The true fear of an economic calamity on the near horizon was further clarified yesterday as gold once again illustrated its status as the world’s number one safe-haven asset.
According to Invesco, across the globe, central banks racked up a record amount of gold purchases last year… and are breaking another record in the first quarter of this year.
Concerned about the illegal sanctions imposed by the U.S. and the EU on Russia and their confiscation of Russian gold—some 50 percent of Moscow’s $640 billion of gold and forex reserves were frozen along with some $300 billion in cash by the West last year—more countries are bringing their bullion reserves back home, rather than keeping it in other nations according to Invesco.
“If it’s my gold then I want it in my country’ (has) been the mantra we have seen in the last year or so,” said Invesco’s Rod Ringrow. Indeed, Invesco reported that back in 2020 that 50 percent of central banks held part of their gold reserves domestically.
This year, that number is up to 68 percent and is expected to hit 74 percent over the next five years. And rather than buying or selling gold via ETFs and gold swaps, their survey showed 96 percent said they were investing in gold because it was a top safe-haven asset.
TREND FORECAST: “By their deeds you shall know them.” It is obvious that the central banksters in charge of the world’s money see, hear, and feel the troubling economic climate ahead… that is why they are investing heavily in gold. And as we have forecast, when the United States Federal Reserve begins to lower interest rates, the dollar will begin its long descent… and the lower the dollar falls, the higher gold prices will rise.
Banking Crisis Ahead
What we had forecast back in March of 2020—when a State of Emergency was declared by then-President Donald Trump to fight the COVID War—that a banking crisis would occur as people were prohibited to go to work at offices. The result would be a commercial office bust with building owners unable to pay off their mortgages. This is now, finally, becoming a mainstream reality.
Three years too late, this was a headline story in Business Insider last Friday:
Commercial real estate values are set to crater as much as 40% by 2025 in these 6 cities
Commercial real estate is in for hefty price declines across six top US cities, according to a recent report from Capital Economics…
San Francisco is expected to suffer the largest decline, with commercial property values in the city plummeting 40%-45% from 2023-2025.
Chicago and New York will see declines of 30%-35%, while LA and Washington will see 25%-30% drops. Boston is expected to see values slipping around 25%.
Other cities in its “Western metros” category will suffer comparable valuation declines, such as Seattle, Portland and Denver, while values in Southern cities like Miami, Dallas and Atlanta are set to fall 20% or less…
TREND FORECAST: There are also estimates from Morgan Stanley that commercial real estate prices will fall by 40 percent, and we have been reporting on those price declines in previous Trends Journals. So here it is! A major “new news” article in Business Insider that is old news to Trends Journal subscribers… and what do they do in this article to forecast the future?
NOTHING!
Not a word from Business Insider of how this will hit banks that are holding these loans that will not be repaid and the economic crisis that will result as more banks fail.
Indeed, the banking crisis that began this year with the failure of Silicon Valley Bank, First Republic and Signature Bank is just the beginning of a much worse that is yet to come.
As witnessed with the failure of these three banks, the rapidly rising interest rates deepened their losses on securities which they bought when interest rates were at and/or near zero. Now, with interest rates having rapidly risen and banks paying next to nothing to depositors, they are pulling money out of their bank accounts and investing in safe-haven assets, such as money market accounts that give them a higher return and are insured by the FDIC.
Game Changer
A June 1-22 Gallup poll showed that only 26 percent of Americans have “a great deal” or “fair amount” of confidence in the banks. In 2021, at the height of the COVID War, the confidence level was at 33 percent. And in 1979, despite a decade of high inflation and growing economic discontent—before banks were permitted to go interstate and were just intra-state and the public had faith in their local banks – the Gallup poll showed 60 percent of Americans had confidence in the banks.
LAST WEEK: GOOD NEWS FOR JOB SEEKERS IS BAD NEWS FOR STOCKS
The three major U.S. equities markets lost ground last week as a strong June jobs report raised the likelihood that the U.S. Federal Reserve will raise interest rates yet again later this month.
The U.S. economy “has been adding jobs at a pace rarely seen in recent decades,” The Wall Street Journal noted.
For the week, the Dow Jones Industrial Average shrank by 2 percent, the NASDAQ 0.9 percent, and the Standard & Poor’s 500 index 1.2 percent.
Indeed, the U.S. economy remains resilient despite the Fed’s efforts to tame it by steadily jacking up interest rates.
Employers hired another 209,000 workers last month. Unemployment slipped back to 3.6 percent in June from 3.7 percent in May. Wages rose by 0.4 percent from May and 4.4 percent year on year.
The Institute for Supply Management’s service-industry index rose to 53.9 in June, compared to 50.3 a month earlier. Ratings above 50 show growth.
