Category: dailyquotes

Gold nudges lower as dollar seesaws and problems mount in Europe and China

Gold nudged slightly lower again today as the U.S. dollar seesawed in international markets. It dipped briefly below the $1250 mark overnight and is now trading at $1252.50, down 75¢ on the day. Silver is trading at $16.00, off 12¢ on the day. If gold finishes lower again today, it will be the fourth day in a row it has lost ground.

With the immigration problem in Europe threatening Angel Merkel’s German government and the trade wars doing damage to China’s stock market and currency, the dollar at the moment is the chief beneficiary of safe-haven capital flow. That could all come to a screeching halt though if the Trump administration were to suddenly decide that the strong dollar is undermining its trade policies. Conversely, China and Europe might decide that a stronger euro and yuan might be in their best interest. We invite you to scroll below for details.

Quote of the Day
“Monetary units have always been closely tied up with units of weight. For instance, the word ‘pound’ has been used to describe both the British monetary unit (£) and the weight (lb). The pound weight was originally based on wheat. In 1266, King Henry III decreed that the British unit referred to as the grain should be defined as the weight of a corn of wheat ‘well dried, and gathered out of the middle of the ear.’ Thirty-two grains were to be equal to a pennyweight, twenty pennyweights equal to an ounce, and twelve ounces added up to a pound. So the early English pound, otherwise known as the Tower pound, was comprised of 7,680 ‘well-dried’ grains from the middle of an ear of wheat.” – JP Koning, Bullion Star

Chart of the Day

Chart courtesy of TradingEconomics.com

Chart note: China’s Shanghai Composite Index dropped another 27 points overnight to close at 2786. It is down about 9% since the January interim top at the 3550 level as part of downtrend in what some analysts have dubbed a bear market for Chinese stocks. A report from the National Institute for Finance and Development, a China government-sponsored think tank, warned yesterday that “. . .China is currently very likely to see a financial panic. Preventing its occurrence and spread should be the top priority for our financial and macroeconomic regulators over the next few years.” The report was published on the internet then subsequently removed. As reported here yesterday, China intervened in currency markets on Wednesday to slow the fall of the yuan but met with limited success. The currency was down sharply again today in Asian trading.

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Gold off this morning, not much in the way of news

Gold is off another $2.50 this morning at $1256.00 in a minor continuation of yesterday’s downtrend. Silver is down 8¢ at $16.21. Nothing new has surfaced in the way of market-altering news. Gold seems to be looking for direction in early trading. We will keep the DMR short today as there isn’t much to report, and point you immediately below for a couple quick, but interesting reads.

Quote of the Day
“Reflect on what happens when a terrible winter blizzard strikes. You hear the weather warning but probably fail to act on it. The sky darkens. Then the storm hits with full fury, and the air is a howling whiteness. One by one, your links to the machine age break down. Electricity flickers out, cutting off the TV. Batteries fade, cutting off the radio. Phones go dead. Roads become impassible, and cars get stuck. Food supplies dwindle. Day to day vestiges of modern civilization – bank machines, mutual funds, mass retailers, computers, satellites, airplanes, governments – all recede into irrelevance. Picture yourself and your loved ones in the midst of a howling blizzard that lasts several years. Think about what you would need, who could help you, and why your fate might matter to anybody other than yourself. That is how to plan for a saecular winter. Don’t think you can escape the Fourth Turning. History warns that a Crisis will reshape the basic social and economic environment that you now take for granted.” – William Strauss & Neil Howe, The Fourth Turning [1997]

Charts[s] of the Day

Chart courtesy of TradingEconomics.com

Chart note: Though China might be tempted to choose devaluation over selling U.S. debt as a tactic in the trade war, as Goldman Sach’s economists suggested yesterday, it creates other problems for the country that it has tried to avoid in the past – most notably capital flight. The fact of the matter is that China has chosen to do just the opposite since early 2014: It has sold U.S. debt and tried to keep the yuan in a tight band against the U.S. dollar. China’s foreign exchange reserves as a result went from nearly $4 trillion to just above $3 trillion. Meanwhile, the yuan has traded in a narrow channel between 14¢ and 16¢. Noted gold analyst, Martin Murenbeeld, in fact, recently suggested that the trade war would inevitably force the U.S. to devalue the dollar. (Please scroll below) Also, the Wall Street Journal reports this morning that today “China’s central bank appeared to intervene to stem the yuan’s decline.”

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Gold down early on options expiration

DAILY MARKET REPORT

Gold is trading down $6.50 early in today’s session at $1259.50. Technical factors dominate trade with July options expiration on today’s agenda. Gold can sell-off sharply on options expiration day, but it can often recover just as quickly. That might be the case today as it is already up $5 from earlier low at$1254.50. Silver is down 5¢ on the day at $16.29.

Quote of the Day
Central bankers are coy about gold’s importance as a monetary metal. Former Fed Chair Benjamin Bernanke, at one of our hearings, claimed flatly that gold was not money. When I pressed Bernanke on why, then, do central banks hold gold, he declared that after a long pause that it was merely ‘tradition.’ He had no interest in my suggestion that the gold could be sold off to the American people if it’s not money. The point is that due to today’s impending crisis, many governments are now accumulating more gold—while others are holding onto what they have with the expectation it will once again be used in the monetary system.” – Ron Paul, former Congressman and presidential candidate [Emphasis added]

Chart of the Day

Chart note: This long term gold chart is drawn in log-scale. “Common percent changes,” says Investopedia of log-scale charts, “are represented by an equal spacing between the numbers in the scale. For example, the distance between $10 and $20 is equal to the distance between $20 and $40 because both scenarios represent a 100% increase in price.” On a linear chart the lesser values are compressed to the point that the viewer misses the strength of a price move, and the greater values are extended to a degree that they tend to dramatize a price move – up or down. The log-scale chart presents data in a more realistic framework without the drama. As you can see from the chart above, the upward trend of the gold price since the early 2000s is not nearly as strong as the move between 1970 and 1980 in percentage terms leading some analysts to believe that we have considerable upside yet to be charted.

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Gold continues to drift – becalmed for now in the summer doldrums

DAILY MARKET REPORT

Gold continued to drift south today trading at $1267.50 and down $2.50. Silver is down 9¢ at $16.34. The dollar is also down while stocks are off about 275 as the Trump administration pushes even harder on China in the trans-Pacific trade dispute. Bloomberg deemed the latest escalation of the trade war “potentially irreversible.” In the background other concerns fester including a potential emerging country debt crisis and problems with sovereign debt in Europe. Over the weekend Credit Bubble Bulletin’s Doug Noland offered this well-conceived and concise summation of the situation in investment markets:

“At this point, the key market issue goes far beyond securities valuation. Too many years of too much ‘money’ chasing too few financial assets have imparted deep structural impairment. Or phrased differently, there has been too much ‘money’ playing the game; too much liquidity and leverage aggressively playing a historic speculative Bubble has wrecked the game. Financial markets have become maladjusted and dysfunctional, although much remains unrecognizable to the naked eye.”

Meanwhile, gold continues to drift – becalmed for now in the summer doldrums.

