Monthly Archives: August 2018

This emerging market selloff looks contagious

Bloomberg/Opinion/Marcus Ashworth/3-31-2018

“This looks like contagion. One emerging country’s problems have become other emerging countries’ problems, and it’s hard to see how to break the cycle. What’s really worrying is that this week’s gyrations don’t look to have been driven by dollar strength — on a trade-weighted basis, the greenback is lower on the week. Were a rising U.S. currency to be responsible, perhaps Federal Reserve Chairman Jerome Powell could be prevailed upon to slow the pace of interest-rate increases.”

USAGOLD note:  This article speaks to concerns we raised in this morning’s Chart of the Day about a possible emerging markets contagion.

 

 

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Gold pushes higher in Asia, backs off in London-New York on mixed news

Gold pushed higher in overnight Asian markets reaching $1208 before backing off just after the London Fix. In the early New York trading it is priced at $1202, still up $2 on the day despite a sharp rally in the U.S. dollar. Silver is level at $14.57. Supporting gold overnight were currency and debt problems in a host of emerging nation states with Argentina and Turkey the most visibly pressed. Argentina raised interest rates to 60% yesterday, a 15% rise. Keeping a lid on the gold price was news of U.S. intentions to impose tariffs on a another $200 billion in Chinese imports.

Quote of the Day
“The ‘threat’ is best seen through the emergence of exchange-traded funds (ETFs), which allow investors to get a proxy physical gold exposure through an investment via their stockbroker. In truth, these products are, in many cases, more expensive than trading and storing physical gold (especially for larger investors with a long-term investment time frame), have less trading flexibility, and are less secure than owning real physical gold.” – Jordan Eliseo, ABC Bullion/Australia

Chart of the Day

Chart courtesy of TradingEconomics.com

Chart note: The Argentina peso and Turkish lira are the center of attention in foreign exchange markets today. Both have roughly halved in value since the beginning of the year. Yesterday Argentina pushed interest rates to 60% – a 15% rise. Turkey’s interest rate is at 17.75%. Wall Street investors are concerned about the potential for a contagion along the lines of the late 1990s Asian financial crisis that nearly resulted in a global economic meltdown. This time around the debts are much larger and the dangers much more widespread geographically. Though concern mounts among financial market participants with each passing day, the White House uncharacteristically has remained mum on the situation and the Federal Reserve has only made passing mention.

 

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DMR-Gold pushes higher in Asia, backs off in London-New York on mixed news

DAILY MARKET REPORT

Gold pushed higher in overnight Asian markets reaching $1208 before backing off just after the London Fix. In the early New York trading it is priced at $1202, still up $2 on the day despite a sharp rally in the U.S. dollar. Silver is level at $14.57.  Supporting gold overnight were currency and debt problems in a host of emerging nation states with Argentina and Turkey the most visibly pressed. Argentina raised interest rates to 60% yesterday, a 15% rise. Keeping a lid on the gold price was news of U.S. intentions to impose tariffs on a another $200 billion in Chinese imports.

Quote of the Day
“The ‘threat’ is best seen through the emergence of exchange-traded funds (ETFs), which allow investors to get a proxy physical gold exposure through an investment via their stockbroker. In truth, these products are, in many cases, more expensive than trading and storing physical gold (especially for larger investors with a long-term investment time frame), have less trading flexibility, and are less secure than owning real physical gold.” – Jordan Eliseo, ABC Bullion/Australia

Chart of the Day

Chart courtesy of TradingEconomics.com

Chart note:  The Argentina peso and Turkish lira are the center of attention in foreign exchange markets today.  Both have roughly halved in value since the beginning of the year. Yesterday Argentina pushed interest rates to 60% – a 15% rise. Turkey’s interest rate is at 17.75%.  Wall Street investors are concerned about the potential for a contagion along the lines of the late 1990s Asian financial crisis that nearly resulted in a global economic meltdown. This time around the debts are much larger and the dangers much more widespread geographically. Though concern mounts among financial market participants with each passing day, the White House uncharacteristically has remained mum on the situation and the Federal Reserve has only made passing mention.

 

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Ahead of India’s festival season, gold sells at a premium

The Economic Times/Santanuka Ghosal/8-31-2018

“‘There is an expectation in the market that gold will touch Rupee 32,000 per 10 gm (without GST) by Diwali. So, people have started buying,’ said Surendra Mehta, national secretary of India Bullion & Jewellers Association. Bullion traders and jewellers expect festive season demand to be 5-10 per cent higher than last year’s despite prices moving up in the local market due to weakness in the rupee.”

