Gold – A reverse bubble in search of a pin

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Editor’s note: Some might feel out of the loop with respect to today’s DMR, i.e., the COMEX short positions in gold silver and what they might mean for these markets going forward. . . .This post, particularly relevant to today’s market action, will bring you up to speed:

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The victim could quickly find itself the beneficiary

“The current COMEX short position in gold is a computer-driven market bubble blown to enormous proportions. Now at a record level, it is a different kind of bubble, though, from the type we usually associate with the term – a reverse bubble brought to life and nurtured through excessive selling rather than buying.  Nevertheless, it is just as deadly and opportunistic as the proverbial kind – a bubble in search of a pin.”

–– Full Article ––

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DMR–Gold, silver up sharply, three factors stand out

DAILY MARKET REPORT

Gold surged $18 in early trading again breaking through the $1200 barrier and reaching $1206 as this report is posted.  Silver is up 40¢ at $14.90.  Looking around among the usual indicators that might explain the sharp increase in prices, nothing stands out. In the absence of anything else, we reduce the possibilities to three that override the others.

– The first is the announcement yesterday (reported below) that Saudi Arabia will not open the production floodgates to forestall oil’s rise to $100 per barrel – an inflation threat.

– The second is that the downside has simply reached the point of maximum exhaustion, particularly for silver which is leading the way higher for both metals.

– The third is related to the second and has to do with the beginnings of short-covering in both gold and silver as we move into the fourth quarter of the year.

There is no direct confirmation of the latter at this point other than the anecdotal message delivered in the price itself and the absence of other prominent drivers. Investors should keep in mind the huge outstanding short position in both metals that needs to be covered. It will encourage big traders to ‘leg-in’ over a period of time – a process, though, that could be compromised as traders compete with each other to be first through the exit.

We will update if anything of defining interest surfaces.

UPDATE 1

In the past we have featured charts showing waterfall drops in gold accompanied with high volumes on the COMEX. Those volumes were part and parcel of the enormous short position that has been built up on the exchange and reported weekly in the Commitment of Traders reports. Here – in this chart – we see the first signs of an equal and opposite reaction. . . . a rocket-launch ascent.

Quote of the Day
“The population of the world is increasing at the rate of five thousand four hundred every hour. A small percentage of these people will become gold hoarders, people who are frightened of currencies, who like to bury some sovereigns in the garden or under the bed. Another percentage needs gold fillings for their teeth. Others need gold-rimmed spectacles, jewelry, engagement rings. All these new people will be taking tons of gold off the market every year. New industries need gold wire, gold plating, amalgams of gold. Gold has extraordinary properties which are being put to new uses every day. It is brilliant, malleable, ductile, almost unalterable, and metals except platinum. There’s no end to its uses. But it has two defects. It isn’t hard enough. It wears out quickly, leaving itself on the linings of our pockets, and in the sweat of our skin. Every year, the world’s stock is invisibly reduced by friction. I said that gold has two defects…The other, and by far the major defect, is that it is the talisman of fear. Fear, Mr Bond, takes gold out of circulation and hoards it against the evil day. In a period of history when every tomorrow may be the evil day, it is fair enough to say that a fat proportion of the gold that is taken out of one corner of the Earth is at once buried again in another corner.” – Ian Fleming, Goldfinger

Chart of the Day

Chart note:  What keeps the chairman of the Federal Reserve up nights? As shown on today’s Chart of the Day, the last time interest rates converged like they have over the past six months, it was 2006-2007 just before the financial crisis.

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Gold likely to reclaim $1,300 an ounce by the end of 2018 – Commerzbank

Scrap Register/10-1-2018

“Commerzbank analysts do not feel gold’s weakness has been justified by the fundamental backdrop and look for the metal to reclaim $1,300 an ounce by year end. ‘We see no real fundamental reason why the gold price should be having a hard time, given the numerous risks to the economy and financial markets,’ they said in a research note.”

