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Metal Market Report August 2022 - Week 5 Edition

August 2022 - Week 5 Edition

Inflated Dollar Keeping Gold Depressed Domestically

Gold has stayed low because the dollar is staying strong. The U.S. Dollar Index (DXY) reached another 20-year high early Monday morning, August 29, at 109.44, up 19% from 92.03 less than a year ago (on September 2, 2021). That’s the main reason gold is staying low in U.S. dollars but gold is still up for the year in terms of many other currencies. The euro began 2022 at $1.1325 and gold cost 1,607 euros per ounce. Now, the euro has fallen under $1 and gold costs 1,742 euros per ounce, up 8.4% so far in 2022.

Fed Chair Jerome Powell “Loses His Cool” and the Dow Drops Over 1,000 Points

For almost five years, Federal Reserve Chairman Jerome Powell has kept his cool, during COVID, U.S. Senate hearings, zero-percent interest rates in Europe and Japan, and attacks by Presidents Donald Trump and Joe Biden but in the beautiful mountains of Wyoming last Friday, he seemed to lose his cool. After denying inflation was a problem for nearly all of last year (calling it “transitory”) and then delaying interest rate increases until this March, he seemed to “blow his top” at…himself and other central bankers for waiting so long!

First, he said that he is not yet convinced that inflation has peaked, when most other economists say it has. He then said, “with inflation running far above 2-percent and the labor market extremely tight, estimates of ‘longer-run neutral’ are not a place to stop or pause.” He implied there might be additional rate hikes after September 21. Finally, Chairman Powell said, “We must keep at it until the job is done,” implying he’ll probably go too far, raising interest rates beyond where he should, as he did in 2018.

All this comes on the eve of Quantitative Tightening (QT), which starts this week (September 1), when the Fed will reduce its balance sheet by $95 billion per month – the opposite of printing new money. It looks on the surface like he is finally seeing what over a decade of near-zero short-term interest rates and Quantitative Easing (QE) have created – chronic inflation and huge deficits – so he is starting on a new financial “diet” for America.

Whatever the cause, he sent the Dow Jones Industrial Average down over 1,000 points on Friday and another -184 points on Monday (down 3.6% in two days). The S&P 500 fell over 4% and NASDAQ declined 4.9% in two days while gold initially rose on Powell’s talk and then stayed in the same $1,735 range.

Unfortunately, high debts and high inflation will continue due to recent federal government policies …

Electric Car Mandates Will Fuel Energy Price Inflation – Especially in Europe

Just when you thought inflation may have peaked, Congress and the Biden administration are sowing the seeds of future inflation. Several new big-spending Acts, including the “Inflation Reduction Act” that actually raises inflation by adding taxes to fossil fuels and the forgiveness of student loans presidential edict that that adds up to $1 trillion in new deficit spending (according to the University of Pennsylvania, Wharton accounting, released last Friday). The Biden team also is mandating half of all new cars to be electric by 2030, and the state of California goes one big step further to make all cars electric by 2035, just 12+ years from now.

Europe is already experimenting with these ultra-green policies, if we want to see how they are working over there. When Russia cut natural gas supplies and said they would close their major pipeline three days for “maintenance,” the cost of natural gas for EU delivery went from 244 euros per megawatt-hour to 339 in one week, up 39%. Last week’s price is the equivalent of crude oil being priced at close to $500 per barrel, if you convert the same energy (BTUs) from natural gas into crude oil. Most European industries would have to close shop at such prices. They cannot operate at the equivalent of $500 per barrel oil.

This is summer. We’re not even close to winter when prices will soar far beyond today’s prices. Already, air conditioning below 81 degrees is forbidden in Spain, as will heating above 66 degrees in winter, and they will not likely be able to store enough heating oil or gas to maintain that low level of heat in winter.

Electricity is already so expensive in Britain it makes more sense for many British citizens to pay $10 per gallon for gasoline, rather than charge their EVs at home. Furthermore, electricity rates are due to go again up on October 1st, unless the new British Prime Minister (who will be announced on September 5th) intervenes to stop the impending electricity rate hike.

EVs also have huge battery maintenance problems. A friend of my friend Gary Alexander works with a person who wants to do the right thing and buy EVs, but his family’s Audi e-tron EV has been at the dealer for over five weeks waiting for the super-heavy (about 740-pound) battery pack to be removed for further diagnosis. His car had only 22,000 miles on it when the battery simply wouldn’t recharge. The Audi dealer has a huge backlog of owners with similar problems and only has one lift for the battery packs.

Speaking of inflation, his friend’s increased electricity bill was about $600 a month when his college-age daughter drove the electric car! Right now, EVs are seemingly a toy for the privileged. There’s no way the middle class and poor can afford these cars without a huge (inflationary) rebate, further ballooning the federal debt. We simply can’t get to 50%, much less 100%, electric vehicles while battling battery problems, high purchase prices and high repair costs. Plus, mining cobalt and lithium is not a green solution, since such mining tears up the earth. We need a common-sense solution – and a pragmatic, balanced Congress this November.

 

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