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Gold report that enables you to quickly respond to the latest fundamental changes on the gold market. Posted bi-weekly, the Fundamental Gold Reports by Arkadiusz Sieroń, PhD will make sure that you stay up-to-date with the latest fundamental buzz. For all gold investors, who want to know the “why” behind gold’s price swings, our gold reports are a must-have.

  • 10 Million Americans Applied for Unemployment Benefits. Will Gold Save the Day?

    April 7, 2020, 4:09 AM

    In just two weeks of March, around 10 million Americans applied for unemployment benefits. That's more than during the Great Recession. What does it imply for the US economy and the gold market?

    US Labor Market Sinks

    In the previous edition of the Fundamental Gold Report, we focused more on the grim US epidemiological situation. Now, let's analyze the no less gloomy economic crisis! I bet that you have already seen the latest weekly initial claims for unemployment benefits. If not, let's take a look at the chart below.

    Chart 1: US Initial Jobless Claims from March 23, 2019 to March 28, 2020

    It shows the number of Americans who applied for unemployment benefits over the last year. The spike at the very right is terrifying, isn't it? As a reminder, in the previous week, the initial jobless claims rocketed from 282,000 to 3.3 million! Back then, we wrote:

    And do you know what is really frightening? The sudden surge in claims is likely just the beginning...

    And, indeed, the number has surged even further last week - to 6.6 million! So, we moved from extremely bad to even worse! It means that around 10 million of Americans have already applied for the unemployment benefits due to the coronavirus crisis.

    Not surprisingly, the unemployment rate has increased in March. We wrote last time, "brace yourself for the surge in the unemployment rate in March and April!". And this is exactly what happened. The unemployment rate has risen from 3.5 in February to 4.4 percent in March, as the chart below shows.

    Chart 2: US unemployment rate from March 2015 to March 2020.

    Surely, it did not surge, but investors should remember that the Bureau of Labor Statistics' Employment Situation Report is based on the total number of payroll records for employees who were active on a company's payroll through the 12th of the month, just before the pandemic and shutdown started to damage the economy. It means that the reported number does not fully reflect the most recent impact of the COVID-19 pandemic on the US labor market.

    The situation is actually much worse than the official data suggests. See the nonfarm payrolls. According to the report, the US lost only 701,000 jobs in March, although the spike in claims for unemployment benefits shows that around 10 million jobs were actually lost! It suggests that the unemployment rate in reality surged to around 10 percent or more.

    Implications for the US Economy

    The implication is clear. The coronavirus crisis will be worse than the Great Recession and possibly also than the Great Depression. In just the past two weeks, initial claims have exceeded the peak number of people who collected benefits during the global financial crisis of 2007-2009!

    The surge in the unemployment means lower consumer spending, which will negatively affect the GDP growth. Higher unemployment also means lower tax revenue for the government, while higher expenditures on the benefits and social protection. So, brace yourself for the deep recession in Q2 and a surge in the fiscal deficit - both factors should be positive for the gold prices.

    OK, we already know that a huge recession is on the horizon. But then the economy will quickly recover, right? Well, not necessarily. We mean, of course, the economy will one day rebound, there is no doubt about it. But you can forget about a quick V-shaped recovery. Why? This is simple: the current crisis is not a one-time negative supply shock like an earthquake or an increase in oil prices. The virus will stay with us until either natural immunity amply develops, or the vaccine arrives, or it the epidemics burns itself out. It means that even if the economic shutdown is relaxed, the social distancing will not disappear. The fear will remain for some time, as well as many restrictions. For example, scientists at Imperial College London are warning containment measures may have to stay in place for several months! People will neither travel, nor attend crowded events for a while.

    Another issue is that it is easy to become unemployed, but much harder to get work. Some people will lose their skills, other will drop from the labor force for good. In other words, with so many people out of job, don't count on a fast recovery. Similarly, the company's closure or bankruptcy is not easily reversible. There is always a hysteresis: shocks have not only short-term effects, but also permanent repercussions. And do not forget about the expansion of easy monetary and fiscal policies - they can cushion the initial hit, but they will not prevent the deep crisis (we will elaborate on this in the future) and they will hamper the recovery. Last but not least, the longer the economic shutdown lasts, the higher the risk of the massive bankruptcies and financial crisis - which would be a final nail in the coffin of the US economy (we will elaborate on this as well in the future).