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Skyrocketing deficit? ‘So what’ says new Washington consensus

Bloomberg/Ben Holland and Jeanna Smialek/10-1-2018

“Trump is proving as indifferent to fiscal orthodoxy as to any other kind. The spending measure he signed on Friday, along with the one approved in March and December’s tax bill, amount to the biggest stimulus outside recessions since the 1960s. They sailed through a House led by the supposedly hawkish Paul Ryan, who’s due to step down in January without much progress on his goal of reining in so-called entitlements like social security – an illustration of how Republican deficit scolds are in retreat.”

USAGOLD note:  Let’s face it, the deficit scolds were a minority and largely ineffective in Washington from the get-go.  The takeaway from this article is that government spending has finally spun out of control.  The Washington consensus, according to this article, says ‘so what’ and the markets shrug.

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OPEC ‘powerless to prevent’ oil prices jumping toward $100 a barrel this year

CNBC/Sam Meredith/10-1-2018

“OPEC kingpin Saudi Arabia is ill-equipped to prevent a supply shock in the energy market, analysts told CNBC on Monday, as oil traders prepare for the possibility of $100 a barrel before year-end.”

USAGOLD note:  Rising oil and rising inflation go hand in hand.  We have already begun to see the green shoots (to steal a phrase) of inflation sprouting up in Europe, the United States and elsewhere around the globe.  Saudi Arabia throwing up its hands is an important development in terms of the global supply.

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This bull market run has echoes of the late 1920s, Nobel Prize-winning economist Shiller says

CNBC/Keris Lahiff/10-1-2018

“‘The 1920s is quite a legend that people are often thinking about,’ Shiller said Friday on CNBC’s ‘Trading Nation.’ ‘I look at 1929 particularly as the end of the roaring ’20s and it ended in a bout of speculation. Between May and September of ’29 the stock market went up over 30 percent in just a few months.'”

USAGOLD note:  These comparison’s between the 1929 crash and the 1930s crop up with regularity these days. . . .Dalio, Howe and now Shiller.

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DMR–Silver American Eagle sales soar in September

DAILY MARKET REPORT

Gold is tracking marginally lower as we begin the week and the final quarter of the year.  The yellow metal traded as low $1185 overnight, bounced back to $1192 at the COMEX open, and is trading now at $$1188.50 – down $3.50 on the day.  Silver is down 20¢ this morning at $14.44 shedding about half of Friday’s strong gain.

The U.S. Mint reports soaring sales of American silver eagle bullion coins.  According to its month-end report, it placed 2.897 million of the popular one-ounce coins through its wholesale network during the month of September – a gain of 89% over August’s 1.53 million ounces in sales and a more than 900% gain over the same month last year.  The performance bodes well for demand as we move into the perennially strong fourth quarter of the year.  Wholesalers report dealers stocking up for that demand and to get ahead of the Mint’s annual production shutdown later in the year.

“The Mint ran out of silver Eagle bullion coins Sept. 6. Sales resumed Sept. 17,” reports Numismatic News. “Supplies as they are produced are being rationed. The Mint expects this situation to continue through the end of 2018. The Mint calls rationing “allocation.” The biggest regular buyers get the biggest allocations among the official Authorized Purchasers.”

Quote of the Day
“Money, again, has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper. To trace the history of the most prominent of these delusions is the object of the present pages. Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” – Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds (1841)

Chart of the Day

Chart note: Last September was one of the worst in years for silver Eagle sales. The Mint sold only 320,000 coins. Last month was a different story entirely with the Mint selling almost 2.9 million silver eagles – an 89% gain over last month’ strong number and 900% gain over September last year. As reported previously here, low Mint sales in both metals over the past two years reflected broker/dealer inventories being sourced from the secondary markets following a string of record demand years prior to 2017. That secondary market supply suddenly dried-up in August though channeling demand back to the Mint, as reflected in the chart above.  The surge in sales indicates a reawakening of strong investor interest in silver at currently low price levels. Gold American Eagle bullion coins turned in a more modest performance with sales of 20,500 ounces in September. That total is down slightly from August of this year but an encouraging nearly double sales from September of last year.

