Jawboning by Federal Reserve officials this week has continued to hammer gold prices to attractive buy-in levels, now trading near $1,225 by late Wednesday.
But discerning Fed watchers should know by know that even if an interest-rate hike comes this year, it likely will be one and done. And as Lindsey Group strategist Peter Boockvar has pointed out, in order to be bearish on gold, you have to believe that the Fed is going to embark on 100 to 200 basis points of hikes over the next couple of years, which I think is completely unrealistic.
Data deal a blow to rebound hopes: The U.S. economic data continue to be mixed at best and should keep the Fed in check. Although new-home sales shattered expectations this week, the U.S. industrial sector remains teetering at recession levels. Mondays U.S. PMI industrial-output report from Markit produced levels unseen since the financial crisis, and the Richmond Feds manufacturing index also collapsed. Major layoffs also were announced by Microsoft, Intel, and Shell.
Meanwhile, on Wednesday, Markits report on the U.S. services sector one of the economys alleged bright spots tumbled back to three-year lows. A deterioration in the survey data for May deal a blow to hopes that the U.S. economy will rebound in the second quarter after the dismal start to the year, said its chief economist, Chris Williamson. Service sector growth has slowed in May to one of the weakest rates seen since 2009, and manufacturing is already in its steepest downturn since the recession.
Jobs, GDP at stake: And dont expect a jobs rebound for May, the numbers suggest.A deteriorating order book situation and waning business optimism have meanwhile led to a further pull-back in hiring as companies scaled down their expansion plans, he continued.The surveys are signalling a non-farm payroll rise of just 128,000 in May.
The report bodes ill for U.S. GDP. Having correctly forewarned of the near-stalling of the economy in the first quarter, the surveys are now pointing to just 0.7% annualised GDP growth in the second quarter, notwithstanding any sudden change in June, Williamson added.
And the outlook doesnt look positive to George Mason University economist Anthony Sanders, who doubts the May 17 Atlanta Fed GDPNow forecast of 2.5% second-quarter growth. The latter half of Q2 2016 may not be so rosy as the current rate of 2.5% indicates, he wrote.
Silver Eagles at record pace: Investors arent buying the Feds hawkish talk either. U.S. Mint bullion sales continue to rocket higher, with 22.8 million silver American Eagle coins sold as of Tuesday a rate almost 38% higher than the same time in 2015.
Gold coin sales also are hot. As of May 23, more than 406,000 ounces of gold American Eagle coins have been sold, versus 197,000 ounces during the first five months of 2015.
But look to our neighbors to the north for an even more amazing demand story. The Royal Canadian Mints first-quarter report for 2016 reveals that its flagship silver Maple Leaf coin broke its all-time sales record during the January-March period, topping the milestone set in the third quarter of last year. The mint reports that 10.6 million ounces were purchased in Q1, versus the 9.5 million sold in Q3 2015.
Mint notes supply crunch: Demand for the Mints gold and silver bullion products remains strong, it wrote. Sales of gold coins, mostly gold Maple Leaf coins, increased 18.7% to 212.6 thousand ounces from 179.1 thousand ounces in the first quarter of 2015. Sales of silver coins, mostly silver Maple Leaf coins, increased 19.3% to 10.6 million ounces from 8.9 million ounces from the same quarter in 2015.
The mint also reported that it cant get its hands on nearly enough silver. Sales of silver bullion have been driven for several quarters by demand that exceeds supply in North America and Europe, it noted. With silver now trading neat $16.29, even more bargain hunters could step in.
China seeks global pricing role: Meanwhile, look for precious-metal supplies to continue to drift east, toward Asia, as China signals its intention to play a greater role in commodity markets, particularly in pricing, and lure increasing numbers of foreign investors.
Were facing a chance of a lifetime to become a global pricing center for commodities, Fang Xinghai of the China Securities Regulatory Commission said at the Shanghai Futures Exchanges annual conference Wednesday.
The above sales figures show that demand for gold and silver is running high as investors doubt the recovery story the mainstream media continues to promote.