Author Archives: Opinion

Gold trade: Banks smarter than you think

BusinessReport/Ryk de Klerk/5-9-2019

“What is important though is that the central banks are highly price sensitive and do not chase the market. They reduce their purchases when the gold price rise and, conversely, increase their holdings when the gold price falls. The result is that they effectively create a floor for the gold price as they act as buyer of last resort.”

USAGOLD note:  DeClerk backs up that premise with a simple but effective chart that shows central banks demand increasing on dips in the gold price.


Repost from 5-13-2019

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The current monetary order is nearing its end

Precious Metal Advisory Switzerland/Interview: Dmitri Speck/5-13-2019

“I believe that this was just the beginning. In the end, it will be very tempting for the US to get rid of its debts by devaluing its own currency. Many creditors are abroad, especially central banks. If the non-American central banks notice the loss of the value of their assets, they will buy much more gold. Then the historically unusual and economically fatal situation where central banks hold the bonds of mainly one country will finally come to an end. This is one of the reasons I have an optimistic view of gold’s performance in the months and years to come. Also, given the global economic and political landscape, that is troubling to say the least, gold’s appeal is bound to rise and not just among institutional investors.”

USAGOLD note:  An interesting, in-depth interview of one of the individuals behind Germany’s gold repatriation program.


Repost from 5-15-2019

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Who will blink first?

Financial Times/James Politi, Sam Fleming and Tom Mitchell/5-18-2019

“Donald Trump is betting that the US is better placed than China to withstand the pain of a prolonged stand-off over trade. But attitudes to Washington are hardening across the bureaucracy in Beijing.”

USAGOLD note: This article begins with some Main Street reactions to the trade war. A hardware store owner in Virginia says on-the-shelf tariff price increases are not 2-3% but “5, 10 per cent-plus hikes on things.” Another concern raised in this editorial is that the standoff “will deliver a blow to financial market confidence.” Major retailers have come public in recent days with warnings about upcoming price increases, including WalMart and Macy’s.

 

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Why the trade war is hitting a Trump-country commodity hardest

Barron’s/Nicholas Jasinski/5-17-2019

“The trade war between the U.S. and China is not expected to have a big impact on your favorite commodity—unless you happen to be a soybean farmer. ‘This is going to go on longer than people think, but there’s no reason to be doomsday about it,’ says Craig Turner, senior commodities broker at Daniels Trading, a Chicago-based futures brokerage firm. ‘You can be worried—there’s nothing wrong with being a little bit worried—but I wouldn’t panic.'”

USAGOLD note:  Though the plight of the soybean farmer is the focus of this article, it ends with a nod in the direction of the precious metals. Gold, it says, may be the one “winning commodity” in the trade war because of its dual role as inflation hedge and general safe haven asset.

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In the Fed we trust – Part 1

Real Investment Advice/Michael Liebowitz/5-15-2019

“It is this most foundational understanding of currency that keeps our economy humming, our physical prosperity growing and our society stable. The TRUST backing the dollar, euro, yen, etc. is essential to our financial, physical and psychological welfare. Let’s explore why we should not assume that TRUST is a permanent condition.”

USAGOLD note:  Liebowitz offers interesting insights on the value of the dollar and whether or not trust in that value is well-placed.

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‘When vultures grow fat on a corpse, they do not revive it’

Project Syndicate/Yanis Varoufakis/5-17-2019

“Greece is in the vanguard of this trend, attracting fair-weather, shallow, speculative trades, while patient investment in its economic recovery is nowhere to be seen. After 2008, Greece came to symbolize global capitalism’s failure to balance credit and trade flows. Today, as the global mismatch between economic reality and financial returns grows, there is clear danger that, once again, the country is foreshadowing a new phase of the global crisis. When vultures grow fat on a corpse, they do not revive it.”

USAGOLD note:  Varoufakis, who garnered much attention as Greece’s Finance Minister during its financial breakdown, focuses in this essay on financial market speculation in low-quality debt – public and private – and says that Greece once again is the ‘canary in the global gold mine.’

Related: Fed warns leveraged lending could exacerbate a downturn/Financial Times/Kiran Stacey/5-6-2019

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True start to U.S. vs. China Trade War

Credit Bubble Bulletin/Doug Noland/5-18-2019

“Increasingly, it appears as if the respite from Q4 global market instability has about run its course. As an economy – from governments to corporations to households – I can’t imagine a more poorly prepared system for the gathering storm. I know: fundamentals are “sound” and the banking system is ‘well capitalized.’ Besides, there’s the Quadruple Puts – a deeply entrenched market misperception that really concerns me. Complacency is pervasive – epically so. Ignore fundamental developments, while placing faith in the power of politicians and central bankers (and corporations forever enjoying access to cheap finance to fund buybacks). Such a backdrop creates extraordinary risk for an abrupt change in perceptions and resulting crisis of confidence – in policymakers and the markets.”