USAGOLD note:  Demand for gold in emerging countries associated with currency and debt problems – and those problems are widespread – will likely push up premiums, particularly if prices generated in the global paper markets do not keep up with burgeoning physical demand.  Through premiums, the physical market adjusts to market realities. We pass along the Economic Times report on India as an example.

Image by Metropolitan Museum of Art [CC0], via Wikimedia Commons [Edited]

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Elliott Wave forecast for gold and silver hints at a shiny future

NASDAQ/Jeremy Wagner/8-3-2018

“I have been relatively silent on gold’s chart since we called the top back in January and February as the Elliott Wave pattern has a few options at hand. If you recall from our article on January 25  ‘Gold prices hit 17 month high’ (the day of the 2018 high) we forecasted a bearish reversal such that ‘in the coming months would be a correction down towards $1200’ . . . Now that the bearish targets are satisfied, we have seen enough evidence that a large rally may mount for the yellow metal.”

USAGOLD note:  It is not often that an analyst calls the high on the day it happens.  As for the future, Wagner’s suggests a “likely rally to above $1380.”  His analysis includes a couple supporting charts.

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Investors wading back into gold ETFs

Scrap Register/8-31-2018

“Investors are returning to gold exchange-traded funds, said BMO Capital Markets. Analysts cited Bloomberg data showing that global ETFs added some 225,000 ounces to holdings on Wednesday. This is the highest single-day inflow since mid-April.”

USAGOLD note:  Though the various problems with gold ETFs are well-known among Main Street gold investors, we still track them as an indicator of current hedge fund and institutional interest.

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Brutal Argentina-Turkey selloff engulfs emerging-market peers

Bloomberg/Rita Nazareth and Ben Bartenstein/8-30-2018

“The peso tumbled to a record low, prompting Argentine policy makers to boost the nation’s interest rate to 60 percent in a bid to shore up confidence. In Turkey, a report that the central bank’s deputy governor was set to resign sank the lira. South Africa’s rand slumped, sending volatility to its highest since December 2016 amid a controversial land reform debate. Brazil’s real pared losses after the monetary authority extended its currency intervention.”

USAGOLD note: Contagion.  Where does it stop?

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Gold pushes through $1200 mark to downside as inflation heats-up (?)

DAILY MARKET REPORT

Gold pushed back through the $1200 mark to the downside this morning as the Fed’s favored PCE Index’ number for headline inflation came in over the target level at 2.3%. Silver is down 21¢ at $14.55. The push to the downside is largely driven by computer algorithms that ignore gold’s role as an inflation hedge. Instead the machines are programmed to read any inflationary news as cause for the Fed to push harder on the interest rate accelerator. Thus gold is down on the day when logic tells us that it should be up. The prices posted though will look very attractive to the citizenry of emerging countries, including China and India, beset by increasingly entrenched currency and debt problems. The historic comeuppance for artificially cheap prices is increased physical demand – demand that the real market will need to supply.

Quote of the Day
“What we have to reckon with now is that, contrary to the basic assumption of 2012-2013, the crisis was not in fact over. What we face is not repetition but mutation and metastasis. The financial and economic crisis of 2007-2012 morphed between 2013 and 2017 into a comprehensive political and geopolitical crisis of the post-cold war order.” – Eshe Nelson, reviewing Adam Tooze’s How a Decade of Crises Changed the World

Chart of the Day

The $74 Trillion Global Economy in One Chart

Courtesy of: Visual Capitalist
USAGOLD note: Numbers 1 and number 2 by a wide margin over the rest of the world are going at it head to head in the trade wars. For China, trade with the United States has played a major role in its quick ascent to number two. For the United States, cheap Chinese manufactured goods has played a major role in containing inflation. Now both advantages have become endangered species.
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DMR–Gold pushes through $1200 mark to downside as inflation heats-up (?)

