Category: Today’s top gold news and opinion

Trump lays into the Federal Reserve, says he’s ‘not thrilled’ about interest rate hikes

CNBC/Jeff Cox/7-19-2018

“In a stinging and historically rare criticism, President Donald Trump expressed frustration with the Federal Reserve and said the central bank could disrupt the economic recovery. Presidents rarely intercede when it comes to the Fed, which sets the benchmark interest rate that flows through to many types of consumer debt.”

USAGOLD note:  The gold price is moving higher on this news – as it stands at the moment, retracing most of today’s downside . . . . .We have consistently pointed to hawkish Fed interest rate policy in contrast to dovish policies across either ocean as the driving force behind the strong dollar (up to yesterday’s MarketWatch comments)  That policy, if continued, could nullify the Trump agenda especially with respect to reducing imports and raising exports. It is not surprising the president would call out the Fed on the matter.  In fact, I am surprised it didn’t happen sooner.

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Update Thursday–Gold drops sharply on weak Chinese yuan fix

Yesterday in Myra Saefong’s MarketWatch afternoon gold market update:

“I do not believe that the trade wars at present are the dominant issue for gold and the dollar,” Michael Kosares, founder of gold broker USAGOLD, told MarketWatch. “Both, I believe, are still caught up in a syndrome dictated by dovish interest-rate policy across both oceans, while the U.S. continues to raise rates. That could all change in a heartbeat, though, if the inflation rate begins to run consistently higher than interest rates.”

This morning reports have surfaced that China’s central bank is aggressively pursuing its own version of a quantitative easing program. (Read here)  Simultaneously it fixed the yuan top-shelf exchange rate lower signalling it was interested in a weaker yuan against the dollar and other currencies. The combination sent gold reeling overnight in Asian markets – down $14 at one point.  Gold has staged a minor recovery in early U.S. trading and is now down $10 at $1217.  Increasingly, currency traders are suggesting that the Fed may be forced to act.  In an editorial this morning, the Financial Times warns “The U.S. central bank must be prepared to halt or reverse rates. . . if financial stability is threatened.”

 

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Some speculation on yesterday’s sell-off in the gold market

DAILY MARKET REPORT

We could not let the latest downside break in the gold price pass without a word or two.  My first instinct is to point to the volumes on the COMEX yesterday and ask what on earth might have generated such an interest in gold on the short side?  At precisely 9am yesterday, 5,458,000 ounces of gold were presented for sale on the exchange – a paper trade of over 170 metric tonnes.  It was followed by another sale within the hour of another nearly 5,500,000 ounces, or another 170 metric tonnes, all toll 340 tonnes of paper gold dumped on a market that lacks a champion sufficient enough to oppose it – at least on the COMEX.

Are we to believe that thousands of commodity speculators the world over suddenly woke up Tuesday morning and decided to sell hundreds of tonnes of the metal on the basis of upcoming Congressional testimony on the part of the Fed chairman?  And how could it have occurred before even knowing the nature of that testimony?

It is unlikely yesterday’s sell-off in gold occurred because thousands of investors suddenly lost faith in the safe haven qualities of the metal, as some in the press are wont to claim.  More likely, it came the result of a small group, or perhaps even a single entity, deciding to short the market for its own purposes.

Of course, to the speculator in gold hoping to garner a profit, pointing out the nature of the problem is a poor salve for the wound inflicted.  Know, though, that the short position taken today must be reconciled with a purchase farther down the road lest the profits be left on the table.  That is why gold typically bounces back from these waterfall drops – though usually over a much more extended period of time than the original application of the short.  For the paper speculator, the wound might have been debilitating if not fatal.  For the well-capitalized investor, though, who holds the metal as a long-term safe haven in physical form, the wound – if a wound at all – is at worst superficial.

As is always the case in financial markets, for every action there is an equal and opposite reaction.  The reaction in this case will come in the form of stronger demand for the physical metal from buyers – including nation states, major financial institutions and individual investors – who understand the real nature of what just transpired and how to take advantage of it. It is interesting to note as posted here yesterday (and just below) that 17% of fund managers polled by Bank of America Merrill Lynch see gold as a bargain at these prices – a record number.

