Monthly Archives: May 2018

Mindless robots have taken over the market, says Don Coxe

Financial Sense/Jim Puplava/5-23-2018

“As market pricing becomes increasingly automated, Coxe worries that this threatens to undermine the qualitative individual (human) decision-makers provide in valuing goods and services. ‘What we’re doing once again is preventing the ordinary responses to shocks from functioning,’ Coxe said. ‘Therefore, we’ll get new kinds of shocks.'”

USAGOLD note:  We agree with this sentiment, especially the use of the words “mindless robots” which in our opinion is pretty much telling it like it is. No one knows where we will end up once the holodeck shuts down, but gold – the one investment that remains fully grounded in reality – will likely help us dematerialize in the danger zone and rematerialize safely on the other side.  My worry is that we get one major all-encompassing shock because so many smaller shocks, and their healthy resolution, have been bumped down the road, or better put – ignored – as the machines increasingly behave with a mindlessness of their own.

Related:Biggest, most heavily traded markets vulnerable to flash crashes’ warns Goldman. Also, the last issue of News & Views – The case for gold in the era of financial virtual reality

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Part 4 – ‘American Default: The Untold Story of FDR, the Supreme Court and the Battle over Gold’

Bloomberg/Sebastian Edwards/5-25-2018

USAGOLD note: Roosevelt and Congress devalue the dollar as a means to igniting inflation and reinforce restrictions on American’s ability to own gold bullion.  The Supreme Court nullifies the gold clause.  The United States moves forward in the first stages of establishing a fiat monetary system that comes to full fruition 38 years later under Richard Nixon and makes the private ownership of gold an important option for American citizens.

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Latest special almost sold out. . . .

SOLD OUT!

United States $20 St. Gaudens
1908 ‘No Motto’ Hoard

Just a short note to say that the special launched yesterday is almost sold out – only 20 coins remain.  Buyers are back in the market.  Our last three specials sold out quickly – within a few days. If you have had your eye on this special, you might want to call and secure your order.

1-800-869-5115 Ext#100 or go to our Online Order Desk.

If you are not on our list to receive notification of specials by e-mail and would like to be, please let us know by sending an e-mail to orderdesk@usagold.com.

Many thanks to our participants. . . . .and a pleasant Memorial Day weekend to everyone.

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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. Here is a more detailed analysis posted here at our live daily newsletter in November, 2015.  This analysis of a hoard of Roman silver coins found in Switzerland 1700 years after they were stashed away tells the familiar tale of a scrupulous saver attempting to hedge the quiet theft of wealth through the process of inflation.  It is titled. . . . .

How 4,000 Roman coins found buried in a
Swiss orchard reinforce gold ownership today

“The coins’ excellent condition indicated that the owner systematically stashed them away shortly after they were made, the archaeologists said. For some reason that person had buried them shortly after 294 and never retrieved them. Some of the coins, made mainly of bronze but with a 5% silver content were buried in small leather pouches. The archaeologists said it was impossible to determine the original value of the money due to rampant inflation at the time, but said they would have been worth at least a year or two of wages.” – The Guardian/11-19-2015

by Michael J. Kosares

I was initially at a loss to explain why anyone would go to so much trouble to hoard so many coins with such a low silver content – about 5%. The only rational explanation is that the hoarder had decided that even worse debasement was on its way. And, a quick review of Roman history tells us that this indeed was the case.

In the next generation of the denarius, issued by Emperor Diocletian, bronze coins were simply dipped in silver and passed into circulation. By 294AD, the latest date in the hoard, Diocletian abandoned silver coinage entirely and began issuing bronze coins instead. Prior to that, prices had risen over a roughly twenty year period by 1000%. Value-conscious barbarian troops hired by the emperors demanded to be paid in gold aureus and for good reason as you will discover below. By the end of the third century, the currency was crumbling and along with it the empire.

For a fascinating short course on the connection between the fall of the Empire and inflation, I would recommend this lecture by professor Joseph Peden in 2009, titled “Inflation and the Fall of the Roman Empire” and published at the Mises Institute. Peden quotes a 5th century account of the Roman inflation by a Christian priest named Salvian. Says Peden,

“Salvian tells us, and I don’t think he’s exaggerating, that one of the reasons why the Roman state collapsed in the 5th century was that the Roman people, the mass of the population, had but one wish after being captured by the barbarians: to never again fall under the rule of the Roman bureaucracy. In other words, the Roman state was the enemy; the barbarians were the liberators. And this undoubtedly was due to the inflation of the 3rd century.”

