Global gold demand is massive, breaking records. Take a look…
August 1 (King World News) – Peter Boockvar: I’m going to start today with gold as the World Gold Council came out with its Q2 data on Tuesday. Including over the counter transactions “to total gold demand yields a 4% y/o/y increase to 1,258 tons – the highest Q2 in our data series back to 2000.”
OTC buying totaled 329 tons and the biggest buyer in the quarter and assume that these are investment flows. The other big buyer, the central banks, bought 184 tons, up 6% y/o/y, “driven by the need for portfolio protection and diversification.” Interesting was this, “Gold used in technology jumped 11% y/o/y, as the AI trend continued to drive demand in the sector.” Gold is rarely used in industrial uses as opposed to silver that is. Supply did keep up with demand in Q2 as it rose 4% y/o/y due to record mine production for a 2nd quarter along with higher recycling. We remain bullish and long both gold and silver, and some miners too. https://www.gold.org/news-and-events/press-releases/second-quarter-gold-demand-hits-record-highs-supporting-rising#:~:text=London%2C%2030th%20July%2C%202024%20%2D,%2Don%2Dyear%20at%20329t.
A major factor in the set up for the pullback in stocks over the past few weeks was excessively bullish sentiment. The Citi Panic/Euphoria index as of last weekend remained well into Euphoria territory. Bulls fell to 59.4 from 64.2 last week but still remains well above Bears which came in at 15.6 vs 14.9 in the week before. As stated before, a spread above 40 is extreme.
The more fickle and volatile AAII today said Bulls rose 1.7 pts w/o/w to 44.9 after falling by 9.5 pts last week. Bears quickly disappeared, falling 6.5 pts to 25.2 after rising by 8.3 pts in the week before. A widespread remains here.
Bottom Line
Bottom line, just looking at still optimistic sentiment tells me that this correction is not over. We need to ring out this giddiness.
Rather than waiting for inflation to sustainably trend around 2%, the Bank of England is doing what the ECB and BoC are doing and catching that falling inflation knife by cutting rates by 25 bps to 5.00% and I’d say it was about 50/50 on whether they would move. The vote was very tight, 5-4 with the 4 wanting to stay put. In the statement, they said while they are currently at 2% in headline CPI, they expect it to rise to 2 3/4% in the back half of the year “as declines in energy prices last year fall out of the annual comparison, revealing more clearly the prevailing persistence of domestic inflationary pressure.” But they still cut rates nonetheless and even with services inflation running at 5.7% and wages by a similar amount.
Why did they cut in the face of this? As they expect inflation pressures to further recede (they have fingers crossed), “It is now appropriate to reduce slightly the degree of policy restrictiveness.” And they followed this up by saying “Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.”
Bottom line, this was clearly a ‘tweak’ cut and nothing more, as of now. The 2 yr gilt yield is down 6 bps after falling by 5 yesterday. The 10 yr is lower by 3 bps. Inflation breakevens are little changed and the pound is lower by .5% vs the USD. The FTSE 100 is flattish, not benefiting much from the cut.
King World News note: With gold continuing to consolidate near the $2,500 level and the HUI Gold Mining Index remaining way undervalued, continue to use pullbacks to add physical gold and silver as well as the high-quality mining and exploration stocks.
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