“The Italian government has no intention of selling the Bank of Italy’s gold reserves to plug budget holes, a prominent lawmaker of the ruling League party said on Wednesday. ‘We do not want to sell a gram (of gold),’ Claudio Borghi, chairman of the lower-house budget committee and the League’s economics spokesman, said in a interview with state-owned television RAI.”
USAGOLD note: Sounds like that settles the matter. . . .at least for the time being. With much of the rest of the world in the gold acquisition and/or repatriation modes, it would be odd for Italy to head in the other direction, particularly when you consider that the current government was elected on a platform of Italian nationalism and antagonism toward the European Union.
“National debt for the first time passed $22 trillion this week — a big, scary number that really doesn’t pose much of a danger now but threatens to in the future.”
USAGOLD note: The debt to GDP ratio, which this article emphasizes, is an important concern, but just as important, if not more important, is the amount of interest the federal government pays on it and what percentage of tax receipts it consumes. And to the practically minded among us, it is an immediate problem, not something that “threatens in the future.”
DAILY MARKET REPORT
Gold appears to be gaining some momentum in early New York trading. It is up $5 on the day thus far at $1316. Silver is up 8¢ at $15.78. Commerzbank’s Eugen Weber neatly summarized the market situation for the yellow metal this morning by telling Reuters, “Overall there is healthy demand from investors for gold.” The Labor Department this morning reports consumer prices logging in at a 1.6% annualized gain for December – a number likely to reassure the Federal Reserve that it did the right thing by tilting dovish a couple of weeks ago. In general, the markets appear cautiously hopeful this morning on progress in US-China trade talks and averting another federal government shutdown. Without a lot of fanfare, the U.S. national debt went over $22 trillion yesterday.
Quote of the Day
“The world clings to its old mental picture of the stock market because it’s comforting; because it’s so hard to draw a picture of what has replaced it; and because the few people able to draw it for you have no interest in doing so.” ― Michael Lewis, Flash Boys
Chart of the Day
Chart note: The Volatility Index pushed to levels late last year and early this year not seen since the financial crisis in 2008. December 2018 was the worst month for stocks since the Great Depression. According to the Bank of America, not even the stock market rally early in the year was enough to convince investors to stay put. They were net sellers of $26 billion in U.S. stocks and $7 billion in European stocks in January. Meanwhile, gold bullion accumulation continued to advance steadily. Gold ETFs, the favored vehicle for funds and institutions, added almost 72 tonnes to their holdings in January and 185 tonnes since the beginning of October. ETF stockpiles now stand at their highest level since 2013.
“Absolutely. As long as we have a financial system, we will have financial crises. The only question is how often and how severe. Personally, I think a crisis is likely to happen sooner rather than later because of the large number of possible crisis triggers that are currently being squeezed. . . . Fortunately, because of improved capital, liquidity and risk management, the next financial crisis is unlikely to result in a banking crisis. But it could still easily result in sufficiently deep losses across a sufficiently broad range of assets to trigger an extraordinarily painful recession, or worse. The likelihood that the US has seen its last depression is about as high as the likelihood that it has seen its last war. Just saying.”
USAGOLD note: In this fascinating peak behind the curtain, Mike Silva tells the inside story of the 2008 financial crisis from the perspective of someone who, as Tim Geithner’s chief of staff at the New York Fed, was at the policy-making epicenter during the breakdown. Silva delivered his remarks in a speech before the London Bullion Marketing Association in October 2018.
Image by Benji the Pen [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], from Wikimedia Commons [Edited]
“’Emerging market central banks should hold fewer dollars and more gold as a way of diversifying their portfolio. It’s a simple question of diversification. At the moment, most emerging market central banks hold 1–2% of their reserves in gold, with 70–80% in dollars and the rest in euros and other currencies. I think a 5% allocation seems a natural position to take as part of an effective diversification policy – although it could be higher. After all, the US share of the global economy is shrinking, power is being centralised and we don’t know what the future holds,’ he says.”
USAGOLD note: Rogoff sees green cash going the way of the buggy-whip, but he sees an important new role for gold evolving in the process. He has some very interesting things to say about gold and the monetary role it will play in the society of the future at the link above.
