Author Archives: MK

Amazon-Whole Foods deal deflationary?

Mish Talk/6-16-2017

“Amazon bought Whole Foods today. Widespread carnage in the grocery stock prices followed. Jim Cramer called it a major deflationary disruption saying stores cannot compete.”

MK note:  Interesting buzz on Amazon’s Whole Foods prospective acquisition.  Whenever the subject of deflation comes up, I think of gold’s stellar performance in the wake of the last crisis which, in fact, was disinflationary.  Disinflation, in turn, is a close cousin to deflation as discussed in some detail HERE and HERE, along with  gold’s historic relevance in protecting against either or both.

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ECB buys renminbi for reserves

The Financial Times reports this morning that the European Central Bank gave a “seal of approval” to the Chinese renminbi with a purchase of 500 million euros worth  of the currrency for its reserves – a small transaction but with “huge symbolic significance.”  It is also important symbolically that the ECB sold dollars to purchase the renminbi. This ECB purchase may be the most important development to date with respect to China’s establishing the yuan as a global reserve currency, and a possibly a direct response to the cool relations  between the U.S. and Europe on display at the recent G-7 meeting. – MK

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What the markets are telling us five months into the year . . . . .

Wall Street, the financial media and a good many investment analysts are down on gold and silver.  It is difficult to understand why.

As of Friday’s closes,

– the Dow Jones Industrial Average is up 7.30% thus far in 2017

Gold is up 11.12%

Silver is up 10.37%

– the Dollar is down 3.52% (based on the Dollar Index –  Major currencies)

Commodities are down 5.9% (based on the Bloomberg Commodity Index)

All of which tells us that, as of June 2, 2017, gold and silver are still being purchased as hedges against disinflation and overall financial system risks as has been the case since the turn of 21st century.  At the moment, we can also throw in dollar weakness as a factor, though it is difficult to know whether or not that weakness is temporary or something with staying power.

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Why gold is up today . . .

Up $10 as this is posted.

A Wall Street Journal article published this morning might have inspired new  fund/institutional buying.  The WSJ is often used by the Fed to channel messages to the market and this looks like one of those articles. It suggests that a rate hike might be on hold for September although the June hike is still a likelihood.  The article cited political wrangling in Congress and a possible government shutdown as primary reasons for putting September on hold.  Another aspect of the Fed’s agenda – unwinding the balance sheet – was also covered. It seems the board is leaning toward retiring its holdings gradually as debt instruments mature rather than any sort of wholesale dumping. The go-slow approach is meant, according to the WSJ, as an attempt to ward off a future “taper tantrum” in the bond market.  Gold apparently likes the new agenda, or at the very least, likes the fact that the Fed has decided to be cautious on both rates and the balance sheet.  MK

Here’s a Barron’s take on the Wall Street Journal article: Will Political Wrangling Alter The Fed’s Rate Hike And Taper Timeline – Uncertainty in Washington may shake up the central bank’s plans beyond June.

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The perils of complacency. . . .

. . . in the age of quants and the madness of machines

Daily Reckoning/James Ricards/5-19-2017

“In recent decades, mainstream economists insisted that markets are highly efficient, and do a near perfect job of digesting available information and correctly pricing assets today to take account of future events based on that information. In fact, nothing could be further from the truth. Markets do offer valuable information to analysts, but they are far from efficient. Markets can be rational or irrational. Markets can be volatile, irrationally exuberant, or in a complete state of panic depending upon the emotions of investors, herd behavior, and the specific array of preferences when a new shock emerges.”

MK note:  I might add that the volatility, irrationality, potential panic and the rest when applied to the markets extends beyond humanity itself to machine-driven algos as well – hence the madness of machines, as I have called it past writings.  We should keep in mind that computer driven trading models mimic human behavior by design.  As a result, the bad behviour necessarily comes with the good.  Computer driven trading is an extension of human psychology, not set aside from it.  After all, the goal in the end is get ahead of the competition, a decidedly human endeavor.

This morning’s Wall Street Journal features an article on algo/quant trading platforms.  In it, the authors bemoan the lockstep trading of the various quant funds and their potential to exacerbate a trend.  The lemmings in short can take the market higher; they can also take it over a cliff.

Quants today comprise 29% of stock market trading volume – a percentage large enough to dictate momentum in either direction depending upon if they are buying or selling.  I agree with James Rickards.  There is a peril in being complacent and thinking that all of this will end well, or that because the trading is dominated by algos and quant platforms that somehow the markets have suddenly become immune to the history of panics, mania, crashes and collapses that frequent economic history.  That quant is every bit as human in the way it acts and reacts as the programmers that gave it cyber-life.

