Author Archives: USAGOLD

Gold + silver: The numbers – today, the week, the year –> catch-up below

Gold and silver traded sideways to down today after a solid week.  Gold finished the week up 1.9% ($1,321.21 ––> $1,346.29, +$25.08); silver finished the week up 2.2% ($17.55 ––>$17.95. + 40¢).  Gold’s upside Asian strength was blunted first in European trading then in New York on a slow day in most financial markets.

On the year thus far, gold is up 17% ($1,150.90 ––> $1,346.29, +$195.39); silver is up 13% ($15.90 ––> $17.95, + $2.05)

As for the events pushing gold and silver prices Monday through Thursday, we think you will find plenty to chew on in the long and illuminating roster of posts immediately below.  You can develop you own list of protagonists.

One quick comment on gold and silver’s performances since the beginning of the year:

The fact that gold has outperformed silver points to an apparent safe-haven bias among investors which, in turn, suggests a disinflationary bias toward the economy and financial markets.  We think that bias is in keeping with reality.  However, silver could play catch-up when private investors finally catch-on that something is going on.  This rally is led by global professional investors who are matching their public warnings about an overvalued stock market with diversifications into primarily gold via various investment avenues, including physical metal.  Both gold and silver have outperformed the stock market thus far in 2017.

DJIA (19,762 ––> 21,797, + 10.2%) (Surprise!)


If you would like to see our take on what’s pushing gold and silver these days, you might want to sign-up for our free newsletter, available with appreciation to our current and prospective clientele. Immediate access. Weeks ago, we took the emphasis off North Korea (though we didn’t eliminate it as a cause) and put it on five other more enduring factors.  Those are the factors covered in the newsletter.  It was interesting to see that Goldman Sachs took the same tack this past week.  (This gold note is under the heading, What is behind the ‘quiet’ summer rally in gold and silver.)

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Tokyo gold market

Given the growing importance of the yen/gold trade in Japan and the influence it has in the overnight market for the United States, we have added the Tokyo Commodity Exchange (TOCOM) hours of operation and a Tokyo time clock to our Gold Trading Hours page.

Your visits to the page are welcome.  It is a handy reference that gets quite a bit of global traffic.

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Gold up overnight in Asia on yen strength

Gold showing overnight strength. Up about $4.00 as this is written, broke $1350 at $1353.  Silver trading over $18 at $18.18. Gold and silver both registered unusually strong performances today in New York trading.  Gold was up $14 and silver was up 30¢.

Gold strength in overnight Asia trading has shown a consistent pattern over the past few months with much of the strength coming from a strong Japanese yen.  For years, Asia has pretty much  followed the New York/London lead which flattened the overnight (Asia) price flow. Things have changed.  Some analysts have begun to refer to the yen as a “safe haven.”  That might seem counter-intuitive given the situation in which Japan finds itself next door to North Korea, but the market calls the tune.  Of course there’s no safe haven like gold, and that’s why investors are buying it. (Gold is up in yen over this period.)

Take a look at the overlay immediately below.  It tells an interesting story. Keep in mind that the yen is quoted in yen per dollar, so the yen overlay looks inverse. The chart downtrend (red line) is really an uptrend and vice versa. Note the direct relationship between the yen and the gold price. Tonight’s jump in gold neatly coincides with the yen’s improvement.


For the full picture on gold strong performance today, please scroll below. Pete Grant’s Daily Market Report is a must read today!


We’ll keep an eye on this chart and you can too here.  Play with the chart tools.  You’ll figure out how to draw it yourself.

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When the United States Owned Most of the Gold on Earth

Gold’s legacy told indelibly in one straightforward chart

by Michael J. Kosares
Author, The ABCs of Gold Investing: How To Protect and Build Your Wealth With Gold
Founder, USAGOLD

Few Americans know that, just after World War II, the United States owned most of the gold bullion on earth – about 22,000 metric tonnes. In fact by 1945, it owned over 80% of the gold held by nation-states and central banks – an impressive display of economic power. Now it owns just over 8000 metric tonnes, which represents about 42% of the total global reserve.

The lost 14,000 tonnes were expended in defense of the $35 per ounce gold benchmark price established under the 1944 Bretton Woods Agreement. In addition to the fixed price of gold, the U.S dollar came to represent a fixed weight of gold, i.e., 1/35th of a troy ounce, and the rest of the world’s currencies were then pegged to the dollar. The United States agreed under Bretton Woods to redeem gold from the other signatories at the rate of $35 per ounce should any of the participants determine that gold might be a better alternative for a portion of their reserves than U.S. dollars. “The dollar,” American policy makers were wont to say, “was as good as gold.”