“We don’t see the recession” in the newest numbers, Julian Stouff, founder of hedge fund Stouff Capital, told the WSJ.
The data pushed treasury yields higher. The yield on the two-year treasury note rose for a fifth consecutive week, ending Friday at 4.931 percent, close to where it was before the collapse of Signature and Silicon Valley banks in mid-March.
The 10-year’s return climbed to 4.047 percent to end the week with its largest five-day gain since May.
Spot gold moved down 0.1 percent through the week, trading at $1,928 at 5 p.m. U.S. EDT on 7 July.
Brent crude oil’s price rallied 3.7 percent to $78.30 at 5 p.m. U.S. EDT on 7 July as recession fears eased. West Texas Intermediate, the benchmark for U.S. domestic oil prices, jumped 4.2 percent to $73.71.
Bitcoin fell 2.6 percent to $30,359 at 5 p.m. U.S. EDT on 7 July.
Abroad, stocks also had a glum week.
The London FTSE 100 was down 3.65 percent and the all-Europe Stoxx 600 was off 3.0 percent.
Japan’s Nikkei 225 fell 3.3 percent and the South Korean KOSPI lost 2.1 percent.
In China, the Hang Seng index in Hong Kong gave back 3.35 percent. On the mainland, the CSI Composite retreated 0.7 percent and the tech-heavy SSE Composite 0.4 percent.
DOW UP AS INVESTORS CONSIDER FED’S NEXT MOVE
The Dow Jones Industrial Average was up 209.52 yesterday, or 0.62 percent, to 33,944.40 and the S&P 500 was up 10.58 points, or 0.24 percent, to 4,409.53. The tech-heavy Nasdaq also rose 24.77, or 0.18 percent, to 13,685.48.
Traders were still digesting Friday’s jobs report that showed some signs of slowing as employers in the U.S. added 209,000 jobs. Unemployment in the country is at 3.6 percent. The Labor Department’s report also noted a 0.4 percent rise in hourly pay month over month in June (4.4 percent from June 2022).
Inflation in the U.S. is at 4.05 percent, which is higher than the Federal Reserve’s target of 2 percent, so investors are anticipating another 25 basis points hike after this month’s meeting. The current overnight interest rate is between 5.25 percent and 5.5 percent.
The yield on the 10-year Treasury settled at 4.006 percent, which was down from 4.047 percent at Friday’s close.
Joseph Davis, global chief economist at Vanguard, told CNN that there is nothing in the jobs numbers “that would change our expectation that the Fed has more work to do.”
Up next will be June’s consumer price index due out on Wednesday. Investors are anticipating a 3.1 percent increase for the year ended in June. Unless the number moves spectacularly in any one direction, few on The Street believe the central bank would keep rates at their current levels.
European stocks were in the green, with London’s FTSE up 16.58, or 0.23 percent, to 7,273.79 and the benchmark STOXX600 up 0.82, or 0.18 percent, to 448.47.
In Asia, Japan’s Nikkei was off 0.61 percent to 32,189.73 and the Kospi was down 0.24 percent to 2,520.70. Hong Kong’s Hang Seng was up 0.58 percent and China’s Shanghai Composite closed at 3,203.70, up 0.22 percent. The Shenzhen Component was up 0.5 percent to 10,942.83.
TREND FORECAST: There will be a leveling off in the summer and the economy will look to be stable, but the big decline will begin to happen in September and October.
The banking crisis is far from over, and high interest rates are going to take their toll on smaller lenders.
As we note above, banks have been flooded with money since the Panic of ’08 that gave depositors next to nothing. Now that has changed as deposit money is flowing out of banks. Thus, with small and medium size banks heavily exposed to the failing commercial office real estate market, with less reserves on hand, more banks will go bust and as with the past, they will merge with the “Bigs” and the “Bigs” will get bigger.
Banks will also need to prepare for landlords (mortgage holders) to start missing payments because workers are not returning to the office.
OIL: Brent crude, the international benchmark, was down 78 cents, or 1 percent, to $77.69 a barrel and the U.S.’s West Texas Intermediate was down 87 cents, or 1.2 percent, to $72.99.
Dennis Kissler, senior vice president of trading at BOK Financial, told Reuters that oil traders are concerned about higher interest rates that could “kill demand very quickly.”
GOLD: Spot gold was little changed yesterday and hovered around $1,925.30 per ounce as investors wait for the Fed’s next move on interest rates.
TRENDPOST: It’s worth reminding our readers that in 2022, central banks from around the world bought more gold than ever. China added 23 tons of gold to its reserves last month, according to Reuters—marking an eighth-consecutive increase. Bloomberg reported that the People’s Bank of China holds 2,330 tons of gold in its reserves.