USAGOLD note: Noland discusses strategies China might deploy with respect to the yuan citing a Reuters report in which Chinese sources say the PBOC will not allow it to break the 7 level.  Since most of gold’s downside the past week was the result of yuan weakness a strong response from the PBOC is likely to be received positively.  Another positive in all of this is that the demand for gold in China is likely to be mobilized as a result as everyone from commercial banks and institutions and private individuals move to protect their assets against yuan depreciation.

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Strike three: The next bear market ends the game

Real Investment Advice/Lance Roberts/5-16-2019

“What becomes much more apparent is that bear markets tend to destroy most or all of the previous advance and has done so repeatedly throughout history. Importantly, what was not being discussed between the advisor and his 60-something client was simply the risk of ‘time.’ There are many financial advisors, commentators, experts, and social media gurus who have never actually ‘been invested’ during a real ‘bear market.’ While the ‘theory of ‘buy and hold’ sounds good, kind of like MMT, in practice it is an entirely different issue. The emotional stress of loss leads to selling even by the most ‘die hard”’of individuals. The combined destruction of capital and the loss of time is the biggest issue when it comes to individuals meeting their retirement goals.”

USAGOLD note:  There are two principal approaches to the problem Mr. Roberts so persuasively exposes.  One does not necessarily preclude the other.  The first is to find a good guide to help you paddle through choppy waters.  The second is to diversify before the water begins to even stir.  With respect to hedging stock market exposure, the focus of the essay linked above, a good approach and the one that has gained considerable purchase in these uncertain times is to own an uncorrelated asset – a course of action that inevitably leads the seeker of wisdom to gold’s door. . . . The charts alone are worth the visit.

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Gartman: ‘We make an official recommendation to sell stocks short this morning’

ZeroHedge/Tyler Durden/5-17-2019

“It’s been a while since we updated on the daily doings of the ‘world-renowned commodity guru’ Dennis Gartman for the simple reason that just like the algos, the mom and pops and virtually all hedge funds, Gartman too had no idea what is really going on in a market in which everyone is selling (there is now $135 billion in equity fund redemptions YTD) yet stocks keep rising higher.”

USAGOLD note:  Well said. . .

 

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The dystopian view: Is this the year the world falls apart?

The Sydney Morning Herald/Ambrose Evans-Pritchard/1-8-2019

“This is the year that mounting hammer blows to the Western alliance system and the edifice of global governance threaten to bring the old order tumbling down. . .Pax Americana is unravelling. The transatlantic concord underpinning the West since the Fifties is dying. Nato, the G7, the G20, the WTO and the EU are all in varying degrees of crisis. Vladimir Putin’s Russia has an open goal. ‘Every single one of these is trending negatively. And most in a way that hasn’t been in evidence since the Second World War,’ it said.”

USAGOLD note:  Joseph Schumpeter referred to the process Evans-Pritchard outlines as ‘creative destruction.’ In replacing the old with the new, though, businesses and financial markets are going to be hurt – whole economies potentially tossed against the rocks. One cannot have read yesterday’s reports of the $1 trillion in possible capital flight from London without becoming concerned.


Repost from 1-8-2019

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Tariffs are an attack on the economy: Alan Greenspan

FoxBusiness/Julia Limitone/5-16-2019

“‘Excise taxes,’ [said Greenspan] when they are imposed are the same as any tax – they withdraw purchasing power from an economy.’ ‘So if you have two industrial giants, both taking on severe levels of that type of analysis, in other words having a great deal of loss of purchasing power, it’s not good for either one… there is a winner in the fight. But both sides lose. So the winner is the one who loses the least.'”

USAGOLD note:  Greenspan once again cuts to the chase.  The problem presented by the loss of purchasing power is that consumers and businesses step up purchases in order to preserve capital which drives prices even higher.  That is how runaway inflation is ignited in a previously placid economy.

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The mixed blessing of falling birth rates

Dollar Collapse/John Rubino/5-15-2019

“The only way for Millennials to pay for Boomers’ Social Security and Medicare would be for the latter to confiscate 90% of the former’s paychecks. That won’t happen, so something else has to, most likely massive benefit cuts via hidden inflation.”