Quote of the Day
“A full-blown EM (emerging market) debt crisis is coming soon. It is likely to start in Turkey, Argentina or Venezuela, but it won’t end there. The panic will quickly affect Ukraine, Chile, Poland, South Africa and the other weak links in the chain. The IMF will soon run out of lending resources and will have to pass the hat among the richer members. But the Europeans will have their own problems, and the U.S. under President Trump is likely to reply, ‘America First,’ and decline to participate in bailing out the EMs with U.S. taxpayer funds.” – James Ricards, Daily Reckoning

Chart[s] of the Day

Chart note: These charts offer a sampling of the growth in external debt among emerging countries during the zero per cent interest rate era that began after the 2008 crisis. Argentina and Turkey are now the focal point of financial market interest, but the list of nation states with similar problems is long and growing longer. Most of that debt is denominated in dollars and tied to U.S. interest rates. “If the U.S. policy becomes tighter and there’s no comparable follow-through by other advanced economies,” says Harvard economist Carmen Reinhart, “the dollar strengthens. There you have a double-whammy.” Emerging country currencies as a group are down nearly 10% on the year as measured by the JP Morgan EM FX Index.

Reinhart is well-known for her book written with Kenneth Rogoff on the nature of financial crises, This Time Is Different – Eight Centuries of Financial Folly. Reinhart says the weaker nation states economically are in worse shape now than they were before the 2008 crisis. It would be shortsighted to think that a general debt crisis in emerging nations would fail to reach U.S. shores and Wall Street – particularly when you consider the sheer level of debt emerging countries have put on the books.


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Bewildered markets, including gold, await the next twist of fate

DAILY MARKET REPORT

Financial markets, including gold, continue to stumble about in a decidedly bewildered state stunned, it would seem, by the fundamental changes unfolding in the global economy and cautiously awaiting the next twist of fate. The U.S. stock market just spent the past eight past sessions in decline, something it has not done in a very long time. The yield on treasuries lurches back and forth determined one day to react positively to the interest rate environment and and equally determined to react negatively the next. Commodities spurt higher based on inflationary expectations one day than track to the downside on dis-inflationary expectations the next. For its part gold can’t seem to establish itself firmly above the $1300 market, nor can it establish itself with any real conviction below the $1300 mark.

Today we have had more of the same though the yellow metal has managed to eke out a $2 gain at $1269.50. Carlos Guitierrez, former commerce secretary under George W. Bush and now head of the National Foreign Trade Council, summed up the future neatly when he told Financial Times yesterday, “The parties that will be most impacted are U.S. companies. They are going to report bad earnings. It is going to hurt the stock market. Even worse, we are going to put people out of work and it is going to spark inflation.”

Sounds like a prescription for future gold demand. . . . . .

Quote of the Day
“Our central bank monetary-led boom has made debt replace wealth for a long time. That’s not sustainable, of course. (We are ‘mining’ our soil for short-term gain.) We’ll see a return to the significance of productive stuff again I think, and that even includes farming – maybe especially farming. And the Midwest has a pretty good track record with productive stuff. Hard assets will matter again. But of course, I sound ridiculous even saying such things. Like a grumpy old grandpa.” – Mark Spitznagel, Universa Investments (as quoted by columnist, P.J. O’Rourke

Chart of the Day


Chart courtesy of TradingEconomics.com

Chart note: Last week we posted the chart showing that the Bank of Japan’s balance sheet debt holdings were even more burdensome and tenuous than that of the United States Federal Reserve. This chart shows European Central Bank’s balance sheet now at €4.56 trillion or $3.92 trillion – mostly in sovereign debt instruments issued by the European Union’s member states. Together the three central banks hold a mind-numbing nearly $13 trillion in debt instruments. The European Central Bank announced last week that it would halt its bond-buying operations by the end of 2018. Japan will continue with its quantitative easing program as long as it deems it necessary.

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Gold recovering this morning from yesterday’s Sintra inspired downdraft

Gold is staging something of a recovery this morning from yesterday’s downdraft trading at $1268 and even on the day. Silver is down 2¢ at $16.32. Gold broke to the downside late in yesterday’s session responding, as best we can gather, to statements at the Sintra central bank conference from the ECB’s Draghi and Nowotny, the Fed’s Powell, BoF’s Villeroy, BoJ’s Kuroda and others.

Those statements reinforced the split in interest rate policies between the United States and the other participants. That divergence between the perceived hawkish U.S. stance and the rest of the world’s dovish positioning was interpreted as bullish for the dollar and bearish for the rest of the world’s currencies. The result was yesterday’s sell-off. In this new and highly complicated financial order, though, nothing can be taken as given. The dollar index is trading down this morning and gold is recovering from yesterday’s lows.


An observation. . . . .

It is going to be awhile before the present turmoil settles into something recognizable. Market players and investors from institutions and hedge funds to small private investors alike are asking themselves some down-to-earth questions:

1. “Is the world a safer place than what it was before all of this happened?”

2. “Is the trade war likely to be a quick or will it become a long, drawn-out war of attrition?”

3. “Have the markets already priced-in the shock of what is quickly becoming a new world order or we are on the threshold of something more consequential?”

And last but certainly not least. . .

4. “Is my money safer where it is now or do I need to acknowledge that things have changed, perhaps radically, and make some necessary adjustments?

Today Germany’s Daimler, the manufacturer of Mercedes Benz, issued a warning that its profits would be undermined by China’s tariffs on U.S. imports. Stocks for Europe’s automobile manufacturers dropped sharply as a result. The announcement amounts to the recognition of a new way of doing business and one, by the way, that is not specific to Daimler. There are likely a good many similar epiphanies in the waiting both on the corporate level and among private investors as well.

Quote of the Day
“For those that have invested across assets – and especially over time – gold’s role as a safe haven is a familiar one. A refuge from panic is defined by confidence in stability and liquidity. The precious metal’s capacity to play that critical outlet has been proven over centuries. This particular status has only solidified itself over recent years, however, as some of the favorite alternatives have been materially distorted by financial conditions. In particular, government bonds from top credit rated countries have seen their value eroded substantially by dramatic rise of stimulus programs. It is that same diversion for safety that caters to the more prolific ‘anti-fiat’ appeal in the commodity. More and more, the threat of a wide risk aversion promotes the appeal of the metal as Dollar, Yen and Swiss franc find themselves undermined by circumstance.” – John Kicklighter, NASDAQ Daily FX

Chart of the Day

Chart note:  With the US dollar the centerpiece of interest the past several weeks, we thought it appropriate to post the long-term overlay chart of the gold price and the major-currency version of the US Dollar index.  As you can see, the dollar has been in a secular, long-term decline against other major currencies since the early 1970s when the U.S. abandoned gold-backing for the currency and the world switched to free-floating gold and currency prices.  Despite all the talk of a strong dollar and how Treasury secretaries historically back the concept, the reality is the opposite – a weak dollar when measured against its major competitors.  In the end, unencumbered ownership of physical gold coins and bullion, as this chart amply illustrates, has proven to be a very effective defense in the on-going process.

 

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Gold trading circumspectly this morning, quiet summer day in markets

DAILY MARKET REPORT

Gold is trading circumspectly this morning in and around the $1275 mark and level with yesterday’s closing number. Silver is also running sideways. A statement from Fed chairman Powell that the central bank will stay the course on raising interest rates, which normally might have undermined the price, is balanced with concerns about the intensifying trade war between the U.S. and China. The commodities complex and U.S. dollar are also level on the day with stocks displaying marginal weakness. In short. . .a quiet day summer day in the markets.

