Gold Market Overview

1. Gold Market Overview
As On June 4,2021

2. Points To Be Covered Today:
• Gold Market Overview
• The Return Of Inflation
• CPI & Core CPI Inflation Rates
• CPI Index With February & April 2020 As Base
• Federal Debt Held By The Public
• Gold News & Analysis
• Gold Technical & Fundamental Overview
• Gold Price & Chart

3. Gold Market Overview
• By leaving out weekly fuss, the Gold Market Overview reports
enable you to see fundamental changes on the gold market in
monthly format.
• The monthly report reveals what will drive the price of gold in
the future and helps you to focus on the most important
changes.
• Market Overview reports will make sure that you don't miss the
forest for the trees.

4. Can Gold Withstand The Dark Side?
• Inflation broke into the economy violently.
• It’s a destructive, dark force.
• But gold can resist it, being after all a much stronger asset than
Anakin Skywalker.
• Last month, I wrote that “inflation is knock, knock, knock in’ on
golden door”.
• I was wrong.
• Inflation didn’t knock, it broke down the door! Indeed, as the chart
below shows, the core CPI surged 3%, while the overall CPI annual
rate soared 4.2% in April – this is twice the Fed’s target!

5. CPI & Core CPI Inflation Rates

6. CPI & Core CPI Inflation Rates - I
• The question is whether this elevated inflation will turn out to be just “transitory”,
as the Fed and the pundits claim, or become more permanent.
• On the one hand, given that April-May 2020 was the worst phase of
the pandemic with the deepest price declines, the current high inflation readings
are perfectly understandable, and we could see lower numbers later this year.
• On the other hand, inflation may be higher and/or more persistent than many
analysts believe.
• After all, the April reading came as a shock for them and even for the top US
central bankers. For example, Richard Clarida, the Fed Vice-Chair, said: “I was
surprised”.
• It shows that there is more in high inflation than just the base effect. Indeed, the
CPI index with February 2020, i.e., the last pre-pandemic month as a base, has
jumped 3.1% so far – lower but still significantly above the Fed’s target.

7. CPI Index With February & April 2020 As Base

8. CPI Index With February & April 2020 As Base - I
• It shouldn’t be surprising given the surge in the broad money supply and
increase in fiscal transfers to citizens.
• Incomes are higher and people are ready to spend their money.
• Stronger demand met with supply shortages, so the prices rose. And what
is important, the increases are widespread: from commodities to used cars
and houses.
• However, there are a few important upside risks to inflation.
• First, a rise in wages.
• Although employment is far from the pre-epidemic level, entrepreneurs
struggle to find workers.
• Therefore, they could be forced to increase wages to pull employees away
from generous government benefits.
• If passed on, higher input costs would translate into higher consumer
prices.

9. CPI Index With February & April 2020 As Base - II
• Second, a housing boom. Rising housing prices show that
inflationary pressure is something more than just CPI inflation, and
all this could drive shelter inflation higher.
• More importantly, though, as shelter dominates in the CPI basket,
the official inflation would rise as a result.
• Third, an increase in inflationary expectations.
• In May, the University of Michigan index that gauges near-term
inflation expectations surged to 4.6%from 3.4%in April.
• What’s important, the index that measures inflation expectations for
the next five years also rose – from 2.7% in April to 3.1% in May,
which is the highest level in a decade.
• As the chart below shows, the market-based inflation expectations
have also been surging recently.

10. 5 & 10 Year Inflation Expectation

11. 5 & 10 Year Inflation Expectation - I
• This is a very important development, potentially even a game-changer.
• You see, inflation remained low for years partially because Americans didn’t expect high
inflation.
• They used to see persistent inflation as a thing of the past. They had strong confidence in
the Fed, believing that the US central bank would quickly intervene to prevent inflation.
• However, that belief could go away now.
• The Fed’s new monetary framework and officials’ speeches clearly indicate that the US
central bank has become more tolerant of higher inflation.
• The Fed has returned – just like in the 1970s – to focus on full employment and its
“shortfalls” instead of deviations, forgetting that economies can become too hot as well as
too cold.
• Given the dominance of doves in the Fed – but also in the Treasury with Yellen as a
Secretary – one can reasonably doubt whether or not the US central bank is ready to hike
the federal funds rate in response to higher inflation.
• Just like in the years before the Great Stagflation, the Fed could decide that it’s better to
live with inflation than bear the pain of combating it.

12. 5 & 10 Year Inflation Expectation - II
• More importantly, such a fight would be challenging now, as
the public debt is a few times higher.
• As the chart below shows, the federal debt held by the public is now
100% of the GDP, four times larger than throughout the 1970s.
• Hence, the increase in interest rates would amplify fiscal
deficits even more.
• To paint the perspective, April’s core CPI was the highest since
1982, when the Fed was trying to control inflation, and interest rates
were double-digit.
• So, the government would be obliged to cut its expenditures, while
the climate is rather to spend as much money as possible.
• Therefore, the Fed is under strong pressure not to tighten
its monetary policy.

13. Federal Debt Held By The Public

14. Federal Debt Held By The Public - I
• What does all this mean for the gold market?
• Well, when people question the willingness or ability of the government and central bank
to tame inflation, they expect it to go higher, which increases the actual inflation and make
it more persistent.
• Such a negative surprise, with inflation expectations unanchored, would make prices rise
abruptly – but also the demand for gold as an inflation hedge would increase.
• Given the widespread economic repercussions and elevated uncertainty triggered by
higher inflation – which is one of the biggest threats to this economic cycle – gold could
gain as a safe-haven asset.
• Of course, gold is not a perfect inflation hedge in the short term. If interest rates increase
or the Fed tightens monetary conditions in response to inflation, gold may struggle.
• Actually, a start of normalization of the monetary policy could push gold downward, just
as it happened in 2011.
• However, given the current pretending that “there is no inflation” by the Fed, it’s likely that
the US central bank won’t react promptly, remaining behind the curve. The delay in
tightening could de-anchor inflationary expectations and trigger an inflationary
spiral, pushing real interest rates down but also gold prices up.

15. Gold News & Analysis
• XAU/USD bulls looking to build on momentum beyond $1,900 mark
• Gold price posts small losses, as King dollar dominates amid risk-off mood.
• Investors remain cautious ahead of the critical US inflation report.
• Break above $1900 to back the case for further XAU/USD gains
• Source:
• Gold Forecast, News and Analysis - FXStreet

16. XAU/USD Wavers Around $1,900 On USD Recovery
• Gold snaps two-day uptrend, bounces off intraday low.
• Strong US inflation expectations join stimulus hopes to propel the greenback.
• US Treasury yields lack upside momentum, stock futures stay mildly positive.
• Sino-American tension, covid headlines can entertain traders ahead of the key
Thursday.
• Source:
• Gold Price Analysis: XAU/USD wavers around $1,900 on USD recovery
(fxstreet.com)

17. Gold Technical Overview

18. Gold Fundamental Overview

19. Gold Price & Chart

20. Gold Market Overview
As On June 4,2021

21. THANKS FOR LISTENING
Gold Market Overview