Author Archives: Opinion

‘No one questions its value. . .’ – Alan Greenspan

“No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counter-party. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.” – Alan Greenspan, former chairman of the Federal Reserve


Image courtesy of the British Museum Collection/Lydia, croesid, ca 550 BC


Repost from 10/15/2018

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Fiat currency always ends in collapse

The Gold Telegraph/Tom Lewis

“When the fiat currency in your wallet collapses in value, gold will remain a hedge against inflation and other economic chaos. Today’s central banks have created unprecedented global debts that do not bode well for future economic health. Many countries, including the US, are at the brink of financial disaster. These governments will attempt to solve the problem by printing more fiat currency and devaluing it even more.”


Repost from 6/18/2018

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Separating truth from fiction in China’s golden game of Poker

Bullion Star/Ronan Manly/1-12-2019

“We will have to wait until the next SAFE reserve asset report in early February to see whether the PBoC decides to announce any gold purchases for January. If so, it could mark the beginning of a trend of regular monthly reporting by the Chinese state. If not, then the 10 tonnes gold purchase in December 2018 will go down as a strange anomaly, perhaps as a warning shot to economic adversaries such as the US that it can at any time announce gold reserve updates which could impact foreign exchange markets.”

USAGOLD note: This detailed analysis from gold market researcher Ronan Manly dissects the role the Chinese government and central bank are playing in the gold market. He reiterates the standard argument among top-drawer gold market analysts that what we are getting from Chinese sources might not be the full story on Chinese official sector gold ownership.  It includes some interest research as to the gold market professionals think might be the real levels of Chinese official sector gold ownership.

Chart courtesy of GoldChartsRUs/Nick Laird

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Gold is back in a bull market – it’s time to buy

MoneyWeek/Charlie Morris/1-14-2019

“My official signal hasn’t yet been given, but this is my editorial, so I’m reserving the right to override it. If like me, you believe the post-2009 bull market in equities has hit a wall, then why wait to buy gold? To recap, an Atlas Pulse Bull market requires a score of three out of three on these simple tests: 1. Easy money (defined as US cash real – ie, after inflation – interest rates below 1.8%). 2. The long-term gold trend in non-dollar terms must be positive. 3. Gold must be beating the stockmarket.”

USAGOLD  note:  We will let Mr. Morris run through those three “simple tests” available at the link above. . . . . .

 

 

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Why gold is money

Casey Research/Doug Casey

“There’s nothing magical about gold. It’s just uniquely well-suited among the 98 naturally occurring elements for use as money… in the same way aluminum is good for airplanes or uranium is good for nuclear power.  There are very good reasons for this, and they are not new reasons. Aristotle defined five reasons why gold is money in the 4th century BCE (which may only have been the first time it was put down on paper). Those five reasons are as valid today as they were then.”

USAGOLD note:  Casey delivers the essential argument for gold as money in the age of paper currency.


Image:  Aristotle as depicted by the German artist Johann Jakob Dorner the Elder (1741-1813)

Repost from 12/5/2019

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"Going bananas"

Tocqueville Asset Management/John Hathaway/1-10-2019

“Many factors could lead to higher precious-metals prices, including (but not limited to) a fundamental change in investor psychology due to a bear market; loss of confidence in public policy; sweeping political change; possible loss of the dollar’s status as the world’s principal reserve currency; favorable supply-and-demand factors; and unwelcome geopolitical developments. However, these factors are speculative, debatable, hard to predict, uncertain as to timing, and might require analysis too esoteric for most to bother to tackle. That is not the case for the relationship between US debt and GDP. Here we have an easy-to-understand, highly visible metric that in our opinion makes the likelihood of much higher gold prices seem inescapable.”

USAGOLD note:  Hathaway does a good job of laying out the funamental drivers for gold in 2019.

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Europe likely in recession now: Germany, France, Italy production collapse

MishTalk/Mish Shedlock/1-11-2019

“These are not only horrid numbers, they are unexpectedly and shockingly horrid numbers.”

USAGOLD note:  Before you dismiss the notion of a the economy in Europe cratering consider that Financial Times issued a similar warning in lead editorial in its weekend edition. . . . . .And we should not forget that on top of it Brexit comes for a parliamentary vote this week.