It is instructive to note that for Rome, as has been the case in a myriad of episodes through history, inflation was not an event but a process. The ancient Roman version unfolded over a more than a 200 year period. “By the time of Trajan in 117 AD,” says Peden, “the denarius was only about 85 percent silver, down from Augustus’s 95 percent. By the age of Marcus Aurelius, in 180, it was down to about 75 percent silver. In Septimius’ time it had dropped to 60 percent, and Caracalla evened it off at 50/50.”

By the end of the third century, as demonstrated by the Swiss find, the denarius had gone to 5% silver, then, as mentioned above, a thin coating of silver, then no silver at all, only bronze. In short, a chart could have been constructed at the time showing an ounce of silver in a steady upward progression in terms of denarii from 117 AD through 300 AD. One wonders if the pundits at the time would have deemed it to have been in a bubble.

About 1200 years later, Thomas Gresham would draft “Gresham’s Law” stated simply as ‘bad money drives out good.’ Had Gresham the opportunity to visit the British Museum and study ancient Roman coinage, he would have found a ready example of his law in action. One expert told The Guardian newspaper that the original owners hoarded the Roman coins found in Switzerland because “the silver contained in them guaranteed a certain value retention in a time of economic uncertainty.”

In ‘The Story of Money for Understanding Economics” researcher Vincent Lannoye tells us that during the Roman inflation, “The less debased gold coins had been stashed under the mattress for decades, maybe centuries. These precious and valuable coins hardly circulated, as it can be deduced from their high concentrations in hoards discovered by archaeologists.” Peden puts a finer point on the role of gold during the Roman inflationary period:

“Now one interesting thing with all this inflation should be a great comfort to us: historians of prices in the Roman Empire have come to the conclusion that despite all of this inflation — or perhaps we should say, because of all of this inflation — the price of gold, in terms of its purchasing power, remained stable from the first through the fourth century. In other words, gold remained, in terms of its purchasing power, a stable value whereas all this other coinage just became increasingly worthless.”

In 1700 years, as you can see in the chart above, not much has changed. Since 1971, when the United States detached the dollar from gold and ushered in the era of fiat money, the dollar has lost 83% of its purchasing power. The 1971 dollar is now worth 17¢. Gold in the meanwhile has risen from $35/oz. then to roughly the $1100 level today (with a stop at $1900/oz in 2011.) Over the long run, gold in the modern era has maintained its purchasing power as it did in Roman times, while the dollar, like the denarius, has been steadily debased. So it is by the circuitous route just taken, you now know why 4000 Roman coins recently found buried in a Swiss orchard reinforce gold ownership today.

Final Note 1: We should not become desensitized to the prospects of future inflation as a result of the lull we have encountered in recent years. Even though price inflation is relatively subdued of late, monetary inflation continues unabated with consequences yet to be determined. In the inflationary process, it should be remembered that the line between cause and effect is not always a straight one. History teaches us that when inflation does arrive, it comes suddenly without notice and with a vengeance.

Final note 2: I should add that at any point along the way in the Roman inflationary period, the hoarder who had stashed away earlier silver coinage would have effectively hedged the event, as this article illustrates. In the modern era, though more volatile than gold, silver has functioned effectively as a safe-haven asset in the portfolio. A chart like the one above could be drawn with silver as the overlay instead of gold.

 

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Turkey’s currency, inflation problems driving up gold coin demand

Bloomberg/Cagan Koc, Rupert Rowling and Eddie van der Walt/5-24-2018

“‘Turkish people have an interesting behavior — they buy gold when the prices are rising, they think it’s gonna rise more,’ said Gokhan Karakan, 32, who runs a gold exchange office in the heart of Istanbul’s Grand Bazaar. ‘People think there is a trend here and choose to buy gold until uncertainty is out of the way.’”

USAGOLD  note:  The rising dollar is putting enormous downward pressure on emerging country currencies, including Turkey’s lira. At the same time, the internal problems created in these countries as a result of that process – the inflation and systemic bank risks – also inspire strong demand for gold coins and bullion. As this Bloomberg article notes, ancient Lydia located in present-day Turkey is where gold coins, like the one shown to the left, were first minted in the sixth century BC.  Croesus, the Lydian king who struck the first gold coin in electrum (an alloy of gold and silver), is the ruler who gave rise to the legend of King Midas and the golden touch.