Germany, France get the idea dollar not as good as gold

All proceeded in orderly fashion with little in the way of redemptions from the massive U.S. stockpile until the 1960s. Then a group of European nation-states, led by Germany and France, got the idea that U.S. inflationist economic policies had undermined the dollar, making gold a bargain at $35 per ounce. In other words, they came to the conclusion that the dollar was not as good as gold.  Steadily, over a decade long period, they exchanged dollars for gold at the U.S. Treasury’s gold window. By the early 1970s, 14,000 tonnes of gold – or 64% of the stockpile – had departed the U.S. Treasury for European shores never to return.

In 1971 President Richard Nixon finally decided enough was enough. He closed the so-called gold window, devalued the dollar against gold, and freed the greenback to trade at market prices against other currencies. Fully abrogating the Bretton Woods Agreement, Nixon declared, in one of the more famous quotes of his presidency, “we are all Keynsians now.” The era of global fiat money, with a fiat U.S. dollar as its centerpiece, had begun.

Had the United States refrained from its defense of the $35 benchmark, it would still own about 75% of the present 29,000 tonne global gold reserve. As it is, Nixon’s revocation of the Bretton Woods architecture set the stage for the modern gold market. You can see the result in the chart immediately below. From it, I can draw three conclusions:

–– First, we are now in the 46th year of a super-cycle, secular bull market in gold that began in 1971 – a bull market directly tied to the fate of the now fiat U.S. dollar.

–– Second, the very same conditions which created that bull market are still in place today – nothing has changed fundamentally.

–– Third, as long as the same cause and effect remain in place, we can assume gold will continue to make sense as a long-term portfolio hedge.

Some will agree with those conclusions. Some will not. Some are on the learning curve, and it is to that group this piece is largely addressed.

Chart courtesy of GoldChartsRUs/Nick Laird with thanks

In the end, it is the times that need to be hedged

Those who do not agree with those conclusions, it has been my experience, will continue to put their faith in the stock and bond markets and ignore the precious metals. There is no amount of persuasion that will convince them to do otherwise, and to try is pretty much a waste of time. Most importantly, whether they care to acknowledge it or not, they will put their faith ultimately in the federal government and the Federal Reserve.

Those who do agree will continue to hedge their portfolios with the precious metals, just in case the long history of economic breakdowns beginning with 1971 repeats itself yet again. To this group, the proper diversification is a small price to pay, a matter of practical financial planning that, in these times, provides some much-needed peace of mind. As for an end game to all this, they will keep in mind one of history’s immutable lessons – sometimes the problems become too large for the government and central bank to control.

For those on the learning curve, a post I made at the USAGOLD blog recently titled “Historical inevitability and gold and silver ownership – In the end it’s the times that need to be hedged” would be an informative follow-up to what you just read, another piece in the puzzle. It got significant play on the wider internet and speaks to the possibilities of an end game from the perspective of Strauss and Howe’s fourth turning.


You have just read the lead article for the September edition of News & Views – USAGOLD’s monthly newsletter.  To gain immediate, FREE  access to the rest of the newsletter, we invite you to  to sign-up here.   In this month’s chart rich edition, we cover the ‘quiet’ summer rally in gold and silver; the dramatic shift in central banks’ role in the gold market since the 2008 financial crisis; the relevance of the upcoming Shanghai Exchange oil futures contract convertible to gold. . . .and more.  All from the perspective of the gold owner.


One more chart for those who want the complete picture:

Chart courtesy of GoldChartsRUs/Nick Laird with thanks

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Gold continues uptrend today, up almost 18% on the year

Decent day today. Gold continued its uptrend improving by $8.74 at $1341.57 and showing carryover strength, at this writing, in the aftermarket.  Gold, as shown in the chart below, is trading at 2017 highs and up almost 18% on the year. Asia opens momentarily. It will be interesting to see if we get carryover from U.S. trading.

Stay tuned. . . .We’ll update if anything interesting develops.

There are a number of other factors at work in the gold market. Scroll below for full details.

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Gold, silver up in Asia trading

North Korea announces successful H-bomb test.

Gold is up $10.80 at $1335 this posting.  Silver is up 17¢ at $17.89.  Dollar trading lower against yen, euro . . . . .DJIA futures  down 75.

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Gold gets strong bounce off $1300 level today, silver in tandem

Good day today. Gold up $14 at $1321 per ounce.  Silver up 18¢ at $17.55 per ounce. Gold mounted a defense of the $1300 level in overseas trading that carried over to day time trading in the United States. (first chart below)  Silver traded in concert with gold.

The metals also closed out a strong month coming out of the annual summer doldrums with a solid move to the upside (second chart below.)  For the month of August, gold is up 4% (+$53.00) and silver is up 5% (+87¢).

For more detailed information, please scroll below. 


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Strike gold on your smartphone

USAGOLD’s mobile market monitor

Our mobile pages are one of the hidden gems at the USAGOLD website.  Principally designed as a service to our busy clientele, Google picked up on several pages ranking them one to three under mobile searches. Those search listings refer a steady stream of new visitors daily. It is very user friendly and delivers up-to-the minute prices, news and opinion  on the gold market.

We welcome your visit to our mobile hub page. From there you can navigate to the pages that interest you when you are on the go. . . . .

