Monthly Archives: September 2018

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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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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Gold breaks 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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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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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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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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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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James Grant: On the ‘legacy monetary asset’

REPOST from March 13, 2018

MacroVoices/Interview of James Grant/March, 2018

“By way of confession and truth to podcast – let’s see, I confessed I was born in 1946 and that makes me, like, 37? Okay, I was born in 1946 and I was bullish on gold in 1945. I hope that puts my view on this into context.  I’m chronically, sometimes profitably, but certainly very nearly continuously, well-disposed to the legacy monetary asset. I think that so many arrows point to it in the present day. I think it will become the beneficiary of – I’m talking about gold now – gold will become the beneficiary of so many trends. From the tinkering and the unprecedented experimentation of our central bankers’ fiscal profligacy – I’m starting to sound moralistic – I think that paper money is in a secular bear market and that the institution of managed currency will be seen to be a species of pretense, if not outright intellectual fraud. And I use that word advisedly. And I think that come the dropping of the scales from the eyes of the money holders of the world, gold will do better against almost every currency.” – James Grant/Interest Rate Observer

USAGOLD note:  The interview linked above is well-worth your time if you want to better understand the bond market and what might lie ahead for investors.  “[S]omething to bear in mind,” says Grant, “is that nobody issues a press release at the start of an inflationary cycle.”

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USAGOLD’s Mobile Website

Who says you can’t take it with you?
In fact, you can take the gold market everywhere you go.

Prices. News. Opinion. Charts.
And you can order gold and silver
on your phone anytime!

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Gold holding up surprisingly well for Fed Week

DAILY MARKET REPORT

Gold is holding up well so far this week under the typically debilitating effects of a Fed Open Market Committee meeting. Today, it is up $2 thus far at $1202 – a break with convention. Silver, in a relative show of strength, is up 10¢ at $14.38. By tomorrow afternoon we will have a decision on rates and a statement as to how the Fed sees the economy at this juncture with the usual hints of what might be in store for the future. At the moment, the markets seem to be reading those effects as benign.

Improvement in the commodities indices this past week comes as a surprise given the actual imposition of tariffs as of midnight last night. The CRB Index is up 2.32% on the week; the LME +5.06% and the GSCI +2.05%. That, more than anything, explains gold holding up well during Fed Week. Off in the distance October rumbles. . . the month when volatility reigns supreme, when stock markets have been known to go bump in the night and when gold traditionally begins to reap the positive effects of its seasonal cycle.

Quote of the Day
“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.” – Joseph Peden, professor of history, Baruch College of the City University of New York (1984 speech)

* Roman denarius debasement as charted below.

Image courtesy of Nicolas Perrault III [CC0], from Wikimedia Commons

Chart note 1: It is no accident that the debasement of the Roman denarius silver coin coincided with the decline and fall of the Roman empire – a period stretching roughly from 31 BC to 300 AD. During Augustus reign, the denarius contained 98% silver. From there it steadily. During Nero’s time, it was debased to 93.5%. By 148 BC, the denarius was minted at 83.5% purity. In 241, it was 48% silver. Under Marcus Aurelius in 274 AD, the denarius fell to a silver purity of 5%.

Chart note 2: Historians argue whether or not inflation was a cause or an effect in the decline and fall of Rome, but there is no doubt that the two occurred simultaneously. Even today, hobbyists and archeologists turn up hoards of silver coins stashed by inflation conscious savers who were attempting to beat the relentless march of inflation. The equivalent pursuit today is swapping paper currency for gold and silver coins and bullion. Tomorrow, we will publish a more contemporary chart that looks quite a bit like the one above.

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DMR–Gold holding up surprisingly well for Fed Week

DAILY MARKET REPORT

Gold is holding up well so far this week under the typically debilitating effects of a Fed Open Market Committee meeting.  Today, it is up $2 thus far at $1202 – a break with convention.  Silver, in a relative show of strength,  is up 10¢ at $14.38.  By tomorrow afternoon we will have a decision on rates and a statement as to how the Fed sees the economy at this juncture with the usual hints of what might be in store for the future. At the moment, the markets seem to be reading those effects as benign.

Improvement in the commodities indices this past week comes as a surprise given the actual imposition of tariffs as of midnight last night.  The CRB Index is up 2.32% on the week; the LME +5.06% and the GSCI +2.05%.  That, more than anything, explains gold holding up well during Fed Week. Off in the distance October rumbles. . . the month when volatility reigns supreme, when stock markets have been known to go bump in the night and when gold traditionally begins to reap the positive effects of its seasonal cycle.