Photo courtesy of the British Museum, London, UK

 
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DMR–Gold steady over $1300 per ounce, JP Morgan sees gold over $1700 next year

Gold is steady to marginally higher in today’s early going and holding ground it gained in yesterday’s strong showing. It is now trading over the $1300 mark at $1305. Silver is even on the day at $16.65. The markets are juggling a number of issues as we move into the Memorial Day weekend with trade, emerging markets and geopolitics topping the list. JP Morgan says it would not be surprised if gold surpassed $1700 per ounce next year. Luis Oganes, JPM’s head of currencies, commodity and emergency market research, says that the dollar’s recent strength is temporary and catch-up recoveries in Japan and Europe will boost their currencies against the dollar. A weak durable good orders report is adding to gold’s appeal this morning as it boosts the cautious Fed scenario.

Quote of the Day
“Two confrontational, nationalistic, and militaristic leaders playing chicken with each other, while the world is watching to see which one will be caught bluffing, or if there will be a hellacious war. We can also say that if … things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen, and treasuries) would benefit.” – Ray Dalio, Bridgewater Securities (August, 2017)

Chart of the Day

Chart note: No one has been able to offer a clear explanation for the close correlation between gold and the yen, although a number of theories have been advanced. Of those, there are three worth passing along. The first is that both are considered safe havens and therefore purchased under the same circumstances. The second is that it is the result of the yen/dollar carry trade. When the carry trade ramps up, the yen and gold suffer. When it unwinds, the yen and gold benefit. The third is that it is the result of algorithmic trading that kicks in under certain preordained circumstances. The debate will go on as to which of the three is the most prominent and we will leave it t0 our readers to decide which, if any, offers the clearest explanation for this odd couple of finance. (By the way, the correlation holds up on the longer-term overlay as well. We will post that chart at a future date.)

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DMR–Gold steady over $1300 per ounce, JP Morgan sees gold over $1700 next year

Gold is steady to marginally higher in today’s early going and holding ground it gained in yesterday’s strong showing.  It is now trading over the $1300 mark at $1305. Silver is even on the day at $16.65.  The markets are juggling a number of issues as we move into the Memorial Day weekend with trade, emerging markets and geopolitics topping the list. JP Morgan says it would not be surprised if gold surpassed  $1700 per ounce next year.  Luis Oganes, JPM’s head of currencies, commodity and emergency market research, says that the dollar’s recent strength is temporary and catch-up recoveries in Japan and Europe will boost their currencies against the dollar. A weak durable good orders report is adding to gold’s appeal this morning as it boosts the cautious Fed scenario.

Quote of the Day
“Two confrontational, nationalistic, and militaristic leaders playing chicken with each other, while the world is watching to see which one will be caught bluffing, or if there will be a hellacious war. We can also say that if … things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen, and treasuries) would benefit.” – Ray Dalio, Bridgewater Securities (August, 2017)

Chart of the Day

Chart note: No one has been able to offer a clear explanation for the close correlation between gold and the yen, although a number of theories have been advanced. Of those, there are three worth passing along. The first is that both are considered safe havens and therefore purchased under the same circumstances. The second is that it is the result of the yen/dollar carry trade. When the carry trade ramps up, the yen and gold suffer. When it unwinds, the yen and gold benefit.  The third is that  it is the result of algorithmic trading that kicks in under certain preordained circumstances. The debate will go on as to which of the three is the most prominent and we will leave it to our readers to decide which, if any, offers the clearest explanation for this odd couple of finance. (By the way, the correlation holds up on the longer-term overlay as well. We will post that chart at a future date.)

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China-U.S. trade war timeline offers perspective

tradevistas/Lauren Kyger/5-24-2018

USAGOLD note:  Nice visualization and summary for those who would like to gain a little perspective on what has gone down thus far . . . .

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The Gamble: If gold won’t go up, push the dollar down

Bloomberg/Sebastian Edwards/5-24-2018

USAGOLD note: Part three in this interesting four part series on Roosevelt’s gold gambit.  Secretary of the Treasury Dean Acheson opposes Roosevelt’s plan to his detriment.

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Trump calls off summit meeting with North Korea, extends gold upside

@realDonaldTrump: “Sadly, I was forced to cancel the Summit Meeting in Singapore with Kim Jung Un. “

USAGOLD note:  The cancellation of talks with North Korea added to gold’s upside this morning.