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Gold at one-year low and a record number of investors in survey say it’s a buy

CNBC/Patti Domm/7-17-2018

“Gold falls to lowest level in a year, but this may be a time for contrarians to buy. A record 17 percent of fund managers in Bank of America Merrill Lynch’s monthly survey said they see gold as undervalued. Bank of America says this could make gold a buy for contrarian bears, who could also sell out of the overcrowded tech sector.”

USAGOLD note:  Make that a record number of institutional investors. . . .

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Gold’s seasonality. . . The best time to buy gold is when everything is quiet.

USAGOLD note:  The reality of gold’s seasonality is evident in this chart.  In the past, there has been a clear change of direction in sentiment annually at the 185-195 day mark – midway in the year.  Today, July 16, is the 196th day of 2018.  Much has been written about gold’s seasonality as well as the annual summer doldrums.  We thought it might be interesting to show the phenomena in a chart.  The best time to buy gold is when everything is quiet.  Presented with thanks to Jason Goepfert at SentimenTrader.

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Gold has not entered a new bear market

Scrap Register/7-12-2018

“Given that the peaks in the gross short position tend not to last, it does look as if the market is setting itself up for a period of short-covering again, although the short position may still have further to climb before it peaks,” the analysts [at ScotiaMocatta] said. “The low level of the gross long position would also mean there is plenty of room for fresh buying too.”

USAGOLD note:  Opinion from one of the banks that sets the London Daily Gold Fix . . . .

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United States inflation rate highest since February 2012

Trading Economics/7-12-2018

The inflation rate in the US edged up to 2.9 percent in June of 2018 from 2.8 percent in May, matching market expectations. It is the highest rate since February of 2012 when inflation was also at 2.9 percent. Inflation was higher only in December of 2011 when it reached 3 percent. On a monthly basis, prices increased 0.1 percent, lower than 0.2 percent in May and forecasts of 0.2 percent. Prices of shelter, gasoline, and food made the main upward pressure.”

USAGOLD note:  We should keep in mind that this month’s CPI release reflects pressure from rising oil prices but it is too early for tariff measures to have an effect.  If and when those effects surface, it will be on top of what rising oil prices are already generating.

 

 

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Apoplithorismosphobia

Mises Institute/Mark Thornton/7-2018

“Apoplithorismosphobia (ay-pope-lit-horris-mos-foe-be-ah) is the fear of deflation. Or, more correctly, the fear that an economy would ‘suffer’ from falling prices, or a general decline in the prices of goods and ser vices. It is a fear that has gripped some economists, journalists, and policymakers with a blinding strength as powerful as faith. Evidence seems to suggest that the phobia develops from the inability to understand the causes of the Great Depression and a more general failure to distinguish between what Bastiat called “the seen” (e.g., deflation) from ‘the unseen’ (e.g., the causes of contraction and unemployment). Under the influence of this phobia, victims develop an unfounded faith in the ability of monetary and fiscal policy. In extreme cases it leads to the support of powerful policy ‘weapons’ to combat deflation—the equivalent of using economic weapons of mass destruction. As shown in the case of Japan, this behavior is counterproductive and should be considered a danger to society. The purpose of this paper is to describe and diagnose this phobia and to present a treatment to counteract its effects.”

USAGOLD note:  Deflation, believe it or not, can have its positive effects. . . . . .an argument to let-the-economy-be-the-economy from an Austrian economist and a clever writer.  Of course, doing so in a fiat money economy elevates the need for a gold hedge to an even loftier position (though the author never mentions the metal in his presentation).

 

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U.S. yield curve to invert in Mid-2019, Morgan Stanley says

Bloomberg/Chris Anstey/7-11-2018

“The Federal Reserve next March will probably map out an end to the contraction in its balance sheet, helping support longer-dated bond yields, which will drop below those on shorter-dated notes by the middle of 2019, according to Morgan Stanley.”

USAGOLD note:  The question routinely overlooked in the discussions about the yield curve is why the longer-dated bonds yields are stuck in the first place.  Who’s the buyer keeping yields artificially low? Or is it a lack of supply?  And while that influence remains in place, whatever is causing it, is the idea that an inverted yield curve signals a recession subverted by some hidden and unexplained circumstance?

