AGE Gold Commentary is our regular report analyzing trends in precious metals and rare coins. We monitor domestic and international markets and extrapolate from our 30 years in metals to place current events into a hard asset perspective. View archives.
11/15/2023: Gold pressing toward new high
In October, gold surged more than 8% to reclaim $2,000 an ounce after the Fed suggested it might be done raising interest rates. In addition, Hamas attacked Israel, triggering fears of widespread war in the Middle East and driving investors into safe havens.
The metal then retraced some of those gains in early November as the immediate threat of a wider conflict diminished and the Fed started singing a more hawkish tune again.
More recently, however, the outlook has changed again—and decidedly in gold’s favor. Wholesale and consumer inflation have fallen, unemployment has risen, retail sales have contracted, and manufacturing remains mired in a slump. In other words, the highest interest rates in 40 years are finally doing their job.
The Fed fund futures markets are projecting with nearly 100% certainty that rate hikes are over. Indeed, rate cuts are expected as early as March, and that’s extremely bullish for gold!
In this brief video edition of AGE's Gold Commentary, I analyze the recent data and detail why the end of this rate-hike cycle has the potential to rally gold to new all-time highs in coming months.
I’ll also discuss the state of the current market for modern bullion and talk about some outstanding values in pre-1933 US gold coins.
And finally, I’ll talk a little about the upcoming Investor Mentoring Club meeting for real estate investors, where I’m a faculty member for precious metals. Sponsored by Robert Helms and Russell Gray of The Real Estate Guys, this monthly educational meeting is a great way to learn about hard asset investing. The meeting is November 21 at 8pm ET. I’ll be a featured guest.
Best of all, you can watch it for free by following this link:
P.S. – A full transcript of this video appears below for your convenience.
Hi, I'm Dana Samuelson, President of American Gold Exchange in Austin, Texas. This is a video gold market update for November 15th, 2023. This is our company information. This is how you reach us. These are the topics that I'll be discussing in today's gold market update.
Inflation is easing.
The US economy remains resilient, but the outlook is dimming.
The interest rate cycle has peaked for both the Federal funds rate and treasury yields, in our opinion. However, our US debt is surging.
We'll go over the latest charts for the US dollar, yields, gold, and silver.
And we'll discuss the physical gold and silver market specifically relating to modern bullion and vintage U. S. gold coins. We'll give an update there.
So let's take a look at the inflation picture.
[00:01:10] Inflation is easing
Inflation is continuing to ease. The Consumer Price Index was unchanged in October, posting the smallest reading in 15 months. While the 12-month inflation rate fell to 3.2% after rising to 3.7% in September, the so-called core rate, minus food and energy, ticked up a modest two tenths of a percent month-on-month, while the 12-month core rate fell to 4%, the lowest level in two years.
So demand for goods and services is easing, which is reducing inflationary pressures, and we're seeing that in the numbers.
Looking at some of the components for inflation, specifically the larger ones in the Consumer Price Index, housing is by far the dominant sector, consisting of about 44. 5 % of the CPI. And since May, when housing was at 6.83% year-on-year increase, it's dropped to about 5.25%, and we expect that to continue to drop as time passes. We're seeing an easing of demand for housing and the ability of landlords to charge for it. Also, food and beverages have dropped, which is 14. 5%, from about 6.5% to 3.3%.
What we're having to pay for food and beverage is still increasing, but it's increasing at a lower rate. So we're in a bit of a disinflationary environment now and that's giving people reason to believe that maybe the Fed is doing their job, and they're helping inflation to ease.
We are seeing the economy slowing down, and it's possible that we're actually beginning to feel the bite of the highest fed interest rate hike cycle ever, where they've raised rates higher and faster than they ever have before. So food and beverage and housing are almost 60 percent of the CPI, and they're coming down, which is good.
The tandem to that, the red line on the graph, would be jobs.