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DMR–Gold higher on cautious Fed, threat of auto tariffs

Gold continued to push higher this morning finding support in overseas markets that carried over to the New York open. The yellow metal is up $4 at $1299.  Silver is up 14¢ at $16.64. May’s Fed minutes has probably been the biggest contributor to the upside. As pointed out in last night’s LATE REPORT, the Fed is signaling a passive policy stance and remaining cautious on rate hikes with a less than clear economic future on the horizon. Gold is also benefiting from having dropped near then bounced off the support trend line – an encouraging technical indicator for traders and speculators. Renewed trade tensions with China – and now  Japan and Europe with the president now threatening automobile import tariffs – are also working in gold’s favor.

Quote of the Day
“The world clings to its old mental picture of the stock market because it’s comforting; because it’s so hard to draw a picture of what has replaced it; and because the few people able to draw it for you have no interest in doing so.” ― Michael Lewis, Flash Boys

Chart of the Day


Chart courtesy of tradingeconomics.com

Chart note: This chart illustrates how things can swing from placid to nearly out of control in a short period of time. As you see, for six years between 2008 and 2014, the Argentina peso held relatively steady against the U.S. dollar (right scale). Then the wheels came off. By 2016 the inflation rate hit over 40% (left scale). Since then it has retreated to the 25% level, but Argentina remains something of a bellwether for emerging countries around the world facing similar problems of debt and currency depreciation. Those who own gold in Argentina and other countries where inflation (and not to speak of systemic risks) has suddenly jumped into the public perception know the value of putting-in the proper hedge ahead of the first signs of crisis. Few believe that Argentina’s problems will vanish as quickly as they appeared.

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DMR–Gold higher on cautious Fed, threat of auto tariffs

Gold continued to push higher this morning finding support in overseas markets that carried over to the New York open. The yellow metal is up $4 at $1299.  Silver is up 14¢ at $16.64. May’s Fed minutes has probably been the biggest contributor to the upside. As pointed out in last night’s LATE REPORT, the Fed is signaling a passive policy stance and remaining cautious on rate hikes with a less than clear economic future on the horizon. Gold is also benefiting from having dropped near then bounced off the support trend line – an encouraging technical indicator for traders and speculators. Renewed trade tensions with China – and now  Japan and Europe with the president now threatening automobile import tariffs – are also working in gold’s favor.

Quote of the Day
“The world clings to its old mental picture of the stock market because it’s comforting; because it’s so hard to draw a picture of what has replaced it; and because the few people able to draw it for you have no interest in doing so.”  ― Michael Lewis, Flash Boys

Chart of the Day


Chart courtesy of tradingeconomics.com

Chart note:  This chart illustrates how things can swing from placid to nearly out of control in a short period of time.  As you see, for six years between 2008 and 2014, the Argentina peso held relatively steady against the U.S. dollar (right scale).  Then the wheels came off. By 2016 the inflation rate hit over 40% (left scale).  Since then it has retreated to the  25% level, but Argentina remains something of a bellwether for emerging countries around the world facing similar problems of  debt and currency depreciation.  Those who own gold in Argentina and other countries where inflation (and not to speak of systemic risks) has suddenly jumped into the public perception know the value of putting-in the proper hedge ahead of the first signs of crisis.  Few believe that Argentina’s problems will vanish as quickly as they appeared.

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Japanese investors once bitten, twice shy on U.S. Treasuries

Bloomberg/Chikako Mogi and Takako Taniguchi/5-24-2018

USAGOLD note:  Some insights as to why Japanese banks are staying away from U.S. Treasuries and even selling . . . .

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‘Biggest, most heavily traded markets vulnerable to flash crashes’ warns Goldman

MarketWatch/Barbara Kollmeyer/5-23-2018

“Not a bad time, then, to take a look at whether the market’s itchy finger is jerked by emotion or machines. That’s a point driven home by our call of the day from Goldman Sachs, which says computer-driven trades could amplify the next selloff.”

USAGOLD note:  We have addressed this issue in detail over the years and always come back to the notion that gold and silver remains the best hedge against the potential madness of machines and a derivative-driven financial breakdown.  The reasoning is straightforward: There is no counter-party risk in gold and silver ownership.  Prices might be temporarily driven lower in a paper asset meltdown, but after the smoke clears, it will be one of the only assets – and perhaps the most liquid and acceptable – that can be traded for assets ending up on the bargain table.  For those who would dismiss that perception as wishful thinking, I would only point to the aftermath of the 2008 meltdown as representative. Gold and silver at first fell in value in 2008, then went vertical starting in 2009 after the smoke had cleared substantiating its store of value reputation.

