Gold/Silver Weekly Update 290826

 

This week's forecast vs actual was thrown out of whack by Kevin Warsh's speech at the Jackson Hole Central Bankers' summit on 280826. Gold and Silver reacted negatively to the inflation and rate hike scare.

So the forecast for the week ahead has taken last night's price move into account. 

But here are two new developments that may upend all forecasts and and fire up gold/silver from now till 20 September.

1. Probability of Carry Trade Unwind has increased

• BOJ hike odds have surged from ~23% to ~87% for the September 18 meeting over the past month, on hawkish BOJ commentary and hot Tokyo inflation data. Actual policy rates haven't moved, so the rate-differential component has been flat at 64.7 for three straight weeks — but if the BOJ actually hikes 25bp while the Fed holds, the differential compresses by roughly another 25bp in a single step, not gradually. The framework only scores realized rates, so this risk is currently invisible in the score.

• Japan's fiscal stress is building quietly. The Finance Ministry is reportedly considering raising its assumed debt-servicing interest rate to 3.8% for FY2027 (from 3%) and has requested a record ¥36.6 trillion for debt-servicing costs. Neither is a market-moving headline on its own, but both point toward the same underlying pressure that produced the July intervention.

2. Rate of  change of real yields (nominal yields - inflation)  is approaching  zero which will also be a tailwind for gold and silver. 

Lastly, there is this slip of the tongue? tweet by Donald Trump. Gold revaluation coming?

Conclusion

Just focus on the fact that the US $40 trillion national debt and the $1.2 trillion annual interest payment on the debt  are unsustainable. And the role of gold and silver in a reset of the global financial system where the USD's role is diminsihed is inevitable.