Quote of the Day
“If we don’t quite know what the future holds, there is little point in getting carried away by very fancy mathematical calculations of optimal portfolios. Don’t rely on past data to be a good guide. Try to think through what mix of assets gives you the best chance of surviving some big event. That must mean including assets that are negatively correlated or uncorrelated in your portfolio. . . .And I am very struck by the fact that over many many years, central banks, governments and individuals have always, despite the protestations of economists, held some gold in their portfolio. Obviously, there is no high running return, but when unexpected things happen, particularly when governments rise and fall, then gold is a means of payment that everyone is always prepared to accept. And I think that’s why even central banks have always had a role in their portfolios for gold.” – Mervyn King, former Governor of the Bank of England

Chart of the Day

Chart note: When the United States abandoned the gold standard in 1971 and freed currencies to float against one another, the fiat money era began. We are still in that era today. This chart shows the performance of gold from the early 1900s to 1971 when gold backed the dollar, and the era from 1971 to present when it did not. Gold has had its ups and down since 1971, but clearly, over the long run, in the absence of an official gold standard, individual investors have been well-served by putting themselves on a private gold standard, as Mervyn King suggests above.

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Gold pushes to lower levels with trade wars and lower commodity prices providing impetus

DAILY MARKET REPORT

Gold pushed to lower levels in early New York trading in a move that began overnight in Asia. It is trading at $1275 – down $6 on the day – with a Trump administration promise to escalate the U.S.-China trade war, and an additional response from China to respond in kind, seemingly the main impetus.

On the one hand, traders are betting that a slowdown in China’s economy would result in lower commodity prices. On the other hand, widespread tariffs are likely to push price inflation higher in the United States. At the moment, the prospect of lower commodity prices has the upper hand in gold’s pricing. The dollar is higher this morning as a result while gold and silver are following the rest of the commodity complex to lower ground. In a trend that started in Asia yesterday, global stock markets continued their sell-off overnight and the Dow looks poised to open about 350 points lower.

Quote of the Day
Mr. Powell’s plain-speaking approach is refreshing. He is the antithesis of ‘Greenspeak.’ The new Chairman is clear, concise and devoid of obfuscation. He’s no ideologue. There are no glaring idiosyncrasies, for a change. Powell appears the adept and confident leader, yet he demonstrates an admirable humility when it comes to pontificating about today’s exceedingly complex backdrop. The Chairman has also abandoned much of the academic narrative that too often ensures economic analysis and discussion turn hopelessly convoluted and divorced from reality.” – Doug Noland, Credit Bulletin

Chart of the Day

Chart note: Gold gets its share of press, not all of it good. In recent months, the financial media have hammered away at the mistaken notion that gold does not do well in a rising interest rate environment. Nothing could be further from the truth as revealed in our Chart of the Day. Since the Fed started raising interest rates in late 2015, gold has been in a strong, sustained uptrend. The Fed funds rate has gone from .12% in November, 2015 to 1.70% today. Gold simultaneously has gone from $1062 to $1300 as of yesterday’s close for a gain of 22% during the initial stages of this rate raising period.
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A word on gold’s $23 drop on Friday. . . . .

OPINION

The opening salvo does not make a battle, let alone a war

The Law of Long-Term Time Preference – Those who plan, invest and execute long-term win. Win-win decisions, looking to the long term with short-term work and sacrifice, are historically the tickets to success in all areas of life – short-term sacrifice for long-term benefits, deferred gratification rather than instant gratification. This is the difference between wealth and poverty, between class and trash. Those who make primarily fear-based, ego-based, selfish, win-lose, lose-lose, emotional and/or short-term decisions as their primary mode of operation in life nearly always end up miserable, often as losers in a comprehensive sense in life. Such people are walking tornadoes to be avoided.” – R.E. McMaster, A Layman’s Guide to Golden Guidelines for Wise Money Management [Link]

Successful investors have a philosophy, usually carefully cultivated, that they rely upon no matter what happens in the markets in the short-run. Successful investors are rarely shaken by short-term events and, rarer still, guilty of short-term thinking.

USAGOLD has always nurtured the belief that gold should not be purchased principally as a speculative investment, but more as an asset accumulated for long-term asset preservation in the form of coins and bullion. That, in fact, is a viewpoint it shares with the bulk of its clientele. Thus, if the gold price takes a powder like it did on Friday, the event can be put into its proper perspective even if that sell-off continues. It is not, after all, the end of the world. It is not even the end of the gold market. Gold’s adversaries, though, no doubt will seize on the occasion come Monday as if it were in order to advance their own agendas.

In my view, Friday’s downside came the result of confusion over what several financial news outlets called the ‘most important week of the year.’ Japan went dovish. The European Union went dovish. China, not to be forgotten, went dovish. And here is where the confusion lies: The Federal Reserve went dovish as well with its announcement to open the excess reserve monetary spigot – a policy that could serve as a buffer to reducing its balance sheet even if as it continues to raise rates.

Professional investors, according to a Bloomberg report on Friday, took the announcement as such increasing their long gold positions on the COMEX at midweek. Bloomberg took those funds and institutions to task for their decision. We will see how it all comes out in the wash as we lurch further along this new but treacherous monetary highway.

We should keep in mind that all of this is occurring as the battle lines are being drawn for the escalating trade wars. The actions of the central banks should not be considered in a vacuum. No country wants their currency to stand out like the nail that needs to be hammered, and that includes the United States. Much of what the Trump administration would like to accomplish by way of reducing the trade deficit would be threatened if the dollar were to continue to be “the healthiest horse in the glue factory,” as former Wyoming senator Alan Simpson once colorfully put it.

In short, I would not be surprised to see the Trump administration take steps – perhaps quietly, perhaps not so quietly – to reverse the dollar’s rapid rise since the beginning of 2018, though such a policy of course should not be seen as a given. Who will win out in the currency battle in the larger trade war remains to be seen, but the opening salvo does not make a battle, let alone a war.

Returning to the philosophy among long-term gold investors mentioned at the top of the page, USAGOLD experienced the opposite of what many might have expected on Friday – a noticeable and immediate increase in buying interest on a sharp price break, something we haven’t experienced in a long time.

– Michael Kosares (6-17-2018)

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DMR–Gold, dollar react sharply to dovish central banks

DAILY MARKET REPORT

The markets in general today are reacting to the U.S. imposition of high tariffs on $50 billion in imports from China, and a subsequent threat from China that it will retaliate. The gold market in particular, though, is reacting to separate decisions by the Bank of Japan and the European Central bank on monetary policy. The ECB went hawkish on its QE program promising to halt it by the end of the year but it went dovish on interest rates. Japan was even more dovish than the ECB announcing it would keep rates at near zero while continuing to aggressively pursue its quantiative easing program. Meanwhile, the Federal Reserve appears to have become a bit more dovish itself, as reported here yesterday. The net result of all this dovishness has been to send the dollar on a sharp upward trajectory this morning and gold into a tailspin.

The yellow metal is down $18.50 on the day at $1286. Silver, likewise, is down 30¢ on the day at $16.87. The short-term results are in. Let’s see what happens once the markets have had a chance to digest the full implications of what has been a chaotic and volatile past few days.