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Gold could go above $1600 on peak mine production

NewsMax/Peter Reagan/5-23-2018

“So we aren’t “out” of gold, and likely won’t be for quite some time. But the economically viable gold supply for mining companies might be at its ‘peak.’ The rest may be too expensive to mine (until gold prices skyrocket, that is).”

USAGOLD note:  More from Goldcorp’s Ian Tefler on ‘peak gold’. . . . .

 

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DMR Update–Minutes reveal a cautious Fed with a policy more passive in nature that could be good for gold

LATE REPORT

We continue to believe that a Powell-led Fed will stay cautious on raising rates. The economic outlook is far from clear, though the obvious intent is try to jump-start inflation. The problem with inflation – as most of the historical examples tell us – is that things can seem very quiet for awhile then get very noisy in a hurry.

With respect to gold, the latest revelations of Fed group think in and of themselves are not likely to send demand on a tear, but it could allow for a steady increase in interest, and perhaps, even price appreciation over time, though I hesitate to say such a thing [smile]. There are, at the same time, a number of other potential incentives for gold to attract investor/speculator interest on a short term basis outside the effects of Fed policy – like the geopolitical situation, for one; bond and stock market concerns for another.

We believe the important point to consider from a gold perspective is that the Fed is flashing all sorts of signals that its policy is going to be more passive in nature. . . . .The markets, including the international gold market, will need to figure out what that might mean. For the owners of physical metal, time is on our side.

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DMR Update–Minutes reveal a cautious Fed with a policy more passive in nature that could be good for gold

LATE REPORT

We continue to believe that a Powell-led Fed will stay cautious on raising rates.  The economic outlook is far from clear, though the obvious intent is try to jump-start inflation.  The problem with inflation – as most of the historical examples tell us – is that things can seem very quiet for awhile then get very noisy in a hurry.

With respect to gold, the latest revelations of Fed group think in and of themselves are not likely to send demand on a tear, but it could allow for a steady increase in interest, and perhaps, even price appreciation over time, though I hesitate to say such a thing [smile]. There are, at the same time, a number of other potential incentives for gold to attract investor/speculator interest on a short term basis outside the effects of Fed policy – like the geopolitical situation, for one; bond and stock market concerns for another.

We believe the important point to consider from a gold perspective is that the Fed is flashing all sorts of signals that its policy is going to be more passive in nature. . . . .The markets, including the international gold market, will need to figure out what that might mean. For the owners of physical metal, time is on our side.

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Fed minutes suggest few worries of economy overheating – NYT

New York Times/Jim Tankersley/5-23-2018

“Federal Reserve officials gave no indication that they are likely to speed up their pace of interest rate increases during their most recent two-day meeting, suggesting instead that they would be willing to allow the inflation rate to rise slightly above 2 percent for a ‘temporary period, while the economy continues to expand.”

USAGOLD note:  Subtle changes are occurring in Fed policy.  We must remember that the Federal Open Market Committee consists of individuals with differing views and views subject to change.  The Fed is not a monolith and it is not beyond politics and being swayed by imminent economic concerns.  That, in some ways, is what is so silly about investors and speculators hanging on every uttered word, phrase, sentence and paragraph  . . . . . .

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Franklin Roosevelt’s 1933 gold bombshell – Part two

Bloomberg/Sebastian Edwards/5-23-2018

“The global reaction in fall 1933 was calm bewilderment. Second of four excerpts from ‘American Default.’”

USAGOLD note #1:  What this short treatise carefully avoids is what made the government price mandate a workable proposition – the seizure of privately owned gold bullion in April, 1933 that came before the gold price fixing scheme discussed at the link above.  Had Americans been permitted to own gold, they might abort the scheme by buying it if the government price were to low or selling it if the price were too high. Perhaps the seizure issue is handled elsewhere in Sebastian Edwards’ book, and as carefully as this piece is written we would not be surprised if it were.  However, those reading this important history for the first time might not be aware of that a previous executive order (#6102) made the subsequent orders feasible as a practical matter.

Photo Credit Franklin D. Roosevelt Presidential Library, Hyde Park, N.Y.

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Last week’s drop in gold was just a “storm in a teacup” – Clive Maund

Commodity Trade Mantra/Clive Maund/5-23-2018

“Gold’s breach of nearby support last week freaked out some longs of a nervous disposition, but it did no technical damage of any significance, as we can see on our latest 3-year chart shown below on which we can observe that it is still above important supporting trendlines.”