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Druckenmiller says ‘we’re going to have a financial crisis bigger than the last one’

Bloomberg/Krista Gmelich/9-28-2018

“Billionaire investor Stan Druckenmiller says the next financial crisis will be worse than the last due to soaring levels of debt. ‘We have this massive debt problem,’ Druckenmiller said an interview with Kiril Sokoloff, chairman of 13D Global Strategy & Research. ‘We tripled down on what caused the crisis. And we tripled down on it globally.’”

USAGOLD note:  The article linked above summarizes his current views.  The YouTube below provides more detail and some interesting comments about the effects of algo-trading on his investment strategy.

Stanley Druckenmiller interview/Real Vision/Kiril Sokoloff

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Noland: Crisis dynamics gravitating from the ‘Periphery’ to the ‘Periphery of the Core’

CreditBubbleBulletin/Doug Noland/9-29-2018

“It’s worth noting Friday’s 26 bps surge in Italian 10-year yields. Italy’s yields were up as much as 35 bps intraday (to a four-year high 3.26%) before settling somewhat lower. Italian bank stocks sank 3.7% in Friday trading, this after Italy’s populist government appeared to agree on a 2019 budget deficit of 2.4% (above the anticipated 2.0% ceiling). Why such a forceful reaction (considering U.S. deficits will likely soon approach 5% of GDP)? I’m thinking back to when subprime issues began afflicting the ‘Alt A’ (less than prime) mortgage market.

Current market focus has turned to Italy – a heavily indebted sovereign borrower increasingly vulnerable to a tightening of global financial conditions; a prime beneficiary of loose finance on the upside, now at risk as a marginal borrower in a shifting liquidity backdrop. From my analytical perspective, Italy is a key player as we monitor for crisis dynamics gravitating from the ‘Periphery’ to the ‘Periphery of the Core.'”

USAGOLD note:  A double thumbs up for Doug Noland’s latest. . . . .

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Gold buying picks up in China on lower prices; India discounts narrow

Reuters, Mumbai-Bengaluru/9-30-2018

“’Cheaper gold prices led to increased buying in both Hong Kong and China. Shanghai premiums increased on Friday, reflecting higher demand,’ said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.”

USAGOLD note: Buying the dip. . . .

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Poland increases gold reserves

RadioPoland/Financial Times/9-29-2018

“If confirmed, it is the first such purchase by an EU member state this century, the paper said, citing a report of global advisory firm Macquarie Group. The National Bank of Poland (NBP) acquired gold in two batches: two tonnes in July and seven tonnes in August, according to IMF data cited by the paper.”

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Retailers warn of price hikes as China tariffs take hold

RetailDive/Daphne Howland/9-24-2018

“Retailers are being forced to squeeze their margins or raise their prices, or both, on a variety of goods just as the holiday season arrives. ‘The new tariffs are bad news for the retail sector, especially as the latest round seems to extend the tax to a vast array of consumer goods,’ GlobalData Retail Managing Director Neil Saunders said in comments emailed to Retail Dive. ‘Many retailers will now be faced with a difficult choice of whether to pass the cost increases across to consumers or to take a hit on their margins. The exact response will vary from retailer to retailer but, both strategies are likely to be used.'”

USAGOLD note:  At best, any withholding of price increases will be a temporary measure. . .out of necessity.

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DMR–Isolationism, de-dollarization and gold: A research note from JP Morgan market strategist, Marko Kolanovic

DAILY MARKET REPORT

Gold is up $2.50 at $1186 in today’s early going. Silver is up sharply (25¢) at $14.51.