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Credit Bubble Bulletin’s Noland warns of QE4

ISSUES 2019

CreditBubbleBulleting/Doug Noland/1-12-2019

“Bubbles are mechanism of wealth redistribution and destruction. This reality has been at the foundation of my ongoing deep worries for the consequences of history’s greatest global Bubble. We’ve witnessed the social angst, a deeply divided country and waning confidence in U.S. institutions following the collapse of the mortgage finance Bubble. I fear that the Bubble over the past decade has greatly increased the likelihood of geopolitical tensions and conflict. Aspects of this risk began to manifest in 2018, as fissures developed in the global Bubble. Geopolitical conflict is a critical Issue 2019. Trade relations are clearly front and center. Going forward, I don’t believe we can disregard escalating risks of military confrontation.”

USAGOLD note:  Noland says the “U.S. dollar has serious fundamental issues” and that the Fed will be forced “resort to QE when global markets “seize up.”

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Gundlach warns U.S. economy is floating on ‘an ocean of debt’

Bloomberg/Hailey Waller and James Ludden/1-12-2019

“Echoing many of the themes from his annual “Just Markets” webcast on Tuesday, Gundlach took part in a round-table of 10 of Wall Street’s smartest investors for Barron’s. He highlighted the dangers especially posed by the U.S. corporate bond market. Prolific sales of junk bonds and significant growth in investment grade corporate debt, coupled with the Federal Reserve weaning the market off quantitative easing, have resulted in what the DoubleLine Capital LP boss called ‘an ocean of debt.’”

USAGOLD note:  Gundlach echoes warnings issued by Janet Yellen several weeks ago.  He says stocks “are now in a bear market.”

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Don’t be so sure hyperinflation can’t hit the U.S.

BloombergOpinion/Noah Smith/1-10-2019

“What happens if the government keeps trying to pay for things with printed money after the economy has employed every available worker? No one really knows. One common theory is that hyperinflation would result. This is a disastrous spiral in which prices rise so quickly, and so unpredictably, that a country’s entire economy grinds to a halt and the nation collapses into poverty. For a look at how hyperinflation can immiserate a nation, simply examine the stories coming out of Venezuela.”

USAGOLD note:  An interesting excursion into where we might end up if socialist economists get their way under the new “modern monetary theory” (MMT).


Related:  Please see – Gold as a hedge against hyperinflation

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Volatility: How ‘algos’ changed the rhythm of the market

Financial Times/Robin Wigglesworth/1-8-2019

“Philippe Jabre was the quintessential swashbuckling trader, slicing his way through markets first at GLG Partners and then an eponymous hedge fund he founded in 2007 — at the time one of the industry’s biggest-ever launches. But in December he fell on his sword, closing Jabre Capital after racking up huge losses. The fault, he said, was machines.”

USAGOLD note:  The number of financial market heavyweights who have publicly voiced concerns similar to those of Philippe Jabre is long and growing longer by the day.  Many state they are simply at a loss on the future direction of markets as the participation of non-silicon based entities shrinks.   “These ‘algos’ have taken all the rhythm out of the market, and have become extremely confusing to me,” famed hedge fund manager Stanley Druckenmiller stated recently.  Wigglesworth cites JP Morgan as pointing out that “less than 10 per cent of US equity trading is now done by traditional investors.

One of principles of portfolio management likely to enjoy a resurgence under the stresses of computer-generated volatility is the utilization of gold’s as a safe-haven asset.  In fact, many of the professional money managers who have spoken out about algo-risks, like Ray Dalio for example, recommend owning gold for diversification purposes. The chart below shows how gold lags volatility and where we stand today. . . . . .

 

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The Fed is losing its ability to control interest rates, former Senate banking chief says

CNBC/Jeff Cox/1-2-2019

“The Fed is both raising rates and reducing bonds it holds on its balance sheet, and in 2018 ran into an issue in which the benchmark funds rate veered close to and eventually matched the same level as the interest the Fed pays on excess bank reserves. Gramm pointed out that should the market rate banks can make on loans exceeds the level the Fed pays on reserves, it could result in an explosion in the money supply that would drive inflation.”

