Gold Silver Await Start Of Latest Round Of Fed Cuts | Arcadia Economics

Currently at 63% for a 50-basis point cut and 37% chance of a 25-basis point cut. Well, hello there, my friends. Chris Marcus here with you for RKD Economics on Fed Wednesday, which, if you’re watching this during the live premiere at 1pm Eastern, we’re just an hour away from finding out whether it is 50 or 25-basis points, and I’ll touch on that. Plus, we have a lot of gold and silver news that has come up recently that I would love to walk you through, so welcome on in and let us begin with a quick look at gold and silver prices.

I’m recording this on Tuesday night, so this will change a little bit by the time you’re seeing it, but we see gold at $25.96 in the December futures after a little bit of a sell-off on Tuesday and also with silver. Just over $31, obviously, as we head into the Fed meeting, which obviously will change that pricing quite a bit, and as you can see here, currently at 63% for a 50-basis point cut and 37% chance of a 25-basis point cut, I guess we’ll find out soon enough, seems in some sense with the 50-basis point scenario that if they felt it was that necessary, why wouldn’t they have just gone ahead and cut a quarter point at the last meeting, especially the last CPI and PPI report with the core not coming in as much as expected, so it hasn’t been as if the inflation data has been completely benign and would favor the increased probability.

We’ve seen this grow, though, and whispers out of Wall Street Journal and others that there’ll be 50-basis points. Again, we’ll find out shortly. Seems a little odd and I would think 63% is a bit high, but who knows, maybe I’ll be proven wrong in an hour, and either case will be the beginning of the interest rate cutting cycle and certainly not the last one. We’ll take a quick look at the probabilities going a little further out, and you can see we’re on pace for 75-basis points by the next meeting in November, and then you’ve really seen these cuts get more aggressive as they’re being priced in here, and we’ll get some big clues in just a little bit.

So with that said, wanted to take a look at some of the gold and silver open interest data. Rafi has talked about this a bit in the past couple of weeks, and it’s just interesting in terms of looking at the patterns here. In this box, you see the open interest, which on the gold side has come down a bit, but still relatively high versus on silver. You can see there’s been much greater reduction in the open interest. Now at the same time, the bank short position on both, while not gold recently at a record high, silver not at a record high, but had been close.

Both of those we’ve seen short covering in the past two weeks, although again just interesting to see the divergence on silver versus what we have in gold here, and if you take a look at the commercial position, slightly different from the swap dealer bank short position, as this includes a few other categories, but here we see silver where you can see that commercial position come in a bit, and again certainly on the larger side historically versus gold really has not come in all that much, and interesting just to see that the metals have continued to trend higher in the past couple of weeks, especially towards the end of last week.

While this remains out there, so a little bit of an unusual situation, it makes it interesting to see it. In some, maybe put another way, it would suggest that you would have had that big decline by now, has not occurred. I know there have been times in the past couple months where it’s felt like it’s occurred on many days yet. Here you can see the price of gold, obviously decent sell-off there going back under 2400, yet as continued on in the face of the short position, so interesting times with those dynamics in gold and silver, and something else that was affecting both gold and silver.

We have a report here from Metals Focus, and they’re talking about India where obviously the taxes on gold and silver were reduced about a month ago, and all the reports I’ve seen suggest that that has had its impact in India, and here they’re looking at the jewelry market, and they mentioned their travel across the country suggests an increased appetite for expansion among some of the regional medium and standalone stores, and here they mentioned when the Indian government announced the reduction in the import duty from 15 to 6 percent. This was the steepest cut in the history of the gold market in India, and jewelry companies now forecast a 20 to 25 percent increase in revenue for the financial year 2025.

Chain stores even more optimistic, many project revenue growth of 25 to 35 percent, and a 10 to 15 percent increase in sales volume for the year of 2025. India’s silver jewelry consumption, not a small factor as you see here, jewelry fabrication down India in 2023, 83.7 million ounces. 2022 was a big year at 111.6 million ounces. That was also a record year of silver imports for India, so not that if you have a 10 or 20 or 30 percent increase in jewelry that that is going to break the silver market, but also not a insignificant number, and certainly when you add up what’s going on in the solar panels.

And some of the other electrical applications does add up, and this report also did have an interesting note about India’s photovoltaic capacity and their installations, and you see after slowdown in 2023, India installed 7.5 gigawatts. This year, already up to 15 gigawatts, you see this big spike in the first quarter helped to bring that number up quite a bit, and then second quarter not as strong as the first yet, still above the previous year. And some interesting numbers here because they mentioned India aims to achieve 500 gigawatts of electricity production through renewables by 2030, of which 300 gigawatts is earmarked for PV.

Although to put this in context, total PV capacity stood at 87 gigawatts by the end of June. So they’re trying to get up to 300 by 2030, and to put this into context, that means that A, they would have to add 40 gigawatts annually between now and 2030. And also when you look back, the previous solar mission had a goal of 100 gigawatts of capacity between 2010 and 2022, although only 63 was installed. And in addition to that, they’ve had high import duties on the cells and modules, which has been boosting local manufacturing, although the lack of local production capacity for key raw materials such as silver powder and silver paste has been one of the factors which in turn has led to India’s reliance on imports of finished panels.