USAGOLD note:  Rubino says the demographic problems of the future will lead to a “purposeful inflation” and “a massive shift of capital out of financial assets like government bonds that depend for their value on the stability of the underlying currency, and into real assets like oil wells, farmland and precious metals which governments can’t create with a mouse click.”  The article is worth a read especially for those who suspect demographics might be the root cause of our most intractable economic problems.

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Metals Focus says two to three year bull market for gold ‘to start in late 2019’

Bullion Vault/Adrian Ash

“‘For much of 2018, investors tended to focus on other, higher-yielding asset classes [than gold],’ says a note from specialist analysts Metals Focus, ‘but we do expect this position to gradually change, especially during the latter part of 2019…[as] a slowdown in the US economy will encourage the Fed to adopt a far more dovish stance towards its interest rate policy.’ Forecasting that ‘a bull market in gold [will] emerge from late 2019 onwards,’ Metals Focus think that uptrend will then ‘remain in place for two to three years.'”

USAGOLD note (12-19-2019):  Adrian Ash passes along another positive reading for the yellow metal for 2019, this time from London’s Metals Focus.

USAGOLD note (3-15-2019):  This prediction from Metals Focus in December appears to have been prescient and unfolding on a timeline much sooner than originally anticipated. On December 19, the date Metals Focus released their study, gold was trading in the $1240 range.  It reached $1340 February 19th, two months later, and is hovering now in the $1300 range.


Repost from 12-19-2018

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How the long debt cycle might end

Financial Times/Martin Wolf/5-15-2019

“Start then with inflationary fire. Much of what is going on right now recalls the early 1970s: an amoral US president (then Richard Nixon) determined to achieve re-election, pressured the Federal Reserve chairman (then Arthur Burns) to deliver an economic boom. He also launched a trade war, via devaluation and protection. A decade of global disorder ensued. This sounds rather familiar, does it not? In the late 1960s, few expected the inflation of the 1970s.”

USAGOLD note:  True, “in the late 1960s, few expected the inflation of the 1970s.”  But the few who did profited enormously by purchasing gold at $35 per ounce just before the United States devalued the dollar and holding it through the following highly inflationary decade. It rose nearly 25 times.  What the current president is attempting to do today de facto is what Nixon had the luxury of doing de jure by simply raising the official dollar price of gold.  The current president given his proclivity for easy money must envy the way it was in 1971.  That aside, the subheadline to this article is the one that caught by attention: Some fear the fire of inflation; others the ice of deflation.  Either way, as we have said many times here, gold historically has been an effective hedge against either – fire or ice.

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Our long anticipated gold momentum rally begins

TheTechnicalTraders/Chris Vermuelen/5-15-2019

“The next leg higher for Gold will see a price peak near $1450 before another brief sideways/stalling pattern sets up.  After that, our research suggests a rally will quickly drive Gold prices above $1550 (or much higher). As we’ve been suggesting, Silver will likely lag behind Gold by about 20+ days. We believe Silver is going to see an incredible upside price move – even bigger than Gold in percentage terms. Our belief is that Silver will be trading above $26 to $28 per ounce – almost DOUBLE the recent low price level, when Gold will be trading just above $2000 per ounce. The reason for this is the relationship between the Gold/Silver/US Dollar pricing levels – called the Gold/Silver Ratio.”

USAGOLD note:  A very optimistic forecast from a group that has made “some truly amazing precious metals calls over the past 6+ months.”

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Washington and Wall Street need to wake-up to a new reality

Washington, Wall Street wake up to reality Beijing is happy to walk away
MarketWatch/Steve Goldstein/5-13-2019

Steve Bannon: ‘No chance’ Trump will back down in China trade war
CNBC/Matthew J. Belvedere/5-15-2019

China calls for People’s War against the US, fight for a new world
ZeroHedge/Tyler Durden/5-15-2019

USAGOLD note:  We group these three articles to make a point. Together they point up how quickly the situation between the US and China has moved from negotiable to intractable. The third tells how China seems to be putting its population on a war footing psychologically – something we found to be particularly relevant at this juncture.  The financial markets may need to make some further adjustments to accommodate this new reality.

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Central banks are buying gold at the fastest pace in six years

Sovereign Man/Simon Black/5-14-2019


“And if the Bolsheviks come to power next year and offer free goodies (paid for with more debt) to anyone with a pulse, the debt burden will explode. Anyone who thinks owning 10-year US treasuries – or even worse, 30-year government bonds – is risk-free, is completely insane. The dollar’s problems aren’t limited to the US government’s pitiful finances either.”

