Author Archives: Opinion

The untold story of FDR and the battle over gold

Bloomberg/Sebastian Edwards/5-22-2018

“During the second half of 1933, George F. Warren was the most influential economist in the world. Almost every morning during November and December, he met with Franklin Roosevelt while the president was still in bed, and helped him decide the price at which the government would buy gold during the next 24 hours.”

USAGOLD note:  This article is part of a four part series at Bloomberg titled “American Default” – “one of the strangest and most enduring chapters of the Roosevelt era.” George Warren believed that if the government could maintain a rising gold price, it would push commodity prices higher and instigate inflation – the element that was needed to push the country out of the Great Depression. . . . . . .

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American Gridlock

Seeking Alpha/Lance Roberts/5-22-2018

“There is a huge debate over ‘Austerity’ versus ‘Spending.’ While conservatives in government talk a ‘good game’ about cutting spending, budgeting and debt reduction, the exact opposite has been the case over the past several Administrations both ‘conservative’ and ‘liberal’ alike. The irony is that increases in debt lead to further increases in debt as economic growth must be funded with further debt.”

USAGOLD note:  The answer lies not in the politics of the situation but in the economics, and by that, I mean the personal economics.  The proper hedge will go a long way in countering the spending problem in Washington where it counts – in your personal finances.

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Train crash preview

Mauldin Economics/John Mauldin/5-18-2018

“Unemployment may approach the high teens by the end of the decade and GDP growth will be minimal at best. What do you call that condition? Certainly not business as usual. Long before that happens, the Federal Reserve will have engaged in massive quantitative easing. There’s a lot of misunderstanding about QE, so let me clarify something important. Quantitative easing is not about ‘printing money.’ It is buying debt with excess bank reserves and keeping that debt on the Fed’s balance sheet as an asset. The Bank of Japan is an example. They did not put currency (yen) into the market. That’s how Japan still flirts with deflation and its currency has gotten stronger. QE is the opposite of printing money, though there is a relationship. That’s one reason central bankers like it.”

USAGOLD note:  Mauldin discusses some important issues in his latest analysis. The insights above are a small part of a bigger picture. . . . . .His observations on quantitative easing convey what many are thinking.  As we pointed out in a recent Chart Note, the money supply has actually shrunk in recent years, a situation that raises questions as to the advisability of the Fed’s current interest rate policy.  We likened it to turning down the temperature in an already cold room.

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Speculators throw in towel on gold – ‘ultimately bullish’

Mish Talk/Mish Shedlock/5-21-2018

“Commercial traders, except for producers who do sell short, simply take the opposite side of the trade. The commercial traders are not net short, they hedge. Thus it is a more accurate summation to call this for what it is: Long liquidation. Gold longs are increasingly unconvinced and are throwing in the towel. Like [High-Tech Strategist’s Fred]Hickey, I believe speculators throwing in the towel and betting against gold is ultimately bullish.”

USAGOLD note:  Contrarian indicators showing up in the futures’ market . . . . a good sign.

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What are key factors to drive Gold in short-term?

Scrap Register/5-21-2018

“‘Even as gold continues to trade below $1,300, the ‘fundamental case for holding’ the yellow metal remains intact, said Dutch bank ING, listing three main drivers that will provide support to prices. ‘We look to physical demand, geopolitics, and inflation to provide support,’ said ING commodities strategist Oliver Nugent.”

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James Grant says ‘the ultimate beneficiary of this deeply imbedded trouble in money and credit will be the quoted price of gold’

Sprott Money/Craig Hemke/5-17-2018

Interview of Interest Rate Observer’s James Grant

USAGOLD note:  Grant has an interesting take on what ultimately motivates investor gold demand, reveals he personally owns “a fair amount” of it and tells why.

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What’s keeping gold down?

ETF Daily News/Rudy Fronk and Jim Anthony, Seabridge Capital/5-20-2018

“For nearly four months now, gold has been pressured lower by a rising dollar; the inverse correlation has been almost exact. Gold has dropped 5.2% from its January 25, 2018 close of $1,362 to its May 16 close of $1,291.50. Meanwhile, the US dollar index has risen 5.4% from this year’s low close of 88.50 on February 15, 2018, to its close on May 16 at 93.26. In the past few days, shorts have jumped in to press their luck, judging from the increase in CME open interest while the price is falling. There are growing signs that the correction in gold is over.”

