollar index lower on a downside correction after hitting a 10-month high earlier this week. Nymex crude oil prices are higher and trading around $92.50 a barrel. Meantime, the benchmark U.S. Treasury 10-year note yield is presently fetching 4.549%.

U.S. economic data due for release Friday includes personal income and outlays, advance economic indicators, the ISM Chicago business survey and the University of Michigan consumer sentiment survey.

Technically, the gold futures bears have the solid overall near-term technical advantage. Prices are in a four-month-old downtrend on the daily bar chart. Bulls' next upside price objective is to produce a close in December futures above solid resistance at $1,950.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,850.00. First resistance is seen at Thursday's high of $1,896.80 and then at $1,900.00. First support is seen at the overnight low of $1,879.60 and then at this week's low of $1,874.50. Wyckoff's Market Rating: 2.0

The silver bears have the overall near-term technical advantage. However, there are stiff technical support layers just below the market that may halt the decline. Silver bulls' next upside price objective is closing December futures prices above solid technical resistance at this week's high of $24.05. The next downside price objective for the bears is closing prices below solid support at $22.00. First resistance is seen at the overnight high of $23.345 and then at $23.50. Next support is seen at $23.00 and then at the overnight low of $22.815. Wyckoff's Market Rating: 3.5.

If you have not done so, I encourage you to try out my new "Markets Front Burner"; email report. I think it's one of my best products yet (free!) in my 40-year quest to help you become a better trader and investor. It's a weekly email report that highlights the latest developments in the marketplace, and how you can better manage those developments in your own trading/investing. Just try it for one week—I guarantee you will want to keep it coming. Sign up to my new, free weekly Markets Front Burner newsletter.

By

Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

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Slight price rebounds in gold silver on short covering

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Slight price rebounds in gold, silver on short covering

Gold and silver prices are just a bit firmer in early U.S. trading Thursday, after this week's solid selling pressure that drove December gold futures to a 6.5-month low Wednesday. Some tepid short covering in the futures markets is featured in both metals today. A lower U.S. dollar index today is also a friendly daily outside market element for the metals markets. December gold was last up $2.40 at $1,893.30 and December silver was up $0.081 at $22.805.

Asian and European stocks were mixed overnight. U.S. stock indexes are pointed to narrowly mixed openings when the New York day session begins. Risk appetite remains dented as the U.S. government shutdown this weekend looms. The Associated Press reports: "As the Senate marches ahead with a bipartisan approach to prevent a government shutdown, House Speaker Kevin McCarthy is back to square one — asking his hard-right Republicans to do what they have said they would never do: approve their own temporary House measure to keep the government open." Goldman Sachs reportedly estimates the shutdown will probably last three weeks.

A Barron's headline today reads: "Forget the shutdown. Why stocks have plenty more to worry about." The story goes on to say the main reason for recent stock market declines is changing perceptions about interest rates. Now the thinking in much of the marketplace is higher for longer, maybe much longer, including potential stagflation, as pointed out by JP Morgan CEO Jamie Dimon in the press recently.

Striking union workers in the U.S., led by the United Auto Workers, are also starting to weigh more heavily on trader and investor sentiment.

  Gold could fall to $1,850 and then $1,800 after breaking below August lows

The key outside markets today see the U.S. dollar index weaker after hitting a 10-month high on Wednesday. Nymex crude oil prices are weaker and trading around $93.25 a barrel. A Dow Jones Newswires headline today reads: "Saudi Arabia and Russia win big in gamble on oil production cuts."

Meantime, the benchmark U.S. Treasury 10-year note yield is at a 16-year high this week and presently fetching 4.647%.

U.S. economic data due for release Thursday includes the weekly jobless claims report, the third estimate of second-quarter GDP, revised corporate profits, pending home sales and the Kansas City Federal Reserve manufacturing survey.