The best way to guard against the power of quants moving against you and your portfolio is to own gold and silver.  The lemming with the parachute owns precious metals.

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Dow drops 250 points, S&P and Nasdaq fall 1% as Trump worries send shivers down Wall Street

CNBC/Fred Imbert/5-17-2017

“This is clearly Washington-driven,” said Michael Shaoul, chairman and CEO of Marketfield Asset Management. “It’s a lot like 1998-99, when the market had to deal with the [Monica] Lewinsky scandal.”

MK note:  Unravelling euphoria + deflating bubble = Gold up $15.

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Of inflationists and swamp creatures. . . . .

“This crowd couldn’t sell gold bars to inflationists.”  – Today’s lead Wall Street Journal editorial with reference to the Trump administration’s handling of Comey’s termination

MK note:  Though the Wall Street Journal confuses use of the term “inflationist,” the point is well-taken.  It is not the perpetrator of inflation (the inflationist) who seeks the safety of gold in most cases.  It is the victims, i.e. ordinary citizens. I say “in most cases” because there is one notable instance of an inflationist taking refuge in the metal. He was one of the most infamous perpetrators of them all, John Law, who in 1720 was ultimately caught in escape mode at the French border with a wagon load of gold and silver booty he had accumulated against the currency hyperinflation he had created.

History aside, as a firm that has placed millions in gold coins and bars over the years with investors hedging an assortment of potential disasters, we can say with confidence that USAGOLD can and does sell gold to “inflationists” under the WSJ definition. . . . . and plenty of it.  If anything, the level of confusion, angst and partisan politics on the loose in Washington DC these days only adds another good reason for the rest of us to own gold.  The swamp, in short, requires hedging.  I am not surprised to see gold moving back to the upside under the current circumstances.  As noted yesterday, the euphoria bubble is in the process of being deflated by events.

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Gold vs. Trumponomics

The Alchemist/Dr. Jonathan Butler, Mitsubishi/5-10-2017

“After the dollar and stock market euphoria of late 2016 and early 2017, there are already signs that the Trump reflation trade may be more an expression of hopeful sentiment rather than a new paradigm of actual higher economic growth and inflation. Treasury yields, the dollar, equity valuations and inflation expectations are all reversing their previous gains, to the benefit of gold. Though it remains too early to say with any certainty, bullion may even end up benefiting further from the Trump administration’s changes to the regulatory environment and the promotion of US manufacturing. As Trumponomics, in whatever form it ultimately takes, brings a new set of political, economic and trade uncertainties over the coming four years, gold should have plenty of opportunities to shine as a safe-haven asset and portfolio diversifier.”

MK note:  Somehow this argument seems considerably more credible now than 24-hours ago.  The quote above leaves out another important argument made several times in this Alchemist article.  The Trump administration is likely to have a great deal of difficulty pushing its programs through Congress, a direct blow to the reflation trade.  Slowly, sentiment is beginning to turn from the post-election euphoria that has governed trading in financial markets since the November election.

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Gold’s transcendence in the fiat money era

Whenever I am concerned about gold’s price performance, I return to this chart and it restores my faith in the metal without reservations.  I could write many paragraphs about what I see here, but I think the chart speaks for itself. It explains at a glance why gold in the fiat money era, in which we are still firmly esconced, is a good thing to own.  Simply put, it transcends. . . . . . .During the gold standard era, the chart is a flatline.  The day the United States severed the dollar’s tie to gold, it registered a pulse.

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China has now become the biggest fear for markets

CNBC/Patti Domm/5-9-2017

“Stocks are at record highs, the VIX is at a 10-year low, and while investors are relieved the French presidency did not go to an anti-euro candidate, new risks are filling the void. Topping the list of market worries is China, which has been on the back burner for months now. Some weaker-than-expected data, however, has put a spotlight on the country’s economy.”

MK note:  Those wondering why gold didn’t stage one of its quick rebounds following the Fed meeting might want to throw the slowdown in China into the analysis. News of problems in the Chinese economy took on renewed concern almost immediately following the meeting.  Commodities took a hit, particularly copper and some of the other industrial metals, but that bled into the gold and silver markets as well. Simultaneously, however, reports surfaced of strong demand for gold from China.  So maybe the post-Fed-piling-on in the gold and silver markets lacks justification, and more importantly, depth given the fact that gold demand in China went in the opposite direction.

_____________

I’ve written extensively of the madness of machines and the large segment of trading governed by them, i.e., the primary influences in today’s financial markets.  You can either attempt to ascertain the madness and join the fun (while your luck holds out), or you can bet against it with a solid core portfolio position in gold and silver.  Diversification into something real and detached from the paper-based madness makes a great deal of sense.