Quote of the Day
“Significant increases in inflation will ultimately increase the price of gold. Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection. I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counter-party signature. Gold, however, has always been far more valuable per ounce than silver. 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

Chart of the Day

Chart note:  The United States Federal Reserve is not the only central bank to build a tenuous balance sheet.  In fact, the Bank of Japan has outdone it with its 541,000 billion yen portfolio, or nearly $4.9 trillion (as opposed to the Fed’s $4.1 trillion). Not be deterred by big numbers, the Bank of Japan as of yesterday has pledged to continue building its bond portfolio for the foreseeable future.  The United States on the other hand has halted its quantitative easing program and has begun to liquidate its bond holdings.

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Why a seemingly run-of-the-mill announcement yesterday by Fed chairman Powell might signal a major turning point for the gold market. . . and perhaps ALL markets.

SPECIAL DAILY MARKET REPORT & CLIENT ADVISORY

by Michael J. Kosares, USAGOLD’s founder and author of The ABCs of Gold Investing – How To Protect and Build Your Wealth With Gold

At the end of Fed chairman Jerome Powell’s opening statement for his press conference yesterday he dropped a major surprise on the markets that immediately sent the dollar and stocks tumbling and gold, silver and bonds vaulting higher. All the markets mentioned experienced sudden sharp reversals at the time of the “surprise.” Those trends have carried over to today’s market action.

To understand what caused such a strong reaction in the markets you have to go all the way back to 2009, the credit crisis and the launch of the quantitative easing program. That bail out of the commercial banks pushed more than $4 trillion of printing press money into the U.S. and global economy through Federal Reserve purchases of U.S. Treasuries and mortgage-backed securities. Those purchases left the commercial banks with a boatload of cash and the Federal Reserve with its largest balance sheet procurement in history. At the time, the standard analysis had been that the newly placed cash would migrate to the economy in the forms of commercial and consumer loans, push-up the money supply dramatically and launch a virulent inflation.

It never happened and here’s why:

Instead of leaving those reserves at the commercial banks, the Fed encouraged the commercial banks to redeposit that bailout capital at the central bank as what it called “excess reserves.” Up until Mr. Powell’s low-key reference to excess reserves at yesterday’s news conference, few people had ever heard of this little-known Federal Reserve balance sheet item, yet it consists of almost $1.9 trillion at present and peaked in 2014 at almost $2.7 trillion, and a large percentage of the original bail out. The Fed incentivized commercial banks to maintain those deposits by paying a rate of interest slightly higher than the Federal Funds rate, an advantage it kept in intact from 2009 until yesterday. To make a long and rather complicated story short, the “excess reserves” program in effect sterilized the bailout and kept it from igniting inflation.

All of that though may have changed with Mr. Powell’s low-key announcement yesterday, that the Federal Reserve would move the excess reserve deposit rate at a par with the fed funds rate – a policy that removes the long-standing rate advantage on excess reserves and, in effect, formally signals a deliberate desterilization process. That is why the Fed chairman’s seemingly innocuous statement yesterday caused such an immediate stir. What he signaled is that the Federal Reserve is now interested in incentivizing the banks to take that capital back onto their own balance sheets as reserves so that they can be leveraged and loaned into the economy. (Please see today’s Quote of the Day immediately below.)

The market reaction was immediate. The announcement was made about 35 minutes into the press conference (See chart below). Gold immediately headed north and the dollar south. Stocks plummeted and the yield on the 10-year Treasury, which had advanced sharply to over the 3% mark before the press conference, promptly dropped to 2.97%. It has dropped another 0.027% this morning to 2.95%.

Obviously, a healthy number of market participants share our view that the Fed is interested in stimulating the money supply and inflation, or in the very least, interested in letting the markets know it will stay out of the way should both begin to increase. That message was received loud and clear, though it might take some time for the impact to be completely understood and priced into various markets.

As it stands, the Federal Reserve will indeed hold back the rate on excess reserves by five basis points – raising it by 0.2% – and push up the Fed funds rate by 0.25%. Though not a monumental juggling of the numbers, it is the message, as outlined above, that the Fed is trying to send to the markets that is important. In the end, it is not a very glamorous incentive for the gold market to move higher, but it is an strong incentive nevertheless.

We believe that in future years we might look back at yesterday’s events as an important turning point for the gold market. Yesterday gold pushed back to the $1300 level almost immediately and it is up another $8 and firmly above the $1300 level at $1307.50 as this report is written. Silver has had an even stronger reaction moving up 1.3% yesterday and up another nearly 30¢ this morning at $17.30


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In keeping with this analysis, we believe that now is good time to add to one’s holdings if you happen to be a long-time participant in the market or to begin purchasing if you are a newcomer. Prior to chairman Powell’s announcement, we had launched special offer of old, historic Swiss 20 franc Helvetias, a popular item among gold investors that typically sells at a premium to other items in the pre-1933 gold coin genre.

We are offering a limited number of Helvetias in a high state of preservation at prices comparable to what you would pay today for small denomination contemporary bullion coinsan attractive price incentive. We invite you to learn more about this opportunity HERE.

At the moment, we have about 200 coins left of the 500 originally offered. As always the items are offered on a first-come, first-served basis. Our last three special offers sold out in matter of a couple of days, and we do not expect this tranche of gold coins to last long.


Quote of the Day
“Banks in the United States have the potential to increase liquidity suddenly and significantly – from $12 trillion to $36 trillion in currency and easily accessed deposits—and could thereby cause sudden inflation. This is possible because the nation’s fractional banking system allows banks to convert excess reserves held at the Federal Reserve into bank loans at about a 10-to-1 ratio. Banks might engage in such conversion if they believe other banks are about to do so, in a manner similar to a bank run that generates a self-fulfilling prophecy. . . What potentially matters about high excess reserves is that they provide a means by which decisions made by banksnot those made by the monetary authority, the Federal Reserve System – could increase inflation-inducing liquidity dramatically and quickly.” – Christopher Phelan, economist, Minneapolis Federal Reserve

Chart of the Day

(Click to enlarge)

Chart note: As outlined above, the Federal Reserve encouraged commercial banks to keep excess reserves on deposit at the central bank for a number of years by paying a rate higher than the federal funds rate. As of yesterday, those two rates are now at a par at 1.95%. Chairman Jerome Powell announced that the Federal Reserve will hold back the rate on excess reserves by five basis points – raising it by 0.2% – and push up the Fed funds rate by 0.25%. Though not a monumental juggling of the numbers, it is the message that the Fed is trying to send to the markets that is important. The two lines in the chart above have now converged.

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Gold up firmly in early trading Thursday

We believe that gold’s strong showing since yesterday mid-afternoon is related to Fed chairman Powell’s statement on excess reserves at the end of his press conference opening statement yesterday.

If you are in the catch-up mode, please see the two posts immediately below.  We will have an in-depth Daily Market Report on this and other important developments posted later this morning, so please stop back.

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Gold drifts sideways as signs of inflation’s return begin to materialize

Gold continues to drift sideways as it awaits, along with the rest of the financial markets, the end of the Fed’s policy meeting and its announcement release early this afternoon. Fed chairman Jerome Powell will hold a press conference shortly thereafter. Trading at $1297 in the early going and up $1.50 on the day, gold is being helped this morning by producer prices which surged .5% in May (a 6% rate annualized). Following on the consumer price report yesterday, which showed retail prices up by nearly 3%, inflation expectations are likely to move to the forefront among financial market participants. Though not likely to alter the Fed’s predetermined course of action, these are the first solid signs that the much-anticipated return of inflation might actually be materializing.