From a CNBC article two days ago: “One thing we have to reconcile is what’s unique about this environment is we just went through a long period of QE [quantitative easing] to keep rates lower than normally would be the case. Most estimates for QE would argue the curve is probably on the order of about 40 to 50 basis points flatter than it normally would be,” he (Morgan Stanley’s Jim Carron, fixed income portfolio manager) said. “The flatness of the yield curve is instead a weaker signal about a recession than it has been in the past because of all these QE factors.”

 

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China trade surplus with U.S. rises to record in June

Bloomberg/Miao Han, Zinan Zhao nad Xisoqing Pi/7-13-2018

“China’s monthly trade surplus with the U.S. rose to a record in June, underlining the imbalance at the heart of an escalating trade war between the world’s two largest economies. The trade surplus with the U.S. stood at $28.97 billion, the highest in any month in data back to 1999. Exports climbed to $42.62 billion, also a high, the customs administration said on Friday.”

 

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DMR–Gold trades lower on Friday the thirteenth

DAILY MARKET REPORT

Friday the thirteenth. . . . . .Gold is trading at the $1242 mark this morning (down $4.00) after having gotten as low as $1238 in European markets.  Which way it will break from here remains an open question as the annual summer slowdown lingers, commodities continue to track lower, and the dollar, at least for now, reigns supreme in currency markets. In its market report this morning, Investing.com poses an interesting scenario, “Interestingly, Asian and European stocks were mostly higher today as investors yet again attempted to shrug off trade tensions. Could markets be turning increasingly numb to global trade developments? This may be the question of the quarter if stock markets and riskier assets continue to push higher despite trade tensions escalating.”  And, by the way,  if the one asset that should be flourishing in this environment continues to languish . . . .

With that thought we will leave you for the week and alert you that we will be posting only intermittently for the next couple of weeks as we move to a mid-summer schedule. 

Quote of the Day
“Buying gold today is a statement that you believe that global economic events may spiral out of the control of Central Bankers. It is insurance against some sort of massive monetary policy mistake that cannot be fixed without re-conceptualizing the global economic regime – hyperinflation in a developed nation, the collapse of the Euro, something like that – not an expression of a commonly shared belief in some inherent value of gold.. . . . The stronger the Narrative of Central Banker Omnipotence, the more likely it is that the price of gold goes down. The weaker the Narrative – the less established the Common Knowledge that central bank policy determines market outcomes – the more likely it is that the price of gold will go up.  In other words, it’s not central bank policy per se that makes the price of gold go up or down, it’s Common Knowledge regarding the ability of central banks to control economic outcomes that makes the price of gold go up or down.” – W. Ben Hunt, Epsilon Theory

Chart of the Day

Chart note:  There is much concern about the flattening yield curve, i.e., the convergence of rates in various U.S. sovereign debt instruments and what it might portend for the future.  In pulling together the data for these charts, we could not help but take special note of the two previous occasions in which there was a similar convergence – in 2000 just before and during the bursting of the dotcom bubble and in 2007-2008 just before and during the Bear Sterns/Lehman Brothers’ implosions. Both breakdowns, by the way, occurred coincident with an upswing in interest rates.

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Gold notches a gain after back-to-back session declines

AFTERNOON UPDATE

FOREX Closes: Gold $1247.70 (+$4.57) / Silver $15.97 (+11¢)

MarketWatch/Myra P. Saefong and Mark DeCambre/7-12-2018

“‘The U.S. economic data brought weakness in the dollar index and this has helped the gold price,’ said Naeem Aslam, chief market analyst at Think Markets. ‘Moreover, we do believe that trade tension (to some extent) is also providing some momentum for gold.’”

 

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DMR–Gold shifts to higher ground, real rate of return goes negative on U.S. government paper

DAILY MARKET REPORT

Gold shifted to higher ground this morning after the government released its latest consumer price report which showed inflation pushing the 3% mark – a rate that puts the real rate of return on government paper in negative territory, even the 30-year bond.  Such stirrings are the sort of thing that can motivate a shift in investor perceptions – with commodities and gold being among the usual beneficiaries in a negative return environment. Today’s inflation number might mark something of a turning point in that regard, particularly when you take into consideration that sentiment favors rising inflation as a probable outcome of the trade war.   As it stands, gold is up $4 on the day at $1247 and silver is up 12¢ at $15.94.

