LAWRIE WILLIAMS6 Jul 2021 07:52
Writes yesterday:
"
For some years now, specialist Vancouver Island-based economic consultancy, Murenbeeld & Co, which publishes its weekly Gold Monitor newsletter, has been pointing to a remarkably close relationship between movements in the gold price and in the inverse of the 10-year USA Treasury Inflation Protected Securities (TIPS) yield. For the past couple of weeks, coinciding with the latest, perhaps engineered, weakness in the gold price, following the latest FOMC meeting, and its perceived hawkish deliberations, this correlation has widened very significantly. This suggests either irrational gold price weakness, or an undue change in the TIPS yield. We strongly assume that the former is the most likely consequence and the gold price may catch up accordingly. Where gold goes the other precious metals, particularly silver, tend to follow.
In the event, the FOMC meeting, and its ensuing statements, suggested little change in the way the U.S. Federal Reserve was planning to react – it did not foresee any change in its ultra-low interest rate and bond buying programme until well into 2022, if then. Indeed some analysts feel the Fed may need to continue its low interest rate and easing programme until 2023, and perhaps beyond, to counter the economic challenges brought about by the COVID-19 pandemic and the recovery therefrom.
The above could well account for the apparently stronger gold price immediately ahead of the American Independence Day holiday. It still has a bit of a way to go before the apparent imbalance with the TIPS yield might be redressed. This, along with some other positive factors, could well suggest a gold undervaluation with the yellow metal due for further price recovery – in other words a strong buying signal leading into July and August – months that have sometimes seen huge precious metals price rises."
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