[00:03:51] Nonfarm payrolls chart
You look at this chart, which is a bar chart of monthly job creation for the total nonfarms payrolls, which is the monthly governmental jobs report. You can see that the trend is clear on a month by month basis since January of 2021. The number of jobs created on a monthly basis has been decreasing.
The red line is at 250,000 jobs per month, and that's about break-even for the economy. You have to have more than 250,000 jobs for the economy to really be growing materially. Less than that means the economy is slowing down a bit, and we're seeing that especially over the last six or eight months.
What's even more notable is in nine out of the last nine months, when the Bureau of Labor and Statistics has released their monthly jobs numbers, they've revised lower the previous two months. So the headline figure that we get on a monthly basis has been revised lower subsequently in nine out of the last nine months, which is very unusual.
In addition, and more importantly, the unemployment rate has ticked up from a low of 3.4% to 3.9% as of the October jobs report, which was released in early November.
Now, why does this matter? A Fed economist named Claudia Sahm was looking for a real time indicator that would signal recession in the employment market. When the Fed looks at the number of jobs created, they're looking in the rear view mirror, what we've done in the past. So to have a real time recession indicator that's tied to employment is very important. And the Fed economist, Claudia Sahm, studied the employment figures going back to the '70s, and she discovered that if the unemployment rate rises by half a percentage point, 50 basis points, from the low, that would signal a recession in real time.
And we've just had that signal now, with the unemployment rate ticking up to 3.9% in October, as of early November. So this is a real time indicator of recession that is consistent with every recession we've had since 1970.
So the long-anticipated recession of 2023 may finally be upon us, according to Claudia Sahm and the Sahm Rule.
Now drilling down a little bit onto the specific components within the employment sector.
[00:07:06] ADP employment components
I find it pretty interesting to see that month on month and year on year, over the last year, manufacturing, which is one of the keys to a healthy economy, has lost 177, 000 jobs over the last year, while leisure and hospitality has created almost 1,400,000 jobs over the same amount of time, basis 2,140,000 jobs created.
So we've lost manufacturing jobs, and by far the largest gainer has been in leisure and hospitality. And that makes sense. With the quote unquote revenge travel that has occurred over the last year or so following the COVID economic closures, with people wanting to get out and about more.
Interestingly, we've seen the professional and business services sector lose 54,000 jobs over the last year and 10,000 jobs alone in October. This is material because these are mid level to upper level employees and businesses that don't necessarily show up immediately in the unemployment rolls because they're given severance packages, and until their severance packages expire, they can't necessarily claim unemployment benefits.
It's also a way for employers to lower their costs substantially without laying off real workers who do the real work that have been so hard to acquire over the last couple of years, as I'm sure you're all aware of.
So this to me suggests that fundamentally, with manufacturing weak, you know, mid level to upper level executives being laid off, and leisure and hospitality creating the largest chunk of jobs that we've had over the last year, the economy is vulnerable. Because if we do weaken, and I believe that we are, leisure and hospitality will shed some of these jobs that have been created, which are not necessarily strong jobs.
So that's the state of the economy now, in our opinion.
How does that translate into interest rates?
[00:09:37] Fed funds rate and Treasury yields
Well, it does look like interest rates are peaking, based on both the employment report for November and the inflation report, which was just released the other day.
We've seen Treasury yields for both the 2- and the 10-year fall from cyclical highs, which were set in September into early October. Part of the fall in these rates has been due to the Israeli war in the Gaza Strip.
Specifically with regard to the 10-year yield, there has been a flight to safety, people buying bonds, which would push the yield down. But we've also seen the 2-year yield fall, which is more sensitive to the prospects of the Federal funds rate coming down. So the markets are believing that the Fed will stop raising rates. Those have been the headlines for the last two days, and we believe that the Fed has reached a peak in their interest rate cycle ourselves.
Now, they may hold rates up, but if the economy weakens like it looks like it is, depending on how severe that is, and the Fed is forced to ease, we'll see these yields fall further.