“The reason the banks need reserves, particularly during a market decline, is to ensure there is enough liquidity to meet demands for capital. This is also suggestive of why Steve Mnuchin, the Secretary of the Treasury, decided, just prior to Christmas as the market plunged, to call all the major banks to ‘assure them that liquidity was readily available.’ Given that it is highly unusual for the Treasury Secretary to call the heads of banks AND the ‘President’s Working Group On Financial Markets,’ aka the ‘plunge protection team,’ to try assuage market fears, it raises the question of what does the Treasury know that we don’t?”
USAGOLD note: Lance Roberts questions ex-New York Fed president Bill Dudley’s claim that the Fed’s balance sheet “gets more attention than it deserves.”
. . . the federal debt goes over the $22 trillion mark.
Copernicus on the debasement of money
“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.” – Copernicus, Essay on the Coinage of Money (1526)
Few know that Copernicus applied his genius to the insidious effects of currency debasement. The ground-breaking essay linked above probably influenced both John Maynard Keynes (See below) and Thomas Gresham of “bad money drives out good” fame. Supply Side Blog’s Ralph Benko says Copernicus’ essay “has been translated into English several times yet those translations remained difficult to obtain for students of the monetary arts and sciences. It has remained mostly the property of elite historians.” Above we link Edward Rousen’s translation that you might keep company with the knowledgeable elite.
It cost 8¢ to mail a one-ounce letter in 1973 as indicated by the commemorative Copernicus stamp shown above. It costs 55¢ today – an illustration of his assertion that currency debasement “undermines states, not by a single attack all at once, but gradually and in a certain covert manner.” The post office increased the cost of mailing a letter by 5¢ – to 55¢ – beginning in 2019.
“By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” – John Maynard Keynes, The Economic Consequences of Peace (1919)
“First, how could you best have responded as a private investor on the Friday night before Lehman’s lost weekend? And second, what is the market telling us about the future course of the world?”
USAGOLD note: One more retrospective in a week of retrospectives on the 2008 financial crisis. . .This one struck a chord. For the crisis that never went away, the markets’ final verdict might still lie ahead.
Image by succo [CC0 or CC0], via Wikimedia Commons [Edited]
Repost from 9/17/2018
“A friendly investment environment for precious metals should see silver, despite its link to industrial metals, regain some of its lost ground against gold . From an historically cheap level above 80, the gold-silver ratio, which measures the value of gold in ounces of silver, could turn lower towards the five-year average at 74, a 10% outperformance. Based on this assumption, we forecast an end-of-year price for gold at $1,350/oz and silver at $18/oz. We would categorise the gold forecast as being relatively conservative. Please note that a break above $1,375/oz, the 2016 high, could signal additional strength towards $1,480/oz, the halfway mark of the 2011 to 2015 sell-off.”
USAGOLD note: This report covers quite a bit of ground. The gold portion of it emphasizes a return to safe-haven status “with turmoil on every side.” Steen Jacobsen’s opening overview focuses on the possibility of a ‘global policy panic” involving central bank decision-making. He sees “[p]olicymakers throwing everything they can at an economy that is sinking fast and still reeling from the mistakes of the last decade, exactly six months after those same policymakers said the crisis was over.”
Repost from 1/23/2019
“Politique magazine in Paris this week published a report by Edouard Freval about the Banque de France’s new interest in lending and swapping gold through JPMorganChase & Co. even as credit and currency risks are rising and other central banks are acquiring the monetary metal to guard against those risks. The report quotes former French central bankers criticizing the scheme. It also quotes your secretary/treasurer at some length. Even when read in English through Google Translator the report does very well casting suspicion on the Banque de France’s scheme and reminding readers that gold is the ultimate money, not to be trifled with. The article is headlined ‘La France Est-Elle en Train d’Hypothequer Son Stock d’Or?’ — ‘Is France Mortgaging Its Gold Stock?'”
USAGOLD note: France would like to pick up at least a portion of London’s huge gold business both both in physical and paper forms. If putting the nation’s gold reserve at risk is part and parcel of that effort, the French people are likely to react negatively given their long attachment to the yellow metal – a bond that grew from two destructive bouts of hyperinflation in the 18th century.