Technically, the gold futures bears have the solid overall near-term technical advantage. Prices are in a four-month-old downtrend on the daily bar chart. Bulls' next upside price objective is to produce a close in December futures above solid resistance at $1,950.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,850.00. First resistance is seen at $1,900.00 and then at $1,913.60. First support is seen at this week's low of $1,890.30 and then at this year's low of $1,883.80. Wyckoff's Market Rating: 2.0

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The silver bears have the overall near-term technical advantage. However, there are stiff technical support layers just below the market that may halt the decline. Silver bulls' next upside price objective is closing December futures prices above solid technical resistance at this week's high of $24.05. The next downside price objective for the bears is closing prices below solid support at $22.00. First resistance is seen at Wednesday's high of $23.12 and then at $23.39. Next support is seen at this week's low of $22.64 and then at the September low of $22.555. Wyckoff's Market Rating: 3.0.

If you have not done so, I encourage you to try out my new "Markets Front Burner" email report. I think it's one of my best products yet (free!) in my 40-year quest to help you become a better trader and investor. It's a weekly email report that highlights the latest developments in the marketplace, and how you can better manage those developments in your own trading/investing. Just try it for one week—I guarantee you will want to keep it coming. Sign up to my new, free weekly Markets Front Burner newsletter .

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Jim Wyckoff

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Time to Buy Gold and Silver

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Tim Moseley

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Gold silver getting hammered by rising bond yields strong greenback

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Gold, silver getting hammered by rising bond yields, strong greenback

Gold and silver prices are solidly lower in midday U.S. trading Wednesday, with December gold futures notching a 6.5-month low and dropping below psychological support at $1,900.00. An up-trending U.S. dollar index that hit a 10-month high overnight and a 10-year U.S. Treasury note yield that scored a 16-year high this week are bearish outside market elements for the two precious metals. December gold was last down $23.40 at $1,896.40 and December silver was down $0.381 at $22.815.

A still-hawkish Fed continues to squelch the metals market bulls. Today in my weekly “Front Burner" email report I mentioned respected JP Morgan CEO Jamie Dimon recently said the marketplace needs to be prepared for a 7% Fed funds rate in the coming months. The Federal Reserve's FOMC last week held the Fed funds rate steady, at a range of 5.25% and 5.50%. The present consensus of the marketplace is one more 0.25% rate increase, or maybe no more rate hikes at all. “Going from zero to 5% caught some people off guard, but no one would have taken 5% out of the realm of possibility. I am not sure if the world is prepared for 7%," Dimon said in an interview with the Times of India. Dimon added he is worried about stagflation setting in, whereby interest rates rise but economic growth stagnates. The JP Morgan chief is presently on the marketplace fringes in his thinking about much higher interest rates. However, I'm generally in Dimon's camp. Although the Fed funds rate may not reach 7% next year, I think the Federal Reserve remains stubbornly hawkish on U.S. monetary policy, which means there is a good chance for a 6% Fed funds rate or a bit more in 2024. That's a bearish scenario for the metals. (If you have not read today's Front Burner report, email me at jim@jimwyckoff.com and I'll forward that report to you. Just put “Front Burner" in the subject line. In today's report I provided forecasts for major markets' price action in the coming months.)

  Politics are behind spot Bitcoin ETF delays, BTC price to re-test record highs in the next 18 months – Mike Belshe

U.S. stock indexes are lower and hit multi-month lows today. Risk appetite is still dented at mid-week, as a likely U.S. government shutdown this weekend is weighing on marketplace sentiment.

The key outside markets today see the U.S. dollar index higher and hit 10-month high. Nymex crude oil prices are sharply higher, hit a 13-month high and trading around $93.75 a barrel. A Wall Street Journal headline today reads: “Quiet Western drills set stage for $100 oil." Meantime, the benchmark U.S. Treasury 10-year note yield is presently near this week's multi-year high and fetching 4.587%.

Technically, December gold futures prices hit a 6.5-month low today. Bears have the solid overall near-term technical advantage and gained more power today. A five-month-old downtrend is in place on the daily bar chart. Bulls' next upside price objective is to produce a close above solid resistance at $1,950.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,850.00. First resistance is seen at $1,913.60 and then at today's high of $1,921.70. First support is seen at the February low of $1,883.80 and then at $1,875.00. Wyckoff's Market Rating: 2.0.