All of which reminds me of an Ed Stein cartoon. . . . . . .Sometimes the algos simply do not get the reality quite right.

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Credit Suisse goes positive on gold

With the steady drizzle on gold’s parade, it’s nice to see something positive come out of one of the big international banks.  Credit Suisse is calling for gold to hit $1400 an ounce by the end of the year citing ––

a) “surprise” low real rates of return (something we’ve emphasized in past posts + articles),

b) “waning strength in the U.S. dollar” (which we have yet to see),

c) dovish monetary policy (which is commonly misinterpreted as hawkish) and

d) the “probability of a disruptive geopolitical event”

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Druckenmiller, Warsh – Interesting segues at the Sohn conference

Every year the hedge fund and money management elite gather at New York’s Lincoln Center for the Sohn Conference where they elaborate on their view of the markets and the economy.  They also provide insights as to what they are touting these days – a chance to talk their book to a room full of fellow traders.

This year, amidst the otherwise boring touts, a couple interesting tidbits surfaced that I thought worth passing along:

  1.  I did not know that Kevin Warsh, the youngest to ever take a seat at the Federal Reserve’s governors table, was the front runner to take over for Janet Yellen, but according to Forexlive’s Adam Button that is apparently the case.  Warsh is currently an advisor to the Trump administration.  Forexlive reports that Warsh took centerstage last Friday “with a savage assessment of the Fed.”  He believes the Fed should “engage in a fundamental rethink of strategy and how it thinks about the world.”  He says the so-called dot plot that nearly everyone on Wall Street uses to diagnose future Fed direction on rates has been wrong for nine years.  He also says the Fed can fix itself without the help of Congress and that there is considerable waste in its $2.5 billion budget.  All of that might fit in nicely with the mindset at the White House these days.
  2. Warsh also said that “he believes the market is dangerous when measures of risk appear to be so low,” as reported at Bloomberg. He is probably referring to the VIX, i.e. the Volatility Index which is just as subject to speculative pressure as anything else listed and traded on the commodity exchange.  One wonders if it can be viewed as a reliable indicator given those speculative pressures, but that might be precisely why so many believe it to be reliable.  The Wall Street Journal published a front page article on the VIX this morning citing the measure at the lowest level since just before the 2007-2008 financial crisis.  Some see that new low as a major positive while others see it as a contrary indicator.
  3. Stanley Druckenmiller in introducing Warsh at the conference said he sold his gold on election night then bought a bunch of it back after it corrected.

MK

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Today’s gold and silver sell-off

The FOMC meets Tuesday and Wednesday this week.  Today’s downside, in my view, is the standard sell-off that generally accompanies Fed meetings these days – irrespective of the expected meeting results.  From what I’ve read, this particular meeting will focus on the manner and method of reducing the Fed’s balance sheet and skirt the interest rate issue, though one never knows.

On the balance sheet issues, I’m still lingering on first base asking the basic question:  Why does the Fed need to reduce its balance sheet?  Why not simply leave things as is given the potential harm that reduction might have on the bond and stock markets, not to speak of the overall economy?  To me, it appears the Fed, for whatever reason, chooses to drive the streets in a truck full of nitro-glycerine.   It is the Fed’s choice to so so, but one wonders why.

Gold’s appeal will likely be enhanced by the market instability such considerations are likely to generate on a global basis.  Already we are seeing reports of major bond liquidations in Japan.  In doing so, it joins China in the on-going liquidations, and just as importantly, a reluctance to buy bonds at the weekly auctions.  Oddly enough, an absence of buyers of U.S. sovereign debt, should it occur, could ultimately lead to another round of quantitative easing, a process we called printing money in times past, and led to the huge balance sheet position the Fed now says it wants to liquidate.

And if all of that doesn’t confuse you, I don’t know what will.

MK

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Gold and NAFTA. . . .A consideration

Quick Update/Michael J. Kosares

Now let’s take a look at gold from the same perspective:

In 2015, the United States imported 265 tonnes of gold for consumption.  Of that, 41% (109 tonnes) came from Mexico and 19% (50 tonnes) from Canada, or 60% of the total consumption.  The United States is in somewhat better shape on gold than silver in terms of domestic availability, i.e., it exports 500 tonnes per year, a somewhat nebulous figure in that it includes outflows from foreign stocks at the New York Federal Reserve. The U.S. produces 200 tonnes per year from domestic mines and holds 8100 tonnes at the Treasury Department.  Nevertheless, Mexico and Canada’s imprint on U.S. gold fundamentals is noteworthy.