DAILY MARKET REPORT

Gold pushed back through the $1200 mark to the downside this morning as the Fed’s favored PCE Index’ number for headline inflation came in over the target level at 2.3%.  Silver is down 21¢ at $14.55. The push to the downside is largely driven by computer algorithms that ignore gold’s role as an inflation hedge. Instead the machines are programmed to read any inflationary news as cause for the Fed to push harder on the interest rate accelerator.  Thus gold is down on the day when logic tells us that it should be up. The prices posted though will look very attractive to the citizenry of emerging countries, including China and India, beset by increasingly entrenched currency and debt problems. The historic comeuppance for artificially cheap prices is increased physical demand – demand that the real market will need to supply.

Quote of the Day
“What we have to reckon with now is that, contrary to the basic assumption of 2012-2013, the crisis was not in fact over. What we face is not repetition but mutation and metastasis. The financial and economic crisis of 2007-2012 morphed between 2013 and 2017 into a comprehensive political and geopolitical crisis of the post-cold war order.” – Eshe Nelson, reviewing Adam Tooze’s How a Decade of Crises Changed the World

Chart of the Day

The $74 Trillion Global Economy in One Chart

Courtesy of: Visual Capitalist

USAGOLD note:
  Numbers 1 and number 2 by a wide margin over the rest of the world are going at it head to head in the trade wars.  For China, trade with the United States has played a major role in its quick ascent to number two.  For the United States, cheap Chinese manufactured goods has played a major role in containing inflation.  Now both advantages have become endangered species.
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Back up the truck

Gold Eagle/Michael Ballanger/8-28-2018

“These are across-the-board synchronized correlations and as I wrote about last week, the computer-driven ‘algobots’ exacerbate and exaggerate every short-term trend in virtually all markets around the globe and since they never sleep, when Chicago shuts down, London picks up the reins and when London retires for the day, Tokyo carries the mantle such that over and over and over again, the pattern-recognition-driven algorithms implanted into the brains of the algobots feed upon themselves and overshoot their marks every single time, as happened on August 15 and 16 in (again) ALL markets. Now these pulse-less, robotic vermin are trapped and quite possibly, in deep trouble.”

Related: Historical Repetition in the Gold And Silver Arenas/Michael Ballanger/Gold Eagle

USAGOLD note:  Ballanger writes convincingly and definitively about computer-driven money management systems that dominant the markets these days including gold.  The two articles linked above are solid and fascinating representations of his thinking.  In conjunction with his advice to back-up the truck on precious metals, he says the bottom for gold is in at $1167 per ounce on August 16, 2018.

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

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Gold sales soar as rupiah depreciates

The Jakarta Post/News Desk/8-30-2018

“State-owned mining company PT Aneka Tambang (Antam) has said its gold sales jumped significantly in the first half of 2018 as a result of the weakening rupiah. . .“An impact of the dollar strengthening is that people are buying gold. Domestic demand has increased. . .”

USAGOLD note:  Indonesia joins a number of emerging countries experiencing greatly increased gold demand among citizens concerned about currency and debt problems. The list, in fact, grows longer by the day.

Chart courtesy of TradingEconomics.com

 

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Technical analysts queue up on gold

Gold price reversal gaining legitimacy/Christopher Vechio/DailyFX
“The daily 13-EMA, which had been resistance since mid-June, has survived tests as support yesterday and today, suggesting Gold may have indeed turned the corner.”

Has gold finally bottomed?/Phoenix Capital Research
“That’s a heck of a ‘tell/ from the markets. And it’s ‘telling’ us that we’re about to see a major inflationary move as the USD drops hard. This will be sending gold and other ‘weak-USD’ plays on a major bull run.

Gold rebounds after yesterday’s slide,/Matias Salord/FXStreet
“Gold moved all in a small range with a bullish bias.”

Gold: The rally accelerates/Stewart Thompson/Gold Eagle
“Gold’s impressive rally continues to accelerate. Key fundamental and technical price drivers are playing a bullish song with almost perfect harmony.”

Gold rebounds – What’s next?/FX Trading Revolution Team/FXStreet
“Technically, Gold made an important rebound which could be the end of the bearish trend that started in April.”

Short term chart . . . . .

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Gold attempts to regain footing amidst mixed signals

DAILY MARKET REPORT

Gold is attempting to regain its footing this morning after yesterday’s options-related sell-off. It is up $2.50 on the day at $1205.50. Silver is down 3¢ at $14.74. Emerging country debt and currency problems are back on the financial pages. Turkey’s lira is down 3% and Argentina’s peso and India’s rupee hit all-time lows overnight. The Fed will be looking to strike a balance between two extremes: A warming domestic U.S. economy versus a cooling, even threatening, global economy fueled by a too-strong dollar.