December silver futures bears have the overall near-term technical advantage. However, there are solid technical support levels just below the market that begin to suggest a market bottom is in place. Silver bulls' next upside price objective is closing prices above solid technical resistance at last week's high of $24.05. The next downside price objective for the bears is closing prices below solid support at $22.00. First resistance is seen at today's high of $23.12 and then at $23.39. Next support is seen at today's low of $22.64 and then at the September low of $22.555. Wyckoff's Market Rating: 3.0.

December N.Y. copper closed down 115 points at 363.75 cents today. Prices closed near mid-range and closed at a four-month low close today. The copper bears have the solid overall near-term technical advantage. Prices are in a choppy, seven-week-old downtrend on the daily bar chart. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 380.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the May low of 358.60 cents. First resistance is seen at Tuesday's high of 368.35 cents and then at this week's high of 370.55 cents. First support is seen at this week's low of 362.75 cents and then at 360.00 cents. Wyckoff's Market Rating: 2.0.

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Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

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Cryptocurrencys Rise in Cuba: Hope Shines in Tough Economical Waters

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Cryptocurrency's Rise in Cuba: Hope Shines in Tough Economical Waters

For many years, Cuba has faced serious economic challenges that have deeply affected the daily lives of its people. These challenges include trade restrictions, shortages of basic goods, and a lack of foreign investment. However, amidst these difficulties, Bitcoin offers a glimmer of hope to Cubans.

Although Bitcoin is still relatively new in Cuba, it's slowly gaining popularity among the population. One significant reason for this is Cuba's unique dual currency system, which has made Bitcoin an appealing alternative to traditional financial systems. Additionally, more Cubans are turning to Bitcoin to receive remittances from family members living abroad, further solidifying its role in their daily lives.

The increasing use of Bitcoin has sparked optimism that it could help revitalize Cuba's economy and empower its people. This digital currency holds the potential to bring about economic resilience and financial independence for Cubans. In this article, we'll explore the growing adoption of Bitcoin in Cuba and its potential to shape a brighter economic future for the nation. Join us as we uncover how a digital currency is influencing the destiny of an island nation in pursuit of better economic prospects.


Image source: Dialogo Americas

The Evolution of Cuba’s Economy

Cuba currently faces one of its most severe economic crises since the early 1990s, a period characterized by the collapse of the Soviet Union, which had been the primary source of support for the island nation. During this era, Fidel Castro, the enduring dictator, called upon citizens to unite and endure what he termed a "special period." It was marked by food shortages, frequent blackouts, a significant exodus of Cubans to Florida on perilous rafts, and a devastating devaluation of the Cuban peso, pegged to the Soviet ruble. Between 1991 and 1994, Cuba's economy contracted by a staggering 35%, resulting in a substantial decline in the people's quality of life.

The summer of 1994 witnessed the Maleconazo uprising, a notable anti-government protest in Havana fueled by the failure of the state's ration system, which depended heavily on Soviet support. Essential goods suddenly became accessible only through the use of dollars, a currency increasingly elusive for Cubans with peso-based incomes. In a desperate bid to sustain its faltering economy, the regime abandoned its collectivist principles and imposed unprecedented taxes on the population. In response, tens of thousands of protestors converged along the Malecon waterfront, demanding an end to the government's rule.

During this period, the internet was non-existent, allowing the regime to suppress the movement through brutal police tactics, ensuring that most Cubans remained unaware of the scale of the protests. State-controlled media dismissed the events as a small gathering of delinquents and troublemakers. In reality, the Maleconazo represented a significant display of dissent, the most substantial since the Cuban Revolution in 1959.