Quote of the Day
“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.” – Joseph Peden, professor of history, Baruch College of the City University of New York (1984 speech)

* Roman denarius debasement as charted below.

Image courtesy of Nicolas Perrault III [CC0], from Wikimedia Commons

Chart note 1:  It is no accident that the debasement of the Roman denarius silver coin coincided with the decline and fall of the Roman empire – a period stretching roughly from 31 BC to 300 AD. During Augustus reign, the denarius contained 98% silver. From there it steadily. During Nero’s time, it was debased to 93.5%. By 148 BC, the denarius was minted at 83.5% purity. In 241, it was 48% silver. Under Marcus Aurelius in 274 AD, the denarius fell to a silver purity of 5%.

Chart note 2: Historians argue whether or not inflation was a cause or an effect in the decline and fall of Rome, but there is no doubt that the two occurred simultaneously. Even today, hobbyists and archeologists turn up hoards of silver coins stashed by inflation conscious savers who were attempting to beat the relentless march of inflation. The equivalent pursuit today is swapping paper currency for gold and silver coins and bullion. Tomorrow, we will publish a more contemporary chart that looks quite a bit like the one above.

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Posted in Daily Market Report, Today's top gold news and opinion |

The forgotten history of the financial crisis

What the world should have learned in 2008

Financial Affairs/Adam Tooze/September-October, 2018

Given what has since emerged about the scale of its actions, the shift in the political climate in the United States, and the likelihood that the next crisis will be in the emerging markets, and quite possibly in China, it may take more than a guardian angel to save the global economy next time.

USAGOLD note:  A look behind the scenes of the 2008 crisis – what happened and who were really the major players, including the Fed’s role as global lender of last resort. This article is the story of a global bailout – the same bailout JP Morgan’s Jamie Dimon said yesterday would take 25 years for Americans to forgive. In short, the next crisis due to its size, scope and political constraints might be unmanageable, a prospect that elevates the importance of gold and silver as portfolio hedges.

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Posted in Today's top gold news and opinion |

We’ve just seen the biggest merger deal in gold mining history

Money Week/Dominic Frisby/9-25-2018

“Indeed, Randgold’s boss, Mark Bristow, frequently made mockery of Barrick’s incompetence. ‘The industry blows its brains out every time,’ he said in 2014. ‘The reason we’re still in the industry is because the competition isn’t that sharp.’”

USAGOLD note:  You’ve probably seen the headlines on the Barrick-RandGold merger.  Here’s a look on the inside.  Bristow’s assessment sheds some light on why Wall Streeter John Paulson feels it necessary to launch his new shareholder’s gold council.

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Posted in Today's top gold news and opinion |

Trade war reality sets in as U.S. and China stick to their guns

Bloomberg/Andrew Mayeda and Enda Curran/9-24-2018

“The world’s two biggest economies are digging in for what could be a long and bruising trade war, testing the resilience of the strongest global upswing in years. The Trump administration just after midnight on Monday slapped tariffs on $200 billion in Chinese goods. China responded with duties of its own on $60 billion in U.S. products.”

USAGOLD note:  After all the reporting, discussion and opinion, the reality of a trade war is now upon us.  The markets will begin weighing-in as of today.

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Posted in Today's top gold news and opinion |

EU’s Juncker wants bigger global role for euro

Reuters/Alistair MacDonald/9-23-2018

“European Commission President Jean-Claude Juncker called on Wednesday for the European Union to promote the euro as a global currency to challenge the U.S. dollar.”

USAGOLD note:  In recent months, monetary sovereignty has become a major global issue with Juncker’s more strident remarks of late something of a surprise.


Image by QuinceMedia (Pixabay) [CC0], via Wikimedia Commons

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Posted in Today's top gold news and opinion |

A quick heads up

Two weeks ago we reported on a surge in demand for silver American Eagles that emptied the US Mint of inventories.  We learn today that premiums on gold bullion coins, including the gold American Eagles, suddenly are up across the boards.  That though is only part of the story.  Wholesalers are now buying up available inventories of gold bullion coins wherever they can find them in anticipation of potential future shortages.

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Posted in Today's top gold news and opinion |

Gold firms as we enter Fed Week

DAILY MARKET REPORT

Gold appears determined to hold on to the $1200 price level as we enter Fed Week. In fact, it is up firmly in today’s early going at $1203.50 – a $3.50 increase over Friday’s closing price level. Silver is up 3¢ at $14.30.