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Gold rally gathers pace in overseas trading

Gold is up about $7 in overseas trading at $1325.  Silver is up another 12¢ at $17.63 as metals’ strong performance yesterday carried over to trading in Asia and Europe.  At this posting, DJIA futures are off 135 and the euro is trading at the $1.20 mark.  Scroll for more. . . .

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After hours gap-up in gold price

Gold gapped up in after hours trading driven by North Korea’s ballistic missile launch over Japan.  Gold is up $26 at $1317 on the day.  Silver is up 45¢ at $17.49.  Gold had already registered a strong performance today on factors covered below.


If you are new to USAGOLD, our Gold Today! page is a good place to follow the gold price action in real-time.  The page includes a constantly updating news feed with lots of news and opinion from solid sources in the U.S. and overseas.

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Where to buy gold

A quick guideline for choosing the right gold company

by Michael J. Kosares
Author, The ABCs of Gold Investing: How To Protect and Build Your Wealth With Gold, and founder of USAGOLD

Updated Q3-2017

It is surprising how many prospective investors simply dive into gold and silver investing without much in the way of a consumer inquiry. That lack of simple due diligence has ended up costing a good many investors thousands of dollars, and sometimes even hundreds of thousands, before the damage is detected. Below you will find some brief but valuable guidelines to help you choose the right gold and silver company. It might be the most important decision you will make on the road to becoming a gold and silver owner.

Choose a company that has a solid track record

Ten years in the business is good; fifteen years or more is even better. Avoid the newcomers, the flashy discounters and the complicated online coin shops. These outlets are designed more for collectors and dabblers – or buyers out to make a quick, online purchase – than serious investors looking to hedge their portfolios.

Choose a company with a solid track record and longevity. It is the mark of a well-run business committed to its clientele.

Choose a company with strong credentials and a reputable history

A simple background check can go a long way in helping you circumvent a company with a history of problems and poor customer service. A quick visit to the Better Business Bureau’s online website can do wonders and save you a major headache down the road.

The BBB provides consumers with a company’s basic rating, verified online reviews and a list of complaints. (If a company does not have a BBB rating, treat it as a red flag.) Pay special attention to the complaints and how they were handled even if the company has managed to maintain a high rating.

A good many precious metals’ businesses that have gone bankrupt, or found themselves in legal difficulties in recent years, showed signs of something being wrong long before-hand in their rating and complaint record. Oftentimes, the BBB will post a warning about such businesses.

BBB reviews are another good source of consumer information. Make sure that the reviews are verified and noted as such by the BBB itself. Too often businesses stack their review section with reviews that have not been vetted officially by the BBB.

Choose a company with strong BBB credentials. Now more than ever, reputation matters.

Choose a company willing to spend time with you and answer your questions

The company that is abrupt at the outset is the company likely to give you short shrift in the future when you have a question or concern that needs to be addressed. Be especially wary of companies that use aggressive sales tactics. Seek out and develop a relationship with a company that handles your inquiry in a friendly, professional manner.

Choose a company willing to work with you. It will provide helpful guidance now and peace of mind in the future.

Choose a company willing to accomodate your timing

Even if you think that you might want to make a purchase at some point in the future, but for whatever reason are not ready now, it would be best to vet candidates ahead of time. By doing the spadework, you will know where to call when the time comes. It is also advisable to do some advance planning with respect to the specific items you might want to add to your portfolio.

Choose a company willing to be patient with your timing needs. It will be there for you when you need it. Hurried decisions made in the heat of a media-driven gold and silver frenzy can lead to mistakes. (Of course, the ideal is to follow the old rule: The best time to buy gold and silver is when everything is quiet.)

Choose a client-oriented company geared to helping investors

Many online companies are happy to take your order (no matter what it is) and then It’s good luck trying to make contact and get information when you need it – particularly when it comes time to sell or track a late delivery. Mostly interested in quick turnover, customer-oriented companies are order-takers rather than experienced, professional advisors. Client-oriented companies, and there are still a few around, tend to take more of an interest in developing a relationship that will serve both parties over the medium to long run.

Choose a company that takes an interest in you as a long-term client rather than a one-time customer. There is a great deal of difference between the two particularly if your goal is to become a successful gold and silver owner.

Choose a company that will not divert you from your objectives

Most investors come into the gold and silver market looking for a way to preserve their assets from potential financial or economic threats. Not every gold company, however, has asset preservation as its top priority.

Some tout leveraged accounts or high-end numismatics, for example, or graded and over-priced contemporary bullion coins, off brand bullion bars and jewelry items (to name a few of the wrong turns often taken by first-time investors), none of which serve the safe-haven aspirations of most gold and silver owners.

Choose a company that thinks like you do. Keep it simple. Buy well-known and established physical coins and bullion with a broad international market. Stick with highly liquid items and take delivery. It will enhance your chances at success.