Few know that Napoleon Bonaparte, who was the founder of the Bank of France, was a staunch advocate of gold over paper money. In Fiat Money Inflation in France, Andrew Dickson White tells the story of Napoleon’s founding of France’s central bank:
“[The assignat inflation] ended in the complete financial, moral and political prostration of France – a prostration from which only a Napoleon could raise it. . .at [his] first cabinet council Bonaparte was asked what he intended to do. He replied, ‘I will pay cash or pay nothing.’ . . .[Later] when the first great European coalition was hard pressed financially, and it was proposed to resort to paper money; he wrote to his minister, ‘I will never resort to irredeemable paper money.’ He never did, and France, under this determination, commanded all the gold she needed.” With the gold swap program, current management appears determined to put the French gold reserve at risk – a program Napoleon likely would have opposed as undermining the financial stability of the nation.
Repost from 2/7/2019
DAILY MARKET REPORT
Gold firmed overnight in Asian and European markets finding support at the $1307 level and climbing as high as $1314.50 before hitting a wall at the New York open. It is now trading at $1311 – up $3 on the day. Silver is up 3¢ at $15.73. A recoveries in both the yuan and yen in Asian trading were an influence along with a strong showing in the energy commodities, led by crude oil (up about 3% on the day). Reuters cites the positive effects OPEC production cuts beginning to take hold as the reason for the price jump.
One of the more telling developments to surface over the past two days is evidence of rapidly changing sentiment among investors. This morning CNBC reports stock owners fleeing to cash despite the rally in January as a more bearish sentiment begins to take hold. It cites a Federal Reserve Bank of New York report yesterday that “most households predict they will be worse off financially in one year – only 38.6 percent think they will be better off, the lowest reading in more than two years.” The article goes on to say that 55% of fund managers say they are “pessimistic about the economy.”
Quote of the Day
“We are big gold believers here. Now gold is at $1,300, we think gold is going to $1,400-$1,500. We suggest that everybody have a little bit of gold in their portfolio.” – Jim Cramer, CNBC
Chart of the Day
Chart note: From time to time we re-post this chart on the average annual price of gold since 1971 – the year the U.S. severed the tie between the dollar and gold and launched the fiat money era. It dispels 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 demonstrates at a glance gold’s strong performance as a portfolio holding over the long haul and emphasizes its role as a reliable long-term portfolio safe haven and means to long-term wealth preservation.
“According to a new survey from the Federal Reserve Opens a New Window. Bank of New York, most households predict they will be worse off financially in one year – only 38.6 percent think they will be better off, the lowest reading in more than two years.”
USAGOLD note: Contary to what some would have us believe, a good many Americans apparently believe that this is not the best of all possible economies. That might explain to some degree the sudden spark of interest in gold we are experiencing at USAGOLD’s offices. . . . . . .
“Federal Reserve Bank of San Francisco President Mary Daly suggested that the central bank could decide to use its balance sheet as a routine part of how it guides the economy, not just as a last-ditch measure to deploy in emergencies.”
USAGOLD note: We used to call it “printing money.” Then we changed the label to “monetization.” After the 2008 fiancial crisis, we renamed it “quantitative easing.” But it is still just plain-old printing money. Now, a contingent within the Fed wants to make it a permanent part of Fed policy with or without the benefit of a crisis. Isn’t that pretty much what Germany did after World War I? They, too, believed it came with no consequences until one day a virulent inflation suddenly took hold. . . .
“Bernstein is tracking two key measures, both of which are at levels not seen since World War II: global government debt and central bank buying of gold. The former ‘creates a temptation to manufacture inflation,’ Bernstein said. The latter is a ‘trend that is likely to continue for as long as the US share of global GDP continues to decline,’ the firm said.”
USAGOLD note: Another Wall Street firm jumps aboard the gold bandwagon based on deep-seated economic trends.
“Last week, Beth Hammack, a senior Goldman Sachs banker who chairs a US government advisory group known as the Treasury Bond Advisory Committee, dispatched a letter to Steven Mnuchin, Treasury secretary, with a bombshell at the bottom.”
USAGOLD note: For those who may have missed it, this is an important Gillian Tett opinion piece I referenced at the top of “The $12 trillion federal debt bombshell” article– released yesterday.
“‘The gold is the property of the Italian people, not of anyone else,’ Mr. Salvini, deputy prime minister, and leader of the League party, said in comments to reporters on Monday.”
USAGOLD note: The “anyone else” Salvini is thinking about is the Bank of Italy. The media has created the impression that the government wants to get its hands on the gold “to finance spending programs.” Claudio Borghi, a Eurosceptic member of Italy’s parliament, says that the intent is not to sell Italy’s gold, but to “prevent others from getting their hands on it.” So much fuss these days over a barbarous relic. . . . . . . .