On top of this is the debt trap that the U. S. has gotten itself into over the last several years. Our debt has surged from $26 trillion to over $33 trillion. But not only that, because of higher interest rates, our debt service has increased from about $500 billion a year to a full trillion dollars a year. That just goes to interest payments.
Now of the $33 trillion of debt that we currently have, about $17 trillion or half of that is in short-term notes, which are set to be reissued in the next 2 to 3 years, and these notes are going to be reissued to just to service the existing debt at probably double the rates that they were Issued at between 2015 and 2020. That will add pressure to our $1 trillion debt service now, and the prospects for us to have a new $10 trillion of debt in the next three years is high as well.
So it's very possible that in the next three years, $27 trillion of US debt will be issued at higher rates that we've seen in the last 10 years. The debt service on this alone could be $1.5 trillion or higher as time passes. This is the debt trap that we're currently in as our debt continues to increase $2 or $3 trillion a year, and the interest rate has risen to cyclical highs on that debt as well.
This is a recipe for a weaker dollar and higher gold prices. So let's look at the dollar chart.
[00:12:54] 1-year dollar chart
This is a one-year dollar chart going back to November of last year. You can see for most of the past year, the dollar has been in a 101-105.50 range. When it's been low, the gold price has been higher because gold trades inversely to the dollar.
And when the dollar has been high, gold has been lower in price, as you can see by the price tags in the peaks and valleys on the Dollar Index chart. What's interesting is when the dollar did get strong in September and into early October, gold did get pressured down to a low of $1,825, and we'll see that on the dollar chart in a minute. But when the Israeli Arab conflict, conflict blew up following October 7th's Hamas attack on Israel, gold caught a real bid and got as high as $2,005 an ounce despite the dollar peaking.
We have seen two legs down in the dollar since that gold peak at $2,005, labeled in the upper right of the chart. The first leg down is following the weak November jobs report of 150,000 new jobs, with revisions of the previous months down another 100, 000 jobs. The second leg lower is just the other day following the weaker inflation report.
So the dollar is weakening relative to the latest US economic data for jobs and inflation, and this bodes well for gold because gold tends to trade inversely to the dollar. And if the US economy weakens modestly or materially going into 2024 and further, that would be good for gold. And that's what we expect to happen.
So let's take a look at the gold chart.
[00:14:53] 1-year gold chart
This is a two year, excuse me, a one-year gold chart. You can see gold climbed from cyclical lows last August of 2022 when the dollar was extremely strong back, into range between $1,915 to $1,995, and then it eased lower.
But gold has caught two serious bids when there was substantial economic or geopolitical news to worry about.
The first were the bank failures in the spring. You can see how gold surged dramatically higher from cyclical lows of $1,820 to over $2,000 an ounce, to $2,055 on the heels of the bank failures. And then gold was pressured again by a stronger dollar, but then Israel was attacked by Hamas and gold caught another serious bid.
So gold has climbed a wall of worry for two different reasons in 2023. And we're seeing this last perkup in the gold price, off to the right of the chart, based on the weaker inflation report. Gold jumped $25 day before yesterday on the weaker inflation report.
So, economically gold looks very well poised to move over its previous all-time high of $2,077, which was set in 2020 during the height of the Covid virus, and will probably move into the $2,100 to $2,300 range next year, in my opinion, based on a weakening US economy, weakening US dollar. And if the Fed is forced to ease and lower the Federal funds rate substantially, gold could be to the high side of that range.
If the Fed is forced to go to real stimulation like QE, you know, my estimate of $2,300 could be very low. We could see $2.500 gold or higher.
So the fundamentals, I think, for gold at this point in time are very strong, and we detail why gold will do well in an interest rate environment where rates are falling. We detail that in our July update of 2023 that you can look back on if you'd like to.
Let's take a look at silver.
[00:17:25] 1-year silver chart
Silver has basically been following gold. It climbed a wall of worry when the bank failures occurred ,from about $20.50 an ounce all the way to $26.5. It's been mostly range bound since, between $22 and $25. It fell below that down to about $21, and then Israel was attacked by Hamas and it caught a bid again.