So certainly they would have to pick up the pace to meet that goal and trying to do some of that domestically. And anyway, hope that puts a little context on to some of those numbers for India. And over on the gold side, a note about the Polish Central Bank, which is aiming to get their precious metals reserves up to 20% of total bank reserves currently at 14.7%. So obviously Poland has been one of the largest central bank buyers of gold along with India. And at least if they are going to continue aiming for that mandate, they will continue to be a gold buyer.

And it was interesting seeing that target that they had here, because it reminded me of something talked about briefly in yesterday’s show where in the World Bank’s gold investing handbook for asset managers, they were recommending that central banks hold up to 22% gold and Poland did not far off that target. So in terms of some other silver news, I don’t know if you go to the visual capitalist often, but they have had a lot of great silver graphics. And here is an interesting one where they talk about silver, the new unsung hero of the economy.

And this is based on the silver Institute numbers and a interesting just seeing it added up from 2021 to 2024. The expected cumulative deficit of 759 million ounces is obviously 2024. It’s not yet over, although then they’re going into how silver is essential in new technologies. And of course, the first thing they mentioned is solar, which certainly has been the case and I think will continue to be a big factor. Although one thing I was thinking about is something I saw I’ve been reading about the project 2025, that Trump apparently has relationships with some of the people doing it, it seems like he’s tried to distance himself from it.

Although we know that part of his plan includes the drill baby drill. And interesting note here, climate change. Again, this is not Trump, necessarily. This is project 25. And in either case, they mentioned the proposal would undo much of the federal government’s climate work and overhauling department of energy to promote oil and natural gas and the emphasize green energy sources. So we’ll see if that actually gets attempted to be implemented and have an impact. Although just something to keep in mind, obviously, a lot of these policies change. But interesting note there on project 2025, which again, Trump is not said is necessarily his plan.

Yet in terms of things that I think would, at least in the metals community, win big points is, could we look at the CPI calculations? This was posted by the happy Hawaiian who does a lot of great research in the metals and interesting chart here. This is from the National Bureau of Economic Research and mentions that basically they did a study and if we had been using the pre 1983 CPI methodology, that had we use that formula, which is different from shadow stats, I see happy Hawaiian isn’t big fan of shadow stats.

But in either case, using the NVR numbers, inflation in 2022 would have been at 18%, which I think if you tell that to most people, that would probably be a little bit easier to believe than some of the numbers that we’ve seen. Again, I think it also puts into perspective how vague some of the numbers we get actually are because here, a couple weeks ago, we got the report that the labor numbers were overstated by 818,000 jobs. So you can see the calculations have a lot to do with these things. And obviously, when we’re heading towards an election cycle, and people are candidates are citing this data and using that as the basis of their claims, and then you can see there are different ways to look at the data, shall we say, of course, I’m not expecting this to necessarily change anytime soon, although terms of some of the impacts, obviously, that the election will have, we did have some comments from john Paulson last week, obviously, a well known investor who made a lot of money shorting the housing bubble back in 2008, and also has been a gold investor at various points in the past 15 years.

And he had some interesting election comments that I think make a lot of sense. And we’ll play a little bit of that here. Before we had large deficits, but the Fed was buying a treasury. So now the Fed is no longer easing. So all the money to buy treasuries has to come from the private sector. And as our financing costs continue at record levels, that it could at some point put pressure on the financial markets. So are you betting against us treasuries? No, no, because that time has not come. But I say, you know, very much depends.

That’s one reason I’m here, what happens who who’s elected and what policies are adopted. If we continue to run high deficits, if we have higher taxes, that let’s give an example, under Trump’s plan is to extend the tax cuts that he did previously. And that would provide stability, corporate rate would stay at 21%. Capital gains would stay where it is. The Biden Harris, they want to raise the corporate tax rate from 21 to 28%. They want to raise the capital gains tax from 20% to 39%. And then they want to they want to add a tax on unrealized capital gains of 25%.

I think if they implement those policies, we’ll see a crash in the markets. A crash about it. Yes. And of course, if now people pay 20% tax becomes 40%, it’s going to have a big well, they would need Congress to be able to do that. That’s a big wildcard. Well, the thing is, did the Trump tax cuts expire automatically? So all the rates go back to what they were previously, so would be quite draconian. So I think, you know, we’d see a fall in the markets and that would that would impact growth.

I was going to ask sort of what what how your investments might change or what it would look like if Harris won versus Trump. So you think there’s a clear distinction. Yeah, I would move more to cash. If Harris was elected, and I’d stay invested in gold, you love gold, you’ve loved gold for a long time. So there you have it from john Paulson. And obviously, we’re going to be hearing plenty about the election in the next month and a half. So with that said, we’ll wrap up for today, but did want to thank silver Viper minerals who kindly brought us today’s show and silver Viper has been advancing their law Virginia project in Sonora, Mexico, where they have a made in resource estimate have ounces that are ready to be added since that estimate, which they hope to update later this year, although have been on hold waiting to get out drilling as they are arranging financing for that.

Although if you would like to find out more can take a look at silver Viper minerals calm. With that said, going to wrap up, go enjoy that Fed meeting. Hope you’re having a great day out there and we will see you again tomorrow. [tr:trw].

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