U.S. Geological Survey gold statistical overview

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Silver and NAFTA. . . .A consideration

Quick Update/Michael J. Kosares

With reports circulating in the media that the Trump administration is preparing an executive order to withdraw the United States from NAFTA, I thought it might be interesting to review how much of the silver consumed in the U.S. annually comes from Mexico and Canada.  In a nutshell, according to the U.S. Geological Survey, of the 8100 tonnes consumed by the United States during 2015, 6700 tonnes were imported.  Of that, 54% came from Mexico and 26% from Canada.  In tonnes that translates to 3600 tonnes from Mexico and 2100 tonnes from Canada, or over 70% of the silver consumed (5700 tonnes).  The U.S. Treasury strategic stockpile is less than 500 tonnes.

U.S. Geological Survey silver statistical overview

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Past few days a fractal event for the gold market. . . .

OPINION

by Michael J. Kosares

“In the absence of a credible monetary standard, we expect no escape from the treadmill of rising debt, both US and globally, that outpaces economic growth. Income inequality, wage stagnation, overvaluation of financial assets, and speculation instead of productive investment are likely to be prolonged under the current monetary regime. Whether or not policy makers take a proactive approach to address monetary reform, the fact remains that gold is massively underpriced in all paper currencies. It would be preferable if the necessary adjustments could occur without a repeat of a 2008-like financial crisis. We give this possibility a chance, albeit slim. In any event, we expect a significant repricing of gold higher during the current administration, either by design or because of market events. Whenever a repricing happens, we expect broad grassroots support for that outcome.” – John Hathaway, Tocqueville Funds
____________________

The past few days illustrate an important event in the gold market that both beginning and accomplished investors should try to understand thoroughly. I say that because by such an understanding you will become a more educated, patient and successful gold owner.

On April 19th, over $3 billion in paper gold was sold in the London over-the-counter market dropping the gold price by $14 per ounce in a matter of minutes. Just as quickly, the cries of foul play rose among gold punditry across the internet. Just before the “hit,” gold was trading in the $1286 range. It plunged to $1272. Since this morning’s AM London Fix, gold has been in recovery mode and it is now trading again in the $1286 range. Except for those who took the drop as a buying opportunity, these events will be seen essentially as a sound and fury signifying nothing.  At the same time, quietly the notion of gold’s indestructibility has been reinforced – not so much with respect to its physical qualities, but with the place it occupies in the minds of investors across the globe. The recovery today in a certain sense is a fractal event in both amplitude and duration – a hint of a greater manifestation that might be coming down the road in the not too distant future.

More. . . . .

The gold price is determined in the futures markets, but the effects of that determination are in the physical market, i.e., the price for bullion, coins, jewellery, etc. Those who feel that the gold market price is controlled solely by forces within the paper market do not fully understand the constraints on paper imposed by physical supply and demand.

In a nutshell, if the paper market is successful in suppressing the price for too long and at too low a rate, the physical demand globally will eat up the physical supply and threaten the existence of the primary source of the metal – the mines. That is why top-level analysts like John Hathaway (Tocqueville Funds) often talk about the inevitability of one-off repricing events. As long as gold can be freely owned, the market at some point finds the real price of gold, reconciles the books and exposes the power of price manipulators for what it is – a temporary, staying action rather than a successful long-term program. It is the time period before that happens which presents the best buying opportunities – times like the present. The events of April 19th through today illustrate the point in a microcosm.

As it is, annual mine production has leveled out over the past several years and there has not been a major gold find anywhere in the world for decades. Meanwhile global demand for the physical metal has not only sustained itself in recent years, it has grown rapidly, and clearly at a rate that far exceeds the rate of growth in mine production. Just this past week, we have seen reports of renewed strong demand in China and India – two traditional powerhouses when it comes to physical ownership of the precious metals. Generally speaking, the East buys on price while the West buys on momentum, thus one might conclude that anecdotal evidence shows that the price has been “right” in recent months. This time around, as reported here previously, professional money managers have positioned themselves as buyers in concert with the East, something that happens only on occasion. The two together though are currently an imposing presence in the global gold marketplace.


FREE SUBSCRIPTION – If you are looking for in-depth, cutting-edge coverage of the gold and silver markets, our monthly newsletter – News & Views: Forecasts, Commentary & Analysis on the Economy and Precious Metals – might be just what you are looking for. We invite you to join our group of 20,000 loyal subscribers at no cost or obligation.

The only way the gap between mine production and physical demand can be made-up is from above-ground sources, or by trading paper to the extent that it masks the wide gap between physical demand and physical supply. At some point, the paper price will succumb to reality of shortages as it always does. Those short the metal will need to find it and deliver on the price promises made previously, a process that usually excites the price discovery mechanisms in the paper market. If the pressure exerted by the traders of gold paper were powerful enough to overcome these realities in the physical gold market, the price never would have traversed the enormous gap between $250 per ounce in 2000 and $1850 per ounce in 2011, and roughly $1300 per ounce at present.