USAGOLD note:  This article concentrates on technical factors and why the tide might be turning for both the dollar and gold.

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Dollar/yen ratio says gold bottom is near

Seeking Alpha/Clif Droke/5-18-2018

“Another way of examining the relationship between the U.S. dollar and the yen is the dollar/yen ratio shown below. When this ratio is rising, it reflects the strength of the dollar versus the yen. Historically, a dollar/yen ratio level of 1.5 or higher has often coincided with short-term peaks in the dollar index. As of Thursday, this ratio stood at 1.35, which is close to the long-term average for a dollar index top. Thus, we could be very near a short-term reversal in the dollar’s latest rally, which in turn would likely spark some short-covering in the gold market and allow gold a much-needed relief rally.”

USAGOLD note:  We too keep a close eye on the Japanese yen and Bank of Japan monetary policy for this reason.

 

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Harvard’s Renhart says emerging markets are in tougher spot than during ’08 crisis

Emerging Markets

Bloomberg/Ben Bartenstein/5-16-2018

“If the U.S. policy becomes tighter and there’s no comparable follow-through by other advanced economies, the dollar strengthens. There you have a double-whammy. Also importantly is what it does to their currency: More than two-thirds of emerging-market debt is dollar-denominated, now even more because of borrowing from China.” – Carmen Reinhart

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LAWRIE WILLIAMS: Further thoughts on peak gold

Sharps Pixley/Lawrie Williams/5-18-2018

“[CPM Group’s Jeff]Christian largely agrees with my comment, and Telfer’s, that peak gold, or thereabouts, is effectively already with us and again with my comment that Telfer’s statement that all the major gold deposits have been found already was unrealistic.”

USAGOLD note:  A different perspective from the one we bandied about yesterday and worth noting at the link.  Though there may be major deposits (as Christian and Williams point out) yet to be found, the lead times (also addressed by Williams in the article) and environmental considerations involved do not sideline or undermine the peak gold argument – at least as far as the next decade or so is concerned.  The gold market will deal with all of that. . . . all in good time.

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Seven reasons why European banks are in trouble

Mises Institute/Phillip Bagus/5-17-2018

“Ironically, the ECB´s zero interest rate policy designed to promote credit expansion will finally lead to a credit contraction. There will be a severe recession and a fall in the money supply. The crisis will not only endanger the banking system but the euro as such, because troubled Eurozone government will try to recapitalize their banks through a monetization of newly issued debts.”

USAGOLD note:  The situation Bagus describes explains the strong demand for physical gold in Germany and other European countries.  A  large cross-section of the European citizenry has a very strong historical perspective passed through families as to what can go wrong with a banking system and why gold is a necessary ingredient in the properly designed asset portfolio. . . And now there is trouble brewing again on Europe’s southern flank.

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Gold preparing to launch

Seeking Alpha/David Brady/5-16-2018

“The positioning of the money managers, or “funds”, in the gold futures market is at extremes that have typically led to massive rallies in gold. At the close of 1288 on Tues, this would mean a rally to somewhere between 1378 to 1455. . . .The positioning of the money managers, or ‘funds’, in the gold futures market is at extremes that have typically led to massive rallies in gold. They are usually net long, but as you can see from the table below, when their net long position is sufficiently low, it tends to lead to significant rallies in the price of gold.”

USAGOLD note:  This positive assessment is the perfect introduction to our May special offer:  A quartet of difficult to obtain historical gold coins from Europe at bargain prices. This offering is small compared to others we have offered.  Orders will be filled on a first-come, first-served basis.

(Image = British Sovereign, Queen Victoria Young Head, Minted 1871-1885, only 100 available).

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“The bond spike confirms the end of experimental monetary-policy rally”

ZeroHedge/Bill Blain-Mint Partners/5-17-2018

“Perhaps it’s the sheer complexity of all the awful bad news in geopolitics, rates, flows and all the other what-evers that drive market sentiment? Treasury yields (the 10-year US bond rate) have decisively breached 3%, spiking all the way up to 3.11% this morning – triggering terror across global stocks according to the news wires, although a glance out the window suggests stock jobbers ain’t hurling themselves lemming-like from the 19th floor… yet. Still… we live in hope.”