The dollar has taken an abrupt turn to the south this morning helping the gold price. Also providing an assist, oil is sharply higher on concerns about Iran sanctions and OPEC’s unwillingness to pump more oil to make up the difference. In a surprise, European Central Bank president Mario Draghi warned today of a “relatively vigorous pick-up in underlying inflation” in Europe.

In Friday’s DMR we attributed gold’s sudden $14 drop to aggressive selling of gold on the COMEX, perhaps by a single seller. Bloomberg also made reference to the one minute, one-million ounce sale quoting BMO Capital Markets’ Tai Wong as saying “Someone had a lot to sell and wasn’t clever about it.”

Quote of the Day
“The market does not have the supply response for a potential disappearance of 2 million barrels a day in the fourth quarter [the result of Iran sanctions]. In my view, that makes it conceivable to see a price spike north of $100 a barrel.” – Daniel Jaeggi, Mercuria Energy Group, as quoted in a Bloomberg article, 9-23-2018

Chart of the Day

Chart note 1: With oil on a tear of late – up over 36 % over the past 12 months and 6.5% just over the past month – we thought it would be a good time to take a look at the gold-oil overlay chart. The historical association between the two is well-known, but since April, yellow gold took a turn south while black gold continued to head north. Oil has clearly outperformed gold since early 2016 nearly doubling while gold has risen about 15% – a divergence leading some to think that gold is due for a make-up rally.

Chart note 2: Columbia University’s Jason Bordoff offers an insight on why the price of oil is rising in the United States even though America is generally considered to be energy independent. “The US still needs OPEC to provide relief on oil prices,” he says in a Financial Times article. In an integrated global market, he explains, U.S. prices are still affected by global supply and demand issues regardless of import and export volumes. In short, the price is determined globally and applied locally – an important factor to keep in mind with respect to the potential for oil-generated inflation both now and in the future.

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Posted in dailyquotes |

DMR–Gold firms as we enter Fed Week

DAILY MARKET REPORT

Gold appears determined to hold on to the $1200 price level as we enter Fed Week.  In fact, it is up firmly in today’s early going at $1203.50 – a $3.50 increase over Friday’s closing price level.  Silver is up 3¢ at $14.30.

The dollar has taken an abrupt turn to the south this morning helping the gold price.  Also providing an assist, oil is sharply higher on concerns about Iran sanctions and OPEC’s unwillingness to pump more oil to make up the difference.  In a surprise, European Central Bank president Mario Draghi warned today of a “relatively vigorous pick-up in underlying inflation” in Europe.

In Friday’s DMR we attributed gold’s sudden $14 drop to aggressive selling of gold on the COMEX, perhaps by a single seller.  Bloomberg also made reference to the one minute, one-million ounce sale quoting BMO Capital Markets’ Tai Wong as saying “Someone had a lot to sell and wasn’t clever about it.”

Quote of the Day
“The market does not have the supply response for a potential disappearance of 2 million barrels a day in the fourth quarter [the result of Iran sanctions]. In my view, that makes it conceivable to see a price spike north of $100 a barrel.” – Daniel Jaeggi, Mercuria Energy Group, as quoted in a Bloomberg article, 9-23-2018

Chart of the Day

Chart note 1: With oil on a tear of late – up over 36 % over the past 12 months and 6.5% just over the past month – we thought it would be a good time to take a look at the gold-oil overlay chart.  The historical association between the two is well-known, but since April, yellow gold took a turn south while black gold continued to head north.  Oil has clearly outperformed gold since early 2016 nearly doubling while gold has risen about 15% – a divergence leading some to think that gold is due for a make-up rally.

Chart note 2:  Columbia University’s Jason Bordoff offers an insight on why the price of oil is rising in the United States even though America is generally considered to be energy independent. “The US still needs OPEC to provide relief on oil prices,” he says in a Financial Times article. In an integrated global market, he explains, U.S. prices are still affected by global supply and demand issues regardless of import and export volumes.  In short, the price is determined globally and applied locally – an important factor to keep in mind with respect to the potential for oil-generated inflation both now and in the future.

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Posted in Daily Market Report, Today's top gold news and opinion |

Dalio on the next crisis

Bloomberg TV/Eric Schatzker/9-12-2018

Interview of Ray Dalio, Bridgewater Associates/Video

“You easily could have a 30% depreciation in the value the dollar. . . .”

USAGOLD note:   This video precedes Saturday’s Dalio post (see below) and expands on his current thinking – particularly with respect to the next crisis which he says is about two years away.  He offers some sound, basic advice how to go about preparing for it.

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Posted in Today's top gold news and opinion |