Quote of the Day
“If you ever needed more proof that central banks have crushed these markets, there you have it. The belief that nothing matters other than an inconsequential rate hike some time over a year from now in euro land or whether the Fed will make the ever so bold move of raising the IOER by only 20 basis points speaks volumes. And it isn’t being complimentary. It’s a truly bizarre construct to judge the import and implications of every event through the lens of whether green-pack Eurodollar futures jump or dump half a point. Especially when it’s intermingled for show with nonsense about demographic trends sure to produce a precise outcome 30 years from now. No wonder the smart money is investing in artificial intelligence programs that don’t listen to this tripe.” – Richard Breslow, Bloomberg “Trader Notes”

Chart of the Day

Chart note: We beg your forgiveness if you have seen this chart before, but we think it worth re-posting on a regular basis to demonstrate gold’s strong performance as a portfolio holding over a long period of time – especially for newcomers. It shows the average annual price of gold since 1970. It is meant to dispel the notion that gold is somehow volatile or unpredictable and as a result unreliable as a long-term portfolio safe haven. To the contrary, it shows gold living up to its reputation as precisely the opposite – stable in the face of rapidly changing economic circumstances, predictable in that it reacts directly to those circumstances and reliable in that has performed as advertised over an extended period of time – the extent of the fiat money era that began in 1971.

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Gold listless as we move into the summer doldrums – traditionally the best time of year to buy gold

Gold continued to meander listlessly either side of the $1300 level looking for an incentive to move in one direction or the other. Nothing though seems to materialize of sufficient import to move it off the dime – not even an anti-climactic meeting between the U.S. and North Korea, not even a rancorous G-7 summit meeting, not even the threat of rising inflation, not even the long-term onus of price-elevating trade wars (which I believe we are going to find out are easier to start than to end). . . .So it goes.

Meanwhile, Chris Vermeulen writing for Investing.com today wants us to “Please notice that the recent price lows, originating near the start of 2016 all the way through current price activity, are continually higher. Even the current price rotation, near the right edge of the chart, is still higher than the previous low price rotation near the middle of 2017. Ladies and Gentlemen, we have an uptrend already in place for gold. The ‘rope-a-dope breakout’ that we are suggesting is right around the corner. It’s the potential for a $1370 price break that has been setting up since June 2016.”

It would be even more of a ‘rope-a-dope’ breakout if it launches during the depths of the annual summer doldrums. I distinctly recall the dominant market psychology in the summer of 2009. The financial crisis was in full swing, but gold was stuck in the low $900s and languished there with the usual complaints that it had “lost its luster,” was “no longer a safe haven,” etc etc etc. . . .the usual litany. By the end of August it had moved to the $1000 level – from there it began its ascent to the all-time highs at the $1900 per ounce. As the old saying goes, the best time to buy gold is when everything is quiet.

Note:  If you haven’t taken note of our June special offer, it is worth your attention – old Swiss 20 francs priced competitive with contemporary small-sized bullion coins. Typically, it sells at a premium – sometimes a stiff premium – over other historic pre-1933 gold coins. These kinds of offers don’t come along very often and we have already had strong participation. Our last three offers sold out in a matter of days and, as always, it is first-come, first-served.

Quote of the Day
“Early summer is the weakest time of the year seasonally for gold, silver, and their miners’ stocks. With traders’ attention diverted to vacations and summer fun, their precious-metals interest and investment demand wane considerably. Thus this entire sector, and often the markets in general, suffer a seasonal lull this time of year. But these summer doldrums offer the best seasonal buying opportunities of the year.” – Adam Hamilton, Zeal LLC

Chart of the Day

Chart note: The gold price from January, 2016 to present highlighting the trend’s rising lows referenced in today’s market report.

 

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DMR–Gold, financial markets curiously subdued as complex market realities unfold

Gold pushed over the $1300 mark this morning in subdued trading typical of the annual summer doldrums. It is up $2 on the day $1301, but up $7 from its overnight lows. Silver is 15¢ higher at $16.92 and quietly closing the ratio gap between the two metals (now at 77 to one).

Curiously, the reaction to the obvious breakdown in relations among G-7 countries has been subdued in financial markets thus far this morning. At the same time, if there is any market unease about yesterday’s CNBC report that the Fed might put an early end to interest rate hikes and quantitative tightening, it isn’t apparent on this quiet Monday morning.

Perhaps tomorrow’s meeting between the U.S. and Korean leaders preoccupies market thinking at this juncture. Then again it might all come down to something more basic. Perhaps market players across the spectrum – funds, institutions and private investors – simply need time to sort out the overwhelming complexities of the general unraveling predicted in Strauss and Howe’s Fourth Turning. . . . . . . and how to react to it.

Quote of the Day
“I grew up in a purely urban family. We had no relatives in the country. I’m born in 1944. When I was a baby, my mother could only buy food because she still had some gold coins. Without gold I would have starved. She always told me that. Therefore, this generation already has a certain gold affinity. In extreme times of crisis, this is one of the few things left to be accepted. Gold was the only thing left to the people of the city at that time. Before the silver cutlery was also traded at the farmer.” – Ewald Nowotny, European Central Bank governor

Chart of the Day

Chart note: The currency problem in Turkey has become something of a poster child for a more generalized deterioration occurring in a number of emerging countries. This chart shows gold priced in Turkish lira. The inflation rate as quoted by official sources is just over 12%, but Steve Hanke, economics professor at Johns Hopkins University, estimates the real inflation rate at closer to 39%. The Turkish lira itself is down almost 20% year to date against the dollar and Turkey’s citizens are moving to gold coins and bullion as a preferred store of value.

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USAGOLD’s Mobile Website

Who says you can’t take it with you?
In fact, you can take the gold market everywhere you go.

Prices. News. Opinion. Charts.
And you can order gold and silver
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Gold cautious going into Fed Week

Gold continued to cautiously hover in the neighborhood of $1300 per ounce as the G-7 meeting in Quebec kicks off today and we prepare for Fed Week – a time typically challenging time for the precious metals. This time around, however, with so many problems in the global economy – all front and center at the same time – it might be a different story. We won’t go to the trouble of running once again through a well-known litany. If you do want some details, though, simply scroll through the posts below and you will be up to speed in a matter of minutes.

We thought the Wile E. Coyote reference yesterday from Ben Bernanke particularly apt under the circumstances, though a bit of a surprise that he would be so candid. Rather than 2020 as the date to mark on your calendar as he suggests, we see the potential for the “cliff event” anytime between now and then – and we believe it will have the distinct look and feel of one of Nicholas Taleb’s black swans.