    Implications for Gold

    From the fundamental point of view, the current crisis is positive for the gold prices. Actually, when you look across the different asset class, you will see that the gold's performance was relatively the best (compared to the equities or oil). It would be even better if it was not for the strong dollar and the panic sales of gold in the hunt for liquidity. However, this downward pressure should end one day, while investors would acknowledge unpleasant consequences of the economic recession, ultra-easy monetary policy and soaring federal debt. We know that this crisis is unique, but we would be very surprised if gold would not eventually benefit from it, just as did in the aftermath of the Lehman Brothers' collapse.

    If you enjoyed today's free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you're not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It's free and if you don't like it, you can easily unsubscribe. Sign up today!

    Arkadiusz Sieron, PhDSunshine Profits - Effective Investments Through Diligence and Care

  • US COVID-19 Death Toll Higher Than China's Now. Will Gold Rally?

    April 2, 2020, 6:17 AM

    This week, the US scored a sad record. The number of deaths related to the coronavirus in the US surpassed the death toll in China. What does it imply for the US economy and the gold market?

    US Epidemiological Situation Is Grim

    Just as people were overly optimistic before the stock market top, they can be too pessimistic right now. This is a real risk and we take it into account. However, the incoming data confirm our view expressed in the April edition of the Gold Market Overview that "the US will be severely hit" and that "the worst is yet ahead for the States". Unfortunately, it turned out that we were right. On Monday, COVID-19 was the third leading cause of death in the United States. So much for the claims that influenza is worse than coronavirus. The U.S. coronavirus-related deaths reached more than 4,000 deaths, which is behind only Italy and Spain! The US death toll has actually surpassed the number of deaths in China (much more populous country), as you can see in the chart below.

    Chart 1: Total confirmed deaths due to COVID-19 in China (blue line) and the US (red line) by April 1, 2020.

    However, the sad truth is that the epidemiological curve in the United States is very steep, steeper than in Italy, as you can see in the chart below. It is so steep that the number of cases and deaths will be still increasing, and they will rise quite rapidly, actually. Well, we warned our Readers that this is how the exponential growth works. According to the chart below, the number of cases will double each 2-3 days.

    Chart 2: Total confirmed cases of COVID-19 and other countries since the 100th confirmed case.

    To make matter worse, it's actually too late to avoid disaster, according to Dr. Michael T. Osterholm, the infectious-disease expert. This is because the United States lacks a unified national strategy, as counting on widespread testing in the United States is doomed to fail, partially because there will be soon a major shortage of chemical reagents for coronavirus testing. Moreover, there will be shortages of personal protective equipment and medical equipment such as respirators.

    However, the scariest thing about the epidemic in the United States is that we are observing an increased number of severe illnesses and deaths in people between the ages of 25 and 50. The reason is, just as we warned in one of our previous Fundamental Gold Reports, that many Americans are obese or have cardiovascular disease. We wrote:

    But the problem is there are many people with health issues. A great percentage of Americans are obese - which worsens their situation. All this means that it's probable that pandemic will not be a short-term issue we quickly deal with, but it will stay with us for months

    Indeed, the epidemiological prospects for the US are grim. Even the White House expects now up to 240,000 deaths. But even this high a number might be a big underestimate of the total death toll, especially if the health system becomes overburdened. If you multiply the half of the US population with 1 percent mortality rate ,you will get more than 1.6 million - and when the healthcare system collapses, the mortality rate increases to about 5 percent... Do the math on your own!

    Implications for Gold

    What does it all mean for the US economy and the gold market? Well, we are afraid that all people who oppose the social distancing measures and downplay the threat of the coronavirus still do not grasp the gravity of the situation. So, let's reiterate: this time is different. We struggle with real epidemic - luckily not as bad as Spanish flu, but still fatal. The social distancing measures will not end soon. Don't count on this. For example, Saudi Arabia hinted that it is likely to suspend the annual pilgrimage to Mecca set for late July. Yup, we will not go out from quarantine for a while... Just take a look at China - President Xi Jinping said yesterday that it was too early to suspend all restrictions. Yes, smart scientists will develop the vaccine one day, but it will not be ready until 2021. One thing is to develop vaccine, but another is to make it working and safe.

    So, don't count on quick V-shaped recovery. Rather, brace yourself for economic winter. The latest jobless claims were huge - but the numbers are likely to accelerate to the downside still. Markets are only starting to figure out what is really happening and that the monetary and fiscal stimuli will not prevent the crisis. So, it's probable that the stock market has not yet discounted all the economic damage. And, the longer the shutdown lasts (and in the US the epidemic was not contained early on, so it will last longer), the higher the risk of a negative feedback loop on the financial markets and the financial crisis.