USAGOLD note:  If you haven’t been exposed to the ruminations of Mint Partners’ Bill Blain (London), here is your introduction and opportunity. “Real Complexity,” he says, “it’s a topic worth spending some time thinking about! Forget the noise about politics, and seek out the real factors driving markets.” Sound advice. . . .Seek out the elephant in the room.

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All major gold deposits have been discovered, Goldcorp chairman says

PEAK GOLD!

Seeking Alpha/Carl Surran/5-16-2018

“Goldcorp Chairman Ian Telfer is the latest industry exec to predict the world has reached “peak gold,” saying that mine production will continue to decline because all the major deposits have been discovered. ‘Gold produced from mines has gone up pretty steadily for 40 years,’ Telfer tells the Financial Post. ‘Well, either this year it starts to go down, or next year it starts to go down, or it’s already going down… We’re right at peak gold here. Are we not looking for it? Are we bad at finding it? Or have we found it all? My answer is we found it all.”

MK note:  Obviously, this opinion is from someone in the know. . . .An interesting, if not somewhat shocking, statement that will alter the thinking of a good many investors especially those with an eye to the long term as gold coin and bullion owners.

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ECB’s Villeroy sees rate hike ‘quarters’ not years after QE end

Bloomberg/Piotr Skolimowski , Jana Randow , and Alessandro Speciale/5-14-2018

“European Central Bank policy maker Francois Villeroy de Galhau signaled that he expects bond purchases to end this year and an interest-rate hike could follow in 2019, putting him in the camp of officials who see the current euro-area slowdown as temporary. . . .The ECB could say a rate increase will follow the halting of net asset purchases by ‘at least some quarters, but not years’ he said on Monday in a Bloomberg TV interview…”

MK note:  Most of the dollar’s strength of late has come the result of easy monetary policies in Europe and Japan – policies that weaken their respective currencies against the dollar.  If Europe is about to step on the breaks it will undermine that narrative, which might in a ciruitous way make it way to the gold market as a positive development.

 

 

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11 stunning visualizations of gold show its value and rarity

Visual Capitalist/Jeff Desjardins/4-29-2018

“Since Ancient times, gold has served a very unique function in society. Gold is extremely rare, impossible to create out of “thin air”, easily identifiable, malleable, and it does not tarnish. By nature of these properties, gold has been highly valued throughout history for every tiny ounce of weight. That’s why it’s been used by people for centuries as a monetary metal, a symbol of wealth, and a store of value.”

MK note:  These visualizations by Jeff Desjardins – this is one of number he has done on gold – leave a lasting impression of profound importance to those who take the time to scroll through them.

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Subprime chaos: The auto bubble’s bursting and its worse than 2008

Palisade Research/Adem Tumerkan/5-15-2018

“What’s interesting – and worrisome – is that consumers are defaulting on subprime auto loans when the economy is supposably doing ‘very well’. Like I wrote last week – there are cracks under the economy’s foundation. And it’s like a bucket of cold water in the face of the mainstream financial media that’s pushing the ‘growth’ story. We must ask ourselves – ‘if things are going so well, why are subprime loan delinquencies at a 22-year high?’”

MK note:  Another bubble to worry about, though this one comes up repeatedly. . . .This article emphasizes the delinquency in subprime auto loans – not only a problem for the financial entities holding the notes, but an indicator of economic weakness as well.  Meanwhile, the Fed seems oblivious to statistical renderings such as this and continues to talk up interest rate increases.  Though Wall Street continues to talk up economic growth, Main Street continues to view such notions with a healthy dose of skepticism.

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The stupidity and greed of the market herd will hopefully keep me in business for the next thirty years

Steve Sedgwick/CNBC/5-15-2018

“I can tell you straight away the best and worst thing about my current job. The worst is going to bed before your five-year-old daughter at circa 7 p.m. so you can get up in the middle of the night five days a week. The best, however, is the fact that repeat dumb behavior by markets and certain participants hands out several freebies a year that will always make you look smarter than the average bear.”

MK note:  And then there is always the big-blow-up which is usually a culmination of a bunch of little blow-ups and that is the event you are going to need gold to help you through.  That is when the traders might feel dumber than the average bear. There are always those who think they have the insights to trade their way to success no matter the circumstances and those who through painful experience know better.  The latter are usually gold owners.