Quote of the Day
“Reality is far more vicious than Russian roulette. First, it delivers the fatal bullet rather infrequently, like a revolver that would have hundreds, even thousands of chambers instead of six. After a few dozen tries, one forgets about the existence of a bullet, under a numbing false sense of security. Second, unlike a well-defined precise game like Russian roulette, where the risks are visible to anyone capable of multiplying and dividing by six, one does not observe the barrel of reality. One is capable of unwittingly playing Russian roulette – and calling it by some alternative ‘low risk’ game.” ― Nassim Nicholas Taleb, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

Chart of the Day

Chart note: Few correlations in the financial markets ring truer and more consistently than the one between the federal debt and gold. That relationship between the two is about as fundamental as it gets. For those with capital preservation as the goal, gold has been a stalwart and productive ally since the United States went off the gold standard in 1971 and launched the era of fiat money, federal deficits and the massive federal debt. As for the future, we should keep in mind that the very same conditions which created the long-term secular trend for both the national debt and gold are still in place today – nothing has changed fundamentally. As long as that is the case, we can assume gold will continue to attract capital as a long-term portfolio hedge just as it has, to varying degrees, through the first 47 years of the fiat money system. Please note, too, that gold is trading below the federal debt’s trend line, an indication that it might have some catching up to do in the months and years ahead.

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Traders hammer gold back to December levels

DAILY MARKET REPORT – AFTERNOON UPDATE

Traders hammered gold back to last December’s levels as commodities across the board took a hit on elevated concerns about a heavy escalation in the trade war between the United States and China. Bloomberg is reporting that China-US trade talks have ground to a complete halt.  Stocks markets across the globe also took a hit with the Dow finishing down 219 on the day.  The yuan, which has led currencies lower against the dollar over the past few days, finished at its lowest level since late 2016. Gold finished the day down $14 at $1242. Silver was down 21¢ at $15.79.

In a Reuters report this afternoon, William Rhind, chief executive officer at fund manager GraniteShares Inc, took a longer term view: “At the moment,” he said, “the positive inflationary pressures caused by trade tariffs are being beaten back by dollar strength. As the tariffs take hold and the market adjusts to the effects, we expect inflationary pressures to increase, which will benefit holders of gold and commodities.” Pushed to background today, producer prices logged a 3.4% gain led by rising oil and gasoline prices. Tomorrow we have the consumer price index report. MK

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US debt explosion and Weimar II

GoldSwitzerland/Egon von Gruyerz/7-11-2018

“Can investors really be that wrong? Global risk is today greater than ever in history and at the same time the great majority of investors show no fear at all. There are so many potential catalysts that could shake the world economy out of its sweet dreams into a living nightmare that it is impossible to forecast where the trigger will come from. It could be a debt collapse in Japan, China, USA, Eurozone or emerging markets. Or it could be a currency collapse in any of those regions. Or it could be a stock market collapse, or it could be ……, or it could be……”

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Mark Mobius warns that the trade war is a prelude to the next financial crisis

MarketWatch/Shawn Langlois/7-11-2018

“There’s no question we’ll see a financial crisis sooner or later because we must remember we’re coming off from a period of cheap money. There’s going to be a real squeeze for many of these companies that depended upon cheap money to keep on going.” – Mark Mobius

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New round of U.S.-China trade war rattles global markets

New York Times/Alexandra Stevenson/7-11-2018

“President Trump’s escalating trade war with China rattled global markets on Wednesday. China led a market tumble in Asia and Europe, with stocks there finishing the day down nearly 2 percent, after the Trump administration threatened to impose new tariffs on Chinese goods. Stocks in Japan and South Korea also fell, though by less.”

USAGOLD note: Dow futures are down about 200 and gold is down about $5. . . .

