A word on gold’s $23 drop Friday. . . .


The opening salvo does not make a battle, let alone a war

The Law of Long-Term Time Preference – Those who plan, invest and execute long-term win. Win-win decisions, looking to the long term with short-term work and sacrifice, are historically the tickets to success in all areas of life – short-term sacrifice for long-term benefits, deferred gratification rather than instant gratification. This is the difference between wealth and poverty, between class and trash. Those who make primarily fear-based, ego-based, selfish, win-lose, lose-lose, emotional and/or short-term decisions as their primary mode of operation in life nearly always end up miserable, often as losers in a comprehensive sense in life. Such people are walking tornadoes to be avoided.” – R.E. McMaster, A Layman’s Guide to Golden Guidelines for Wise Money Management [Link]

Successful investors have a philosophy, usually carefully cultivated, that they rely upon no matter what happens in the markets in the short-run.  Successful investors are rarely shaken by short-term events and, rarer still, guilty of short-term thinking.

USAGOLD has always nurtured the belief that gold should not be purchased principally as a speculative investment, but more as an asset accumulated for long-term asset preservation in the form of coins and bullion.  That, in fact, is a viewpoint it shares with the bulk of its clientele. Thus, if the gold price takes a powder like it did on Friday, the event can be put into its proper perspective even if that sell-off continues.  It is not, after all, the end of the world.  It is not even the end of the gold market. Gold’s adversaries, though, no doubt will seize on the occasion come Monday as if it were in order to advance their own agendas.

In my view, Friday’s downside came the result of confusion over what several financial news outlets called the ‘most important week of the year.’  Japan went dovish.  The European Union went dovish.  China, not to be forgotten, went dovish.  And here is where the confusion lies:  The Federal Reserve went dovish as well with its announcement to open the excess reserve monetary spigot – a policy that could serve as a buffer to reducing its balance sheet even if as it continues to raise rates.

Professional investors, according to a Bloomberg report on Friday, took the announcement as such increasing their long gold positions on the COMEX at midweek. Bloomberg took those funds and institutions to task for their decision. We will see how it all comes out in the wash as we lurch further along this new but treacherous monetary highway.

We should keep in mind that all of this is occurring as the battle lines are being drawn for the escalating trade wars. The actions of the central banks should not be considered in a vacuum. No country wants their currency to stand out like the nail that needs to be hammered, and that includes the United States. Much of what the Trump administration would like to accomplish by way of reducing the trade deficit would be threatened if the dollar were to continue to be “the healthiest horse in the glue factory,” as former Wyoming senator Alan Simpson once colorfully put it.

In short, I would not be surprised to see the Trump administration take steps – perhaps quietly, perhaps not so quietly – to reverse the dollar’s rapid rise since the beginning of 2018, though such a policy of course should not be seen as a given. Who will win out in the currency battle in the larger trade war remains to be seen, but the opening salvo does not make a battle, let alone a war.

Returning to the philosophy among long-term gold investors mentioned at the top of the page, USAGOLD experienced the opposite of what many might have expected on Friday – a noticeable and immediate increase in buying interest on a sharp price break, something we haven’t experienced in a long time.

– Michael Kosares (6-17-2018)

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