USAGOLD note:  A similar conclusion to the one we posted in our 5-18 Chart of the Day only with considerably more detail and a battalion of supporting charts.  Maund draws one trend line with support at $1260 and a second with support at $1300.  We split the difference on our trend line making $1280 the magic number.  So far it’s held. . . . . . .

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DMR–Gold tumbles then rights itself, emerging countries, Fed minutes, China negotiations weigh on sentiment

Gold tumbled in European trading but righted itself early in the U.S. session to trade at $1294.50 and get to even on the day. Emerging country debt and currency problems, the Federal Reserve’s release of minutes for its May meeting and the tenuous state of negotiations with China are all weighing on gold market sentiment this morning.

– MarketWatch reports that the Fed might “float new ideas” in the May minutes, but the main feature could very well break down to the differing views as to the future among board members.

– The China negotiation might very well have just gone into a protracted stall judging from the president’s most recent remarks.

– As for the emerging countries’ currency and debt problems, the similarities to the 1997-1998 Asian contagion are striking. We have seen estimates that as many as thirteen different countries are experiencing significant difficulty.

Today could end up being “one of those days” for financial markets including gold. . . . . . .

Quote of the Day
“A strong USD corresponds to generally hawkish Fed in an environment where the US is recovering fast while the rest of the globe is still too slow or recessionary, or that the Fed is pushing rates above the neutral and causing excessive tightening of financial conditions and potentially triggering recession. A weak USD path, on the other hand, can materialize either as an inflation or credit (twin deficits) risk, a troubling possibility to which there is no adequate policy response.” – Aleksander Kocic, Deutsche Bank

Chart of the Day

Chart note: Though not in lock step, gold and oil tend have traveled in the same direction since 2008. At present, oil is outpacing gold, but given their historical relationship, an argument could be made that the yellow metal has some catching up to do. There are those who might read in this chart the opposite – that oil is due for a correction to the downside. Some analysts though, like Union Bank of Switzerland and Bank of America, see its recent rise as fundamentally sound with a $100 price per barrel in the cards.

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DMR–Gold tumbles then rights itself, emerging countries, Fed minutes, China negotiations weigh on sentiment

Gold tumbled in European trading but righted itself early in the U.S. session to trade at $1294.50 and get to even on the day.  It got as low $1289 in overnight trade. Emerging country debt and currency problems, the Federal Reserve’s release of minutes for its May meeting and the tenuous state of negotiations with China are all weighing on gold market sentiment this morning.

– MarketWatch reports that the Fed might “float new ideas” in the May minutes, but the main feature could very well break down to the differing views as to the future among board members.

– The China negotiation might very well have just gone into a protracted stall judging from the president’s most recent remarks.

– As for the emerging countries’ currency and debt problems, the similarities to the 1997-1998 Asian contagion are striking. We have seen estimates that as many as thirteen different countries are experiencing significant difficulty.

Today could end up being “one of those days” for financial markets including gold. . . . . . .

Quote of the Day
“A strong USD corresponds to generally hawkish Fed in an environment where the US is recovering fast while the rest of the globe is still too slow or recessionary, or that the Fed is pushing rates above the neutral and causing excessive tightening of financial conditions and potentially triggering recession. A weak USD path, on the other hand, can materialize either as an inflation or credit (twin deficits) risk, a troubling possibility to which there is no adequate policy response.” – Aleksander Kocic, Deutsche Bank

Chart of the Day

Chart note: Though not in lock step, gold and oil tend have traveled in the same direction since 2008.  At present, oil is outpacing gold, but given their historical relationship, an argument could be made that the yellow metal has some catching up to do.  There are those who might read in this chart the opposite – that oil is due for a correction to the downside. Some analysts though, like Union Bank of Switzerland and Bank of America, see its recent rise as fundamentally sound with a $100 price per barrel in the cards.

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President further downplays China trade expectations

CNBC/Kate Rooney/5-23-2018

USAGOLD note:  The president says the framework being discussed will be “too hard to get done and verify results after completion.”  That should throw a wrench a things for awhile.  Meanwhile, the Treasury secretary one day ago said China steel and aluminum tariffs will stay in place, but that was a day ago.  .   .  .

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Turkey goes full blown “currency crisis”

Bloomberg/Dana El Baltaji and Tugce Ozsoy/5-23-2018

“Turkey is entering the throes of a full-blown currency crisis. The lira suffered its biggest loss in almost a decade Wednesday on a closing basis as trader confidence in the central bank’s willingness to halt its slide all but evaporated.”