Fast forward to today, and Cubans are again referring to a new "Special Period." This time, it is driven by currency reforms and decades of frustration stemming from political repression and bureaucracy. Shortages, frequent power outages, rampant inflation, and widespread protests mark the outcome. The key difference today is the presence of mobile phones and internet access, which keeps the world informed about the situation. On July 11, 2023, Cuba experienced its largest anti-government protest since 1959 in Havana and across cities nationwide.

Cuba, with its scorching climate, grapples with daily electricity shortages. Essential food items like beef, fish, chicken, and eggs are scarce or unobtainable. Obtaining necessities such as food, medicine, and sanitation supplies has become a daily challenge. The power grid is in disarray, and the healthcare system is on the brink of collapse. Oxygen and fans are in short supply, and an increasing number of elderly citizens are losing their lives. At the heart of the government's failures and the unprecedented uprising of its citizens lies a financial crisis.

In January, the Communist Party of Cuba initiated a "monetary purification" process. Since 1994, the government has been issuing two types of currencies: the CUP (Cuban peso), pegged to the dollar at a rate of 24:1, and the CUC (Cuban convertible peso), pegged at 1:1 to the dollar.

While public sector salaries and pensions were paid in pesos, citizens needed CUCs to purchase essential items such as medicine, non-basic foods, clothing, cleaning supplies, and electronics. The regime designed this system to drain value from the population by selling CUCs for 25 pesos at state-run money exchanges (cadecas) while repurchasing them at 24 pesos. 

The government understood that it had to continually print and inflate pesos to sustain its centrally planned economy, even as the agricultural and industrial sectors collapsed. This dual-currency system maintained the purchasing power of the elite and well-connected while creating an economic disparity.

This system created a stark contrast where state employees, including teachers, police officers, and healthcare workers, were at a severe economic disadvantage compared to those involved in the tourist industry, such as waitstaff and taxi drivers.

As of January 1, 2021, the CUC was officially phased out, and Cubans were given six months to exchange their CUCs for pesos at the official exchange rate. This transition effectively robbed Cubans of their hard-earned CUCs, as they were forced to exchange them for rapidly depreciating pesos. Even before January, CUCs traded at a 15% discount to the dollar.

The government extended the window for Cubans to redeem CUCs for a few additional months. Still, usage has dwindled, replaced primarily by the MLC (moneda libremente convertible, or "freely convertible currency"). Introduced by the regime in 2019 as the future monetary system of the island, the MLC operates like a reusable gift card. A plastic MLC card is available at banks, along with two mobile apps for transactions. However, MLC lacks banknotes, coins, or interest-earning capabilities. Its functionality primarily revolves around Cubans receiving hard currency from contacts abroad, which the regime confiscates, replacing it with MLC credit for citizens to spend at government-run stores.

In a cruel irony, Cubans, who are predominantly paid or pensioned in pesos, cannot purchase MLC with their own currency. To officially top up their MLC accounts, they must use foreign hard currency, often sent by family or contacts abroad. Initially, this could be done with dollars, but due to the Trump administration's crackdown on remittances to Cuba, MLC is now mainly acquired through pounds, euros, and Canadian dollars.

Building upon a trend that began 25 years ago when better goods were only available in dollar stores, today's MLC stores are essentially the sole source of quality food, medicine, cleaning supplies, appliances, and other essentials. Peso stores regularly face shortages and offer limited and low-quality products. Cubans with family abroad can obtain MLC top-ups and purchase necessities to sustain their lives. In contrast, those without such connections must resort to the black market to acquire MLC, where the exchange rate is approximately 65 pesos for one MLC.

The Cuban regime effectively prints pesos through the MLC system to acquire hard currency. It's a massive deception perpetrated on the Cuban population and a major driving force behind the historic protests we witness in Cuba.


Image source: Crypto News

Finding Freedom Through Bitcoin

Bitcoin, a symbol of freedom and a reminder of American liberty, traces its origins back to the American Revolution. It was born out of a desire to break free from Britain's control of war and monarchy.
Now, let's jump to 2023, where a new kind of tyranny is on the horizon in every part of the world. Bitcoin offers us an opportunity to escape the control of central bankers, a chance to choose a different path. Its popularity is growing to the point where these financial authorities can no longer maintain their grip. This isn't just about changing our monetary system; it's about reclaiming control, securing financial freedom, and building generational wealth.

