This morning’s U.S. PPI data showed inflation cooling across the board. The headline number showed a 1.0% Y/Y increase in producer prices after a M/M .1% DECLINE in December. Core PPI registered a 1.8% Y/Y increase, and prices remained exactly flat in December.

Fed Funds Futures took the PPI data and ran with it, raising the probability of a March Fed rate cut to more than 80%:

Last night, we also had US/UK bombing of Houthi Rebel targets inside of Yemen. The Houthis are claiming they will respond forcefully, but so far there hasn't been much of a response. My sense is that the airstrikes likely significantly degraded the Houthi military capabilities and they will be waiting to be rearmed by Iran. The real risk is of a direct escalation between the US/Israel and Iran. So far, Iran has preferred to use its proxies (Hamas, Houthis, etc.) across the Middle East.

Meanwhile, gold futures are soaring 2% on this combo of increasing geopolitical tension and cool inflation prints:

From December 28th to yesterday's low, gold fell $80/oz. Based on this morning's surge, there is the very real possibility that yesterday's low will mark yet another higher low in the gold chart.

I can't think of a much more favorable macroeconomic & geopolitical backdrop in which to own gold than the one that exists today. Not only do we have multiple simmering powder kegs around the globe, but we also have developed economies posting massive government budget deficits while their respective economies barely show any growth (US slowing, Europe teetering on brink of recession).

We live in an increasingly belligerent world with more conflicts than ever before.

Meanwhile, the East (China, Russia, Turkey, etc.) continues to accumulate gold with a voracious appetite. In October 2023, The People’s Bank of China was the largest central bank gold buyer, followed by the Central Bank of Turkey and National Bank of Poland. Total global central bank gold buying in 2023 looks to be more than 1,000 metric tons, very close to the record high set in 2022:

Oh, and I almost forgot to mention that we are in the first inning of a major global easing cycle. This morning, billionaire investor Bill Ackman said that he expects the Federal Reserve to cut interest rates early and often in 2024. On CNBC’s Squawk Box, Ackman stated “Right now, with inflation cooling very meaningfully, the real cost of money is very high rate now. So I think they’re going to have to move early….we certainly could do more than three cuts.”

Putting it all together, a very bullish confluence of factors is lining up for gold to perform well in 2024.

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