So no matter how much we lament the impositions of paper traders, i.e., their corruptions of the market and restraints to the upside, gold’s opponents can only win the occasional battle; they will never win the war. As I have said before, the paper traders must equally curse the ever-present power wielded by physical buyers of the metal, and over the years, the true believers in the precious metals, have only viewed episodes of price suppression as buying opportunities.

Ultimately, the end result might be another unprecedented price explosion, as Mr. Hathaway suggests, when the impotence of the controls becomes apparent on a far larger scale than what occurred in the gold market over the past few days. At a time, as has been the case since 1971, when the production of fiat money rules the roost, gold’s natural inclination will always be to rise in price in terms of that currency. In fact, if that were not the case, it would be unnecessary for anyone to attempt controlling the price. That affinity to rise is only compounded in the end by attempts to restrict the natural price level.

USAGOLD –  Celebrating our 43rd year in the gold business and 20th on the world wide web

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Credit Suisse sees $1400 gold by year end

KitcoNews/Allen Sykora/4-18-2017

“Credit Suisse said a global glut of debt suggests dovish future monetary policy by central bankers. Central banks collectively hold a greater percentage of sovereign debt than ever before, and sensitivity towards disrupting markets means that they likely will be cautious in pursuing policies that could disrupt the current low rate environment supporting the economic recovery.”

MK note:   The less-than-well-informed translate rising rates, and rising rates alone, as an indication of tight monetary policy, but the mere act of raising interest rates is not enough to accomplish that goal. Tight monetary policy translates to forcing interest rates above the inflation rate (or even the natural market rate on Treasuries), and neither Yellen nor Trump want that.

So it is that the professional investors are reading negative returns and the potential for inflation in our collective futures. They are buying gold and silver in response as reflected in rising ETF holdings.  Judging from volumes at USAGOLD over the past few days, private individual investors, like their professional counterparts,  are finally catching on.  It will not be long until reports begin to surface that the average investor has joined the new gold buyers club.

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Evidence of big ETF inflows in London

ETF Strategy/George Watson/4-11-2017

“Source has reported that its Source Physical Gold ETP (LON: SGLD) has recorded over $500m of net new assets year to date (5 April), as the gold price has risen 9% during the same period. According to the ETF issuer, the figures show investors are returning “aggressively” to gold. . .

ETF Securities also reported strong flows into gold, with its gold ETPs seeing a combined $42m of inflows in the week beginning 3 April. The largest of these is ETFS Physical Gold (LON: PHAU) which has AUM of $5.9bn and fees of 0.39%.”

MK note:  We have reported consistently over the past several weeks that while retail private investors seem to be either enamored with the stock market or in a quandary as to what they should do next, professional investors, for reasons of their own, are anteing-up decisively in this gold market.  My thinking is that professional investors, i.e., hedge funds, institutional investors, money managers, etc.,  know full well what the impact of Fed policy will be on the gold market (as outlined in my previous post and more extensively in the March issue of our News & Views newsletter). They also understand the growing market risks associated with the build-up of potentially implacable geopolitical tensions since the beginning of the year.  As shown in the chart immediately below, gold and silver, in fact, have already amply rewarded professional investors who have been in this market since January (as well as their equally astute counterparts among private investors).  At this writing, gold is up 10.5% on the year and silver is up a cool 15%.

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Quick observation on gold being up sharply this morning

Many who offer up their analysis on the gold market will attribute today’s sharp rise to the geopolitical environment, which is fraught with danger to say the least and certainly a contributor.  But that’s not the whole of what is driving the gold market in recent days.  A second, and not-to-be-underplayed, factor is the prevailing and publicly well-cultivated policy of the Federal Reserve toward interest rates, up to and including Janet Yellen’s most recent comments.* The first provides momentum to the second – license.

* “Looking forward, I think the economy is going to continue to grow at a moderate pace.  Our job is going to be to try to set monetary policy to sustain what we have achieved.”  Janet Yellen as quoted in New York Times/4-10-2017

The markets will read “accommodation” in those words meaning the Fed will do what it can to make sure the interest rate tracks behind the inflation rate and creates a negative real rate of return on yield bearing assets.  That latter, a negative real rate of return, has underscored, driven and sustained  bull markets for gold in the past.