Cuba has a history of rebels and resilient spirits. Brave individuals who resisted the iron grip of the Castro regime are now at the forefront of a different kind of revolution—Bitcoin. In the past, talking about Bitcoin in Cuba had to be done secretly. Today, it's open, a topic of discussion, and offers hope through the Lightning Network. 

In a country where the once-powerful peso has become nearly worthless, Bitcoin provides a lifeline. The average salary in Cuba is barely enough to survive on. When the cost of coffee beans for your morning espresso exceeds a Cuban's monthly wage, something is seriously wrong. Bitcoin offers a way out, a path to a better future.

Bitcoin transactions in Cuba occur through Telegram groups and the Lightning Network. They're nearly feeless and shrouded in secrecy to avoid government scrutiny. Traditional institutions have failed the Cuban people, but they've found new hope in Bitcoin. It's a way to preserve their energy, wealth, and hard-earned money over time.

For many Cuban businesses struggling to pay foreign suppliers, Bitcoin is the solution. It's a lifeline for acquiring essential goods that Cuban pesos or MLCs cannot buy. Bitcoin's presence is everywhere, from the heart of Havana to the bustling streets of Santiago. It's a revolution, a declaration, and a defiant response to a history of tyranny, oppression, hyperinflation, and despair.

Historical revolutions were led by visionaries but driven by the courageous. In modern-day Cuba, that courage is reflected in satoshis stored in Bitcoin wallets—a dream of an unburdened and unrestrained Cuba. Cuba is embracing Bitcoin wholeheartedly, educating its people, and making it a part of their future. They understand that in the long run, Bitcoin will remain while the Cuban peso may not.

The Cuban Bitcoin community is growing, and Bitcoin is their symbol of hope. They don't worry about market ups and downs; they worry about the survival of the Cuban peso. Bitcoin is their lifeline and their path to financial freedom. In this quest for freedom and defiance, we salute the rebels, the dreamers, and the trailblazers. The Bitcoin Revolution is here, and it won't wait for anyone. Join in or step aside.


Image source: CNBC 

A New Era Dawns in Cuba

Much like other closed regimes such as North Korea and the Soviet Union, Cuba is experiencing a profound transformation thanks to technology and access to outside information. The nationwide protest movement on July 11 wouldn't have been possible without the digital tools that enable people to organize and connect.
In Cuba, the internet is dismantling the consensus held by the ruling elites, who rely on controlling information. If the internet continues to thrive in Cuba, it could eventually lead to the fall of the Cuban government. However, despite nearly two decades of economic reforms and half a decade of an increasingly connected population, the Cuban communist party maintains its grip on power.

The government's resistance to change and its conservative nature have helped it endure for decades. While Bitcoin offers a way for the government to accumulate the world's hardest currency, those in charge may not consider it a risk worth taking. On the U.S. front, the Biden administration is reviewing remittances to Cuba to find ways for people in the U.S. to send money to their families on the island without supporting the regime.

During the recent turbulent weeks, one thing has become evident: a growing number of Cubans are no longer willing to wait for their government to implement reforms or for the Biden administration to ease sanctions. They are taking control of their financial destinies through Bitcoin.

While the current political protests may demonstrate that Cubans are weary of dictatorship, they might not be enough to bring down the regime. Many have predicted the fall of the Castro regime over the decades, only to be proven wrong. In the meantime, Cubans will continue their peaceful protest by opting out of the exploitative peso and MLC systems and embracing Bitcoin. After six decades of economic hardship, they have finally found a way out. Bitcoin has become a quintessential Cuban movement and a solution that appears unlikely to be halted.

Conclusion

As Cuba grapples with a severe economic crisis and restricted access to traditional financial systems, the emergence of Bitcoin provides a beacon of hope for the nation's future prosperity. Adopting this decentralized cryptocurrency opens up a world of possibilities for Cubans to explore alternative monetary solutions and seize control of their financial destinies.

