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GoldFix: Transitory Inflation or Persistent Pain?

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Aug 11, 2021
Good Morning. The DX is firmer and Bonds are slightly softer. US Stocks are sideways but slightly offered. Gold is up $6 and Silver is essentially unchanged. Platinum is very strong. Copper is softer again. Oil is down 75 cents in the last hour post Biden speaking. Grains are mixed, but violently. Crypto is broadly higher.
Gold: remains very vulnerable to strong inflation in the short term. Short term players will likely sell at strong signs of non-transitory, persistent higher prices. Market psychology had to be damaged by fund behavior in light of the slam down in recent days. We believe but need to do more work on this, that the catalyst for the $100+ selloff the last few days lies with something the IMF was doing in creating an African SDR revolving credit facility. This was approved on August 2nd. When we know more, we will share it.
Here’s What Happened: Because of the lack of data yesterday and today’s CPI number; Markets were coiled most of the day. Traders and investors awaited a clue to the next 6 months. Oil was the exception. It rallied nicely and closed above the previous day’s high. This we suspect is why President Biden came out jawboning the energy markets today. They are worried about the narrative getting away from them and want Oil even lower.
“Shot, Chaser” Picture evidence. Click for the other pic
The biggest question in monetary policy will come a little closer to being answered this morning. While economists expect headline inflation to come in at 5.3% for July, only slightly lower than June’s 5.4% reading, they will be looking for any signs that price growth has already peaked. If inflation is actually looking transitory, then there will be less pressure on the Fed to quickly unwind stimulus. Some policymakers, like Dallas Fed President Robert Kaplan, are suggesting that inflation may remain elevated for longer than previously expected. - Bloomberg
On Deck:   The core and headline rates are expected to rise by around half of June’s 0.9% increase which would allow the year-over-year pace to moderate slightly. The market and the Fed have underestimated the rise of consumer prices this year. The dollar has tended to respond positively to upside surprises in inflation. This is because it signals a much more likely path to tapering of stimulus. Usually when analyzing the report, Economists focus on wage pressures, but yesterday’s Q2 report and unit labor cost showed little pressure. Thus they move down their list of concerns.  Next down the list, economists will focus on shelter related costs as the risk to the Feds “transitory” concept.  The Atlanta Fed’s Bostic suggested earlier this week that a five-year core PCE deflator may be the appropriate measure. Leave aside the fact that the Fed currently targets headline PCE deflator, not the core. The five-year average is near 1.79% (and 1.70% for the headline). 
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That’s it, Good Luck
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