USAGOLD note:  In this entertaining and instructive essay, Simon Black states the case for gold ownership in no uncertain terms of which the snippet above is an example.

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UOB: Gold could hit $1,450 by mid 2020

CNBC/Street Signs/5-15-2019

“Heng Koon How of United Overseas Bank says gold prices could rally in part because the ‘key central banks’ are allocating more into the safe haven asset.”

USAGOLD note:  United Overseas Bank, a large multi-national financial institution located in Singapore, is bullish on gold for very sound, long-term reasons.

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Greenspan sees signs of stagflation, threats to U.S. economy

Bloomberg/Video Interview with David Rubenstein

“Former Federal Reserve Chairman Alan Greenspan tells David Rubenstein that rising deficits and debt are already showing signs of eroding U.S. growth and that he sees indications of stagflation — a stagnant economy saddled with rising inflation.”

USAGOLD note:  The Maestro weighs-in on the current state of economic affairs in the United States. . . . .Gold proved to be an excellent hedge against the last stagflationary episode in the 1970s early 1980s.


Repost from 11/17/2018

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Why the economy is headed for ’20 years of ugliness’ — even if a major recession is avoided

Business Insider/Joe Ciolli and Henry Blodgett

“Not even the 70% marginal income tax on the super wealthy recently floated by Rep. Alexandria Ocasio-Cortez can save the day, Prince said. Followers of recent commentary from Ray Dalio— Prince’s co-CIO — should already be well familiar with Bridgewater’s view that divisive politics will make the next downturn that much more painful.”

USAGOLD note:  The “new normal” goes long term with a twist – divisive politics that go beyond the atypical Washington gridlock.


Repost from 1-29-2019

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In many ways 2019 is starting to look a lot like 1973

The Economic Collapse/Michael Snyder

“The price of gasoline is rapidly rising, economic activity is slowing down, the Middle East appears to be on the brink of war, and Democrats are trying to find a way to remove a Republican president from office. In many ways, 2019 is starting to look a lot like 1973. For many Americans, the 1970s represent a rather depressing chapter in U.S. history that they would just like to forget, but the truth is that if we do not learn from history it is much more likely that we will repeat our mistakes. And without a doubt, right now a lot of things are starting to move in a very ominous direction.”

USAGOLD note:  Opinions abound as to where this economy is headed and a repeat of the stagflationary 1970s ranks high among them.  It is, in fact, the scenario former Fed chairman, Alan Greenspan, has been warning about for a couple of years now.


Repost from 4-25-2019

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‘The riskiest thing in the world is to believe that there is no risk’

DAS Interview/Christopher Gisiger

“In our business there is no place for certainty. With that in mind, I like to quote Henry Kaufman, who was the chief economist at Salomon Brothers. He said that two kinds of people lose a lot of money: ‘Those who know nothing and those who know everything.’ So, at best, the future is merely a probability distribution of future events. All you can do is get the odds on your side.”

USAGOLD note:  For those who make no claim to either, i.e. ‘knowing nothing’ or ‘knowing everything’, there is the old expedient of simply diversifying with precious metals and let others spend endless time discussing where the various markets might be headed.

Repost from 4-26-2019

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Trade war may yet spur China to sell treasuries as yuan sinks

Bloomberg/Liz McCormick and Saleha Mohsin/5-14-2019

“The idea that China would dump its $1.1 trillion of Treasuries to retaliate against U.S. tariffs is often dismissed as improbable. It’s seen as a nuclear option that would inflict more harm on China’s economy than America’s. Yet the tensions rippling through global financial markets could still lead Beijing to reduce its stockpile in the $15.9 trillion Treasuries market — not to retaliate, but to defend its currency if it goes into a free-fall.”

USAGOLD note:  China already dispensed with a large pile of Treasuries between 2014 and 2017 as noted in this post yesterday – in fact about $1 trillion worth, all in defense of the yuan.  It would not be out of character for the Middle Kingdom to mount a similar effort in 2019.

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Is US-China trade war starting to erode US dollar dominance?

South China Morning Post/Karen Yeung/4-13-2019

“The contemplation by Asian finance leaders to add the Chinese and Japanese currencies to a regional foreign reserves buffer fund is the latest sign that the trade war is causing countries to slowly move away from dependence on the US dollar.”

USAGOLD note:  This article goes on to raise the possibility of moving away from “a globalised trading system and towards a system centered on the three large regions – the US, the European Union and China – that operate differently.”  Not just differently, but independently as well.