Image: Italian 20 Lira – Umberto I (1878-1900)
Please see: Historic World Gold Coins – One of the great, largely untouched and potentially lucrative opportunities in the field of gold investing today
IGUK/VideoInterview of Ross Norman (Sharps Pixley)/1-30-2019
“As the price of gold storms to a new seven month high, Ross Norman, chief executive officer (CEO) at Sharps Pixley, discusses the London Bullion Market Association (LMBA) forecasts for 2019. Norman, who has been the best forecaster amongst the LMBA over the last 20 years, tells IG that he believes $1,360 is the price to watch. He discusses where the demand is coming from and why the retail investor and trader is the missing link.”
USAGOLD note: Ross Norman explains why the situation in 2019 looks a lot like 1999 at the link above and why a breach of $1360 to the upside could turn out to be an important development.
Repost from 2/6/2019
Gold and silver bullion coin sales rebounded in January with the strongest monthly sales in two years. The U.S. Mint sold 65,500 troy ounces of the gold American Eagle and 4,017,500 troy ounces of the silver American Eagle in January 2019 – 12% and 24% increases respectively over the same month last year. In January 2018, investors purchased 58,500 troy ounces in gold bullion coins and 3,235,000 in silver bullion coins.
Last month, the mint sold a low 3000 troy ounces in gold Eagles and 490,000 in silver Eagles. Sales typically slow down in December as the Mint and market wholesalers gear up for the new year. The solid gains over January of last year indicate growing interest among investors as we head into the new year. January is typically a strong month for sales in both the gold and silver categories as collectors and investors step-up purchases of coins bearing the new year’s date.
Repost from 2/5/2019
“Gold gets put forth as a hedge for inflation, a safety play in times of trouble and a commodity play. Whether that’s true is irrelevant to a technical trader. All that matters is the price action. And gold’s price action has been great.”
USAGOLD note: For the techies out there. . . .An interesting piece of very positive technical analysis from someone who once described gold as “nothing more than a shiny rock.”
Repost from 1/31/2019
DAILY MARKET REPORT
Gold slid in Asia overnight following China’s yuan lower in a less than auspicious beginning to the Year of the Pig. It is now trading at $1306 and down $8 on the day. Silver is down 11¢ at $15.75. The downward trend carried over to European trading and into the New York open. Gold once again finds itself perilously close to the $1300 level where it found support last week.
The South China Morning Post reports this morning that China added to its gold reserves for the second straight month acquiring another roughly 12 tonnes of the metal. “China,” says the Post, “has joined a global central bank gold rush in the last two months by increasing its official gold reserves, even though the purchase remains modest compared to the volume of the mainland’s foreign exchange reserves, according to data released by the People’s Bank of China on Monday.” (Please see our Chart of the Day below)
Quote of the Day
“The Fed will be forced to participate as avoiding deflation will be the number 1 priority – not the profitability of the banking sector. Investors should contemplate a brave new world of negative Fed Funds, negative US 10y and 30y bond yields, 15% budget deficits and helicopter money. Sounds ridiculous, doesn’t it? What I said in 2006 sounded ridiculous too.” – Albert Edwards, Society Generale
Chart of the Day
Chart note: “Central bank net purchases reached 651.5t in 2018, 74% higher year over year,” says the World Gold Council in its year-end gold demand report. “This is the highest level of annual net purchases since the suspension of dollar convertibility into gold in 1971, and the second highest annual total on record. These institutions now hold nearly 34,000 tonnes of gold. Heightened geopolitical and economic uncertainty throughout the year increasingly drove central banks to diversify their reserves and re-focus their attention on the principal objective of investing in safe and liquid assets.”
“Venezuela’s most successful financial operations in recent years have not taken place on Wall Street, but in primitive gold-mining camps in the nation’s southern reaches.”
USAGOLD note: This Reuters article points out that the socialist state, Venezuela, “leans heavily” on laissez-faire tactics to move gold out of the jungle and onto international markets thus raising capital to keep the Maduro regime afloat.
“But it’s on the financial side where consequences and repercussions have been fatefully neglected. It’s in the financial world where a decade of QE, zero rates and central bank market backstops imparted momentous structural change: the colossal ETF complex, the passive ‘investing’ craze, quantitative strategies, algorithmic and high-frequency trading, a proliferation of derivative trading, leveraging and trend-following speculation on a global basis – to list only the most obvious. Along the way, aggressive monetary stimulus had much greater inflationary effects on risk markets than upon real economies. This ensured a continuation of aggressive stimulus – and only deeper market Bubble maladjustment.”
