The document discusses the Federal Reserve's fight against inflation through tapering quantitative easing. It notes that the Fed's daily reverse repurchase agreements have surged to nearly $1 trillion, effectively tapering bond purchases. Rising rents and home prices also pose inflation risks. Commodity prices have risen more than during the 2009 recovery and focus has shifted to upcoming US jobs and manufacturing data that could impact tapering. Gold prices are trying to extend recent gains but face resistance from the strong dollar and rising Treasury yields.

1. Gold: The FED’s Fight With
Inflation

2. Points To Be Covered Today:
• Dry As A Bone
• A Reverse Repurchase Agreement
• FED Daily Reverse Repos
• The Danger Of Rent Inflation
• Gold News & Analysis
• Gold Technical Overview

3. Dry As A Bone
• Inflation is still raging, and the FED’s tapering clock is slowly ticking.
• It seems as if gold is stuck in no man’s land and has nowhere to
hide.
• With the U.S. Federal Reserve’s (FED) daily reverse repurchase
agreements surging to a new all-time high on Jun. 30, the former
wetland is undergoing a severe drought.
• Case in point: with 90 counterparties draining nearly $992 billion
of liquidity from the U.S. financial system, QE is suffering a slow
and painful death.
• And while investors focus all of their attention on what FED officials
say, in reality, the taper has already begun.

4. Dry As A Bone - I

5. A Reverse Repurchase Agreement
• a reverse repurchase agreement (repo) occurs when an
institution offloads cash to the FED in exchange for a Treasury
security (on an overnight or short-term basis).
• And with U.S. financial institutions currently flooded with excess
liquidity, they’re shipping cash to the FED at an alarming rate.
• More importantly, though, the FED aims to purchase a
combined $120 billion worth of Treasuries and mortgage-
backed securities per month.
• However, with daily reverse repos averaging $642 billion in
June, the FED has essentially negated 5.35 months’ worth
of QE in the last month alone.

6. FED Daily Reverse Repos

7. FED Daily Reverse Repos - I
• On top of that, while rising U.S. nonfarm payrolls remain the
missing link for an official announcement, Dallas FED President
Robert Kaplan told Bloomberg on Jun. 30 that “these [QE]
purchases are very adept at stimulating demand, but we’ve got
plenty of demand … and these purchases are not very effective
when you’ve got a supply issue.”

8. Chicago Business Barometer

9. The Danger Of Rent Inflation
• Adding more fuel to the fire, I warned on Jun. 3 that rent inflation could put
major upward pressure on the headline Consumer Price Index (CPI) in the
coming months. For context, the Shelter CPI accounts for more than 30%
of the movement of the headline CPI.
• The red line above tracks the year-over-year (YoY) percentage change in
the Shelter CPI, while the green line above tracks the MoM percentage
change in the Shelter CPI. If you analyze their behavior, you can see that
the YoY figure has only moved slightly higher.
• However, with MoM rents rising at a torrent pace (follow the green arrow),
the COVID-19 grace period is officially over. And with rising rents likely to
put upward pressure on the CPI in the coming months, taper-talk should
grow even louder over the summer.
• To that point, American Homes 4 Rent – a publicly-traded real estate
investment trust (REIT) that owns 53,984 properties across 22 states (as
of Mar. 31) – revealed in its first-quarter regulatory filing that the firm
achieved “10.0% rental rate growth on new leases” in Q1 and “11% rental
rate growth on new leases” in the month of April.

10. Rent Price Are Rebounding In Cities Hit Hard By The Pandemic

11. House Prices Eventually Flow Into Shelter Inflation

12. House Prices Eventually Flow Into Shelter Inflation - I
• To explain, the blue and teal bars above track the YoY percentage
change in the rent components of the headline CPI, while the brown
line above tracks the YoY percentage change in the S&P/Case-
Shiller U.S. National Home Price Index (NHPI). If you analyze the
right side of the chart, you can see that the NHPI has completely
decoupled from its shelter CPI counterparts. Moreover, I wrote on
Jun. 30 that the NHPI hit a new all-time high on Jun. 29, with
Craig J. Lazzara, Managing Director and Global Head of Index
Investment Strategy at S&P DJI, providing the following context:
• “April’s performance was truly extraordinary. The 14.6% gain in the
National Composite is literally the highest reading in more than 30
years of S&P CoreLogic Case-Shiller data.”
• The bottom line? With Fannie Mae’s forecast supporting our
projection, there could be plenty of fireworks in September.

13. What Can the S&P500 Tell Us

14. What Can the S&P500 Tell Us - I
• As another source of inflationary evidence, Evercore ISI’s gauge of
retailers’ pricing power has risen once again.
• For context, from Jun. 8 to Jun. 25, the metric has increased from 37.9 to
41.1.
• If that wasn’t enough, while commodities speculation has driven the
inflationary surge, the FED’s recent ‘dot plot’ helped calm some of the
fervor.
• However, with investors now shrugging off the hawkish shift (speculation is
more fun than prudence), the S&P Goldman Sachs Commodity Index
(S&P GSCI) closed at a new 2021 high on Jun. 30.
• For context, the S&P GSCI contains 24 commodities from all sectors: six
energy products, five industrial metals, eight agricultural products, three
livestock products and two precious metals.

15. S & P GSCI Then & Now

16. S & P GSCI Then & Now - I
• The green line above tracks the S&P GSCI’s current rally off the
bottom, while the red line above tracks the S&P GSCI’s rally off the
bottom in 2009-2010 (following the Global Financial Crisis).
• If you analyze the middle of the chart, you can see that the S&P
GSCI has completely run away from the 2009-2010 analogue.
• For example, at this point in 2009-2010, the S&P GSCI rallied by
77% off the bottom. However, as of the Jun. 30 close, the S&P GSCI
rallied by 135% off the April 2020 bottom.
• In addition, the weighting of the S&P GSCI is of immense
importance. With energy accounting for roughly 54% of the index’s
movement (the red box below), oil prices could be make-or-break for
the cost-push inflation future impact.

17. Market – Implied lift – Off Timing & Pace Of Hikes After Lift Off

18. Gold News & Analysis
• Gold is looking to extend Wednesday’s rebound towards $1800.
• Month and quarter-end flows rescued gold price but for how long?
• All eyes remain on the US ISM Manufacturing PMI and NFP data.
• This Thursday, gold is adding onto the previous recovery gains despite the ongoing US dollar’s strength and
an uptick in the Treasury yields.
• XAU/USD bulls are testing bearish commitments, as focus shifts to US Nonfarm Payrolls, FXStreet’s Dhwani
Mehta briefs.
• Gold’s upside appears elusive, as traders shift their focus towards US ISM, NFP
• Source:
• Gold Forecast, News and Analysis - FXStreet

19. Gold Technical Overview

20. Gold: The FED’s Fight With
Inflation

21. THANKS FOR LISTENING
Gold: The FED’s Fight With Inflation