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Opinion: S&P 500 should be 1,000-plus points lower than it is today, strategist Rosenberg says

MarketWatch/Olivier Garret/5-14-2018

“A reversion to the mean in U.S. stock prices could mean the market will fall by at least 20%, according to David Rosenberg of Gluskin Sheff and Associates, who gave his prediction at the Strategic Investment Conference 2018 in San Diego. . . .However, increasingly more hedge fund managers and billionaire investors who timed the previous crashes are backing out. One of them is Sam Zell, a billionaire real estate investor, whom Rosenberg says is a ‘hero’ of his. Zell predicted the 2008 financial crisis . . .”

MK note:  And as we have reported here on a number of occasions, many of those same investors have been transferring some of those funds into shiny yellow metal.

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Economic numbers are less than meet the eye

Daily Reckoning/James Rickards/5-11-2018

“American labor markets are not tight. America is not even close to full employment. America is in a depression. That’s one reason why wages have been stagnant despite declining unemployment rates.”

MK note:  Underemployment, low pay, part-timers who want to be full-timers, those who have simply given up looking for a job – all add up to a far different scenario than the one painted by many economists and politicians in Washington.

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Beware of the coming economic debt bomb

TheStreet/Peter Tanous/5-9-2018

“The primary reason the Fed kept interest rates low was to avert an economic catastrophe. Today, that catastrophe can no longer be avoided. The trigger for the economic explosion is the rising interest payments on the federal debt.”

MK note:  We last dug into the complexities of the national debt and its impact on the overall economy in the November, 2017 edition of News & Views and came to the same conclusions as Mr. Tanous.  Tanous recommends gold ownership as a means to hedging the potential problems associated with the enormous U.S. national debt.  The conclusion of the November News & Views was that the national debt has made gold a superstar since 1971.  “As for the future,” we concluded:  “we should keep in mind that the very same conditions which created the long-term secular trend for both the national debt and gold are still in place today – nothing has changed fundamentally. As long as that is the case, we can assume gold will continue to attract capital as a long-term portfolio hedge just as it has, to varying degrees, through the first 46 years of the fiat money system. Please note, too, that gold is trading below the federal debt’s trend line, an indication that it might have some catching up to do in the months and years ahead.”

 

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Stocks in danger zone because ‘inflation has changed its stripes,’ market watcher Jim Paulsen warns

CNBC/Stephanie Landsman/5-11-2018

“‘You’re seeing more and more evidence that inflation has changed its stripes and is headed higher,” [Leuthold Group’s] Jim Paulsen said Wednesday on CNBC’s ‘Trading Nation.’ ‘What we’re doing, as a result, is being forced to readjust interest rates and ultimately price-earnings multiples in stocks.'”

MK note:  Historically the problem with inflation is that it can appear suddenly and once the genie is out of the bottle, it is very difficult to get it back in.  History is replete with examples of central banks that thought they could keep inflation within designated boundaries, only to find that like wild fire it can rage out of control – Argentina suddenly at a 26% inflation rate (and quickly going higher) being a prime example.  Venezuela, an extreme case, is running an inflation rate of 13,379%.

The Fed might someday find itself, if Paulsen is right, admitting that it should have been careful what it wished for. . . . . .Some judicious hedging with the right assets (gold and silver) ahead of that sudden appearance might do wonders for the average portfolio.

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Wages remain stagnant despite full employment

SafeHaven/Alex Kimani/5-10-2018

“Something peculiar has been happening during the current economic recovery cycle. Nine years into the economic expansion, unemployment rates have fallen quite dramatically: The May 4 unemployment reading of 3.9 percent was so low that the country can be said to be technically in full employment. Yet real wage growth has remained elusive. But what is full employment, or unemployment, for that matter?”

MK note:  If the economy creates a boatload of low-paying dead end jobs, does that constitute a recovery? I guess it depends upon how one defines the word “recovery.”

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With Trump pulling out of Iran deal, ‘it could get nasty from here,’ predicts oil analyst

CNBC/Michelle Fox/5-10-2018

“‘Things could get ugly now that the Trump administration has taken the ‘hardest possible stand’ in terms of rhetoric against Iran, oil expert John Kilduff told CNBC on Tuesday. It could get nasty from here. I think you need to buckle up,’ the founding partner at energy hedge fund Again Capital said on “Power Lunch.”