Quote of the Day
“It was significant that we didn’t see any bears at either venue despite doing a 7.30am, 13 mile valley floor hike! I’m sure the absence of fellow bears was a significant countertrend sign. I learned something else on my trip worth sharing. We took the Yosemite Tram tour of the valley floor and the ranger gave a very interesting talk about fire. Until 1970 Yosemite Parks was extinguishing regular small-scale fires to prevent property damage. The resultant rise in dense small tree growth meant that although fires were less frequent, they quickly got out of control. Since 1970 they have allowed more fires to burn, resulting in less damage. . . It is therefore reasonable to argue that the US has already faced a ‘normal’ tightening cycle and any additional rate hikes are taking us into territory not seen in recent times. This already may be enough for the Fed to have broken something.” – Albert Edwards, SocGen (with thanks to ZeroHedge)

Chart of the Day


Chart note: As currency and sovereign debt repayment problems mount among emerging countries and the list of problem countries grows longer by the day, investors living in those countries might be tempted seek shelter in either the U.S. dollar or yellow metal. As this chart illustrates, the better option since the turn of the century has been gold. In twelve of the last 18 years, including 2016 and 2017, gold has outperformed the dollar and sometimes by a spectacularly wide margin. Cumulatively, there is no comparison even when gold’s strong correction in 2013 is taken into account. Recent history’s verdict is clear. When it comes to safe-haven investing, gold remains on the throne and “king dollar” is the failed usurper.

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Gold trading steady under interesting circumstances

Gold started well in Europe then dropped once again at the New York open, in fact, succumbing to the old habit of trading down in advance of Federal Reserve Open Market Committee meetings. So it is that gold appears to be suffering from another one of its periodic bouts of price schizophrenia – this time reacting to Italy in European trading and Fed policy in New York trading. Gold is steady at $1298 while silver is flexing some muscle – up 19¢ at $16.89 and perhaps signaling the past few trading session what might be in store for gold.

There is an interesting development progressing quietly in the background that could have future implications for gold. In fact, it might be what caused the dollar to drop so abruptly the past few days. According to front page article in this morning’s Financial Times, top EU economic officials are signaling an end to the central bank’s quantitative easing program. The end to Europe’s bond buying program would at the very least put Europe and the United States on the same page as far as monetary policy goes (if not in the same paragraph or sentence). It is also likely strengthen the euro against the dollar. Japan which has stayed strangely quiet in the meantime on the global trade brouhaha, finds itself in the same position as the emerging countries in that it does not want to do anything to encourage capital flight. That translates to taking steps to keep the yen from dropping precipitously.

So we have this cross-Atlantic, cross-Pacific influence that helped drive up the dollar over the past few months, now moving in the direction of driving the dollar lower. Here is what it looks like on the dollar index chart (which by the way also shows a strong head and shoulders topping formation that traders might be eyeing). There is a reason I go to the trouble of laying out this scenario. It could evolve over the weeks and months ahead as a strong positive for the gold market. As I said above, it may be why we have seen a sudden reversal in the dollar.

Chart courtesy of TradingEconomics.com

Quote of the Day
“SGE’s [Shanghai Gold Exchange’s] transaction volume ranks among the top exchanges globally, buoyed by the tremendous capacity of China’s gold market, and is a reflection of China’s economic progress in the past 40 years. Accompanied by its economic growth, the country now has the world’s largest middle class – which is pushing the demand for gold and gold investment products. Chinese people have a culture of gold consumption and investment, so there is immense market potential as wages and GDP continue to grow, and living standards continue to rise.” – Wang Zhenying, President of the Shanghai Gold Exchange (SGE).

Chart of the Day

Chart courtesy of GoldChartsRUs.com

Chart note: Few know that seasonality can play a significant role in gold’s price behavior. As you can readily see in the chart above, the gold price often flattens, or increase sless, during the summer months. It doesn’t always work out that the price trends higher in the second half of the year, but it does enough of the time that veteran gold investors often time their purchases during the so-called “summer doldrums” when gold historically has changed hands at bargain prices. The fall and winter months by contrast bring with them a predisposition to higher prices that usually stretches into the early part of the following year.

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Gold inching higher on minor short-covering, bargain hunting and capital flight problems in India

Gold inched back toward the $1300 level in early U.S. trading today – up $2.00 at $1299. Silver is up 17¢ at $16.68. The timing on the upticks, coincident the last few days with the COMEX open, gives the appearance of some minor short-covering, but it remains to be seen if it indicates a more conclusive turn among the big speculators. Gold could also be attracting some interest from price-conscious bargain hunters. Recent developments in India could also be at play in the gold market. Yesterday, the Royal Bank of India made public its concern about the Fed’s quantitative tightening programming and the stronger dollar. Today it hiked rates to stem capital flows out the country. India’s gold-conscious citizenry is unlikely to take such signals from its central bank lightly – the same mindset that inspires capital flight also inspires gold acquisitions.

Quote of the Day
“I’m in the inflation camp. I think it’s coming. I have thought this for a while. People have looked all over for it as if looking for a lost sock or a hairpin: Where did it go? Where is that thing? But I do believe that the central bankers who have been kind of begging for inflation will be surprised at the generosity of the inflation gods over what they will ultimately be handed.” – James Grant, Grant’s Interest Rate Observer

Chart of the Day

Chart note: This chart illustrates the solid real rate of return gold has delivered against goods and services in twelve of the past sixteen years. In seven of those years, gold’s appreciation significantly outstripped the inflation rate. With gold currently trading at cyclical lows, you can now combine hedging the worst-case scenario with the extra advantage of securing an asset that is generally viewed as undervalued. This chart reinforces gold’s role as an alternative savings vehicle for the times.

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DMR–Gold hovers, 2018 Year of the Doldrums for investment markets thus far

Gold continued to hover in the mid-$1290s lacking any clear motivation to strike out in either direction – up or down. Gold owners might be a somewhat disappointed with their favorite precious metal being stuck in the doldrums. The angst, though, might be somewhat relieved when it sinks in that all the markets have been stuck in the doldrums for much of 2018.

The Dow Jones Industrial Average is down 2.6% on the year. Bonds have come down with a resounding thud. Commodities, which have received much attention thus far this year, have not responded in kind – up only 1.4% on the year. The dollar has been the star performer among primary assets, but even so the gains have been less than inspiring – up 2.8% on the year. Gold, as it turns out, is just one among many non-starters for 2018 with a paltry .7% gain thus far on the year.

So we should see 2018 for what it has been for most investments during its first five months – the Year of the Doldrums.

Quote of the Day
“Speculative bubbles have occurred throughout history. These episodes are characterized by a continuous sharp rise in the price of a particular asset or group of related assets, leading to further price increases driven by new speculators seeking profits through even higher prices. These higher prices are driven by the potential profits to be made through trading, rather than the earning capacity or economic value of the asset. These speculative manias then come to abrupt and dramatic endings, as expectations change and buyers quickly become sellers, in mass. The consequences are often disastrous, with the ensuing crash inflicting financial pain on the region or country involved. Euphoria turns to despair as the mandatory readjustment that takes place in the economy creates massive worker dislocation and great numbers of bankruptcies.” – Douglas French, Early Speculative Bubbles and Increases in the Supply of Money

Chart of the Day

Chart note: Since gold’s secular bull market began in the early 2000s, silver has kept up with its sibling metal in fits and starts. Presently, at a ratio of just under 79 to 1, silver is greatly undervalued relative to gold. The gap between the two metals, as you can see in the chart, has become accentuated in recent months leading some to think silver is overdue for a catch-up rally. There is precedent for such a rally. Silver trailed gold in 2009-2010 then spiked to close the ratio to 32 to 1 in 2011. In early 2016 it again trailed gold then sharply accelerated beginning in April of that year to close the gap. Silver enthusiasts are hoping for similar performance in 2018, and we have seen some signs of a make-up rally. The ratio’s interim peak came in March of this year at 81 to 1.