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Rand Refinery, South African Mint introduce 1 oz silver Krugerrand

CreamerMedia’s Mining Weekly/7-11-2018

“Prestige Bullion, a joint venture between Rand Refinery and the South African Mint, will, from August 1, sell 1 oz silver bullion Krugerrands. The silver Krugerrand will be produced in unlimited mintage, dependent on market appetite and linked to the daily price of silver. The introduction of the silver bullion Krugerrand marks the first time in its 51-year history that the Krugerrand is produced in a metal other than 22 ct gold in unlimited mintage.”

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China vows retaliation against Trump’s $200 billion trade threat

Bloomberg/Staff/7-11-2018

“China vowed to fightback against the Trump administration’s plans to impose tariffs on an additional $200 billion in Chinese goods, escalating a trade war between the world’s two biggest economies.”

USAGOLD note:  Some commentators have likened the worsening trade war between the US and China to the early stages of World War I.  Leaders and pundits then believed that tensions would not evolve to a full-blown military conflict because too much was at stake economically among European states. Most believed if that if tensions did evolve to a hot war, it would be brief.  They were wrong.  We are a long way from drifting into a repeat of that tragic history, but short of a military conflict, the current trade war itself seems to have taken on a life of its own – and that is troubling.

 

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Metal prices lower on dollar strength, gold off lows but under pressure

AFTERNOON UPDATE

FOREX Closes: Gold $1256.00 (– $2.78) / Silver $16.07 (-7¢)

Investing.com/7-10-2018

Gold prices were pushed lower Tuesday by higher U.S. government bond yields and a rising dollar, which also dented sentiment on other metals. . .Investor appetite for safe heavens such as gold, yen and Treasuries, were scaled back by sentiment for riskier assets, triggering an uptick in U.S. bond yields and forcing gold prices lower.”

USAGOLD note:  Gold showed some resilience overnight reversing sharply off a $1248 low in Europe to finish the day in the U.S. at $1256.00.

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DMR–Gold recovers from $1248 low in European trading, awaiting producer and consumer price reports

DAILY MARKET REPORT

Gold is down $4.50 on the day at $1254 after dipping below the $1250 level for the second time since this latest break began in early June. Gold turned around sharply during European trading hours after hitting a low of $1248.  Silver is trading at $16.03 and down 7¢ on the day. Trading in both metals is irresolute and lacks clear direction – in short a typical day in the annual summer doldrums. It looks like short-sellers are looking to reverse their positions on dips at or below the $1250 level and may be a sign that the price has reached a bottom.  Too, the precious metals could simply be in a wait and see mode with producer prices out tomorrow and consumer prices Thursday.

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:  Since 1971, the year the United States went off the gold standard, freed the dollar to float against other national currencies and ushered in the fiat dollar international monetary system, gold has appreciated over 3000%. In “Essay on the Coinage of Money” (1526), Conpernicus, the famed astronomer, noted: “Although there are countless scourges which in general debilitate kingdoms, principalities, and republics, the four most important (in my judgment) are dissension, [abnormal] mortality, barren soil, and debasement of the currency. The first three are so obvious that nobody is unaware of their existence. But the fourth, which concerns money, is taken into account by few persons and only the most perspicacious. For it undermines states, not by a single attack all at once, but gradually and in a certain covert manner.” Today gold protects its owners against the nemesis of currency debasement as it has over the centuries and during the Copernicus’ times.

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Dollar to go lower over the medium to long term – JP Morgan

FXStreet/Ross J. Burland/7-9-2018

“Looking ahead, a worsening fiscal deficit and structural trade deficit in the U.S., coupled with slower growth in 2019 due to fading fiscal stimulus, should push the dollar lower over the medium to long term. Meanwhile, growth outside of the U.S. and commodity demand are both poised to remain healthy. This backdrop suggests that there may be an opportunity in commodities going forward, particularly those parts of the market that have shown an elevated sensitivity to changes in the U.S. dollar.”

 

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In the future gold will play dominant role in a multicurrency reserve system

World Gold Council/Andrew Sheng/7-2018

“Capital flows from emerging markets to developed countries have occurred because central banks and private investors have sought the liquidity and superior credit ratings only offered by the dominant reserve currency markets. The inherent weakness of this ‘non-system’ is clear, however, which may explain why many emerging market central banks are increasing their allocation to gold. It is liquid and has neither credit nor default risk.”