Quote of the Day
“At the 1955 stock-market hearings, [economist John Kenneth] Galbraith was followed at the witness table by the aging speculator and ‘adviser to presidents’ Bernard M. Baruch. The committee wanted to know what the Wall Street legend thought of the learned economist. ‘I know nothing about him to his detriment,’ Baruch replied. ‘I think economists as a rule—and it is not personal to him—take for granted they know a lot of things. If they really knew so much, they would have all of the money, and we would have none.'” – James Grant, Wall Street Journal editorial (10-1-2010)

Chart of the Day

Chart courtesy of Advisor Perspectives

Chart note: There are a couple of things unsettling about this chart. First is the sheer amount of investor margin debt present in the current stock market – over $650 billion. Second is the correlation between the growth of that debt and ascent of the S&P 500. With that amount of leverage in the stock market and the influence it has on price levels, if and when the margin calls arrive, the tumble could be fast and extreme. FINRA (Financial Industry Regulatory Authority) warns that “many investors may underestimate the risks of trading on margin and misunderstand the operation of, and reason for, margin calls.” Shades of 1929.

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DMR–Gold attempts to regain footing amidst mixed signals

DAILY MARKET REPORT

Gold is attempting to regain its footing this morning after yesterday’s options-related sell-off.  It is up $2.50 on the day at $1205.50.  Silver is down 3¢ at $14.74.  Emerging country debt and currency problems are back on the financial pages this morning. Turkey’s lira is down 3% and Argentina’s peso and India’s rupee hit all-time lows overnight. The Fed will be looking to strike a balance between two extremes:  A warming domestic U.S. economy versus a cooling, even threatening, global economy fueled by a too-strong dollar.

Quote of the Day
“At the 1955 stock-market hearings, [economist John Kenneth] Galbraith was followed at the witness table by the aging speculator and ‘adviser to presidents’ Bernard M. Baruch. The committee wanted to know what the Wall Street legend thought of the learned economist. ‘I know nothing about him to his detriment,’ Baruch replied. ‘I think economists as a rule—and it is not personal to him—take for granted they know a lot of things. If they really knew so much, they would have all of the money, and we would have none.'” – James Grant, Wall Street Journal editorial (10-1-2010)

Chart of the Day

Chart courtesy of Advisor Perspectives

Chart note: There are a couple of things unsettling about this chart. First is the sheer amount of investor margin debt present in the current stock market – over $650 billion. Second is the correlation between the growth of that debt and ascent of the S&P 500. With that amount of leverage in the stock market and the influence it has on price levels, if and when the margin calls arrive, the tumble could be fast and extreme. FINRA (Financial Industry Regulatory Authority) warns that “many investors may underestimate the risks of trading on margin and misunderstand the operation of, and reason for, margin calls.” Shades of 1929.

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Almost half of Americans can’t pay for their basic needs

MoneyWatch/Aimee Picchi/8-28-2018

“Four in 10 Americans are struggling to pay for their basic needs such as groceries or housing, a problem even middle-class households confront, according to a new study from the Urban Institute. Despite the U.S. economy being near full employment, 39.4 percent of adults between 18 and 64 years old said they experienced at least one type of material hardship in 2017, according to the study, which surveyed more than 7,500 adults about whether they had trouble paying for housing, utilities, food or health care.”

USAGOLD note:  This articles states that researchers were surprised at these statistics.  They weren’t the only ones.

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India is set to overtake China as the top driver of global oil demand growth

CNBC/Weizhen Tan/8-29-2018

“India is set to overtake China as the biggest source of growth for oil demand by 2024, according to a forecast announced Monday by research and consultancy group Wood Mackenzie. . . India’s expanding middle class will be a key factor, as well as its growing need for mobility, according to Wood Mackenzie.”

USAGOLD note:  The rise of the middle class in both economies bodes well for future gold demand.

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Silver prices: Supply and demand disparity could result in huge returns

Lombardi Letter/Moe Zulfiqar/8-28-2018

“Silver prices have faced scrutiny over the past few weeks. The gray precious metal continues to slip lower, trading below $15.00 as of this writing. However, silver prices could be severely undervalued. And that means long-term investors could reap massive rewards. You see, there’s a basic problem in the silver market: supply is failing to meet demand.”