 

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DMR–Gold pushes higher in early trading, G-7 this week

Gold pushed higher in early trading today – up $5.50 at $1297 – as trade war concerns began to slowly seep into investor thinking. Silver is up 12¢ at $16.52. National leaders from the G-7 will meet in Quebec this week amidst a contentious atmosphere unlike anything seen in recent years. The dollar is down this morning giving impetus to gold’s upside.

Meanwhile, concerns continue to mount that Italy and its massive sovereign debt could trigger a general crisis for the euro and the European Union and beyond. Carmen Reinhart, a Harvard economist who specializes in crisis analysis, warns of how problems with the euro can have a wider, contagion effect: “Farther afield,” she says in Project Syndicate article, “the weakness in the euro has translated into dollar strength, which means a sustained beating for emerging markets, particularly those with US dollar debt. The flight to quality that accompanies outbreaks of financial turbulence is reinforcing a shift away from some of the riskier asset classes of which emerging markets are a part. International equity markets have not been exempt from contagion.”

Quote of the Day
“However, the media credits or lambastes the president of the day as though he and he alone is in charge of the country. Whatever happens is treated as his accomplishment or failure. And, typically, presidents play into this—taking personal credit for perceived accomplishments within the country and disavowing blame for perceived failures. At present, the conservative media is emphasising low unemployment as an achievement, just as the liberal media did during the Obama Administration. And yet, since the Clinton Administration, the unemployment figures have been consistently fudged. Those who work only part-time are defined as ’employed.’ Those who have given up pursuing employment are removed from the unemployment equation. If those numbers were plugged back in, US unemployment would be in the double-digits—during both the Obama and Trump presidencies.” – Jeff Thomas, Mises Institute

Chart of the Day

Visualization courtesy of HowMuch.net

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Gold pushes lower but physical demand is up globally including in the United States

Gold pushed lower in early trading – down $5.50 at $1294.50 – on a strong non-farm payrolls report. Silver is up 4¢ at $16.48.

Traders in the gold market continue to focus on the data and its potential effect on interest rate policy while pushing trade and geopolitical concerns to the background. What they might be ignoring at their peril though is the Trump administration’s potential reaction to the problem of the strong dollar. At some point, the White House will need to address to what degree the strong dollar is undercutting its push to boost U.S. exports, and what form that will take is anyone’s guess.

Weak currencies across the globe are fueling renewed interest in gold coins and bullion as investors move to preserve assets against domestic currency deterioration. Gold prices have risen sharply against a number of major currencies over the past few weeks including the euro, the British pound, the yuan as well as a number of emerging country currencies including the Mexican peso.

In the United States, American Eagle gold coin sales registered a strong rebound in May – up 433% from April, according to a Reuters report. As mentioned here earlier in the week, in the era of algo-driven markets, the things that would make gold demand rise, do not always translate to the things that would make the price rise. In the longer run though, physical demand necessarily gets factored into the pricing equation.

Quote of the Day
“Gold is scarce. It’s independent. It’s not anybody’s obligation. It’s not anybody’s liability. It’s not drawn on anybody. It doesn’t require anybody’s imprimatur to say whether it’s good, bad, or indifferent, or to refuse to pay. It is what it is, and it’s in your hand.” – Simon Mikhailovich, Tocqueville Funds (with thanks to Ron Stoeferle and Mark Valek at Incrementum AG)

Chart of the Day

Chart note: Gold’s performance since 2000 illustrates an investment particularly suited for the times. After 12 straight years of positive returns (2001-2012), we had one sideways year (2014) sandwiched between two years of declines (2013 & 2015). Over the last two years (2016-2017), gold has once again delivered positive returns – a performance many gold market analysts view as a harbinger of things to come. Not a bad track record after all is said and done during times of rapid, and often unexpected changes in the financial markets and the economy.

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NEWS & VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 45th year in the gold business

June, 2018


‘Mphm!’
How cultivating a little disdain and a healthy gold diversification
can help you cope with the times

The June issue of News & Views is now out to subscribers. This month we depart from our usual fare of charts, tables and numbers to offer something a bit more philosophical.

[LINK]

[FREE SUBSCRIPTION sign-up]

If you appreciate analysis that is a bit off the beaten track and concentrates on the long term merits of gold and silver ownership, you might appreciate receiving our monthly newsletter on an on-going basis. It is offered free-of-charge as a service to our regular clientele and an incentive to prospective clients.

Source: The Strand, November, 1921


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Gold continues to bounce around the $1300 mark, looking like it has aspirations of going higher

DAILY MARKET REPORT

Gold continued to bounce around the $1300 mark this morning as a run of government reports reflected mostly benign economic circumstances. At the moment, it is up $2.50 on the day at $1305 and looking like it has aspirations of going higher. If it does, it would not be without proper cause as there is more than the average number of economic threats rattling around the markets. The dollar, too, has suddenly veered south over the past two days.

Commodities continue to move quietly higher, though it has not been a good day for oil thus far – down over 1.5% on the day. By way of an update, the closely watched CRB is up 15% over the past year. Gold, by contrast, is up only 3% over the past year leaving much room for improvement. Gold tends to track commodities over extended periods. The divergence at the end of the plot lines in the chart below is telling. . . . .

Chart courtesy of tradingeconomics.com

Quote of the Day

” . . . I suspect a staggering amount of ‘carry trade’ leverage has accumulated globally over this protracted speculative cycle. ECB policies have clearly spurred leveraged speculation throughout euro zone bond markets, especially the unsound periphery. Eastern Europe as well? There is surely massive leverage in U.S. Credit, most likely having played a prevailing role in the booming investment-grade corporate marketplace. We’re in the stage of the cycle where things look good. In the U.S., in particular, the New Era and New Paradigm mentality has taken deep root. The economy appears robust, bolstered by fantastic technological advancement and scientific development. The underlying instability of finance goes unrecognized; the global nature of Bubble Dynamics unappreciated. Meanwhile, markets again this week provided confirmation of the Unfolding Instability Thesis.” – Doug Noland, Credit Bubble Bulletin

Chart of the Day

Chart courtesy of Advisor Perspectives

Chart note: There are a couple of things unsettling about this chart. First is the sheer amount of investor margin debt present in the current stock market – over $650 billion. Second is the correlation between the growth of that debt and ascent of the S&P 500. With that amount of leverage in the stock market and the influence it has on price levels, if and when the margin calls arrive, the tumble could be fast and extreme. FINRA (Financial Industry Regulatory Authority) warns that “many investors may underestimate the risks of trading on margin and misunderstand the operation of, and reason for, margin calls.” Shades of 1929.

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Gold steady in dollar terms, but up sharply in the euro since mid-May

DAILY MARKET REPORT

Gold is steady this morning at $1301 balancing a calmer Europe, at least for the moment, with a sharp drop in the dollar. Though the price remains range bound in dollar terms in and around the $1300 level, it has been a different story in euro terms. Since mid-May, when investors first began to worry about events in Italy, the price is up nearly 4% from €1090 per ounce to €1130 early yesterday. The Trump administration is forging ahead full force on $50 billion worth of tariffs on Chinese imports. Tensions are once again heating up in the Middle East.