USAGOLD note:  Turkey is not the only emerging country with currency/debt problems associated with the strong dollar on international markets.  In trading circles these problems translate to a weaker gold price, but in the countries affected it is sure to generate strong demand for physical metal among the citizenry. The lira was down 5% in overnight trading.

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$17 billion treasure, sunken galleon found off coast of Columbia

Independent/Chris Baynes/5-23-2018

USAGOLD note:    Doubloons and pieces of eight.  The British navy sunk the galleon in 1708 in the War of Spanish Succession.  If past finds are an indicator, there will be a long battle between Columbia’s government and the treasure hunters over the rights.

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The untold story of FDR and the battle over gold

Bloomberg/Sebastian Edwards/5-22-2018

“During the second half of 1933, George F. Warren was the most influential economist in the world. Almost every morning during November and December, he met with Franklin Roosevelt while the president was still in bed, and helped him decide the price at which the government would buy gold during the next 24 hours.”

USAGOLD note:  This article is part of a four part series at Bloomberg titled “American Default” – “one of the strangest and most enduring chapters of the Roosevelt era.” George Warren believed that if the government could maintain a rising gold price, it would push commodity prices higher and instigate inflation – the element that was needed to push the country out of the Great Depression. . . . . . .

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Trump: There’s no deal with China on ZTE, and I’m not satisfied with trade talks

CNBC/Jacob Pramuk and Mike Calia/5-22-2018

“President Donald Trump says his administration has not yet reached a deal with China on saving Chinese telecommunications company ZTE, contrary to reports. Trump faces bipartisan backlash on Capitol Hill over a potential deal to lift sanctions on the firm. The president says he is not satisfied with trade talks with China that took place in Washington last week.”

USAGOLD note:  Obviously, there is considerable disarray in the administration on the China trade issue.  Just a few days ago, we warned in the DMR that what is seemingly under control today can suddenly spin out of control tomorrow. Just yesterday Treasury Secretary Mnuchin told the country that “we’ve made meaningful progress on China trade wars.” The president just gave the nation the opposite impression. . . . . .

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Posted in Today's top gold news and opinion |

DMR–Gold tracking sideways, bounces higher off ascending trend line at $1282.50

Gold is tracking sideways at $1293 this morning in concert with most other financial markets. Silver is up 7¢ at $16.58. Worth noting: Gold traded down to its trend line in the overnight market yesterday hitting a low of $1282.50. From there, it worked its way higher, finishing the day yesterday at the $1293 level and getting as high as $1295.50 in European trading. At this point, we hesitate to call it affirmation of the trend line holding, but it is a good sign.

Credit Bulletin‘s Doug Noland provides this interesting rundown of the latest emerging nation currency contagion: “Where to begin? Contagion… The Argentine peso dropped another 5.0% this week, bringing y-t-d losses to 23.7%. The Turkish lira fell 3.9%, boosting 2018 losses to 15.4%. As notable, the Brazilian real dropped 3.7% (down 11.5% y-t-d), and the South African rand sank 4.0% (down 3.0% y-t-d). The Colombian peso fell 3.0%, the Chilean peso 2.7%, the Mexican peso 2.7%, the Hungarian forint 2.3%, the Polish zloty 2.1% and the Czech koruna 2.0%.”

Too, the strong dollar weak-everything-else syndrome stretches beyond the smaller emerging countries to the larger ones as well. We should not overlook the affects on Japan, China and the European Union. At some point there will be a dollar turnaround though it is difficult to forecast when. When it comes, however, it could begin fundamentally with the industrialized countries buying back their currencies to stanch capital flow. Japan surprised market watchers last week when the latest TIC data revealed it as the big seller of U.S. Treasuries. We have to wonder if those sales were not associated with capital flight and at what point the equal and opposite reaction kicks in, i.e., a stronger yen against the dollar.

Quote of the Day
“Those who held funds in dollars, pounds or other stable currencies, or in gold, saved their capital. The government set up rigid exchange controls as the inflation proceeded. As usual under such conditions, a black market flourished. The ones who fared best were the small minority who had the foresight to exchange marks into foreign money or gold very early, before new laws made this difficult and before the mark lost too much value.” – Scientific Market Analysis, The Nightmare German Inflation

Chart of the Day

Chart note#1: We thought this chart an appropriate addition to today’s DMR after the much publicized Goldman Sachs’ study* on the national debt released last weekend. Characterizing the U.S. fiscal outlook as “not good,” Goldman predicted that by 2028 the deficit will hit $2.1 trillion and the total national debt would equal 105% of GDP. Goldman lists three major consequences to those debt levels to take hold between now and 2028 – a weakened policy response to the next downturn, slower growth in the next recovery and higher borrowing costs that will raise the deficit even higher.