USAGOLD note:  Nation states line their portfolios with gold for the same reason private investors do – for long-term asset preservation and as a protection against currency failure.

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Chart of the century gives Powell gloomy glimpse of trade-war world

Bloomberg/Rich Miller and Vince Golle/7-10-2018

“A multi-colored graphic that’s made the rounds at the Federal Reserve hints at what Chairman Jerome Powell could face if President Donald Trump succeeds in throwing globalization into reverse: Higher prices for many goods and potentially faster inflation.”

USAGOLD note:  We alluded to this situation yesterday.  Cheap imports have kept inflation in check for at least the past decade.  The tariff and sanction programs global imports will likely remove that positive influence on prices.

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Gold up, touches 2-week peak but still near December lows

AFTERNOON UPDATE

FOREX Closes: Gold $1258.10 (+3.10) / Silver $16.12 (+7¢)

Reuters/Renita D. Young and Eric Onstad/7-9-2018

“Gold rose on Monday, touching its highest in two weeks as the dollar weakened and the Chinese yuan recovered from June’s lows, and gold stayed higher even as the dollar bounced up, as some investors bought bullion to cover short positions. “

USAGOLD note:  Gold tracked down most of the day from highs achieved in Asia and Europe overnight.  We invite you to scroll below for more information on today’s market action and what’s affecting the gold market.

 

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Special offer: U.S. $5 Liberties (19th century gold coins) at same price as modern quarter ounce Eagles

We opened the offer early this afternoon and have already had a strong response. . . . . .

If you like you can sign-up to purchase online here:
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If you would like to learn more, you can read about the offer HERE.

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Your participation is welcome.

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Holiday trading lull flashes red for financiers

Financial Times/Gillian Tett/7-5-2018

“Instead the big issue in summer is that the ability to buy and sell assets — or the level of ‘liquidity’ — typically declines during the holiday lull. That can cause asset prices to go haywire if a nasty surprise hits. Just think of what happened in August 2007 or August 1997.”

USAGOLD note:  Tett goes on to dissect Bank for International Settlements’ warnings as published in what she call a “sobering economic report.”

 

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U.S. stocks face grim decade of low returns: Morningstar

Investopedia/Matthew Johnston/7-9-2018

“In the words of Dan Kemp, Morningstar’s chief investment officer for Europe, the Middle East and Africa, “Our expectations at the moment is that you won’t have any real return from U.S. equities over the next 10 years . . . .”

 

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Here’s how a trade war between U.S. and China could get ugly

Bloomberg/Andrew Mayeda and Jenny Leonard/7-8-2018

“Economists feel they have a good handle on the direct impact of higher duties. Tariffs raise the price of imported goods, in turn inflating costs for businesses. Those companies can fully absorb the increased cost, or pass some or all of it onto consumers. The bottom line: someone pays, prices rise, demand is hurt.”

USAGOLD note:  In other words, the effects are likely to creep up on us.  This week the government will release its reports on producer prices and consumer prices.  Though it is probably too early for the tariffs to affect these reports, investors are likely to see any signs of rising inflation as a trend to which the cost of tariffs will need to be added.  We need to keep in mind that cheap imports have been the chief contributor to low inflation in the United States for at least over a decade – going all the way back to Greenspan’s tenure as Fed chairman. Companies, by the way, will pass along the rising costs.  They will have no choice especially in this era of razor thin margins for retailers as well as wholesalers.

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Inflation and deflation: Keep your portfolio safe

Investopedia/Lisa Smith/7-6-2018

“Sometimes it’s hard to tell whether inflation or deflation is the bigger threat. When you can’t tell what to do, plan for both. A diversified portfolio that includes allocation to investments that fare well during inflationary periods and investments that fare well during deflationary periods can provide a measure of protection regardless of what happens in the economy.”

USAGOLD note: A gold diversification can go a long way in protecting against either or both and all the hybrids in between. Please see: Black Swans, Yellow Gold – How gold performs during periods of deflation, chronic disinflation, runaway stagflation and hyperinflation.

 

 

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