Choose a company whose website you have explored

Before you even contact a gold company, it would serve your best interest to determine the real nature of its business. You can learn much by browsing a website and determining whether or not the company might be a good fit.

Choose a company with a well-run, agreeable website but don’t forget the rest of the due diligence outlined above.

Final Word

Choose the right company and it will help you stay the course on protecting your assets from economic uncertainties. Choose the wrong company and you can suddenly find yourself with more than you bargained for. Don’t jump in. Choose wisely. Choose carefully.

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Gold Week in Review (video), August 08, 2017

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Gold Week in Review (video), July 28, 2017

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In gold we trust – 2017

by Ronald-Peter Stoferle and Mark J. Valek, Incrementum

“The highly normal is becoming abnormal.”
Claudio Borio, Bank for International Settlements

“We believe that the monetary tsunami created in the past years, consisting of a flood of central bank money and new debt, has created a dangerous illusion: the illusion of a carefree present at the expense of a fragile future. The frivolity displayed by many investors is for example reflected by record-low volatility in equities, which have acquired the nimbus of being without alternative, and is also highlighted by the minimal spreads on corporate and government bonds. Almost a decade of zero and negative interest rates has atomized any form of risk aversion.”

With that Stoferle and Valek set the stage for their widely anticipated annual review of the international gold market. We invite you to explore their analysis, prospects and conclusions at the link below:

In gold we trust 2017


* Incrementum offers a complimentary subscription for upcoming gold reports, as well as gold-chartbooks at:  https://ingoldwetrust.report/en/

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June 2017 Special Offer

Update (6/7/17, 5:10 pm MT):  U.S. $5 Liberties over half sold out.  Strong response.


U.S. $5 Liberties
Time to buy. Premiums have fallen to all-time lows. Limited availability. 

“In recent weeks, the premium on pre-1933 $5 Liberty gold coins in AU/Uncirculated condition has fallen to an all-time low, prompting us to recommend them for bulk purchase for the first time in over a decade. . . .  (MORE)


Gold American Eagles (1 oz)

Discounted $7 per one ounce coin.  200 available.  Free shipping at 10 or more ounces purchased. . . . . (MORE)


Please call the ORDER DESK to reserve your order.
First-come, first-served.

1-800-869-5115
Extension #100

You also pay by credit card by going to either of the two links posted above.

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The story behind continuing strong bullion coin demand

2016 was a very good year for both gold and silver in aggregate global mint sales

by Michael J. Kosares

I have always considered sales of modern gold and silver bullion coins a bellwether on the general health of the global precious metals market. In reality, though, bullion coin sales comprise only a very small portion of the physical gold and silver markets. According to the World Gold Council, modern gold coins make up only about 13% of investment demand and a little less than 5% of overall demand.* Yet, as is often the case in statistical inquiry, it is the small and often unobserved, sometimes even ignored, that can accurately tell the larger story – particularly when it reflects the net effect of human action within the greater economy and financial markets.

So how is it that such a small aspect of the global gold market in terms of the overall volume can at the same time be so important?

In a nutshell, it is because the demand among ordinary private investors is telling us something very important: The level of confidence people have in the economy and the plan being carried out by the central planners in charge. Twentieth-century economist Joseph Schumpeter (1883-1950), most famous for his theory of creative destruction in capitalist economies, said it best: “The modern mind dislikes gold because it blurts out unpleasant truths.” I am quite certain that the “modern mind” to which Schumpeter referred was a collective term for the social and economic planners responsible to this day for the construction and maintenance of the fiat money economy.**

With that for initial spade work, let’s take a look at the demand for modern gold and silver bullion coins to see what they might be “blurting out” at this juncture in economic history. First and foremost, the numbers tell us that though Washington and the mainstream media may have recovered psychologically from the 2007-2008 crisis, the investing public has not. In fact, by implication the numbers tell us that concerns about a repeat, or better put, an extension, of that crisis still run high among investors.

The charts depict two different eras for gold and silver bullion coins – the one before the crisis and the one after. The strong consumption in 2016, in that respect, is decidedly a continuation of a well-established trend that began in 2008. For gold, 2016 was the fifth best year on record in terms of sales and in a virtual dead heat with 2015. For silver, 2016 was the fifth best year on record coming after last year’s record sales. Since 2016 was a relatively calm year in financial markets, the question arises how high demand might go if another crisis were to suddenly ignite.

Another lesson in these charts, and one that should not be overlooked, is that the record performances in both precious metals since 2008 did not occur in an inflationary environment, but in a distinctly disinflationary one. The strong and continuing post-crisis demand, running consistently at five to nine times pre-2007 levels, belies the mainstream media’s unremitting mantra that the precious metals are an inflation hedge and inflation hedge only. In that regard, silver is the big surprise. Prior to the current period, silver was generally viewed as an industrial metal with some investment potential and rarely a safe-haven or crisis hedge. Now investors give silver nearly the same credence they do gold for asset preservation purposes.