Chart note #2: The St. Louis Federal Reserve debt to GDP as shown in the chart above already exceeds 100% of GDP. We are not certain where the difference lies between the two numbers. Obviously, though, by 2028 the St. Louis Fed ratio will be considerably higher if Goldman’s projections turn out to be true.

*For details, please see “Goldman Sachs: The fiscal outlook for the US ‘is not good’/CNBC/Thomas Franck/5-21-2018

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Posted in dailyquotes |

DMR–Gold tracking sideways, bounces higher off ascending trend line at $1282.50

Gold is tracking sideways at $1293 this morning in concert with most other financial markets. Silver is up 7¢ at $16.58.  Worth noting:  Gold traded down to its trend line in the overnight market yesterday hitting a low of $1282.50. From there, it worked its way higher, finishing the day yesterday at the $1293 level and getting as high as $1295.50 in European trading.  At this point, we hesitate to call it affirmation of the trend line holding, but it is a good sign.

Credit Bulletin‘s Doug Noland provides this interesting rundown of the latest emerging nation currency contagion: “Where to begin? Contagion… The Argentine peso dropped another 5.0% this week, bringing y-t-d losses to 23.7%. The Turkish lira fell 3.9%, boosting 2018 losses to 15.4%. As notable, the Brazilian real dropped 3.7% (down 11.5% y-t-d), and the South African rand sank 4.0% (down 3.0% y-t-d). The Colombian peso fell 3.0%, the Chilean peso 2.7%, the Mexican peso 2.7%, the Hungarian forint 2.3%, the Polish zloty 2.1% and the Czech koruna 2.0%.”

Too, the strong dollar weak-everything-else syndrome stretches beyond the smaller emerging countries to the larger ones as well.  We should not overlook the affects on Japan, China and the European Union. At some point there will be a dollar turnaround though it is difficult to forecast when.  When it comes, however, it could begin fundamentally with the industrialized countries buying back their currencies to stanch capital flow. Japan surprised market watchers last week when the latest TIC data revealed it as the big seller of U.S. Treasuries. We have to wonder if those sales were not associated with capital flight and at what point the equal and opposite reaction kicks in, i.e., a stronger yen against the dollar.

Quote of the Day
“Those who held funds in dollars, pounds or other stable currencies, or in gold, saved their capital. The government set up rigid exchange controls as the inflation proceeded. As usual under such conditions, a black market flourished. The ones who fared best were the small minority who had the foresight to exchange marks into foreign money or gold very early, before new laws made this difficult and before the mark lost too much value.” – Scientific Market Analysis, The Nightmare German Inflation

Chart of the Day

Chart note#1:  We thought this chart an appropriate addition to today’s DMR after the much publicized Goldman Sachs’ study* on the national debt released last weekend. Characterizing the U.S. fiscal outlook as “not good,” Goldman predicted that by 2028 the deficit will hit $2.1 trillion and the total national debt would equal 105% of GDP. Goldman lists three major consequences to those debt levels to take hold between now and 2028 – a weakened policy response to the next downturn, slower growth in the next recovery and higher borrowing costs that will raise the deficit even higher.

Chart note #2: The St. Louis Federal Reserve debt to GDP as shown in the chart above already exceeds 100% of GDP.  We are not certain where the difference lies between the two numbers. Obviously, though, by 2028 the St. Louis Fed ratio will be considerably higher if Goldman’s projections turn out to be true.

*For details, please see “Goldman Sachs: The fiscal outlook for the US ‘is not good’/CNBC/Thomas Franck/5-21-2018

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Posted in Today's top gold news and opinion |

American Gridlock

Seeking Alpha/Lance Roberts/5-22-2018

“There is a huge debate over ‘Austerity’ versus ‘Spending.’ While conservatives in government talk a ‘good game’ about cutting spending, budgeting and debt reduction, the exact opposite has been the case over the past several Administrations both ‘conservative’ and ‘liberal’ alike. The irony is that increases in debt lead to further increases in debt as economic growth must be funded with further debt.”

USAGOLD note:  The answer lies not in the politics of the situation but in the economics, and by that, I mean the personal economics.  The proper hedge will go a long way in countering the spending problem in Washington where it counts – in your personal finances.

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Posted in Today's top gold news and opinion |