In a landscape marked by trade embargoes, commodity shortages, and limited foreign investment, Bitcoin represents a lifeline to economic resilience. Its borderless nature transcends the constraints of traditional banking, offering Cubans a pathway to financial empowerment. By embracing Bitcoin, they can break free from the shackles of economic instability that have persisted for decades.

However, the journey toward widespread Bitcoin adoption in Cuba has its challenges. Limited internet access poses a significant hurdle, hindering the ability of many Cubans to fully participate in the digital economy. Regulatory ambiguity also looms as a potential impediment.

Yet, the potential benefits for the Cuban people are nothing short of transformational. Bitcoin empowers individuals to take control of their wealth and participate in the global economy on their own terms. It represents an opportunity for financial inclusion, economic self-determination, and the pursuit of brighter economic horizons. 

As we witness the early stages of Bitcoin's journey within Cuba, it's clear that this digital currency has the power to reshape the nation's economic destiny. It offers a glimmer of hope amid adversity, a lifeline for those seeking financial stability, and a symbol of resilience for a country with a rich history of overcoming challenges. 

In closing, let us remain hopeful and watchful as Cuba navigates this transformative path. With each Bitcoin transaction and each step towards financial independence, the Cuban people inch closer to a future where economic prosperity knows no bounds.

 

 

About: Prince Ibenne. (Nigeria) Prince is passionate about helping people understand the crypto-verse through his easily digestible articles. He is an enthusiastic supporter of blockchain technology and cryptocurrency. Find me at my Markethive Profile Page | My Twitter Account | and my LinkedIn Profile.

 

 

 

 

 

 

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Gold remains well supported as potential credit risk events drive safe-haven demand – MarketVector’s Joy Yang

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Gold remains well supported as potential credit risk events drive safe-haven demand – MarketVector's Joy Yang

The gold market is trading near a five-week low as the U.S. dollar and 10-year bond yields consolidate at elevated levels; however, according to one market strategist, gold still remains an essential safe-haven asset.

In a recent interview with Kitco News, Joy Yang, global head of index product management at MarketVector Indexes, said that despite gold's lackluster performance, she doesn't see any significant shift from where gold started the year.

The comments come as gold prices look to test support at its August lows, just above $1,900 an ounce. December gold futures last traded at $1,919.40 an ounce, down nearly 1% on the day.

Although a resilient economy and persistently high inflation are forcing the Federal Reserve to maintain a "higher-for-longer" monetary policy, Yang said that uncertainty remains elevated and should keep safe-haven assets like gold well supported.

"Despite what the Federal Reserve has said, it's still not clear to me that we're headed for a soft landing," she said. "Investors are in a ‘wait-and-see' mode and that is why we have not seen any major momentum in gold."

In this market complacency, Yang said that investors are underpricing event risks. She pointed out that higher interest rates could make it difficult for consumers to weather any financial turmoil. She added that inflation risks are not going away as gasoline prices rise again and food prices remain elevated.

"Cash isn't as widely available as it used to be, and we are starting to see some cooling in the labor market," she said. "A lot of consumers will soon face some economic challenges, so I'm not optimistic that we will see a soft landing."

Yang said that while the U.S. economy has been resilient, it might not be able to withstand the global slowing trend. She noted that both China and Europe are seeing weaker economic activity.

She said that this uncertainty is helping gold prices hold long-term support above $1,900 an ounce, and added that although prices can go lower in the near term, it would not take a significant risk-off event to shift the momentum in the precious metal.

"I think gold is holding support at these elevated levels because it is positioning itself for some global macro risk event that may materialize despite the current strength of the U.S. economy," she said.

Yang said that one problem starting to creep back into the marketplace is the potential for another credit risk event as the Federal Reserve's aggressive monetary policies drive bond yields higher. Yang's comments come as U.S. 10-year bond yields push solidly above 4.5% to a fresh 16-year high.