USAGOLD note: Having written about the latent power of excess reserves for years, the editorial by Phil Gramm and Thomas R. Saving yesterday morning caught my interest.  They do a good job explaining the situation for those who would like to learn about this arcane, but important, aspect of contemporary Fed monetary policy.  Cox lays out the essence of that Wall Street Journal editorial in the piece linked above.


Repost from 1/3/2019

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2019 headwinds are getting stronger

TheDailyReckoning/James Rickards/1-7-2019

“The Fed is tightening into weakness and will have to pivot towards easing once it becomes obvious. But it may very well be too late. The bottom line is that uncertainty reigns and it’s not going away anytime soon. Investors can profit from this with a combination of long-volatility strategies, safe-haven assets, gold and cash.”

USAGOLD note:  A much more extensive analysis awaits you at the link above. . . .

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Trump is probably going to get his way with the Federal Reserve this year

CNBC/Jeff Cox/1-9-2019

“As President Donald Trump jawbones the Federal Reserve, the likelihood that he’s going get what he wants this year from the central bank continues to grow. Markets expect the Fed to hold off on rate hikes and are even anticipating the possibility of a cut during the next year or two, playing into the low-rate environment the president has espoused.”

USAGOLD note:  Not quantitative easing but “easing” nevertheless. . . . . . . .

 

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Deutsche Bank needs a bold and swift restructuring

Financial Times/Editorial Board/1-8-2019

“Germany’s old national champion is looking systemically dangerous. [Its] chief executive insisted in a recent interview with the German tabloid Bild that Germany’s biggest bank was ‘not at risk of a takeover’. He was probably right. No prudent buyer would take on Deutsche Bank in its current state. Over the past three years this once towering global bank was found to be built on sand — with insufficient capital, excessively high-risk assets and a rotten culture.”

USAGOLD note:  This article goes on to detail the worsening problems for Germany’s largest bank – financial as well as legal.  Could Deutsche Bank become Europe’s Lehman Brothers?  Seems like Bundesbank might be faced with the same tough choice the Federal Reserve was forced to make in 2008 – bailout or bankruptcy?  Bundesbank consistently has expressed loud public opposition to government or central bank bailouts. It will be interesting to see how it reacts to the DB situation if  push comes to shove.


Image:  Deutsche Bank stock certificate

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The latest ‘Flash Crash’ and the ‘byzantine edifice’ of global derivatives

Credit Bubble Bulletin/Doug Noland/1-5-2019

“I’m concerned that Thursday’s [1-3-2018] currency ‘flash crash’ has potentially dire implications. Together with other key market indicators, evidence of systemic illiquidity risk is mounting. De-risking / deleveraging dynamics continue to gain momentum globally. Moreover, there are literally hundreds of Trillions of currency-related derivatives transactions – a byzantine edifice fabricated on a flimsy assumption of ‘liquid and continuous markets.’ I suspect the ‘global’ derivatives marketplace is today much more global than the U.S.-dominated market heading into the 2008 crisis. This implies scores of new players, certainly including Chinese and Asian institutions. This suggests different types of strategies, complexities, counterparties and risks more generally.”

USAGOLD note:  If you are a serious student of the financial markets and/or investor, you might want to put Doug Noland’s weekly newsletter on your reading list. Insights like the one immediately above are worth the visit. . . . . . . . . .

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Jay Taylor: Gold is the go-to safe haven of 2019

Dollar Collapse/John Rubino/1-7-2019

“If we are, as I believe, on the precipice of a major decline in stocks, the question in my mind as we head into 2019 is to what extent U.S. Treasuries will continue to be the main go-to market in the risk-off trade and to what extent might a loss of confidence in the dollar as the world’s reserve currency lead to a rise in the price of gold?”

USAGOLD note: Rubino quotes Jay Talor’s newsletter extensively. . . . .Please see Jay Taylor’s Gold, Energy & Tech Stocks

 

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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 (scroll below) without becoming concerned.

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Jay Taylor: Gold Is the go-to safe haven of 2019

Dollar Collapse/John Rubino/1-7-2019

“If we are, as I believe, on the precipice of a major decline in stocks, the question in my mind as we head into 2019 is to what extent U.S. Treasuries will continue to be the main go-to market in the risk-off trade and to what extent might a loss of confidence in the dollar as the world’s reserve currency lead to a rise in the price of gold?”