    So, it all means that the US stock market may fall further, dragging gold along. But when the sell-off is done, gold should rally in response to the recession, quantitative easing, spike in fiscal deficit, negative real interest rates, and all the economic madness we are likely to see in the upcoming days.

    If you enjoyed today's free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you're not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It's free and if you don't like it, you can easily unsubscribe. Sign up today!

    Arkadiusz Sieron, PhD
    Sunshine Profits - Effective Investments Through Diligence and Care

  • Huge Unemployment Is Coming. Will It Push Gold Prices Up?

    March 31, 2020, 7:35 AM

    On Thursday, the initial jobless claims rocketed to almost 3.3 million. Quite an unimaginable number. What does it imply for the US economy and the gold market?

    One of the Most Scariest Things You Will See This Week

    Would you like to see something scary? I guess not, but I'll show you anyway! But don't worry: it will not be an microscope image of the coronavirus! Instead, I will present you a chart, a really scary chart... Ready to take a look?

    Chart 1: US Initial Jobless Claims from January 7, 1967 to March 21, 20120

    The chart above shows the number of US initial jobless claims. As you can see, the number of Americans who applied for unemployment benefits last week shot up to the moon! The initial jobless claims rocketed from 282,000 on March 15 to 3.28 million a week later! Yup, you read it correctly, to almost 3.3 million in just seven days! It means a rise of more than 3 million, or more than a tenfold increase, the highest in the history of this indicator!

    Because the spike is so steep that the long-term chart may be not easily readable, we insert below the initial jobless claims over the last year. Still scary, huh?

    Chart 2: US Initial Jobless Claims from March 23, 2019 to March 21, 20120

    And do you know what is really frightening? The sudden surge in claims is likely just the beginning... You see, the data reported by the U.S. Department of Labor are released on Thursday, but they describe the situation from preceding Saturday. It means that when you read these words, the number of application for unemployment benefits has increased further along with the fresh waves of layoffs due to the social distancing and closure of nonessential businesses.

    So, brace yourself for the surge in the unemployment rate in March and April! When we add all these new claims to the currently unemployed people (and assuming unchanged participation rate), the unemployment rate increases from 3.5 to 5.5 percent. But as we added just jobless claims from one week, you can expect the unemployment rate to rise quickly towards 10 percent, a Great Recession level, or even towards 20 percent, a level more associated with the Great Depression.

    Indeed, the current shock to the global economy will likely be faster and more severe that the 2008 financial crisis or even the Great Depression. In those two previous episodes, stock markets also collapsed, credit markets froze up, massive bankruptcies followed, unemployment rates soared, while GDP contracted - but at a slower pace! All these took around a few years, not a few weeks, to play out!

    Just take a look once again at Chart 1! As you can see, the number of initial jobless claims increased steadily from 344,000 in December 2007 to the peak of 665,000 in March 2009. So, it less than doubled over more than a year, while now it increased tenfold in one week! The pace and depth of the current shock is really unprecedented!

    But it makes sense: even during the worst times of the economic crisis of 2008, the unemployment rate did not surpass 10 percent. It means that most of the labor force had jobs and worked more less as usual. The financial institutions were badly hit, which affected also households and the real economy, but the latter was not frozen. Now, the bulk of economic activity literally shut down. It did not happen even during the greatest recessions or during world wars when the production did not stop, but shifted towards military needs...

    Implications for Gold

    What does it all for the gold market? Well, given the scale of the current crisis and the monetary and fiscal stimulus to cushion the US economy, gold prices should go up. If not now, then when?

    Even the Goldman Sachs believes that it is time to buy bullion. The Goldman team led by Jeffrey Currie wrote:

    We have long argued that gold is the currency of last resort, acting as a hedge against currency debasement when policy makers act to accommodate shocks such as the one being experienced now.

    Indeed, the price of gold has increased last week, as the chart below shows. However, gold's performance is hardly an impressive bullish reaction to the COVID-19 crisis. But, as we explained before, this was caused by the massive sell-offs of panicked stock market investors who desperately needed cash. The current crisis has so far been deflationary - the oil prices plunged - and positive for the US dollar, which also created downward pressure on the gold prices.

    Chart 3: Gold prices from January 2, to March 26, 2020.