MK

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Hussman posts pension system tsunami warning

Stalling engines: The outlook for U.S. cconomic growth your long-term investment portfolio

Advisor Perspectives/John Hussman/4-3-2017

“I’ve detailed this dynamic extensively in the financial markets. Given present valuation extremes, the skateboard is so far ahead of the car that we expect S&P 500 annual nominal total returns to average just 0.6% over the coming 12-year period, even if underlying economic growth accelerates to historically normal rates. Combine that with depressed interest rates, where poor 10-12 year total returns are baked-in-the-cake, and our estimate of the prospective total return on a conventional portfolio mix of 60% stocks, 30% bonds, and 10% T-bills has never been lower.

Given that typical pension fund return assumptions are vastly above our current estimates, it follows that we expect a rather severe pension funding crisis in the coming years. If the resolution of the present valuation extremes is anything like what has followed other speculative peaks like 2000 and 2007, investors will likely face a substantially different (and better) menu of investment opportunities within a small number of years. Dry powder has considerable option value.”

MK note:  In this month’s edition of News & Views we talk about pension fund instability as a possible unforeseen negative “left field” event that could deliver the next systemic crisis to financial markets’ doorstep.  Mr. Hussman communicates that same concern along with additional concerns about the economy itself wherein he cites “challenging arithmetic already baked into the cake.”

WARNING!  Do not read the article linked above if you believe that the stock and bond markets are perpetually solid long-term investments without periods of regression, losses and stalled wealth building.  Do not read this article if you do not want your media-oiled assumptions about the markets and your portfolio challenged.

SOMETHING TO CONSIDER?  Given the returns Hussman forecasts, perhaps that portfolio mix cited above would be better-served with a 10%-30% diversification into gold and silver – the level USAGOLD recommends depending upon your level of concern.  If you are locked-into a government or corporate sponsored pension or retirement fund, you might want to consider a diversification on the personal side.

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King Ibn Saud’s 35,000 British sovereigns

Reading that story about the sovereigns in the piano this morning reminded me of the story of Saudi Arabia’s King Ibn Saud reproduced below as originally posted in 2015:

When Saudi Arabia’s King Ibn Saud sold oil concessions to the major oil companies in 1933, he demanded a payment of 35,000 British sovereigns — a coin many of you hold in your own sovereign wealth funds. The good king understood the difference between the value of gold and the value of a paper promise.

At the time, British sovereigns were valued at $8.24 each, or $288,365 for the 35,000 coin lot. The price of oil in 1933 was about 85¢ a barrel. A British sovereign, as a result, could buy about ten barrels of oil. Today those same sovereigns would bring a little less than $9 million at melt value ($256.50 each/$1090 per ounce gold price) and a barrel of oil is selling for about $44. Thus, a British sovereign can buy almost six 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 price would have to go to $1880 per ounce.

MK 2017 note: Prices have changed but the point remains.  Gold is undervalued at current prices when weighed against the price of oil – even at the current reduced price ranges.


History buffs will appreciate this additional quote and comment from the September 2000 edition of News & Views:

“The only remaining problem was how to obtain that much gold. Because America had just gone off the gold standard, Socal’s efforts to dispatch the gold directly from the United States were turned down by Assistant Secretary of the Treasury Dean Acheson. But finally, the Guaranty Trust’s London office, acting on behalf of Socal, obtained thirty-five thousand sovereigns from the Royal Mint, and they were transported on a ship belonging to the P&O line. Care had been taken that all the coins bore the likeness of a male English monarch, and not Queen Victoria, which it was feared, would have devalued them in the male-dominated society of Saudi Arabia.” – Daniel Yergin, “The Prize”, on the signing of the first oil exploration concession with Saudi Arabia in 1933

The good King Ibn Saud, back in 1933, demanded 35,000 gold British Sovereigns in payment for oil exploration rights in his country. Had he known that he was sitting on a massive pool of oil that would make Saudi Arabia the most important piece of real estate in the world, he might have asked for more. Ibn Saud did however understand the ultimate value of a paper promise, hence the payment in hard, yellow metal. To this day, the Gulf (as it’s come to be known) becomes squeamish whenever it appears the Fed is printing too much paper currency.


Old British sovereigns, like the ones in the photo below, are a preferred acquisition among safe-haven gold IRA rollover investors. We now have a quality selection of George V sovereigns available at attractive bullion-related prices. We invite you to call the Trading Desk at 1-800-869-5115, extension #100 to learn more. British sovereigns were a guardian of wealth in 1933 and remain a guardian of wealth today.

Value+history+gold money = portfolio safety for the long run

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Authorities seek owner of gold stashed in piano

AP/3-16-2017

“British officials are trying to trace the owner of a trove of gold coins worth a ‘life-changing’ amount of money found stashed inside a piano. A coroner investigating the find on Thursday urged anyone with information to come forward. . . Anyone wanting to make a claim has until April 20, when coroner John Ellery will conclude his inquest.”