USAGOLD note:  Rubino quotes Jay Talor’s newsletter extensively. . . . .Please see Jay Taylor’s Gold, Energy & Tech Stocks

 

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What’s different about gold this time around?

StreetwiseReports/Clive Maund/12-31-2018

“Let’s end on a positive note by saying that if you thought 2018 was bad, wait until you see what a terrible year 2019 will turn out to be. By ‘positive note’ we mean that although most investors will end up losing a lot of money in 2019, it won’t include us and doesn’t have to include you. On a general level, if you buy the precious metals sector here or soon, and dump most everything else, you should come out on top by the end of the next year, and handsomely so in many cases.”

USAGOLD note:  Basic advice to start the year from one of our favorite tech analysts.  Clive Maund is based in the UK and got his start doing analysis for funds and institutions in the City of London


Repost from 1-2-2019

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Jamie Dimon says the stock market overreacted, no recession ahead

CNBC/Hugh Son/1-8-2019

“‘I think markets are overreacting to short-term sentiment around a whole bunch of complex issues,’ Dimon said in a Fox Business interview released Tuesday. He quickly added that the market moves were a ‘rational response’ to slower growth and the U.S.-China trade dispute.”

USAGOLD note:  We agree with Jamie Dimon on this.  The new normal reasserts itself.  And we do not believe that the complexities involved will suddenly become simpler and easier to understand anytime soon. We keep coming back to the way algo-trading amplifies whatever trends are at work in the financial markets and the fact that not even the best minds in the business, by their own admission, really understand their effects. For the ordinary investor, such understandings lead inevitably to precious metals ownership as a long-term hedge. The markets have simply become and will continue to be very volatile and unpredictable to the point that at some point they could be pushed over the ledge, i.e., what Ben Bernanke referred to last summer as a “Wile E. Coyote moment.”

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Will higher inflation pressures influence Gold in 2019?

Scrap Register/1-8-2019

“While some analysts are keeping an eye on inflation, others argue that it’s not as an important factor for the yellow metal compared to previous generations. George Milling-Stanley, head of gold investments at State Street Global Advisors, said that gold’s investment appeal has evolved over the years from more than just an inflation hedge. He explained that the yellow metal also provides important portfolio diversification during period of rising volatility and market turmoil. ‘We haven’t seen real inflation pressures for nearly 50 years,’ he said. ‘However, over the years gold has still seen significant gains despite the lack of inflation.’”

USAGOLD note:  Gold is also a solid disinflation hedge, stagflation hedge and deflation hedge.  In short, it is the one investment you can count on no matter which specific economic malady is visited upon the economy and financial markets at any given point in time.  That is why knowledgeable investors continue to hedge their portfolios with it despite the low inflation threat under present circumstances. That said, though inflation obviously remains subdued at the present, its history is one of sudden, unannounced outbursts when the majority of the population and financiers alike were unaware that it was rumbling just below the placid surface.


BlackSwansYellowGold How gold performs during periods of deflation, disinflation, stagflation and hyperinflation (A detailed, open-access study for those who would like to learn more about gold’s universality as a portfolio hedge.)

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Iran’s central bank proposes slashing four zeros from falling currency

Reuters/1-7-2019

“Iran’s central bank has proposed slashing four zeros from the rial, state news agency IRNA reported on Sunday, after the currency plunged in a year marked by an economic crisis fuelled by U.S. sanctions.”

USAGOLD note:  Why nation states believe that lopping off a few zeroes will change anything when a currency is suffering severe debasement remains one of the enduring mysteries in the field of monetary economics.


Image by Pol70117 [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], from Wikimedia Commons

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History has some troubling lessons on bear markets

Financial Times/Michael Mackenzie/1-4-2019

“At this stage of an ageing economic cycle, investors have good reason for concern as they try to work out whether the rout in equity and credit markets represents a final correction in this cycle or the start of lengthy decline. We have not begun a new year in such a glum mood since the start of 2009 and before that, 1999.”

USAGOLD note:  The radical ups and downs in the stock market of late reflect just how shaky investor sentiment has become.  It would not, in our view, take much to send it over the edge.  Hence, the overt attempts on the part of the chairman of the Fed to settle nerves. It may be enough to boost morale in some quarters but whether or not it will be enough to keep the markets afloat remains to be seen.