    But this can change soon. To be clear, gold prices may fall further on the way, as people during liquidity crises sell everything they can to obtain cash needed to run their companies or households. But fundamentals (negative real interest rates, risk aversion, rising public debt, unconventional easy monetary policy, etc.) should triumph eventually other factors and push gold prices up.

    If you enjoyed today's free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you're not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It's free and if you don't like it, you can easily unsubscribe. Sign up today!

    Arkadiusz Sieron, PhD
    Sunshine Profits - Effective Investments Through Diligence and Care

  • Will the Fed Going Nuclear Help the Economy and Gold?

    March 26, 2020, 6:20 AM

    On Monday, the Fed introduced QE-infinity. What does it imply for the US economy and the gold market?

    Fed Drops Bazooka... and Goes Nuclear Instead!

    On Monday, the Fed pulled out an even larger bazooka than it did previously. Or, forget about the bazooka. The US central bank has gone nuclear! Indeed, the US central bank announced extensive new measures to support the economy. On March 15, the FOMC had announced it would purchase at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities. On Monday, the Fed expanded its asset purchasing program by including purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases. In addition, the FOMC introduced unlimited quantitative easing. Yes, unlimited! The QE-infinity is back!

    What is really frightening is that it took just eight days for the Federal Reserve to go from QE of $700 billion to unlimited buying of assets to fight the coronacrisis. The QE3 which followed the Great Recession, was announced in September 2012 - that is four years after the collapse of the Lehman Brothers. Now, the Fed went totally berserk just within one week from the QE1! It means two things. First, the previous measures turned out to be ineffective. Told ya so! You cannot stop the health crisis with monetary policy. Second, the pace and scale of the current crisis is shockingly fast. From March 15 to March 20, the Fed had already spent $340 billion in Treasury and mortgage-backed securities, half of the planned program! It shows how fragile the current monetary system based on the fractional reserve banking and fiat currencies is. It also means the current economic shock is probably the most disruptive crisis since not only the Great Recession but the Great Depression and the Second World War.

    Indeed, people all over the world, including the US, simply withdrew from work and economic activity to protect themselves and others against the coronavirus. In wartime, the economic machine still functions - but it simply produces more guns than butter. In Great Depression, banks went bankrupt while the unemployment rate rose to 25 percent, but the rest of the people worked almost as usual. In Great Recession, the financial sector collapsed, while the unemployment rate rose to 10 percent, but the rest of society functioned more or less normally. But now, the economy is frozen. Many people do not work, do not go outside, do not buy stuff. As if someone had pulled out the plug - and the world's engine stopped working.

    And, we are afraid that the worst is yet ahead of the United States. More state lockdowns have been announced, while the numbers of infected Americans have been rising exponentially. Actually, as one can see in the chart below, the epidemiological curve in the US is very steep, even steeper than in Italy. It means that the real health system crisis and the biggest death toll is yet to come.

    Chart 1: Trajectory of total confirmed cases since the 100th case in the United States and other countries

    Implications for Gold

    What does it all mean for the gold market? Well, from the fundamental point of view, the QE-infinity is positive for the gold prices. It's true that each subsequent round of the quantitative easing in the aftermath of the Great Recession was less and less positive for the gold prices. And the Q3 turned out negative for the yellow metal. But this situation is really different. The QE-infinity was introduced just several days after the first round of asset purchases. And the level of fear is still high. Investors can question whether the Fed is able to help at all. And whether it still has any ammunition. But what else could he possibly do. For us, the Fed is rather impotent here, but it will still come up with new programs, nevertheless. Prepare for the NIRP, the cap on the interest rates, or the helicopter money or whichever combination thereof!

    Actually, as one can see in the chart below, the price of gold has already risen in the aftermath of the Fed's mammoth response. The yellow metal rose more than $100 overnight! What is important here, is that S&P 500 Index's slide deepened on Monday, which may suggest that gold may be decoupling from the stock market.

    Chart 2: Gold prices from March 19 to March 24, 2020

    However, if the stock market plunges further, the sell-off in the gold market may continue. But when the dust settles, gold should fundamentally react to the Fed's ultra easy monetary policy and easy fiscal policy - and go up.

    If you enjoyed today's free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you're not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It's free and if you don't like it, you can easily unsubscribe. Sign up today!

    Arkadiusz Sieron, PhDSunshine Profits - Effective Investments Through Diligence and Care

  • Will Trump's Free Cash Help the Economy and Gold Market?