Here is an interesting snippet from Bloomberg opinion columnist Robert Burgess published yesterday:

“[JP Morgan’s Marko] Kolanovic, who has dominated Institutional Investor’s annual rankings of top strategists for a decade or so, was out with a research note Thursday arguing that President Donald’s Trump’s isolationist foreign policy is a ‘catalyst for long-term de-dollarization.’  Put another way, the dollar is in jeopardy of no longer being the world’s primary reserve currency and all the benefits that go along with that, such as interest rates that are lower than they otherwise might be and the government’s ability to fund budget deficits in perpetuity. ”

At the moment, no one wants to believe that the current market paradigm can come to an end, but, unless history is stood on its head, end it will. JP Morgan’s Marko Kolanovic may have put his finger on what could turn out to be the catalyst – trade policy and its effect on the dollar.  Overshadowed in the political tumult of the past week was President Trump’s address to the United Nations. In it, he outlined what might come to be known as the Trump Doctrine.

Here in part is what he said:

“Each of us here today is the emissary of a distinct culture, a rich history, and a people bound together by ties of memory, tradition, and the values that make our homelands like nowhere else on Earth. That is why America will always choose independence and cooperation over global governance, control, and domination. I honor the right of every nation in this room to pursue its own customs, beliefs, and traditions. The United States will not tell you how to live or work or worship. We only ask that you honor our sovereignty in return.”

And. . .

America’s policy of principled realism means we will not be held hostage to old dogmas, discredited ideologies, and so-called experts who have been proven wrong over the years, time and time again. This is true not only in matters of peace, but in matters of prosperity. We believe that trade must be fair and reciprocal. The United States will not be taken advantage of any longer.

And, last. . .

America is governed by Americans. We reject the ideology of globalism, and we embrace the doctrine of patriotism. Around the world, responsible nations must defend against threats to sovereignty not just from global governance, but also from other, new forms of coercion and domination.

Whether you like Trump or not, whether you agree or disagree with his trade and tariff policies, the UN speech outlines something other than business as usual and it should be taken into account. That something has yet to be reflected in asset prices. Many will discount the UN speech as more presidential bombast and go about their business. Yet, these are policies that are already in place – realities not proposals.

In a separate article, Bloomberg’s Cecile Gutscher passes along one of the conclusions from Kolanovic’s study: “Gold, which tends to benefit from a weaker greenback, also offers a hedge for any tentative push to de-dollarize. And it’s looking decidedly cheap right now . . . U.S. unilateral policies risk bringing major powers of China, Europe and Russia closer, and such an alliance could profoundly impact the dollar-centric financial system.”

Quote of the Day
“We are hurtling towards a financial crisis in the next couple of years as sure as night follows day, and even with 4 per cent growth it doesn’t get you out of this. We had this massive tax cut and we now have trillion-dollar deficits as far as the eye can see. I have been a huge supporter for tariffs but I find it ironic that on the day that we actually sign the [Article 301 investigation into China’s practices] we pass a bill that is going to create these deficits and China is the financier of last resort for those deficits.” – Steve Bannon, former White House advisor

Chart of the Day

Chart courtesy of HowMuch.net

Chart note: “You can see the same top-heavy trend when looking at which continents have the highest reserves,” says HowMuch. “Asia clearly leads the way on the right side of the map, second to the green countries from Europe (thanks only to Switzerland). Every other continent is comparably tiny. Take a look at North and South America compared to Asia. It’s not even close. And where is the entire continent of Africa in our visualization? Since we excluded countries with less than $5B in reserves, only four orange countries made it onto the map.”

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Look at how well gold has retained its value from 1,000 years ago

Sovereign Man/Simon Black/9-27-2018

“Day-to-day, month-to-month, and year-to-year, the price of gold can fluctuate inexplicably. But over the long term, whether you’re comparing loaves of bread, home prices, or government tax revenue, it REALLY holds its value. This is one of the things that makes gold such an excellent hedge against political uncertainty, macroeconomic challenges, financial crises, inflation, etc. Said another way, gold is great insurance policy for all the ‘I don’t knows.’”