USAGOLD note: I keep coming back to Keynes’ observation: “For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs — a pastime in which he is victor who says Snap neither too soon nor too late, who passed the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops. These games can be played with zest and enjoyment, though all the players know that it is the Old Maid which is circulating, or that when the music stops some of the players will find themselves unseated.” – John Maynard Keynes
“Is it too early to starting talking about March? Traders and strategists are already bracing for a month that could prove crucial in resolving a pair of the most pressing geopolitical dilemmas of the past several months: Brexit and U.S.-China trade. ‘It’s a pivotal month from a geopolitical standpoint,’ Randy Frederick, vice president of trading and derivatives at Charles Schwab, told MarketWatch during a phone interview.”
USAGOLD note: We keep coming back to Ray Dalio’s warning at the Davos conference: “What scares me the most longer term is that we have limitations to monetary policy, which is our most valuable tool, at the same as we have greater political and social antagonism . . . So, the next downturn in the economy worries me the most.”
“Lagarde also pointed to the risks posed by rising borrowing costs within a context of “heavy debt” racked up by governments, firms and households. ‘When there are too many clouds, it takes one lightning (bolt) to start the storm, she said.”
USAGOLD note: The IMF has consistently warned about a brewing storm in the world economy. Christine Lagarde, the IMF’s managing director, offers a list concerns starting with Brexit and the U.S.-China trade war, but the fatal lightning bolt she worries about could strike just about anywhere including her suddenly vulnerable home country.
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Table of Contents
DAILY MARKET REPORT
Gold’s close encounter with the $1300 level yesterday seems to have given it renewed impetus this morning. It is trading at $1315 – up $4.50 on the day. Silver is up 10¢ at $15.87. Asian trading was quiet in keeping with the Chinese New Year celebration but showed a spark of life in London on continuing Brexit concerns. Financial Times reports this morning that the British government is hatching a secret plan to deal with a possible “no-exit” end to the stalemated talks with the European Union. That revelation will send a clear message likely to be heard by nervous investors on both sides of the English Channel. As we have reported over the past several months, physical and ETF gold demand is running strong in Europe as investors prepare for a worst-case scenario. The small spark in London became something more as the action moved to New York and news surfaced that the U.S.-China trade talks might be more seriously strained than previously thought.
Quote of the Day
“[JP Morgan’s Marko] Kolanovic, who has dominated Institutional Investor’s annual rankings of top strategists for a decade or so, was out with a research note Thursday arguing that President Donald’s Trump’s isolationist foreign policy is a ‘catalyst for long-term de-dollarization.’ Put another way, the dollar is in jeopardy of no longer being the world’s primary reserve currency and all the benefits that go along with that, such as interest rates that are lower than they otherwise might be and the government’s ability to fund budget deficits in perpetuity.” – Robert Burgess, Bloomberg opinion columnist
Chart of the Day
Chart courtesy of the World Gold Council
Chart note: This chart is perhaps one of the most telling we have ever published in this section of our daily reports. It depicts the performance of various currencies – past and present – against gold over the long term. Those who tout the proposition that gold is not really an inflation hedge, or that it is not really a safe-haven against currency debasement would be well-served to give it some undivided attention. Those who own gold and believe in it as a vehicle for long-term asset preservation will see it as vindication. For those who do not own gold, we hope it will serve as inspiration and a call to action.
“A weaker dollar would be good for gold, but that doesn’t necessarily need to occur for gold to be very prominent.”
USAGOLD note: Maxell Gold calls for gold to go to $1400 in 2019 the result of global safe-haven demand.
“Not only is Europe’s expansionary cycle fading, but the region is about to face challenges that it has to tackle amid growing political fragmentation. Italy slipped into recession in the fourth quarter of 2018, according to new data. France continues to be haunted by Yellow vests protests. Germany has entered an era of uncertainty. And Brexit overshadows the UK future. In the absence of Trump’s tariffs, Europe could have benefited from a nascent recovery of world trade, investment and finance. But now even these hopes are diminishing.”
USAGOLD note: It seems, with all the problems Steinbrock mentions coming to a head simultaneously, that Europe is one trigger event from a major unraveling. Gold demand is running at high levels on both sides of the English Channel.