    March 20, 2020, 11:08 AM

    Economic data shows that the coronavirus crisis will be severe. To soften the blow, Trump announced his support plans for the economy. Will the stimulus package help? And when will gold finally rise?

    COVID-19 Hits the US Economy

    The global epidemic of COVID-19 has already hit the US economy. We start to see evidence how bad this crisis might be. First, retail sales dropped 0.5 percent in February. That's the biggest drop in a year. But it will change quickly - just think about the number in March or April!

    Second, the US consumer sentiment fell from 101 in February to 95.9 in March. Again, expect much worse readings in the future, as the number covers only the beginning of the month when Americans just started to acknowledge the coronavirus threat.

    Third, the Philadelphia Fed manufacturing index fell from 36.7 in February to -12.7 in March, the lowest reading since June 2012. So, forget about recovery in the manufacturing recession.

    Fourth, initial jobless claims surged from 211,00 last week to 281,000 yesterday. It means that more Americans applied for unemployment benefits. So, prepare for the rise in the unemployment rate!

    Fifth, as you can see on the chart below, the New York Fed's Empire State business conditions index fell record 34.4 points to -21.5, the lowest level since the global financial crisis. As the COVID-19 epidemic in the US was still in its early stages during the survey, the worst seems yet to come.

    Chart 1: New York Empire State Manufacturing Index from March 2015 to March 2020

    Trump To The Rescue

    On Tuesday, U.S. President announced a plan to send money to Americans as soon as possible to ease the negative economic shock from the coronavirus crisis. Trump said some people should get $1,000 as help with their living expenses because they cannot work under quarantine and social distancing. On Wednesday, he wrote on Twitter:

    For the people that are now out of work because of the important and necessary containment policies, for instance the shutting down of hotels, bars and restaurants, money will soon be coming to you.

    I also want one grand, can you send it to me as well, Mr. President?

    The administration is also talking about a new stimulus package of around $850 billion to cover payroll tax cut, small business loans, and bailouts for airlines struggling from plummeting demand. However, Democrats, who control the House, prefer refundable tax credits for self-employed workers and ensuring that sick workers can get longer-term leave if needed rather than a cut in a payroll tax. It would be actually the third coronavirus aid plan to be considered by Congress just this month. Trump signed the first $8.3 billion package to battle the coronavirus two weeks ago, and he signed on Wednesday the second $100 billion package that would expand paid leave and unemployment benefits. Anyway, one thing is certain: the US government stimulus will be large!

    As you can see in the chart below, the fiscal deficit for 2019 is $984 billion, or 4.6 percent of GDP. Before the COVID-19 pandemic, the budget deficit for 2020 was projected to be $1 trillion. It means that the stimulus will balloon the fiscal deficit to $1.9 trillion, or to staggering 8.8 percent of GDP, the level not seen since the Great Recession.

    Chart 2: Federal deficit as a percent of GDP from 1970 to 2019

    But that's not all. To make matters worse, the tax revenue will plummet, while the GDP is likely to shrink this year. Nobody knows how much, but let's follow Goldman Sachs and assume that the annual GDP growth will decline 0.4 percent in 2020. So, the deficit will be even higher, definitely more than 9 percent of GDP! As a result, the federal debt will increase from $23 trillion, or 106 percent of GDP, in 2019 to almost $25 trillion in 2020, or 116 percent of GDP. Oops, we have a debt problem here!

    Implications for Gold

    What does it all mean for the gold market? Well, we are in a recession. The economy will be hit severely, especially in the first half of the year. The White House and Congress announced the stimulus package. But it did not help and calm the stock market - which is not surprising given the level of fear. What it will do, is to balloon the public debt and raise the likelihood of introducing the universal basic income in the future. All this means higher government expenditure, higher deficits and higher indebtedness. Soaring debt, combined with increasing money supply, very low real interest rates and global recession, is another fundamentally positive factor for the gold market. When the blood dries on the trading floor, investors will cease to sell gold in order to raise cash - and then we get the fundamental reason for the rally in gold to start. The similar dynamic occurred after the collapse of the Lehman Brothers - gold fell initially before rebounding sharply amid the loose monetary policy.

    If you enjoyed today's free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you're not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It's free and if you don't like it, you can easily unsubscribe. Sign up today!

    Arkadiusz Sieron, PhDSunshine Profits - Effective Investments Through Diligence and Care

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