MK note:  This post is made in the public interest.

Ahem. . .

By the way, British sovereigns happen to be one of the most sought-after, accumulated and stored pre-1933 gold coins in the world.  We sell many thousands of this item annually.  Some go into safe deposit boxes.  Some get buried out on the property.  Some get stashed in the piano.  All are kept in the event of a social, political or financial breakdown, or some other unexpected catastrophe against all of which the gold British sovereign has been a direct hedge for centuries.

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“Accommodative”

Though not a new word to describe Fed policy intentions, using it in today’s statement in the context of obviously rising inflation and inflationary expectations is a new policy stance – one very favorable for gold and likely the Trump administration as well. It seems that the Fed is willing to chase the inflation rate rather than trump it (forgive the allusion), and as long as that’s the case, the markets will read inflation into the economic script for the future.

I think some were expecting “accommodative” to disappear from the Fed-speak particularly after Yellen’s speech earlier this month when she said the central bank is likely to pursue “a neutral” rates policy.  “A ‘neutral’ policy stance,” said Yellen pre-meeting,” is one where monetary policy neither has its foot on the brake nor is pressing down on the accelerator.”  Post-meeting, the word “accommodative” was still there though – like a bright and shiny gold coin sitting on the sidewalk waiting to be pocketed.  It was.  Gold and silver shot higher and so did stocks and even bonds.

All of this blends nicely with themes raised in our March newsletter:Watch movie online The Transporter Refueled (2015)

Will banks’ excess reserves fuel a new monetary crisis?
Don’t look now but inflation and a new gold rush might be in our future.
 

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“The West has been selling gold into a black hole. . . .”

Solving the secret behind the Chinese gold market

Epoch Times/Valentin Scmid/3-13-2017

“Here, Jansen points out a peculiarity regarding Asian buying: ‘Asian demand is strong when the price goes down. Western demand is strong when the price goes up. In April 2013, the gold price collapsed and a lot of gold was exported from the West to China, mostly from the U.K.’”

MK note:  The quote in the headline is from Koos Jansen, the Dutch researcher/expert on Chinese gold demand. It sums up the end result of the London-Zurich-Hong Kong-Shanghai gold pipeline which has been in operation for a number of years.  Most of the experts believe the black hole is likely to remain functional as long as the West can unearth or pry loose hard metal to feed it.  For those who are just now learning the dynamics of the gold market, this article deals with a key piece to the puzzle – China’s enduring interest in the yellow metal.  China, Jansen points out, doesn’t allow even one ounce of gold and silver to leave its shores once it enters.

Watch movie online The Transporter Refueled (2015)

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Strong demand surge at the gold ETFs start of year

World Gold Council/3-10-2016

“At the end of February, total holdings in gold-backed ETFs and similar products stood at 2,246.1t (72.2 moz), up 90.6t from January. These holdings were valued at US$90.7bn, 8% higher than a month earlier.”

MK note:  We’ve been reporting on the surge in ETF purchases for several weeks now.  Following up on the previous post on a hedge fund manager’s commitment to gold, this chart is indicative of professional interest in gold.  As you can see, that interest is strong and on both sides of the Atlantic.  German interest in ETF gold, obviously a reflection of concern with the French election and future of the euro,  is particularly strong – up 16% in February.  Private investors at the moment are content to sit on the sidelines while the professionals scoop up what they see as cheap gold.  Don’t allow yourself to be mesmerized by the stock market and neglect gold. . . . . . .I will leave you with this cartoon from our old friend, Ed Stein.  It kind of says it all. . . . . .

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Why I own gold now, by investor of $2.8 billion

What investment/David Thorpe/3-10-2017

“Cutler has around 5 per cent of the fund deployed in gold. He told What Investment, ‘if you look at the different possible economic scenarios we are faced with now. The first is that we are all going to become like Japan, with no growth, and very low bond yields. Well, the number one reason not to own gold is that it pays no income, but in this scenario, bond yields are very low or negative so nothing pays an income, and that’s good for gold.’

Cutler continued, ‘The second scenario people look at right now is that we end up like in the 1970s, with stagflation, very high inflation and very little growth. Well in times of very high inflation, gold does well as a store of value. It did well the last time we had this scenario.’”

MK note:   That’s the way I see it as well.  Neat, simple and directly to the point.  Either way you are protected with an adequate diversification in gold and silver coins.