“They know how bad it’s going,” Gerald Celente said. “And they’re going to do everything they can to keep gold prices down before they skyrocket.”
The trend is not limited to China, and the demand for gold is up 176 percent in the first quarter of the year.
BITCOIN: The world’s most popular crypto held above $30,000 as investors continue to celebrate the hope that major U.S. financial firms will get the approval from the Securities Exchange Commission to open a bitcoin ETF.
The big news in the crypto world yesterday was a research report issued by Standard Chartered Bank that said bitcoin could hit $50,000 by the end of the year, and then more than double in 2024 to $120,000. (CoinDesk reported that the bank increased its previous prediction of $100,000 in April.)
The banking company based its estimation on increased miner profitability, which means these miners can “sell less while maintaining cash inflows, reducing net BTC supply and pushing BTC prices higher.”
TODAY: DOW SEES GAINS AHEAD OF CPI DATA
The Dow Jones Industrial Average was up 317.02, or 0.93 percent, to 34,261.42 and the benchmark S&P 500 was up 29.73, or 0.67 percent, to 4,439.26. The tech-heavy Nasdaq was also up 75.22, or 0.55 percent, to 13,760.70.
Investors were tentative and preparing for tomorrow’s CPI data.
Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company, told CNBC that he believes the Fed will force the country into a recession because the central bank will keep going until the labor market cracks and wage [growth] falls well below 4 percent.
Elsewhere, London’s FTSE was essentially unchanged at 7,273.29 and the STOXX 600 was up 2.90, or 0.65 percent, to 451.37.
In Asia, Japan’s Nikkei was up 13.84, 0.04 percent, to 32,203.57 and South Korea’s Kospi was up 41.79, or 1.66 percent, to 2,562.49. Hong Kong’s Hang Seng was up 180.11, or 0.97 percent, to 18,659.83. In China, the Shanghai Composite was up 17.67, or 0.55 percent, to 3,221.37 and the Shenzhen Component was up 85.85, or 0.78 percent, to 11,028.68.
TRENDPOST: We’ve noted that interest-rate hikes are not immediately felt by the public, and they take at least a year to be felt by businesses and consumers. That time is now.
Harvard just reported that 21.6 million households in the U.S. spend 30 percent of their pre-tax income on their rents as housing costs remain above their pre-COVID War levels.
“If rent grows faster than your income every year, and your health care expenses grow faster than your income every year…that squeeze just makes it very difficult in normal life,” Katherine McKay, associate director at the Aspen Institute Financial Security Program, told Yahoo Finance.
OIL: Brent crude was up $1.74, or 2.24, to $79.43 a barrel and West Texas Intermediate, the U.S. benchmark, was up $1.79, or 2.45 percent, to $74.74.
Oil hit a 10-week high based on a weakened U.S. dollar and optimism for new demand, Reuters reported. Economists say oil hit its rock bottom and the only way it will sink lower is if the Fed is forced to push the economy into a recession, the report said.
TREND FORECAST: West Texas Intermediate and Brent Crude were trading in the $70-$75 range respectively over the past two months.
Investors are weighing the 1.5-million-barrel output cut by Russia and Saudi Arabia to stabilize prices which may keep pushing oil prices higher. Also, despite China experiencing an economic slowdown, the country is burning up some 16 million barrels per day… up 1.3 million from last year. “China’s demand recovery continues to surpass expectations, with the country setting an all-time record in March at 16 million b/d,” the IEA said.
Also, there are growing expectations that the crisis in Israel will continue as protests keep raging in response to Prime Minister Netanyahu’s judicial reform mandates. As Gerald Celente says, “When all else fails, they take you to war.”
As we detail in this and previous Trends Journals, Israel has ramped up its war with the Palestinians, Lebanon, Syria and Iran. Should a direct military confrontation erupt between Israel and Iran, we forecast oil prices will spike above $130 per barrel which in turn will crash equities and the global economy.
GOLD: The precious metal was up $6.50 an ounce, or 0.34 percent, to $1,937.40 as of 4:18 p.m. ET., as the U.S. dollar and Treasury yields slipped.
Gold also benefited from a lower 10-year Treasury yield, which was down to 3.988 percent.
(See our Gold Trend Forecast in the ECONOMIC UPDATE section in this Trends Journal)
BITCOIN: The world’s most popular crypto was trading up $184.10, or 0.61 percent, to $30,609.80 as of 4:20 p.m. ET, as investors consider the Fed’s next move and whether the recent momentum has staying power.
TREND FORECAST: As we had long forecast, after the bitcoin slump, we noted that when and if the coin stabilized above $25,000 per coin, it would continue to trend higher. It is firmly at that higher stage.