Gold And Silver: Silver Outperforming Gold Over Past Month

Its Gold and Silver time!

Silver, the beautiful metal so beloved in the Southwest US and in Mexico, is starting to gain against its more expensive cousin gold over the past month.

Short positions on silver (and gold) are near their lowest levels in years.

And the price ration of gold to silver is declining.

It appears that silver is playing “catch-up” behind gold. Thanks to Jesse!

To paraphrase Jackie DeShannon, “Put A Little Silver in Your Portfolio.”

First Auction of 20-year Treasury Bonds Since 1986 Has High Yield Of 1.220% (Slightly Higher Than Savings Series I Bonds At 1.06%, But Lower Than a 1Y CD)

The US Treasury, desperate for revenue with the COVID-19 shutdown crushing the economy and tax receipts, has reintroduced something that hasn’t been seen since 1986: the 20-year US Treasury bond.

Today’s auction led to a 1.220% high yield rate, only slightly higher than Series I savings bonds.

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And around 1.35% for a bank certificate of deposit (CD).

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The Martin Luther King Series I savings bond at 1.06% composite rate (the composite rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the 30-year life of the bond, and the semiannual inflation rate).

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Taylor Rule Calls For Negative Rates Of -10%, Powell Says No

Fed Chair Jerome Powell is adamant that the US will not go where other Central Banks have gone before … to negative rates.

Even though the Mankiw specification of the Taylor Rule model says that The Fed Funds Target rate should be -10.01% based on the surge in unemployment (14.70%) and the lack of core inflation (1.70%). The Fed Funds Target rate remains at 0.25%.

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As unemployment surges (green line) with the lockdown, banks are expecting a tsunami of loan delinquencies and defaults. Hence, bank excess reserves have spiked as well (white line fever).

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Hopefully with states opening up again, this is simply temporary.

Instead of losing my blues, Powell is giving me the blues.

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U-6 Unemployment Rate Spikes To 22.8% As Average Hourly Earnings Spikes To 7.9% YoY

A sign of the times. As governments around the globe shut down economies to prevent the spread of the Covid-19 condition.

The US unemployment rate rose to 14.7% in April, up from 4.4% in March.

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Yes, 20.5 millions jobs were lost in April.

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The U-6 unemployment rate (or full-time plus partial unemployment rate) rose to an astronomic 22.8%!

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Average hourly earnings YoY rose to 7.9% YoY.

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But look at the US employment total in labor force. Covid-19 / gov’t shutdown has wiped out labor force gains since 1999 and The Clinton Administration.

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I wish I knew a place that was open in Virginia, but I don’t.

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Limbo Rock! Fed Funds Futures Imply Negative Futures US Interest Rates

Fed’s Jerome Powell is watching how low interest rates will go.

Despite Chairman Powell’s claims that the US will never go negative, The Fed Funds Futures rates are signaling YES.

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Negative interests rates are appearing in US Treasury Strips (both coupon and principal strips).

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The short-end of the Treasury curve is flirting with negative yields while the TIPs curve is profoundly negative beyond 3 years.

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How low will interest rates go?

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Fears Mount About Inflation Returning With a Vengeance (But No Signs Of Inflation Yet)

Given the reaction of The Federal Reserve to the Covid-19 virus, it is understandable for investors to freak-out about possible Weimar Republic / Venezuela-like hyperinflation.

(Bloomberg) — Even a calamity of disease, death and economic destruction afflicting the world all at once isn’t enough to suppress the notion in some quarters that inflation could return with a vengeance.

The coronavirus crisis has killed hundreds of thousands, incapacitated millions and affected the livelihoods of billions — prompting policy makers to fear a deflation spiral reminiscent of the Great Depression. But economists including former Bank of England official Charles Goodhart, and investors such as BNP Paribas Asset Management, are asking if a different phenomenon lurks in the wreckage of global growth.

