“The diplomatic cable from Beijing arrived in Washington late on Friday night, with systematic edits to a nearly 150-page draft trade agreement that would blow up months of negotiations between the world’s two largest economies, according to three U.S. government sources and three private sector sources briefed on the talks.”
USAGOLD note: This report from the Reuters news agency is unlikely to be well-received in financial circles. It will be seen as China forcing the White House’s hand, a justification for the president’s tariff stance, and an indicator that the split is far-deeper than most thought prior to its publication.
“The U.S. dollar slipped to a five-week low against the yen and fell versus other currencies on Monday after U.S. President Donald Trump said he would sharply raise tariffs on Chinese goods this week, risking the derailment of trade talks between Washington and Beijing.”
USAGOLD note: The surprise of the day yesterday. . . .Many thought the dollar would rise under these circumstances, the beneficiary of safe haven capital flows.
“It’s not the size of the decline but the speed with which investors are hitting sell buttons. At one point today some 89 percent of stocks on the New York Stock Exchange traded in the red, surpassing the threshold reached Dec. 24, when a 2.7 percent rout in the S&P 500 pushed the gauge to a 20-month low. During the December correction, the volume of stocks trading down was higher just on one other day, Dec. 4.”
USAGOLD note: A market on tenterhooks. . .and one that could be hit very hard by programmed trading (of which the report linked unintentionally serves as a reminder). When a market pundit makes reference to “investors” these days, one wonders to whom they are referring. On a typical Wall Street trading day some 70% of the volume is computer-driven, algorithmic trading.
“”I think that we’re in a late cycle and I think the market can only be termed by the way I look at evolution of market prices as a bear market,’ Gundlach said. ‘The market hasn’t gone anywhere in 15 months.'”
USAGOLD note: Interesting assessment from Mr. Gundlach at one point stating that we are in an “unbelievable twilight zone.” We post this because so many on Wall Street believe that things are going to somehow work out. Here’s a highly-respected someone who says that outcome is unlikely and that instead we are in the early stages of a bear market.
“It was called one of the worst investment decisions of all time. Twenty years ago on Tuesday, then Chancellor of the Exchequer Gordon Brown said he was selling tonnes of Britain’s gold reserves. Trouble was, his timing could barely have been worse. ‘It was the bottom of gold’s two-decade bear market,’ says Adrian Ash, director of research at investment firm BullionVault. Hindsight may be a wonderful thing, but Mr Ash points out there were plenty of people warning against the move at the time – including at the Bank of England.”
USAGOLD note: Also known as “Brown’s Folly”. . . . .This article tells why. Now central banks are net buyers of gold (Over 700 tonnes in the past year) and Britain is suffering the effects of potential severance with the European Union. Wouldn’t it be convenient to have that 400 tonnes safely tucked away in the national treasury as part of the national savings account?
Britain’s Gold Sales ‘a Reckless Act’
(Sir Peter Tapsell’s speech before the House of Commons, June 16, 1999, on the partial sale of United Kingdom’s gold reserves)
We do not update our Gold Classics Library often, but when we do we try to choose items that have a timeless quality. This latest selection certainly meets that standard. It comes to us unexpectedly as a by-product of research for the recently published article, The Power of Gold Diversification, and with the kind permission of the United Kingdom Parliamentary Archives.
Many associate Britain’s sale of nearly 60% of its gold reserves in 1999 with the beginnings of gold’s secular bull market. The government’s rationale for the sale, as explained by then Economic Secretary to the Treasury Patricia Hewitt, was to “achieve a better balance” in its reserves by going to foreign currencies. Sir Peter Tapsell took the opposite tack. “The Chancellor [of the Exchequer] may think that he has discovered a new Labour version of the alchemist’s stone,” he argued, “but his dollars, yen and euros will not always glitter in a storm and they will never be mistaken for gold.”