In its most recent Market Report, Degussa, the Swiss gold refinery, sums up nicely why demand for gold is likely to remain strong in the months and years to come:

“What does it mean for gold’s value proposition? First, gold does not appear to be expensive at the current price. In fact, there is reason to assume that it is (to borrow a term from the investment world) undervalued. Second, gold – if you look at it as a form of money – offers a hedge against the vagaries of the fiat money world. It cannot be debased by central banks’ money printing, and it does not carry a default or counter-party risk. Reflected upon from this perspective, gold certainly has not lost its shine for the long-term oriented investor. This becomes clear once the investor realizes that gold is not an investment instrument but a form of money – in fact, the best and most honest kind of money available.”

Those vagaries have become all too apparent over the past few days – particularly if you happen to take residence in Europe.

Quote of the Day
“[T]he trigger for a crisis could be anything if the system as a whole is unstable. Moreover, the size of the trigger event need not bear any relation to the systemic outcome. The lesson is that policymakers should be focused less on identifying potential triggers than on identifying signs of potential instability.This implies that paying attention to macroeconomic “imbalances” may pay bigger dividends than trying to assess financial instability through highly disaggregated “risk maps” of the sort currently being encouraged by the G20 and the IMF. The latter are not only expensive to monitor, but potential rupture points in the financial fabric can change rapidly in real time.Perhaps more important, serious economic and financial crises can have their roots in imbalances outside the financial system.” – William White, chairman of the Paris-based economic and development review committee at the Organization for Economic Co-operation and Development.

Chart of the Day


Chart courtesy of tradingeconomics.com

Chart note: Italy’s political crisis spilled over to its bond market yesterday spiking the yield on its 10-year bond to over 3%. Since the beginning of May, when concerns about Italy’s political stability began to make headlines, the yield on its 10-year bond has gone from 1.77% to 3.16% as of yesterday. The market stabilized last night, but few see the crisis as passing its high point. Bloomberg cited Swedbank’s Par Magnusson and Filip Andersson as saying in a report to clients that “The Italian house is on fire, and it will spread if someone doesn’t pull out the fire extinguisher soon. Italy may become severely injured, but the EMU may die.” The euro suffered a major setback yesterday declining .75% against the U.S. dollar to $1.153 while all of Europe seemed to go into crisis mode overnight. Italy sneezes. Europe catches a cold. . . .or maybe worse.

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USAGOLD – Quality service and pricing since 1973

USAGOLD ranks among the most reputable gold companies in the United States with several thousand clients and multi-millions in annual revenue. Founded in the 1970s and still family-owned, we are one of the oldest and most respected names in the gold industry. Our unblemished, zero-complaints record and solid reviews with the Better Business Bureau testify to the exceptional customer service and professional excellence which sets us apart from the competition.

USAGOLD specializes in gold and silver coins and bullion delivered to our client’s safekeeping. For over 45 years, we have resolutely advocated owning precious metals for asset preservation purposes rather than speculation. Admittedly, this philosophy does not resonate with all prospective gold and silver owners, but if it does with you, we think you will find our firm a kindred spirit.

When it comes time to pursue your first (or next) purchase, we invite you to learn first-hand why so many have chosen USAGOLD as their precious metals firm.

Call or drop us an e-mail.

1-800-869-5115
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orderdesk@usagold.com

To end right, start right.
Choose the right portfolio mix with the right firm at the right price.
Choose USAGOLD – reliably serving physical gold and silver investors since 1973.
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DMR–Gold off marginally early, market confusion reigns over crisis in Italy

DAILY MARKET REPORT

Gold is off marginally in early Monday trading at $1297 (-$1.00). Silver is down 11¢ at $16.41. In Europe, gold moved up on concerns about Italy as the political crisis pushed into financial markets, but when the U.S. market opened those gains were wiped out. Spain was pulled into Italy’s vortex and George Soros publicly raised concerns about Europe being on the brink of another major financial crisis. Bond and currency markets were fragile anyway before any of this happened. They are even more fragile now.

Oddly, the dollar too at first gained on the turmoil in Italy, but then, like gold, reversed itself adding to the confusion among market participants. In the era of algo-driven markets, the things that would make gold demand rise, do not always translate to the things that would make the price rise. So, the cautious European who deems it a good time to buy some gold is likely to find that the price today is to his or her liking.

Quote of the Day
“So, we were just chatting away there in friendly conversation and then Volcker walks in, you can’t miss him because I think he’s about six-and-a-half feet tall. So, he walks in and I thought, “well I have to shake his hand and say hello.” He didn’t even look at me. He didn’t come to me. He went straight to his staff and he said, ‘what’s the price of gold?’ So, I thought, ‘gold is important to him’ and I still think it’s every bit as important to Fed people now because it is the ultimate measurement of the dollar. They can rig it and monkey around with it and play games, but ultimately, the market will have its say.” – Ron Paul from a recent Mises Institute Interview with Jeff Deist

Chart of the Day

Chart note: LIke a good many others, we thought that the excess reserves held by commercial banks at the Federal Reserve were a ticking time bomb for inflation. Once the commercial banks began drawing down those reserves, we reasoned, we would finally have the response to quantitative easing so many thought was imminent following the 2007-2008 meltdown. Well, excess reserves have come down almost 28% since their August, 2014 high of $2.7 trillion. It is a mystery though where that capital has gone. The money supply, as reported here recently, is actually shrinking. Inflation, though widely anticipated, has yet to surface in any meaningful way. Instead we remain stuck in the same disinflationary rut that has characterized this economy for more than a decade. So where has the money – some $740 billion – gone? We can only hope some economic sleuth will come along and solve for us The Case of the Missing Excess Reserves.

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DMR–Gold steady over $1300 per ounce, JP Morgan sees gold over $1700 next year

Gold is steady to marginally higher in today’s early going and holding ground it gained in yesterday’s strong showing. It is now trading over the $1300 mark at $1305. Silver is even on the day at $16.65. The markets are juggling a number of issues as we move into the Memorial Day weekend with trade, emerging markets and geopolitics topping the list. JP Morgan says it would not be surprised if gold surpassed $1700 per ounce next year. Luis Oganes, JPM’s head of currencies, commodity and emergency market research, says that the dollar’s recent strength is temporary and catch-up recoveries in Japan and Europe will boost their currencies against the dollar. A weak durable good orders report is adding to gold’s appeal this morning as it boosts the cautious Fed scenario.

Quote of the Day
“Two confrontational, nationalistic, and militaristic leaders playing chicken with each other, while the world is watching to see which one will be caught bluffing, or if there will be a hellacious war. We can also say that if … things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen, and treasuries) would benefit.” – Ray Dalio, Bridgewater Securities (August, 2017)

Chart of the Day

Chart note: No one has been able to offer a clear explanation for the close correlation between gold and the yen, although a number of theories have been advanced. Of those, there are three worth passing along. The first is that both are considered safe havens and therefore purchased under the same circumstances. The second is that it is the result of the yen/dollar carry trade. When the carry trade ramps up, the yen and gold suffer. When it unwinds, the yen and gold benefit. The third is that it is the result of algorithmic trading that kicks in under certain preordained circumstances. The debate will go on as to which of the three is the most prominent and we will leave it t0 our readers to decide which, if any, offers the clearest explanation for this odd couple of finance. (By the way, the correlation holds up on the longer-term overlay as well. We will post that chart at a future date.)

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