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Oil and the dollar are doing something they have only done 11 times in the past 35 years

MarketWatch/Mark DeCambre/5-9-2018

“Oil prices and the U.S. dollar are rallying in tandem—a dynamic that has only occurred 11 times since 1983, and it’s drawing the attention of market participants attempting to assess its significance.  Oil prices and the U.S. dollar are rallying in tandem—a dynamic that has only occurred 11 times since 1983, and it’s drawing the attention of market participants attempting to assess its significance.”

MK note:  Paradigm break or short-term anomaly?  I’m going with short-term anomaly.  It is usually gold and oil that go in the same direction, but the situation does signal that something has to give.  We have had other instances of oil and the dollar rising together, as this article points out, the most recent being in late 2017.  The concurrent rise lasted a few months and then abruptly ended when the dollar took a major turn due south and oil continued higher.

Chart courtesy of TradingEconomics.com

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Forget Iran. The real oil action is in China

Bloomberg/David Fickling/5-9-2018

“Forget Iran, shale and Opec. The real action in the oil market is happening on the other side of the globe. China overtook the U.S. as the world’s largest oil importer last year, and for 2018, it’s hoping to beat that achievement. April imports of 39.46 million metric tons reported late Tuesday came off the back of a string of blockbuster months.”

MK note:  Actually, the two together are what we need to keep in mind. China remains Iran’s biggest oil customer.

 

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Recession is nowhere in sight

Seeking Alpha/Cliff Droke/5-8-2018

“With recession watch being in full force among financial commentators, the mood has turned decidedly sour not long after the S&P 500 Index peaked in late January. Serious discussion of the next economic recession has gained traction in the last couple of months with the flattening yield curve being the indicator that many, if not most, pundits refer to. While it’s true that a flattening yield curve often leads to an inverted yield curve – which in turn typically presages a recession – we’re a long way from that point.”

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Gold seen at highest annual price for five years in 2018: GFMS

Reuters/Jan Harvey/5-8-2018

“Gold in 2018 will deliver its strongest annual price performance in five years, GFMS analysts forecast on Tuesday, as political uncertainty drives investment in bars and bullion-backed investment funds.  The GFMS metals research team, a unit of Thomson Reuters, predicted gold would average $1,360 an ounce this year, up 8 percent from 2017, with some short-term moves towards $1,500. Gold has not risen above that level since early 2013.”

MK note:  GFMS, usually subdued in its forecasts, is relatively optimistic for the rest of 2018 – so its assessment is something of a surprise.  It sees a pick-up in retail investment as the year moves along.

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Behold the sudden stop. Risk of emerging markets collapse

Daniel Lacalle/5-6-2018

“The Sudden Stop. When most of the emerging economies entered into twin deficits – trade and fiscal deficits – and consensus praised ‘synchronized growth’, they were sealing their destiny: When the US dollar regains some strength, US rates rise due to an increase in inflation, the flow of cheap money to emerging markets is reversed. Synchronized indebted growth created the risk of synchronized collapse. The worrying thing about Argentina and many other economies is that they should have learned from this after decades of similar episodes. But investment bankers and policymakers always say ‘this time is different’. It was not.”

MK note:  Some will see Argentina as an isolated event but the new emerging country debt crisis has the potential to become a more generalized crisis like the one that struck Asia in the late 1990s.  It carryies with it the potential for debt defaults that ultimately could affect financial institutions and funds in the industrialized world.  What we have seen the past week or so verges on a creditor panic to get out of emerging debt, not so much to benefit from a rising dollar, but to escape potentially collapsing debt instruments and currencies.  The opinion piece by Daniel Lacalle linked above offers some important background for those with an interest.

 

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The hundred trillion dollar global debt crisis

SafeHaven/Michael Pento/5-7-2018

“But the Institute of International Finance has also calculated the debt burden, and the data here is even more daunting. They have the debt of worldwide economies pegged at $237 trillion as of September 30, 2017. If you do the math, $237 trillion in global debt will put global debt-to-GDP at a whopping 318 percent! It should be mentioned that the global GDP ratio figure is completely phony, as the denominator is artificially boosted by trillions of dollars’ worth of negative nominal interest rates and will collapse under that overhanging debt pile as rates normalize.”

MK note:  It is because of the huge debt overhang that the dollar’s recent strength creates problems which very well could go under the “unprecedented” column.  Pento says “Investors should already have a plan in place to profit from deflation and inflation cycles such as never before witnessed in history.”

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