So silver is lagging, which is typical. It oscillates at a wider volatility range in price percentagewise than gold does. Gold catches the fear bid first. But when silver plays catch up, it tends to do so with a vengeance.
If we're right about gold moving over $2,000 next year into the $2,100 to $2,300 range, silver could easily go over $30 an ounce towards $35 an ounce, in our opinion. Time will tell.
Let's consider the physical bullion sector and pre 1933 vintage gold coin sector, which we are market-makers and dealers in.
[00:18:34] Bullion & pre-1933 US gold
We've seen available supplies of modern bullion products restock over the last several months as demand has abated a bit. So we have on the shelf supplies that are plentiful, and this means premiums for physical gold and silver made by the various mints and refineries around the world are extremely competitive again.
With the gold price today at about $1,960 to $1,965 an ounce, Gold Eagles are pricing at about $2,075 an ounce today, where Canadian Maple Leafs, Austrian Philharmonics, and British Britannias, and Swiss PAMP Fortuna bars are all pricing a little bit lower, in the $2,040 to $2,055 range. Premiums on those are a little bit lower.
So we're seeing a very competitively priced and a plentifully supplied market despite the fact that we're going to go through the year change from 2023 to 2024 over the next month or two.
While premiums for modern bullion are very competitive, premiums on vintage US gold coins have eased back towards slick cyclical lows. In particular, the $20 Saint-Gaudens, minted from 1907 to 1933, in Mint State 64 condition, which has a known survival rate of about 775,000 total known survivors. The premium for that coin has fallen from about 40%, which it hit twice in 2023, down to about 20% today.
So the premium over gold content for this MS64 Saint is about half of what it's been twice already this year, and the hard price has gone from a peak of $2,715 to $2,290. These coins are pretty good buy today.
On top of that, we have a small cache of 1923-dated Saints available, of which the known survival rate is a scant 27, 000, which is a fraction of the known 775, 000 coins graded, and a fraction of the two common dates, which are 1924 with a population of 230, 000 coins, and 1927 with a population of 115, 000 coins.
So we have, while supplies last, a small cache of 1923 dated Saints in MS 64 condition with a low survival rate of 27, 000 coins approximately at no premium to common dates, which are much more plentiful. That's a very good deal for you if you're interested.
On top of that, the other coin that we really love is the $20 Liberty in MS63 condition. Its premium has been 44% and 45% over gold twice this year. Currently, it's about 22%. Hard price at the peak this year has been $2,780. It's $2,240 today, $50 less than the MS64 Saint, because we have a special in place on our website right now. The known survivors for the $0 Liberty MS63 are only about 365, 00 coins, less than half of the known survivors for the MS64 Saints, so that's another great value in the current market.
In housekeeping. I am a faculty member for precious metals for The Real Estate Guys, Robert Helms and Russell Gray. Russell Gray hosts a monthly Investor Mentoring Club meeting for real estate investors. This is an educational meeting. So if you're interested in learning about real estate, how to invest in real estate, this is a great way for you to learn.
The Investor Mentoring Club is complimentary for attendees. There is a modest monthly fee if you want to join the meeting monthly, but you can watch it for free using the link below and I will be the featured guest for this month's meeting, which is Tuesday, November 21st at 8pm Eastern time.
In addition, Brian Lundin, who is the host of the just completed New Orleans Investment Conference, will be featured as well, and we'll be discussing some of the latest economic information we got from the New Orleans Investment Conference, which will help you get a leg up on where analysts think the economy really is today. So please, if you have the time, watch. It's complimentary for first time viewers.
So again, this is how you contact our company. We appreciate your support and your business. Our clients are our most valuable asset. Without you, we don't have a business. We try and always be extremely competitive. We have transparent pricing. We try to give you expert advice. So thank you for your patronage.
We hope you all have a wonderful Thanksgiving. And thank you for watching today's gold market update.