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As debt rises, the government will soon spend more on interest than on the military

CNBC/New York Times/Nelson Schwartz/9-26-2018

“The federal government could soon pay more in interest on its debt than it spends on the military, Medicaid or children’s programs. The run-up in borrowing costs is a one-two punch brought on by the need to finance a fast-growing budget deficit, worsened by tax cuts and steadily rising interest rates that will make the debt more expensive.”

USAGOLD note:  With everything else that’s going on economically at present, the national debt and interest paid on it has been shuffled to the back burner.   I can remember a time when spend-thrift politicians rationalized the growing debt by saying it was nothing to worry about because we owed it to ourselves.  That is no longer the case.  We owe a great deal of it to investors all over the world. . . .and we are paying interest on it:

 

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Trade gap in August widens to six-month high as exports fall

MarketWatch/Steve Goldstein/9-27-2018

“The U.S. trade deficit in goods in August widened to a seasonally adjusted $75.8 billion, according to a preliminary report released by the Census Bureau that excludes services. Exports fell 1.6% while imports rose 0.7% in what looks to be the worst showing since February. Retail inventories rose 0.8% and wholesale inventories increased 0.7%.”

 

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Better Business Bureau Five Star Review

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Recent Better Business Bureau Client Review

“Before investing in gold I really didn’t have a clue about what or how much to invest in. I came across the USAGOLD website and found an excellent resource for both first time and seasoned buyers. My representative has always provided me with useful and trustworthy analysis related to the markets and trends that has further informed my purchase decisions. Transactions are timely and handled with a high degree of professionalism and integrity. I cannot recommend this company highly enough.” – Y.O., 5-14-2018

Scorecard: 38 45 48 five star reviews. Zero complaints.
A+ rating. Accredited since 1991.

[Link]

USAGOLD Recommendation: The precious metals industry is unique in the financial industry in that it is not subject to oversight or regulation by third-party government entities like the SEC or CFTC. As such, marketplace forums and feedback sites often serve as a replacement for investors attempting due diligence. While several options can be found, by far the most impartial and least susceptible to vested influence is the Better Business Bureau. When looking at a company’s BBB profile, don’t focus solely on the rating. To be honest, pretty much everybody has an ‘A’ or ‘A+’ rating. What is far more important to assess is the number and nature of complaints, number and caliber of positive and negative reviews, longevity with the BBB, as well as the number of ‘stars’ given a company through the actual customer review system.

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DMR–Gold breaks sharply to downside on peculiar heavy COMEX short selling

Gold broke sharply to the downside at the open of futures trading this morning on heavy short-selling. Nearly 15,000 contracts were dumped within the first hour of trading, the equivalent of 1,500,000 troy ounces, or nearly 45 metric tonnes. Looking around for a motivation for such aggressive selling, the culprits are few and far between. The Fed announcement from yesterday was devoid of anything remotely jarring. The GDP number for July was confirmed at 4.2%, but this is a revision that confirms a number already well-known and understood. China’s yuan is down but marginally. The rest of the markets – bonds, stocks and the commodities – are trading quietly. So, gold market trading this morning, for lack of better adjective, looks “peculiar” and distinctly algo-driven – a description with which we will stick until something better comes along.

Quote of the Day
“We have to sell a lot of Treasury bonds, and we as Americans will not be able to buy all those treasury bonds. The Federal Reserve will have to print more money to make up for the deficit, will have to monetize more, and that’ll cause a depreciation in the value of the dollar. . .Two years out is when I’m worried about. It’ll be more of a dollar crisis than a debt crisis, and I think it’ll be more of a political and social crisis.”” – Ray Dalio, Bridgewater Associates, September, 2018

Chart of the Day

Chart note:  “Central banks,” reports the World Gold Council, “added a net total of 193.3 tonnes of gold to their reserves in the first six months of 2018, an 8% increase from the 178.6 bought in the same period last year. This marks the strongest first half for central bank gold since 2015.” Since the beginning of 2017, the biggest buyers were Russia – 383.3 tonnes; Turkey –125.8 tonnes and Kazakhstan – 68.4 tonnes. A surprise on the list, and reported here earlier this month, is India – 15.3 tonnes. The Peoples Bank of China, who many analysts believe to be the largest buyer, does not report publicly on its purchases. Some sources report though that its purchases could be as high as 500 tonnes per year.

