This Is Bullish For Gold

This is bullish for gold. Take a look…

This Is Bullish For Gold
March 20 (King World News) – Peter Schiff:  What’s interesting is despite gold and silver selling off sharply, the U.S. dollar is also falling against other foreign currencies. So if forex traders realize that cancelling rate cuts is not bullish for the dollar, why do precious metals traders think it’s bearish for gold?

It Blew Out
Peter Boockvar:  The brent crude/WTI spread has really blown out on the Ras Laffan LNG attack with Iran literally going scorched earth by bombing its neighbors with whoever is left of that government and TTF natural gas in Europe is higher by 16% to 63.17 euros/mwh.

With the fertilizer disruptions and jump in prices, mostly nitrogen, corn prices have broken out to the highest since last June at $4.68 a bushel for the May contract with the planting season now upon us. Wheat is 3 cents from the highest since June while soybeans continue to trade around $11.50-$12.

I want to emphasize, the farmer needs much higher crop prices from here to offset costs rising aggressively for diesel and fertilizer. That won’t be good for consumers of course but a trade off that will have to be balanced.

Central Banks Making Moves
With respect to the Fed and the post bond market response, odds of a rate cut by December is now down to just 40% vs 100% priced in on Tuesday.

The BoJ did nothing overnight as expected but they could hike in April. Here were some notable quotes from Governor Ueda:

“Even if the economy comes under downward pressure, if we judge that such downward pressure would be temporary and will not affect underlying inflation, it would be possible for us to raise interest rates.”

With what is going on with the spike in energy prices, “One standard idea would be to look through the impact if it is a temporary supply shock. But it’s not clear whether the shock would be temporary, making it hard to say in advance how much it could take to determine the impact on underlying inflation.”

“We need to be mindful that recent developments come at a time when companies are already actively pushing up prices and wages, which suggests they could pass on costs more aggressively than after the war in Ukraine.”

“The biggest point would be what happens to our baseline scenario when we review our quarterly forecasts in April, as well as the balance of risks. We will need to look at whether we can maintain our baseline scenario and even if so, judge the likelihood of this scenario materializing. We also need to look at upside and downside risks. If we see risks that we cannot leave unattended, I won’t rule out the chance of shifting policy from a risk management perspective.”

And we await the results of this, “It will likely become increasingly difficult to gauge underlying inflation partly due to the government’s steps to cushion the blow from inflation, and rising oil prices. As such, we will release more thorough information on core consumer inflation. We will also re-calculate Japan’s estimated natural rate of interest and release our findings once necessary preparations are completed.”

The 2 yr JGB yield rose 2 bps with the bigger moves in the long end of their curve, as it is for all sovereign bonds around the world today with another jump in brent crude and natural gas prices. The yen is rallying on the possibility of an April hike and Ueda said this, “We need to be mindful that currency fluctuations could have a stronger impact on underlying inflation ‌than in the past.”

Also helping the yen was this comment from the Japanese Finance Minister on the yen weakness, “We’re maintaining a very high sense of urgency. We are prepared to respond fully at any time, having the impact of currencies on people’s lives in mind.” It’s obvious now that 160 is their line in the sand and why the BoJ will likely hike rates in April.

Brazil
Brazil has REAL rates of about 11% so they have room to cut and they did last night by 25 bps as expected to 14.75%. With still very high REAL rates and being a major commodity producer, we own Brazilian bonds.

Swiss National Bank
The Swiss National Bank held rates at zero and said they will continue to try to drive the Swiss franc lower via intervention but luckily they are avoiding NIRP for now. SNB President Martin Schlegel said “A rapid and excessive appreciation of the Swiss franc poses a risk to price stability. To counter this risk, our willingness to intervene in the foreign exchange market has increased.”

Bank of Canada
This is what the Bank of Canada said of note yesterday as they kept their policy rate unchanged at 2.25%. “With recent data pointing to weaker economic activity and uncertainty elevated, risks to growth look tilted to the downside. At the same time, inflation risks have gone up due to higher energy prices.” Sounds like the same conundrum that all central banks now have. Governor Macklem in his presser said that the higher level of economic slack gives them time to access the CPI risk from higher energy prices.

And this was the most important point I believe he made, monetary policy “can’t fix the war” though also said “Governing council will look through the war’s immediate impact of inflation but if energy prices stay high, we will not led their effects broaden and become persistent.”

Riksbank
The Riksbank also held steady with its rate at 1.75% as did the Taiwanese central bank at 2%.

UK Gilt Yield Skyrocketed
One more thing. The 2 yr UK gilt yield is skyrocketing higher by 33 bps after the Bank of England said in their last paragraph in today’s policy statement, “The Committee will continue to monitor closely the situation in the Middle East and its impact on global energy supply and energy prices. It stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term.”

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