FREE SUBSCRIPTION and access to this month’s edition of News & Views.  This month we explore the big issues in Washington and how they are likely to affect gold in the months ahead; the mechanics of how algo-trading might create a stock market panic and much more.   Several timely charts are included. We invite your free subscription at no obligation.


* These totals include only current year bullion coins and does not include the large volume in previous mintages traded in the secondary market globally. There is no accurate accounting available for the secondary market, but it would add significantly to the annual turnover demand if it were tracked.
** Complete quote: “In the first place, the ‘classic’ writers, without neglecting other cases, reasoned primarily in terms of an unfettered international gold standard. There were several reasons for this but one of them merits our attention in particular. An unfettered international gold standard will keep (normally) foreign-exchange rates within specie points and impose an ‘automatic’ link between national price levels and interest rates. The modern mind dislikes the this automatism, as much for political as for economic reasons: it dislikes the fetters this automatism clasps on government management of the economic process – dislikes gold, the naughty boy who blurts out unpleasant truths. But most of the economists of the period under survey liked it for precisely the same reasons. Though they compromised in practice as in theory and though they admitted central-bank management, the automatism – a phrase beloved by Lord Overstone [Samuel Jones Loyd, 1st Baron Overstone] – was for them, who are neither nationalists nor etatistes, a moral as well as an economic ideal.” –– Joseph Schumpeter, History of Economic Analysis (1954) Published posthumously
Charts compiled and designed by USAGOLD’s Jen Dentry with the assistance of the mints surveyed.
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Gold prices rebound as U.S. dollar weakens

NASDAQ Daily Forex/Walker England/5-25-2017, 8:55 AM EDT

“Gold prices are rebounding and trading to new weekly highs today, as the US Dollar continues to decline. Technically gold prices may now be seen as trending higher in both the short and long term. Yesterday’s bullish breakout saw gold closing back above both the 200 day MVA (simple moving average) and the 10 day EMA (exponential moving average). Currently the 10 day EMA is found at $1,235.74, and should be referenced as a value of support if prices continue to advance.”

USAGOLD comment:  Something else might be going on.  We will keep an ear to the rail.  G-7 meetings in Europe have been less than positive and that might be weighing on markets.

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News & Views – Forecasts, Commentary & Analysis on the Economy and Precious Metals

May, 2017 Edition – Weekend Sneak Peak

If you are looking for some engaging weekend reading, you might want to try the May edition of our newsletter.  We think you will find this month’s lead article revealing.  It explores gold’s historic undervaluation at current prices. (You might be surprised at just how undervalued it is in an  historical context.) We cover a lot of ground in our GoldNotes section.  Your interest is welcome. . . . . . Seems to be good reason to feature this  Ed Stein cartoon in our May issue ––

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News & Views now available to subscribers

April, 2017 edition

Short & Sweet – Some things you might have missed

Excerpt. . . .

BoA-ML says “long gold” in anticipation of manias, panics, crashes

Bank of America/ Merrill Lynch is warning its clients to prepare for manias, panics and crashes. “Normalization,” says Michael Hartness, the bank’s chief investment strategist, “from a 5,000-year low in rates, 70-year low in G7 fiscal stimulus, 35-year high in the US-German rate differential, an all-time high US stocks vs. [the rest of the world], a 75-year low in bank stocks is unlikely to be peaceful; long gold in anticipation of potential manias, panics, crashes.”

He goes on to say:

“The beneficiaries of rising inflation and rates are many. The long-run price relative of real assets (real estate, commodities, and collectibles) to financial assets (stocks and bonds) is at its lowest level since 1926. Bull markets in real assets have coincided with war and fiscal stimulus programs in 1940s, rise of inflation in 1960s and 1970s, and 9/11 & China accession to WTO in the early years of this century. Higher inflation and interest rates are consistent with real assets outperforming financial assets: since 1970, relative performance of real assets 83% correlated with inflation.”

_____________________________________________

Related, in-depth reading:
BlackSwansYellowGold: How gold performs in periods of deflation, chronic disinflation, runaway stagflation and hyperinflation
Black swans: A chronology of panics, manias, crashes and collapses from 400 BC to present
“You say: ‘I did not think it would happen.’ Do you think there is anything that will not happen, when you know that it is possible to happen, when you see that it has already happened?” – Seneca, 62 AD at the time of Emperor Nero’s debasement of Roman coinage

_____________________________________________

One of eleven entries.
To read the rest of the newsletter, we invite your subscription at no cost or obligation.

News & Views
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Michael J. Kosares, editor

 

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Should I buy a gold ETF?

Why gold coins and bullion are the better option for most investors.

by Olivier Garret/Gold Seek

Editor’s Note:  You decide that the time has come to include gold in your investment portfolio. You contact your investment advisor and he or she puts you into a gold ETF. Did you do the right thing? In this article, which originally appeared at Forbes magazine, Olivier Garret tells why gold coins and bullion owned outright are the better option.