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Gold’s safety factor kicks into high gear

Seeking Alpha/Clif Droke/1-4-2019

“For the first time in nearly a year, gold has a number of important supports in its favor which should propel its price higher in the months ahead. Signs of continued deterioration in the global economy, along with a a distressing drop in U.S. Treasury bond yields, are among the major factors fueling increased gold demand.”

USAGOLD note:  We’ve read dozens of reviews for the gold market in 2019 and, for the first time in memory, there has been precious little in the way of a negative outlook for our favorite precious metal.  We don’t know if that’s a good or a bad thing. . .but we thought it worth mentioning.  Droke says gold will benefit from “high levels of fear generated by the weakening global economy.” The stock market bulls will take exception to that statement but the numbers rolling in from various overseas markets and economies are not easily ignored.

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Opinion: Stock-market investors, it’s time to hear the ugly truth

MarketWatch/Sven Henrich/1-5-2019

“For years critics of U.S. central-bank policy have been dismissed as Negative Nellies, but the ugly truth is staring us in the face: Stock-market advances remain a game of artificial liquidity and central-bank jawboning, not organic growth. And now the jig is up. As I’ve been saying for a long time: There is zero evidence that markets can make or sustain new highs without some sort of intervention on the side of central banks. None. Zero. Zilch.”

USAGOLD note:  Bold assertions that some will cheer and others will dispute with equal fervor. . . . . .A hedge makes a great deal of sense in case the Negative Nellies turn out to be right.  Why have all your eggs in one basket?

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Goldman says to bet on weaker U.S. dollar after Powell comments

Bloomberg/Joanna Ossinger/1-5-2019

“The U.S. dollar may be poised to decline, according to Goldman Sachs Group Inc. Comments from Federal Reserve Chairman Jerome Powell on Friday boosted the chances that the central bank will pause interest-rate increases, strategists at Goldman wrote in a note Saturday. Powell cited the events of 2016, when rates were kept unchanged through most of the year due to concerns about slowing growth in China. The potential hold presents a chance for the greenback to drop.”

USAGOLD note:  The flip side of the weaker dollar scenario over the recent past has been gold strength.

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The euro has failed, threatens democracy, and should be abolished

The Telegraph/Ambrose Evans-Pritchard/1-2-2019

“It can retain democratic legitimacy only if the EU goes the whole way to a supranational federal union akin to the United States, and for this there is not the slightest popular support in any major country. The ineluctable conclusion is that a monetary union of budgetary sovereign states cannot be made to work, and should not be made to work. The euro is a constitutional anomaly. It must therefore be broken up. All else is self-deception.”

USAGOLD note:  The main tenets of this Evans-Pritchard editorial draw from a study put together by the London School of Economics.  It will be a long time before the political and economic integration becomes a reality.  In the meantime, one would suspect that gold’s stature will only grow among a citizenry that progressively loses faith in the process.  Evans-Pritchard takes a surprisingly strong stand in this editorial which goes beyond his usually more detached, analytical approach.

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The commodities to watch in 2019

Bloomberg/1-3-2019

“Gold bulls seized the initiative in the final months of 2018 and there’s plenty to suggest that the haven may hold up. Look for support for prices that are already at a six-month high as the Federal Reserve goes slower on rate increases, and investors seek protection from equity market turmoil and slowing global growth.”

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JP Morgan’s top quant warns next crisis to have flash crashes and social unrest not seen in 50 years

CNBC/Hugh Son

“Sudden, severe stock sell-offs sparked by lightning-fast machines. Unprecedented actions by central banks to shore up asset prices. Social unrest not seen in the U.S. in half a century. That’s how J.P. Morgan Chase’s head quant, Marko Kolanovic, envisions the next financial crisis. The forces that have transformed markets in the last decade, namely the rise of computerized trading and passive investing, are setting up conditions for potentially violent moves once the current bull market ends, according to a report from Kolanovic sent to the bank’s clients on Tuesday.”

USAGOLD note (12-12-2018 update): The madness of machines. . . . This CNBC article highlighting the thinking of JPM’s Marko Kolanovic proved prescient.


Repost from 9-5-2018

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