Please see full report: Central bank buying activity/World Gold Council/9-20-2018

Also, please see this in-depth analysis – PBoC Gold Purchases: Secretive Accumulation on the International Market/Bullion Star

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10 lustrous facts about gold

Mental Floss/Elizabeth Miller/9-26-2018

“Gold’s symbol on the periodic table, Au, comes from its Latin name aurum, which means ‘glowing dawn.’ This metal’s tantalizing yellow color and shining exterior has made gold a prized element in jewelry and treasured objects for thousands of years—but, amazingly, all of the gold that has ever been refined could melt down into a single cube measuring 70 feet per side. Read on for more opulent facts.”

USAGOLD note: A refresher course on humanity’s long-term attachment to the yellow metal dating back to the Thracian civilization 4000 years ago.  We take special note of  fact #10. On a sunny autumn day, the golden Colorado capitol dome does truly shine lustrously against the bluest sky you will ever see . . . . . .


Image by Billmcmillan [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], from Wikimedia Commons [Edited]

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Speaking of Denver. . .

Report on Day Two of the Denver Gold Forum

InvestingNews.com/Charlotte McLeod/9-26-2018

“It’s been suggested that the move shows the two major miners [Barrick and Randgold] are confident in the gold price — as Goldcorp CEO David Garfalo commented in a Tuesday (September 25) presentation at the show, ‘you’re not doing that if you think gold is going to go down to $900 an ounce.’”

USAGOLD note:  Big things often happen at the Denver Gold Group’s annual conclave.  Garfalo is referring to the merger between the two major gold mining companies announced last week.  This report highlights some of the comments from analysts and mining company CEO’s.

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China demands U.S. ‘dispel obstacles’ to military ties and stop slander

Reuters/Christian Shepherd/9-26-2018

“China demanded the United States ‘dispel obstacles’ to improving military ties and stop slandering it, amid growing tensions over trade, Taiwan, the South China Sea and U.S. President Donald Trump’s claims of China meddling in the upcoming U.S. election.”

USAGOLD note:  We noted the building military tensions in the South China Sea yesterday.  As the rhetoric escalates, the Ray Dalio warning posted here last Saturday (A Path to War?) takes on special meaning.  The map below shows areas of contention/competing, over-lapping borders.


Image by Voice of America [Public domain], via Wikimedia Commons

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Fed’s light touch on interest rates may require a firmer hand

Financial Times/Sam Fleming/9-26-2018

“Mr Trump need not have felt aggrieved. Financial conditions going into the latest meeting were actually looser than they were when the Fed first started lifting interest rates in 2015, according to a Chicago Fed index, underscoring that the current rate-lifting cycle is the most benign in decades.”

USAGOLD note:  Some interesting notes on yesterday’s events from Financial Times.  The risk, some Wall Streeters say, is that the Fed is not doing enough to cool the economy down.  The market reaction to the announcement and press conference as of this morning has been by and large neutral.

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Trump slams Fed hours after Powell lifts interest rates

Bloomberg/Christopher Condon and Steve Matthews/9-26-2018

“‘We are doing great as a country,’ Trump said Wednesday at a press conference in New York. ‘Unfortunately they just raised interest rates a little bit because we are doing so well. I am not happy about that.’”

USAGOLD note:  The president went on to say that he is a “low-interest-rate person.”  No doubt he still sees the Fed as undermining White House tariff policies.