Gold ETFs are rising in popularity due to their convenience. They’re easy to trade, there’s no need to store anything, and no one is going to break into your house to steal your GLD shares.

But there are a lot of hidden dangers inherent in the structure and operation of gold ETFs that few investors are aware of — and these risks are more pronounced than ever, as the threat of another financial crisis is always around the corner.

Considering the public’s waning trust in the banking system, many investors find themselves wondering how GLD stacks up to owning the real thing. When you look at both assets more closely, it’s clear that gold ETFs and gold bullion are very different investments.

Why GLD is not the same as gold

SPDR Gold Trust (GLD), the largest, most popular gold ETF, is an investment fund that holds physical gold to back its shares. The share price tracks the price of gold, and it trades like a stock, but the vast majority of investors don’t have a claim on the underlying gold.

The reason for this is that you can only request physical delivery of metal if you own a minimum of 100,000 GLD shares (most investors don’t: at $1,000 gold, 100,000 shares is more than a million dollars). Even if you do own enough shares, the GLD ETF reserves the right to settle your delivery request in cash.

So why is GLD appealing to investors if you never actually own any gold?

For one, the fund is both convenient and low cost. If you’re looking for an inexpensive way to invest in the direction of the gold price, GLD is ideal.

The other advantage is you can employ leverage with options, which can be risky, but it’s something you can’t do with gold bullion. If you’re an investor who doesn’t plan to take delivery and you’re comfortable with a higher degree of risk, GLD can be a good way to gain exposure to the price of gold.

Counterparty risk on all levels

While gold ETFs can be a fine investment, they come with a lot of counterparty risk inherent in their chain of custody. And this risk will only grow commensurately with systemic uncertainties.

Think about it: If you own GLD, you must rely on a counterparty to make good on your investment. If the fund’s management, structure, chain of custody, operational integrity, regulatory oversight, or delivery protocols break down, your investment is at risk.

It all raises too many questions. Can you be sure the bank doesn’t front-run its customers? How safe are the fund’s holdings? Is the fund protected by adequate insurance? Is the custodian bank trustworthy enough to safeguard the gold?

The best reason to own gold is as a hedge against risk. It can be your last line of defense in an economic crisis—a form of wealth insurance, if you will. But since gold ETFs are part of the very banking system you need protection from, you must ask yourself if they serve one of the primary purposes for owning gold.

In a period of financial crisis, the risks inherent in holding GLD would only rise. In fact, the frequency and severity of counterparty risks with gold ETFs are already rising.

When you consider how these ETFs function, the problem of counterparties quickly becomes apparent:

The custodian

When you invest in GLD, you buy shares through an Authorized Participant, which is usually a large financial institution responsible for obtaining the underlying assets necessary to create ETF shares.

When it does so, it is buying shares in the fund’s trustee, the SPDR Gold Trust. The trustee then uses a custodian (HSBC) to source and store the gold for it.

Trust in the custodian is paramount: If you’re buying gold as a hedge against a failure in the financial system, you must be confident that the custodian would not be impaired if a crisis were to happen.

As HSBC is one of the world’s largest banks, you simply don’t have that assurance. If there’s a systemic disruption, your GLD shares would likely be negatively affected.

The sub-custodian

Custodians like HSBC can use sub-custodians, such as another bank, to source and store gold. So in addition to the risk you assume with the fund’s primary custodian, you’re now exposed to even more risk because it has added another counterparty.

The trustee

There are no written contractual agreements between sub-custodians and the trustees or the custodians, which means if a sub-custodian drops the ball, the ability of the trustee or the custodian to take legal action is limited.

This leaves the trustee on the hook for any negligence. But trustees don’t insure the gold for gross negligence; they leave that to the custodian, who secures limited general insurance coverage for the contents of the vaults. The value of the gold in the vaults is likely to be much greater than this limited policy would cover.

What this all boils down to is that if anything happens to any of the counterparties, you’re the one who loses. And you have zero recourse.

_______________

This article originally appeared at GoldSeek and is reprinted at USAGOLD with permission.

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News & Views – Forecasts, Commentary & Analysis on the Economy and Precious Metals

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


Find out why this chart important to investors.

This issue of News & Views is published in the clear.  In it, the important but generally overlooked issue of commercial bank excess reserves is explored in detail. The monetary inflation created in the wake of the 2008-2009 financial crisis never disappeared, it just went into hiding.  Now, years later, it has begun to surface as an unexpected response to the Fed’s interest rate policies.  Learn what’s behind this largely unforeseen turn in monetary events, how it is affecting the economy now and what it might mean for the future, including its likely impact on the gold market.


If you would like to receive future issues of our newsletter, we invite you to register here at no obligation.

Editor’s note: The charts in this edition of our newsletter, offered in conjunction with the St. Louis Federal Reserve (FRED), are live, interactive and updated automatically. To monitor changes, we invite your return visits.