Muted Price Growth

IMF predictions for inflation rate at end of 2021

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Yes, inflation rates are muted in the short-run, but the surge in government spending and The Fed balance sheet is scaring some people about “inevitable” hyperinflation.

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And the surge in M2 Money Supply YoY is leading some to panic.

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But like the Titanic that sank after striking an iceberg in calm seas, there are calm seas on the inflation front. The EUR Inflation Swap Forward 5Y5Y is less than 1%.

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The USD Inflation Swap Forward 5Y5Y rate is 1.7944%.

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But USD Swaption volatility remains calm after a jolt upwards in March.

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And the US Treasury Inflation Indexed curve is negative beyond 3 years.

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So, the data is showing calm inflation seas, not gut-wrenching Venezuelan-like inflation.

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Alarm! US Personal Spending Tanks -7.5% MoM In March (Durable Spending Tanks 15.1% MoM)

Alarm! 

US personal spending tanked -7.5% MoM, exceeded only by durable goods spending that tanked -15.1% MoM in March.

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Personal income dropped by “only” -2% MoM.

An additional 3.8 million filed for jobless claims.

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Pending home sales tanked -14.5% YoY for March.

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Alarm!

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Oyster Stew! WTI Crude Spot Rises 21%, US Jobless Claims Up 4.43 Million (But Slowing), New Home Sales Decline -15.4% MoM In March

I feel like we are in the Three Stooges film “Oyster Stew.” Every time we look for good news, more bad news come out.

But here is some good news.

WTI Crude oil is up 21.26% this morning .. to $16.71 a barrel (still low).

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And while US jobless claims rose 4.43 million the past week, the US is several weeks past the peak. (Knock on wood).

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But back to crude. Saudi oil is still negative for heavy and medium crudes to the USA.

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Now for the oyster eating the cracker.

US new home sales fell -15.4% MoM in March.

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As I said, oyster stew.

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Roll Out The (Oil) Barrel! WTI Crashes Below $0 a Barrel With Traders Fleeing May Futures (Spot WTI At -37.63, May Futures At -24.92)

April virus brings May crashes. As in the spot price of WTI crude crashing to -37.63.

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(Bloomberg) — West Texas crude plunged into the negative for the first time ever. WTI has been under extreme pressure as demand has been destroyed by the coronavirus lockdowns and a oil price war between Saudi Arabia and Russia has flooded the market. In addition, a technical oddity kicked in today as traders fled the May futures contract ahead of its expiration tomorrow. The June contract is currently trading for over $22 a barrel in New York.

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May 20 Light Sweet WTI futures are DOWN to -24.92. But at least June and beyond futures prices are positive.

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Should we dance to the Oil Barrel Polka?

Here is the Grateful Dead’s version.

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A physical contract such as the NYMEX WTI has a delivery point at Cushing, OK, & date, in this occurrence May. So people who hold the contract at the end of the trading window have to take physical delivery of the oil they bought on the futures market. This is very rare.

It means that in the last few days of the futures trading cycle, (which is tomorrow for this one) speculative or paper futures positions start rolling over to the next contract. This is normally a pretty undramatic affair.

What is happening today is trades or speculators who had bought the contract are finding themselves unable to resell it, and have no storage booked to get delivered the crude in Cushing, OK, where the delivery is specified in the contract.

This means that all the storage in Cushing is booked, and there is no price they can pay to store it, or they are totally inexperienced in this game and are caught holding a contract they did not understand the full physical aspect of as the time clock expires.

 

Gold Contango? Gold Futures Price SOARS Above Spot Price

The COVID-19 virus sweeping the globe is having dramatic impact on asset and commodity prices. Particularly gold.

Contango, also sometimes called forwardation, is a situation where the futures price (or forward price) of a commodity is higher than the spot price of the contract today. Such is the case for gold futures where the futures price for gold exceeds the spot price.

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This will not be the Last Contango for Gold.

And good luck finding physical gold in the form of gold bars. Gold coins, on the other hand, are available.

RIP, Honor Blackman.

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