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Bulls, bears and sloths

A sloth’s guide to market survival

Financial Times/Tim Hartford/2-10-2018

“Perhaps we slow investors should adopt a mascot. I suggest the sloth. Hanging upside-down, moving at a few metres a minute, is much like trading infrequently: it saves the costs of doing things more quickly. Sloths take almost two months fully to digest each meal — which is handy, given that they eat mildly toxic leaves that would poison them if absorbed too quickly. Investors are reminded, all too often, that the financial world is lush with toxic get-rich quick products. A slower approach to finance makes market movements a great deal more digestible.”

USAGOLD note:  I have to admit that a sloth-like approach to portfolio design fits my worldview.  I have never been much of a trader and I do find that if I buy an investment for the long-term and essentially forget about it, I do much better than the opposite. That’s why I am content with physical gold ownership.  My attitude is to buy it, stick it in the safety deposit box and forget about it. The investors I know who take a similar attitude seem to be the happiest, and ultimately, the most successful gold owners.  I guess if you believe in it – believe in what it can do for you – you do not need to check on it constantly, fret about it and seek constant validation that you did the right thing by diversifying your holdings.  When it comes to investment there are bulls and bears and then, as Tim Hartford points, there are the sloths.  Count me among the sloths. . . . .


REPOST from 2/12/2018

 

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Gold in the Attic

Every once in a while we rummage around USAGOLD’s creaky old attic and dust-off a golden vignette from our storied past. Most first appeared in our monthly client letter. Here is a short entry first published in 2012 the result of our many years experience working with first-time gold investors.  It’s called. . . . . .

Gold in five easy lessons

1. Don’t buy it because you need to make money; buy it because you need to protect the money you already have.

2. Don’t look at price as a barrier; look at it as an incentive.

3. Don’t buy its paper pretenders; buy the real thing in the form of coins and bullion.

4. Don’t fall prey to glitzy TV ads; do your due diligence instead.

5. Don’t allow naysayers to divert your interest; allow yourself the right to protect your interests as you see fit.


We invite you to sign-up for FREE immediate access to our monthly client letter + e-mail notification on all future publication dates.


 

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DMR–Gold hit by double-whammy of options expiration and Fed interest rate announcement

DAILY MARKET REPORT

The double-whammy of options expiration and today’s anticipated higher interest rate announcement pushed gold in a southerly direction this morning. It is off $6 at $1195.50. Silver is down 9¢ on the day at $14.42. The dollar is up against most currencies and commodities look mixed.

Pushed to the back burner, but perhaps undeservedly so, the geopolitical/military confrontation in the Pacific between the U.S. and China has escalated over the past week. Just before China called off the latest round of trade talks last weekend, the U.S. sanctioned its military over jet purchases from Russia. Yesterday, the U.S. announced the ramped-up sale of military equipment to Taiwan – a maneuver that prompted a stiff Chinese response. Yesterday China blocked a U.S. warship port of call visit to Hong Kong. The leakage of trade war animosity into the military theater has been overlooked in financial markets, but perhaps we should all be paying closer attention.

Quote of the Day
“If we don’t quite know what the future holds, there is little point in getting carried away by very fancy mathematical calculations of optimal portfolios. Don’t rely on past data to be a good guide. Try to think through what mix of assets gives you the best chance of surviving some big event. That must mean including assets that are negatively correlated or uncorrelated in your portfolio. And I am very struck by the fact that over many many years, central banks, governments and individuals have always, despite the protestations of economists, held some gold in their portfolio. Obviously, there is no high running return, but when unexpected things happen, particularly when governments rise and fall, then gold is a means of payment that everyone is always prepared to accept. And I think that’s why even central banks have always had a role in their portfolios for gold.” – Mervyn King, former Governor, the Bank of England

Chart of the Day

Chart note 1:  Yesterday we published a chart on the debasement of the Roman denarius that stretched over nearly three centuries.  During the period, the silver coin went from 98% to 5% silver.  Similarly, the United States dollar has lost 96% of its purchasing power from 2013 to present – a 105 year period. The timeline for the dollar’s debasement has been compressed to roughly one-third that of the denarius.  The one feature both share in common, however, is a relentless progression.