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Gold cracks psychological $1250 mark in overnight surge

UPDATE – Gold higher in Asian/European markets, cracks $1250 mark convincingly, carryover on Treas Sec Mnuchin comments that low rates to continue.  Gold headed to three month high and fourth straight weekly gain; silver 9th straight weekly gain (Bloomberg says longest streak of weekly gains for silver since 2006).  General sentiment working in gold and silver’s favor.  Market led by professional investors.  David Einhorn confirms strong gold position in Greenlight Capital citing risk of inflation, Trump uncertainties. Dow futures off 80.

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Gold in the attic

In this month’s issue of News & Views, we do something a bit unusual.  We celebrate USAGOLD’s 20th year on the World Wide Web by reprinting some of our more interesting and timeless short-form treasures from over the years.  We think you will thoroughly enjoy this walk down memory lane.  Newcomers, we hope, will find inspiration here and some very sound reasoning as to why gold should become a part of your long-term portfolio plan. The following is list of vignette titles in the retrospective.  If you are new to USAGOLD and did not receive our latest newsletter issue by e-mail, we invite you to visit some time. . . . . . when you have a moment for quiet contemplation.

√ Gold in five easy lessons

√ Question: When is a billionaire not a billionaire?
Answer: When just about everyone else is a billionaire.

√ Yap stone money inflation

√ What it would take to make the dollar as good as gold

√ Computer software gone mad

√ The PhD standard and what to make of it

√ Nine lessons on investing your money

√ Approaching gold with the right attitude, Part 1

√ Approaching gold with the right attitude, Part 2

√ The ethics of interest rates

√ For gold owners, the inflation-deflation debate is purely academic

√ The seven ages of gold

√ Keynes would be buying gold hand over fist

√ A telephone call from an old client and friend

News & Views / February, 2017/FREE SUBSCRIPTION

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A Trump devaluation and global currency war?

What it could mean for gold.

by Michael J. Kosares

“But the chaotic start to the administration and what many see as its protectionist agenda have amplified fears of not only currency wars but a fully fledged trade confrontation that could be disastrous for the world economy.” Financial Times 2/2/2016

MK note:  [OPINION] President Trump and National Trade Council head Peter Navarro have launched verbal assaults on the Japanese yen, Chinese yuan and the euro labeling all three undervalued the result of deliberate currency policies in the three countries.  “With his statement [Mr Navarro] has in fact fired the next salvo in the currency war the US administration is currently conducting against the rest of the world,” says Ulrich Leuchtmann of Germany’s Commerzbank.

The fact of the matter is that the United States can no longer devalue the dollar as effortlessly (with the stroke of pen) as if the world were still on a dollar-based gold standard.  In such a system, the United States could, and did, devalue the dollar by simply raising the official benchmark price of gold (1971,1973).

Now to carry out a true devaluation of the dollar against other currencies, it needs co-operation from the issuers of those currencies.  Since that is not about to happen without considerable persuasion, the Trump administration will be left with tariffs and import taxes of one kind or another in order to achieve its goals with respect to U.S. trade imbalances.  The end result will be a de facto devaluation of the dollar within the United States against goods and services, not necessarily against other currencies (as discussed here last week).

Since so many commodities are bought and sold in dollar terms, the price inflation will be exported to nations around the globe and injected into their economies.  As noted in our clipped quote, there is considerable concern about the global trading system, but what that translates to in each of these nation states is a potential economic slowdown coupled with possible inflation.  When you start thinking about the situation along these lines, it is not difficult to understand how Alan Greenspan came to the conclusion that we are headed for another period of stagflation, perhaps even runaway stagflation, reminiscent of the 1970s (when Ronald Reagan made famous the Misery Index, the combination of inflation and unemployment). Needless to say, under such inflation-driven circumstances, both gold demand and gold prices are likely to rise, both here and abroad, as they did in the 1970s.

Markets move on sentiment and expectations. At the moment, the sentiment is confused as most are having a hard time getting a clear read, but those who understand the power of market expectations have begun to load up on gold. You see the evidence in revived ETF demand (up roughly 1.2 million ounces in January) as well as demand from Asia, particularly China.   Much of the market action and movement over the past several days has occurred during Chinese and European market hours, including last night. Today’s London morning benchmark was posted at $1224.05 – up about $12 from the trading level just before the posting.


FREE SUBSCRIPTION – If you are looking for a newsletter that consistently delivers in-depth, cutting-edge coverage of the gold and silver markets, our monthly newsletter might be just what you are looking for. We invite you to join our group of 20,000 loyal subscribers at no obligation.