While the current bond market selloff has been reasonably orderly, according to some economists there are growing risks that the bond market will become unanchored as U.S. debt continues to grow.

  Gold to hit $2k by end of 2023, reach $2,200 an ounce in 2024 as dollar weakens – SocGen

Late Monday, rating agency Moody's said that a government shutdown, as Congress has been unable to pass any funding bills, could threaten the nation's sovereign debt rating.

"A shutdown would be credit negative for the US sovereign," Moody's said in its report.

"In particular, it would demonstrate the significant constraints that intensifying political polarization put on fiscal policymaking at a time of declining fiscal strength, driven by widening fiscal deficits and deteriorating debt affordability."

Moody's is the last of the 'big three' credit rating agencies that still gives the US a AAA rating with a stable outlook.

"There are still significant risks for the economy that investors just aren't pricing in," she said. "Gold is an attractive asset because we are not in a state where we can relax. There is still a real need for safe-haven assets."

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Neils Christensen

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

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Gold to hit 2k by end of 2023 reach 2200 an ounce in 2024 as dollar weakens – SocGen

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Gold to hit $2k by end of 2023, reach $2,200 an ounce in 2024 as dollar weakens – SocGen

While French Bank Société Générale has slightly reduced its exposure to the precious metal, it still remains positive on the precious metal as inflation remains stubbornly elevated amid plans by the Federal Reserve to end its tightening cycle.

Despite gold's lackluster performance through the summer, SocGen is optimistic that prices have a path back to $2,000 an ounce.

"Headline inflation continues to cool, but core inflation remains stubbornly high, and the Fed is near its cyclical peak. As the timing of a potential US recession recedes, these developments give the Fed the opportunity (and the obligation) to keep rates higher for longer to fight inflation. This should keep real rates elevated, and – combined with the strong dollar – creates headwinds that should cap gold prices at or below $2,000/oz to the end of this year, in our view," the bank's commodity analysts said in their latest outlook report.

Looking to the new year, the analysts said that they see gold prices pushing to $2,200 an ounce by the end of 2024 as investors realize how difficult it will be for central banks to bring core inflation down to their 2% targets.

"With the low-hanging fruit in the inflation fight already picked, we think the gold market will have to price in higher forward CPI projections. As a result, we see gold appreciating to $2,200/oz in lumpy moves by end-2024, as the market adjusts its forward inflation expectations with the macro newsflow. Further, in our anticipated scenario of moderating US rates, we see the USD weakening – an additional bullish driver that should buoy gold, together with other USD-denominated assets," the analysts said.

Although SocGen is bullish on gold, they noted that the precious metal will face a bumpy road. They said that there is still room for investment demand to weaken. The comments come as holdings in the world's biggest gold-backed exchange-traded fund have fallen to their lowest levels since January 2020.

"Despite 139t of gold being withdrawn from ETF coffers since early June, the current value, at 2,789t is more than 20% above the average holding in 2016-20 (before large inflows due to COVID panic). These elevated holdings open the door for further outflows from ETFs in the short term if no bullish catalysts galvanize investors to diversify further into gold," the analysts said.

At the same time, the bank sees some downside risks in gold's speculative positioning.

  Hedge funds still neutral on gold, silver as economic uncertainty supports prices

"While money managers' long positioning has remained elevated in 2023, we noted a strong increase of short positions in August. Gold is close to being overbought on both the 1-year and 2-year windows, according to our OBOS model. Despite the large increase in short contracts held by money managers in August, short positioning remains average. This means the highest risk for gold in terms of positioning would be a long liquidation," the analysts said.

Although the bank remains bullish on gold, last week, it announced it was lowering its exposure to the precious metal in its Multi-Asset Portfolio Strategy. Heading into the fourth quarter, SocGen now holds 5% of its portfolio in gold, down from 6% in the third quarter.

Gold represents 50% of its commodity strategy, as it holds another 5% in broader commodities, with a focus on oil.

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Neils Christensen

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

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