Chart note 2: In 1933, the dollar was backed by gold and silver.  In 1933, the federal government seized gold bullion from its citizenry, replaced the gold and silver coinage with gold-backed paper money and suspended  domestic convertibility.   In 1971, the United States suspended international convertibility and instituted a pure fiat money system.  The 1933 dollar was worth 78% the 1913 dollar.  The 1971 dollar was worth 25% the 1913 dollar.  The 2018 dollar is worth 3.8% the 1913 dollar.  What the consumer could buy with $1 in 1913, it takes $26 today.

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Fed expected to raise interest rates and signal more hikes are coming

CNBC/Patti Domm/9-25-2018

“The Fed releases its statement and revised economic and interest rate forecasts at 2 p.m. ET Wednesday, and Fed Chairman Jerome Powell holds a briefing at 2:30 p.m. Ahead of the meeting, the 2-year Treasury note yield Tuesday rose to 2.84 percent, its highest level since 2008. The 2-year most reflects Fed policy but the 10-year was also moving higher, touching just below its year high of 3.12 percent Tuesday.”

USAGOLD note:  The rate increase and an anticipated hawkish tone are baked into the cake.  The markets will be looking to see if future expectations have been either upgraded or downgraded. . . .all, of course, subject to interpretation.

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Posted in Today's top gold news and opinion |

Gold is a different animal

FXStreet/Carol Harmer/9-26-2018

“Gold isn’t really an instrument that you should trade intra day…you can, but its just not worth the risk…It is better to see an opportunity to position take and run with it…because this is how Gold reacts….its hangs about then makes its move…The pattern I have seen in August believes me to think Gold is ready for a break to the topside…Min 1214/17…but it really wouldn’t surprise me if Gold was at 1253 in a couple of weeks”

USAGOLD note:  A view of the short term. . .Gold almost always surprises the bulk of short-term traders both to the upside and downside. It can move either loudly on a convergence of issues or quietly on what seems nothing at all.  Even more surprising, it can confound traders by moving long after the experts predicted it would (or should) – as was the case following the early tremors in the 2008 financial earthquake.

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Europe finally has an excuse to challenge the dollar

Bloomberg/Opinion/Leonid Bershidsky/9-25-2018

“No currency’s international dominance has lasted forever, and there’s no reason for the U.S. dollar to be the exception to this rule. Trump’s confidence in his ability to weaponize the dollar against adversaries and stubborn allies alike could eventually backfire for the U.S. as efforts to push the dollar off its pedestal grow ever more serious.”

USAGOLD note: This Bloomberg piece picks up on an earlier post on Europe’s budding effort to dethrone the dollar as the sole reserve currency. Using Iran sanctions as a pretense, the EU is developing what it calls a “special purpose vehicle” through which European corporations can process business with Iran, bypass American sanctions and avoid the long-arm of U.S. law enforcement.  Once established, the “vehicle” could serve as a base for additional payment processing outside of business with Iran.  A consortium of countries including Germany, France, Britain, China and Russia is pushing the plan.

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Trade war may boost China while hurting U.S. growth, ECB says

Bloomberg/Piotr Skolimowksi Xiaoquing Pi/9-26-2018

“A global tariff tit-for-tat could boost China’s $12 trillion economy and hurt the U.S. expansion, according to European Central Bank research published Wednesday. The conclusions challenge President Donald Trump’s assertions that trade wars are ‘good, and easy to win.’ They also counter the argument that China has more to lose from a spat with its main trading partner because of its greater dependence on exports.”

USAGOLD note:  A much different set of conclusions from the ones generally accepted as gospel in the financial markets. We have seen hints of this outcome over the past few weeks including a Financial Times report referenced here last week of continued “robust” demand for base metals in China – a leading indicator.  Precious metals imports remain at high levels.  Too, China has not slowed down its drive to acquire commodity-producing assets around the world including gold mines.

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Posted in Today's top gold news and opinion |