Previous posts on this subject (for those who would like to delve a little deeper):

Post series: The myth of the strong dollar policy, Part One

Post series: The myth of the strong dollar policy, Part Two

Some initial thoughts on the new ghosts of inflation past

Trump is waving adios to the longstanding ‘strong dollar policy’

 

 

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Trump is waving adios to the longstanding ‘strong dollar policy’

by Michael J. Kosares

IMPORTANT POST FOR LONG-TERM PORTFOLIO PLANNING

Marketwatch/William Watts/1-18-2016

“Douglas Borthwick, managing director of Chapdelaine Foreign Exchange, argued in a note earlier this month that an incoming Trump administration, by throwing out the strong dollar policy, could use the currency as a linchpin in implementing its economic agenda: ‘With a removal of the Strong USD Policy, the US Dollar will weaken against its global counterparts. This will give the FED the ability to normalize US interest rates, as they can use the weaker USD and the resulting inflation as an excuse for raising rates. . .'”

MK note:  We have come to an interesting crossroads for the gold market. Yesterday, vice-president elect Pence told Fox News that we now have a president who understands business and that a strong dollar hurts our exports.  He made the inference that Trump would likely comment on the dollar regularly as president, something past presidents traditionally have shied away from doing.

Markets, as most of us know, move on sentiment as much as they do hard realities. Thus someone the stature of the U.S. president talking down the dollar is very important to market psychology – not just for gold but all markets.  The Trump administration’s position has already had an effect on the gold market.  Though gold has reacted rather modestly to Janet Yellen’s announcement two days ago of more interest rate hikes this year, it is nothing when compared to the waterfall drops following past announcements on the subject of higher rates.

Things have changed. . . . . .

MK note 2:  As for the Fed using weak dollar sentiment as cover to boost rates, such increases are likely to stay behind the inflation curve.  The quickest way to undermine, and in fact eliminate, a weak dollar policy would be to put rates high enough to create a positive real rate of return on dollar-based financial instruments.   Real interest rates is what real money managers watch in terms of positioning their clients’ portfolios.  I think, too, the Fed understands that such a policy would undermine the Trump administration’s economic program.  The fact of the matter is that it would also undermine the Fed’s attempt to “normalize” interest rates.

Below are charts covering the historical real rate of return on gold and the dollar.  With respect to the real of return, gold has done spectacularly well over the past decade and a half and probably a key reason why gold investment demand has continued to grow over the past several years despite the lower price.

Now the question becomes:
Has the Trump administration inadvertently conferred its blessing on the gold market?

Real rate of return on One Year Treasury, 1970 to present

Chart note: The extensions in the financial instruments’ bars above the CPI represent a positive real rate of return. When the CPI extends above the financial instrument, it represents a negative real rate of return.  As you can see, at times gold’s real rate of return has been spectacular, as mentioned in the text above.

Real rate of return on gold. 1970 to present

FREE SUBSCRIPTION – If you are looking for a newsletter that consistently delivers in-depth, cutting-edge coverage of the gold and silver markets, our monthly newsletter might be just what you are looking for. We invite you to join our group of 20,000 loyal subscribers at no obligation.

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Gold up sharply overnight on hard Brexit concerns, pound sterling drop

Bloomberg/Svenja O’Donnell and Timothy Ross/1-15-2017

“Government officials expect sterling to take another hit when May sets out her vision for leaving the bloc in a speech on Tuesday, and the Treasury is preparing to speak to major banks in London to try to smooth the reaction, said the people, who declined to be named as the plans aren’t public. While Treasury officials often reach out to banks to explain policy, it’s unusual for the prime minister’s office to anticipate a bad market reaction, they said.”

USAGOLD note:  Gold upside originating in Asian trading as of this writing. China New Year physical demand also a factor.

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Gold in five easy lessons

by Michael J. Kosares

1. Don’t buy it because you need to make money; buy it because you need to protect the money you already have.

2. Don’t look at price as a barrier; look at it as an incentive.

3. Don’t buy its paper pretenders; buy the real thing in the form of coins and bullion.

4. Don’t fall prey to glitzy TV ads; do your due diligence instead.

5. Don’t allow naysayers to divert your interest; allow yourself the right to protect your interests as you see fit.


Mr. Kosares is the author of The ABCs of Gold Investing – How To Protect and Build Your Wealth with Gold, the widely-read introduction to gold ownership.

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The Gold Owner’s Guide to 2017

Reversal, resurgence and renewal on the road to the new year

by Michael J. Kosares

A review of and outlook for the gold and silver markets in 2017 . . . . .


“There’s an old saying in the business realm that if you watch the pennies the dollars will take care of themselves. Likewise, if you build your portfolio on solid principles for the long-run, you will be well-positioned should the short run provide benefits. The best analysis, it follows, concerns itself not with what is likely to occur in the coming 365-day period (although it can be somewhat helpful), but with societal issues that will have a lasting impact on the political economy. “


FREE SUBSCRIPTION – If you are not already a subscriber to our monthly newsletter, this year’s Gold Owner’s Guide is well worth a visit to our registration page.  Besides the current issue, you will receive no-obligation access to future issues and an e-mail alert when they are released.  We invite you to join us for in-depth, cutting-edge coverage of the gold and silver markets.

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Wishing you a happy, healthy and golden 2017 from all of us at USAGOLD!

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Happy Holidays

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