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Markets signal to US and China on the trade war: You have ‘blundered into a minefield’

CNBC/Jeff Cox/5-14-2019

“The idea that the U.S.-China trade dispute could turn into something more is starting to become reality. The New York Fed’s gauge of recession probability over the next 12 months is now at 27.5%, the highest since the financial crisis. ‘It’s like lighting a match. You think you know how to control it. That’s where the uncertainty comes in,’ said Prudential Financial chief market strategist Quincy Krosby.”

USAGOLD note:  We brought up the the possibility of unintended consequences of a trade war last week. . .Investment markets, if this article is correct, are now beginning to worry about collateral damage as well.

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What worries Dalio most

DAVOS WATCH

CNBC/Panel Discussion with Marie Bartiromo

“What scares me the most longer term is that we have limitations to monetary policy, which is our most valuable tool, at the same as we have greater political and social antagonism . . . So, the next downturn in the economy worries me the most.” – Ray Dalio

USAGOLD note: Dalio echoes concerns voiced by Seth Karman below.  That’s two billionaires expressing worries at Davos burgeoing political and social problems in combination with a weakening economy.


Repost from 1-2-2019

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Understanding market cycles

Real Investment Advice/Lance Roberts

“There is a sizable contingent of investors, and advisors, today who have never been through a real bear market. After a decade long bull-market cycle, which only seems to go up, you can certainly understand why mainstream analysis continues to believe the markets can only go higher. What is concerning is the rather cavalier attitude the mainstream media takes about bear markets. ‘Sure, a correction will eventually come, but that is just part of the deal.’ What gets lost during these bullish cycles, and is found in the most brutal of fashions, is the devastation caused to financial wealth during the inevitable decline.”

USAGOLD note:  This article is built around Richard Wyckoff’s market cycle – accumulation, mark-up, distribution and decline.  Roberts believes we most probably have come to the “decline” phase of the cycle and reminds us of stock market guru Benjamin Grahm’s advice from back in 1959 that ” a big bull market is inevitably followed by a big bear market.”  His article linked above is well worth a visit for some important details.


Repost from 1-16-2019

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Gold is ‘very attractive’ in the current environment: Investor

CNBC/SquawkBoxAsia/5-8-2019

“George Cheveley of Investec Asset Management says gold has performed ‘amazingly well’ considering the strength of the U.S. dollar. He also discusses the role of gold as a safe haven asset.”

USAGOLD note:  Cheveley sees gold going to $1350. . .and higher. . .One questioner tries to trip him up with a pointed question about gold not drawing any yield.  He responds by saying many global yields are below zero and therefore no yield is better than a negative yield.  To which we would add: Does it make sense to refrain from investing in real estate or fine art or a high-tech IPO because it does not produce a yield?


Repost from 5-8-2019

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Punch-drunk traders stop guessing as Trump runs market ragged

Bloomberg/Sarah Ponczek and Elena Popina/5-10-2019

“‘I nailed that,’ is what everyone wants to say. They didn’t. Humans and robots alike are trapped in a torrent of tweets.”

USAGOLD note:  It is interesting and a bit disconcerting to see how easily the President can move the markets with a series tweets – first in one direction and then the other.  And even more disconcerting to think how fragile the markets that they can be so readily influenced.  The first Roosevelt had his bully pulpit.  The second his fireside chats. Trump has his tweets. All no doubt moved or move markets, but today it can be one thing in the morning and another in the afternoon.

Repost from 5-13-2019


 New post 5-14-2019

CNBC/SquawkOnTheStreet

Cramer: ‘I don’t trust this market at all’ because it’s so dependent on Trump tweets

CNBC’s Jim Cramer voiced concern about the staying power of the stock market’s bounce Tuesday morning following President Donald Trump’s latest tweetstorm on China trade and Monday’s sharp decline. ‘I don’t trust this market at all,’ warned Cramer on ‘Squawk on the Street’ . . . “

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Stocks set for worst May tumble in nearly 50 years amid U.S.-China trade clash

MarketWatch/Mark DeCambre/5-13-2019

“Stocks tumbled Monday, leaving the S&P 500 index SPX, -2.41% off 4.6% in the month to date, and the Dow Jones Industrial Average DJIA, -2.38% down 4.8%, with both on track for their worst start to the month through May 13 since 1970, according to Dow Jones Market Data. The Nasdaq Composite Index COMP, -3.41% off 5.5%, was set for its sharpest early May drop since 2000.”

USAGOLD note: Many on Wall Street would like May to go away. . . .

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