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Why ‘digital gold’ won’t ever kill off the real thing

The Conversation/Dirk Baur/3-7-2016

Piles of 20 Italian Lira

“Gold has often been referred to as a relic. But from a behavioural perspective, this may also mean it is ingrained in our subconsciousness and related actions. Put differently, as long as humans remain tangible, it is likely that they maintain a desire to hold real and tangible assets.

Very few companies on the US stock exchange, for example, are older than 50 years. By comparison, gold has existed for thousands of years and any gold coin or gold bar will most likely outlive any company and their stocks and bonds. Put together, it is unlikely that a company that sells claims on gold, such as a gold ETF, will beat physical gold’s longevity.”

MK note:  That’s the bottom line on ETFs, bitcoins and the like. . . . . . . . .Wannabes, not gonnabes.  At least in the sense what constitutes real gold ownership.  Good article for the thinking gold owner. . . . . . .The Italy 20 lira gold coins pictured above are over 120 years old, still reflect the purchasing power of gold in international markets despite their age and have survived the many turns in Italy’s history.  One hundred and twenty years from now that will not have changed. “As long as humans remain tangible, it is likely that they maintain a desire to hold real and tangible assets.”

Speaking of old and valuable gold coins. . . .

USAGOLD’s
March Special Offer

‘Proof-Like’ Schillings, Kroner ‘Mermaids’, ‘Hefty’ 50 Francs, and Deeply Discounted Angels…and a raffle!

We do not see the Austrian 100 Schillings and Mermaids often and the number offered – 50 and 165 respectively – is very low.  These items are likely to be subscribed quickly.

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How France scrapping the euro could go beyond a ‘Lehman moment’

CNBC/Karen Gilchrist/2-24-2017

“Make no mistake, there is the world of difference between tearing up bilateral and multilateral trade agreements, and, unwinding a monetary union as far reaching in scope as the EMU (economic and monetary union) project,” Deutsche Bank said in a note Tuesday. “It is the difference between a benign global risk event and something that has the potential to go beyond a ‘Lehman’s moment’.

MK note:  Two essential mental plug-ins come to mind.  One, Marine LePen who promises a Frexit referendum is ahead in the polls.  Two, the last time France voted on the EU it was on the question of a European constitution and it voted “against.”  Note Deutsche is not calling Frexit a “Lehman moment,” but “beyond a Lehman moment.”

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Who’s buying all the Treasury paper?

Economica/Chris Hamilton/2-21-2016

“What I’m even more confused about is who, exactly, is buying all the Treasury debt while simultaneously buying all the equity’s (and real estate, and and and)?. . . I’m astounded that somehow the domestic public is able to push equity prices up by over $16 trillion from there ’09 lows while simultaneously buying record quantities of Treasury debt.  The TIC data (Treasury International Capital system) combined with Fed data and further Treasury data show the public is presently purchasing nearly $70 billion a month (average) of still near record low yielding debt?!?  The only previous period that the domestic public bought even 2/3rds the present amount, asset valuations were in free fall from 2008 to 2010 as money rotated from risk to perceived safety.”

MK note:  Confused?  So are we. . . . .

Also. . . .

Why biggest U.S. creditors are selling Treasuries/Bloomberg/2-22-2017

“It’s the biggest pile of debt in the world — the $13.9 trillion U.S. Treasuries market. It’s been built with the help of foreign central banks and investors, who have clamored to buy U.S. government debt through good times and bad. But what happens if they lose their taste for Treasuries? With creditors from Tokyo to Beijing to London having second thoughts, we may be about to find out.”

MK note:  Based on the data, they have already lost their taste for U.S. government debt.  The real question reverts back to the previous article:  Who is buying all this U.S. government debt in a rising interest rate environment?  There is always a kind of built-in demand based on normal day-to-day financial market needs, but when you factor in the huge amount of debt sold in Asia plus the huge on-going needs of the U.S. government we are talking some very big numbers. . .very big supply and very big demand.

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Gold isn’t behaving in practice the way it should in theory

Bloomberg/Eddie Van Der Walt/2-19-2017

“The market worries more ahead of the event than after,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by e-mail. “Once the hike was out of the way, a more balanced picture emerged and that together with a reality check of the potential Trump impact did the rest.”

MK note:  Gold continues to climb this morning though in somewhat subdued fashion probably a result of the holiday in the United States.  Ole Hansen’s comments focus on the United States, but it seems that every area of the globe has its own unique concerns driving physical demand.  China has a currency problem, massive debt and capital flight to contend with.  In Europe, investors are worried about the rise of Marine LePen in France and her promise to take France out of the euro, possible debt default in Greece and teetering banks in Italy. In the United States, inflation expectations have begun to influence investment decisions across the boards.  Altogether these singular, localized dimensions form an imposing whole.

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