USAGOLD note:  As a practical matter, the current pricing for both gold and silver against the backdrop of rising global demand, in our opinion, makes them an attractive alternative in the present investment environment – particularly for investors with an eye to the long term.

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Indonesia’s currency is suffering, but that’s about to end, trade minister says

CNBC/Yen Nee Lee/8-29-2018

“The Indonesian rupiah should stabilize from here on out, the country’s trade minister, Enggartiasto Lukita, told CNBC. The rupiah is one of the worst-performing Asian currencies this year as investors flee emerging markets with current account and fiscal deficits. “

USAGOLD note:  A familiar refrain. . .and of the kind that these days inspires a reaction opposite of what is intended.

 


Image by By Government of Indonesia; Evanc0912 [CC0], via Wikimedia Commons

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Afternoon Update

(USAGOLD, 8-28-2018) – In the absence of any market altering news to speak of, it was surprising to see gold drop about $8 in the last two hours of trading, and silver 15¢.  Looking around for a good reason to explain the sell-off, our best guess is options-related selling. Today is options expiration day on the September contract for both gold and silver. Gold finished at the $1201 mark, down $10.50 on the day. Silver finished at $14.70, down19¢ on the day.

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Afternoon Update

(USAGOLD, 8-28-2018) – In the absence of any market altering news to speak of, it was surprising to see gold drop about $8 in the last two hours of trading, and silver 15¢.  Looking around for a good reason to explain the sell-off, our best guess is options-related selling. Today is options expiration day on the September contract for both gold and silver. Gold finished at the $1201 mark, down $10.50 on the day. Silver finished at $14.70, down19¢ on the day.

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Gold down on quiet news day thus far

Gold is down $3 at $1208 – with nothing of earth-shaking importance having developed overnight or early in the New York market session. Aiding gold, China’s yuan is showing some strength today, as is the yen, while the rest of the currencies seem to be carried in their wake. Silver is down 5¢ thus far at $14.85.

Quote of the Day
“Speculators in gold price futures are short 670 tonnes – the biggest bearish position in 25 years. . .ANZ analysts Daniel Hynes and Soni Kumari say in the past, ‘such extreme levels of short positions have led to a rally in prices: 1999, short positions rose fivefold to hit a then record level of 80,000 contracts. Not long after, gold prices rallied 16% from USD250/oz to USD290/oz over the course of two months. Short positions spiked again in July 2005 and January 2016, with gold prices rallying 12% and 14% respectively over the subsequent three months. In both these cases, the net long position was extremely close to being negative. This raises the spectre of investors closing out their record level of short positions, and thus starting a short covering rally.” – Frik Els, Mining.com

Chart of the Day

Chart note: While commodities have held their own during this stage of the trade wars, gold has declined dramatically by comparison – a break in the long-term pattern of the two moving in the same direction. Some believe gold could play catch-up as we move into the last third of the year. Much of the downside for gold has been the result of the short position built to record levels on the commodities exchange – a position that will need to be covered in order for the speculators to claim their gains. In the past, as Frik Els points out in our Quote of the Day, covering those short positions has led to price rallies in 1999, 2005 and 2016. We might add there was a less pronounced example of short-covering in 2017 as well.

 

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DMR–Gold down on quiet news day thus far

DAILY MARKET REPORT

Gold is down $3 at $1208 – with nothing of earth-shaking importance having developed overnight or early in the New York market session. Aiding gold, China’s yuan is showing some strength today, as is the yen, while the rest of the currencies seem to be carried in their wake. Silver is down 5¢ thus far at $14.85.

Quote of the Day
“Speculators in gold price futures are short 670 tonnes – the biggest bearish position in 25 years. . .ANZ analysts Daniel Hynes and Soni Kumari say in the past, ‘such extreme levels of short positions have led to a rally in prices: 1999, short positions rose fivefold to hit a then record level of 80,000 contracts. Not long after, gold prices rallied 16% from USD250/oz to USD290/oz over the course of two months. Short positions spiked again in July 2005 and January 2016, with gold prices rallying 12% and 14% respectively over the subsequent three months. In both these cases, the net long position was extremely close to being negative. This raises the spectre of investors closing out their record level of short positions, and thus starting a short covering rally.” – Frik Els, Mining.com

Chart of the Day

Chart note: While commodities have held their own during this stage of the trade wars, gold has declined dramatically by comparison – a break in the long-term pattern of the two moving in the same direction. Some believe gold could play catch-up as we move into the last third of the year. Much of the downside for gold has been the result of the short position built to record levels on the commodities exchange – a position that will need to be covered in order for the speculators to claim their gains. In the past, as Frik Els points out in our Quote of the Day, covering those short positions has led to price rallies in 1999, 2005 and 2016. We might add there was a less pronounced example of short-covering in 2017 as well.

