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Gary S.Wagner
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Recently an extremely robust jobs report shifted market sentiment, not to half-empty but almost empty. Market sentiment is once again slowly shifting back to a glass-half-full. Two major fundamental events have precipitated this shift in market sentiment from extremely bearish to cautiously bullish.

Reuters reported today that the United States continues to allocate huge amounts of capital that resulted in a budget deficit for July of $302 billion. That is a record deficit for July. It is largely based upon continued spending to provide relief for those affected by the Covid-19 pandemic, coupled with reduced receipts (tax income). Only $262 billion (a 54% decline) were received in taxes in July. This is down 10% from the same period last year…

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Although the current deficit in the United States is down 10% when compared to a year earlier, the U.S. spent $2.54 trillion in the first ten months of 2021. During the first ten months of 2020, the deficit grew by $2.807 trillion.

Statements from the U.S. treasury remain guarded when asked about the effects of the July budget deficit. Reuters reported that “The Treasury official declined to comment when asked whether the July budget results would alter the department’s forecasts on when the federal government would exhaust extraordinary measures to continue borrowing under the statutory debt limit of $28.4 trillion.”

The second issue that has seemed to favor a more bullish market sentiment in regards to gold pricing is recent data on consumer pricing. MarketWatch reported that “Data on consumer prices showed that inflation in July remained at up 5.4% for the second straight month, marking a 20-year high, the Labor Department said Tuesday. Meanwhile, the consumer-price index climbed 0.5% in July from June, a slower pace than its 0.9% increase in June from May.

On Tuesday, the Labor Department said that the PCE inflation index rose 0.3%, slightly below expectations taking the 12-month rate from 4.5% (a 29-year high) to 4.3%. Yields on the 10-year Treasury note declined slightly from 1.34% to 1.32%.

Lastly, there seems Federal Reserve members are split as to the best time to begin tapering their asset purchases. On Wednesday, Dallas Federal Reserve President Rob Kaplan said that he would press his colleagues at the central bank to announce a plan to taper bond purchases at its next meeting in late September. Also, Kansas City Federal Reserve President Esther George said that “the time had come to end the central bank’s bond-buying program.”

This differs from the opinion of Charles Evans, President of the Chicago Fed, who said that although the economy has made substantial progress, he was not ready to support announcing a tapering of purchases in September. Speaking to reporters on Tuesday, he said that, “I’d like to see a few more employment reports.”

MarketWatch reported that on Monday, “Boston Fed President Eric Rosengren became the latest official to back a September announcement of a plan to reduce its $120 billion in monthly purchases of Treasury- and mortgage-backed securities later in the fall.”

As of 4:51 PM EST gold futures basis, the most active December 2021 Comex contract is up solidly with gains of $21.40 (+1,25) and currently fixed at $1753.30. At least for today, it seems as though market participants are viewing their current sentiment for gold as a glass-half-full.

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Wishing you, as always, good trading and good health,

Gary Wagner

 

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