 

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Jay Powell and the Fed face ‘dollar doom loop’ dilemma

Financial Times/Joachim Fels/8-27-2018

“Damned if they keep raising, damned if they don’t. Federal Reserve chair Jay Powell and his colleagues face a difficult choice over the next few months — and it is one that could have unpleasant ramifications whatever they decide.”

USAGOLD note:  So raise or stay pat after September, that is the question.  As of Friday, Powell made it clear that he wants to keep the central bank’s options open, but that, in itself, was interpreted as a dovish tilt. This article does a good job of outlining what the Fed is up against with emphasis on the big build-up in emerging country debt since the financial crisis and the impact it is now having on Fed policy decisions. It also raises the possibility of a pause in raising rates after September.

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India silver imports continue at explosive pace through June

Smaulgld/Louis Cammarosano/8-27-2018

“While the Indian government’s anti-gold initiatives have dented official gold demand in India, black market sales and imports continue. Silver has been a direct beneficiary of the campaign against gold. Indians prize silver for its beauty and also give it as gifts. It’s not substitute for gold, but it is viewed favorably.”

USAGOLD note:  As this article indicates, surging demand for gold and silver in India usually indicates a bottom.  It is also worth filing for future reference that India’s people “prize silver.”  That attachment could accrue as a positive for the fundamentals in the years to come.

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Favorite web pages

____________________________________________________________

King Ibn Saud’s 35,000 British sovereign gold coins

“In August, 2018 those same sovereigns would bring a little less than $10 million at melt value ($282.50 each/$1200 per ounce gold price) and a barrel of oil is selling for about $75. Thus, a British sovereign today can buy less than four barrels of oil — a statistic that gives you an inkling of gold’s current under-valuation.  For gold to buy the same amount of oil now that it did in 1933, the metal would have to go to $3186 per ounce.”

For the full story

________________________________________________

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Gold up $6 in continuation of trend begun Friday

Gold pushed another $6 higher at $1212 in a continuation of the upward trend begun on Friday. Overseas trading was quiet. Silver is up 10¢ at $14.89. Gold is up $27 since last Thursday’s close. As we reported last week, the market is being driven by a combination of three major developments – dovish remarks from the Fed chairman in a speech delivered on Friday, China’s moves to strengthen the yuan, and the perceived potential for short covering from speculators squaring the record short position at the COMEX (if not actual covering). The dollar is down sharply in early trading.

Quote of the Day
“President Trump’s actions over trade, which appear to have some short-term successes, are driving countries away from her sphere of influence. Ultimately this will prove counterproductive. Speculators buying into Trump’s short-termism and the Fed’s normalization policies are for the moment driving the dollar higher, without realizing that foreigners, far from suffering from a shortage of dollars, already own all the excess dollar liquidity created since the Lehman crisis. This seems certain to lead to the dollar’s downfall. Therefore, the dollar is rising only on short-term considerations, driven by nothing more substantial than speculative flows.

Once these abate, the longer-term prospects for the dollar will reassert themselves, including the escalating budget and trade deficits, record levels of foreign ownership of the dollar, and rising prices fueled by a combination of earlier monetary expansion and the extra taxes of trade tariffs. And if that’s not enough, the erosion of its hegemony coupled with China’s future demands for infrastructure capital seem bound to lead to a fundamental reallocation of capital to the detriment of the dollar. No wonder China and Russia decided to corner the market for physical gold.” – Alasdair Macleod, Mises Institute

Chart[s] of the Day

Charts note: The last time we featured these two charts, it was to illustrate the relationship between gold and the yuan as they moved in tandem to the downside. Late last week we caught a glimpse of the other side of the story – the upside. In Friday’s DMR we made note of the possibility that China might have an interest in demonstrating its desire to keep the yuan from plummeting to a disastrously low level. Though we emphasized trade negotiations with the United States as one incentive, there is another driver to Chinese policy that may be even more important over the longer run and the one with staying power. China also has an interest in controlling, even stopping, capital flight. China’s oft-state goal, we should remember, is to position the yuan as a competitor to the dollar for global reserve currency status. As a result the aspirations of the yuan might also become support for the price of gold.

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DMR-Gold up $6 in continuation of trend begun on Friday

Gold pushed another $6 higher at $1212 in a continuation of the upward trend begun on Friday.  Overseas trading was quiet.  Silver is up 10¢ at $14.89. Gold is up $27 since last Thursday’s close.  As we reported last week, the market is being driven by a combination of three major developments – dovish remarks from the Fed chairman in a speech delivered on Friday, China’s moves to strengthen the yuan, and the perceived potential for short covering from speculators squaring the record short position at the COMEX (if not actual covering).  The dollar is down sharply in early trading.

Quote of the Day
“President Trump’s actions over trade, which appear to have some short-term successes, are driving countries away from her sphere of influence. Ultimately this will prove counterproductive. Speculators buying into Trump’s short-termism and the Fed’s normalization policies are for the moment driving the dollar higher, without realizing that foreigners, far from suffering from a shortage of dollars, already own all the excess dollar liquidity created since the Lehman crisis. This seems certain to lead to the dollar’s downfall. Therefore, the dollar is rising only on short-term considerations, driven by nothing more substantial than speculative flows.

Once these abate, the longer-term prospects for the dollar will reassert themselves, including the escalating budget and trade deficits, record levels of foreign ownership of the dollar, and rising prices fueled by a combination of earlier monetary expansion and the extra taxes of trade tariffs. And if that’s not enough, the erosion of its hegemony coupled with China’s future demands for infrastructure capital seem bound to lead to a fundamental reallocation of capital to the detriment of the dollar. No wonder China and Russia decided to corner the market for physical gold.” – Alasdair Macleod, Mises Institute

Chart[s] of the Day

Charts note:  The last time we featured these two charts, it was to illustrate the relationship between gold and the yuan as they moved in tandem to the downside.  Late last week we caught a glimpse of the other side of the story – the upside. In Friday’s DMR we made note of the possibility that China might have an interest in demonstrating its desire to keep the yuan from plummeting to a disastrously low level.  Though we emphasized trade negotiations with the United States as one incentive, there is another driver to  Chinese policy that may be even more important over the longer run and the one with staying power. China also has an interest in controlling, even stopping, capital flight.  China’s oft-state goal, we should remember, is to position the yuan as a competitor to the dollar for global reserve currency status.  As a result the aspirations of the yuan might also become support for the price of gold.

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New platinum-gold alloy most wear-resistant in the world

Materials Today/8-27-2018

“Materials scientists at Sandia National Laboratories have engineered a platinum-gold alloy believed to be the most wear-resistant metal in the world. It’s 100 times more durable than high-strength steel, making it the first alloy in the same class as diamond and sapphire, nature’s most wear-resistant materials.”

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Posted in Today's top gold news and opinion |

Fed officials see consumer costs as tariffs bite

Financial Times/Sam Fleming/8-26-2018

“Moves by US companies to shift the cost of President Donald Trump’s tariffs to their customers risk complicating monetary policy decisions as the Federal Reserve seeks to keep inflation steady, the central bank’s policymakers have warned.”

USAGOLD note:  More anectodal evidence of future inflation. . .

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Posted in Today's top gold news and opinion |

Powell’s homage to Greenspan hints at Fed flashback

Bloomberg, 8-24-2018/Daniel Moss/8-24-2018

“It’s been a long time since Alan Greenspan gave the big speech at Jackson Hole. And yet there he was, almost ubiquitous, in the ideas and words of Federal Reserve Chairman Jerome Powell’s speech at the central bank’s retreat in Wyoming. Powell heaped praise on Greenspan’s insight as chairman in the 1990s, perceiving that something that changed in the economy and that the old links between strong growth, a vibrant labor market and inflation had broken down. Rates didn’t have to increase as much as conventional wisdom at the time held that they should.”

USAGOLD note:  Bloomberg highlights what many perceive as the Fed chairman taking a dovish turn in his speech Friday at the Jackson Hole central banker conclave. This article summarizes Powell’s emphasis on not being too fast or too slow on the monetary policy trigger, but a more or less a take it as it comes approach.

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Posted in Today's top gold news and opinion |