History’s indisputable verdict is that Tapsell was correct and the British government wrong. The ensuing nearly two decades featured a global financial crisis, low-to-zero-percent interest rates, scrambling central banks, and the consistent depreciation of global currencies against gold. Currencies did not glitter in the storm, and they could not have been mistaken for gold which rose relentlessly from $287 per ounce at the time of his speech to the current price of over $1300 (at one point reaching almost $1900 per ounce in 2011). Though his speech before the House of Commons failed to stop the sales, it goes down as one of the most eloquent appeals ever made on the merits of gold ownership for nation states and individuals alike.
“Volatility markets are signaling elevated risks for equities, flashing a warning sign that portended some of the major market meltdowns in recent memory.”
USAGOLD note: This report goes on to detail how an inversion in the Volatility Index curve in the past has signaled serious problems in the offing. . . .
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Table of Contents
Is Buffett wrong about gold?
“While I very often agree with Warren Buffett’s views regarding, for example, the level of cash in portfolio or migration from growth to value stocks,” says Independent Trader for ETF Trends, “I absolutely can not agree with what he wrote in the letter to shareholders about gold, once again showing how badly it performs in comparison to the US shares.” The article goes on from there to do a good job of debunking Buffett’s latest attack on gold – one of many he has conducted over the years – while drawing on cyclical analysis to lay out a solid longer-term future for the metal. It concludes with the opinion that Buffett’s stance on gold is “part of a deal with the establishment of the United States.”
That could be true, but it could also be little more than an old professional bias on Buffett’s part going back decades combined with a classic talking of one’s book. We counter with a single chart that refutes his arguments at a glance. It tells the story of gold and stocks in the times in which we live – the historically distinct fiat money era that began in 1971 – not some other timeline that carries little relationship to the present. To make a very long story short, gold has appreciated 3,399% since January 1971. Stocks have appreciated 2,884%. What’s more stocks are bumping against all time highs while gold looks like it might be recovering from cyclical lows.
Chart courtesy of MacroTrends
“There’s a silver lining for bears getting destroyed by record U.S. stock prices and the relentless credit boom: Prepping for Armageddon has rarely been so cheap. Just ask Mark Spitznagel, the Miami-based investor whose $4.1 billion black swan fund specializes in hedging against cataclysms on the scale of the dot-com crash and the 2008 financial crisis.”
USAGOLD note: Note no one is saying that a black swan event is no longer a possibility. The gist of this article is rather that the cost of hedging a black swan event with volatility derivatives is now cheaper. There is another form of risk insurance now a bargain table and it is not nearly as complicated to understand and one for which you do not need to pay someone the caliber of Nicholas Taleb to manage it for you. All that is necessary is to order, remit payment, take delivery and store nearby. Once that process is complete, the visitation of a black swan, or even a flock of black swans, becomes condiderably less problematic.
Repost from 4-30-2019
“The central bank’s shift follows an increase in recent weeks in the effective fed funds rate within that band. The benchmark has been above IOER for more than a month and this week crept up to 2.45 percent, fueled in part by rates squeezing higher in other short-term funding markets.”
USAGOLD note: If the Fed is lowering the rate paid on excess reserves, then it is making an attempt to keep the Fed funds rate from rising – a dovish policy stance. The market, it would seem, is inclined to push rates higher. It did not lower rates per se, but it acted to keep them from rising – an interesting distinction.
Repost from 5-1-2019
“But the dollar has been resurgent — thanks, analysts say, to the resiliency of the US economy, still-high interest rates relative to the rest of the world and a scramble by other central banks to match the Fed’s sudden dovishness.”
USAGOLD note: The dollar, to borrow a phrase from former Wyoming senator Alan Simpson, is the healthiest horse in the glue factory. Three top drawer analysts in this excellent overview predict that the dollar will head south as the year progresses. One of them, Commerzbank’s Ulrich Leuchtmann, says “dollar euphoria is excessive.”
Repost from 5-2019
Gold off marginally in early going; study says 20% of wealthy worldwide will increase gold holdings in 2019
(USAGOLD – 5/7/2019) – Gold is off marginally in the early going today as East and West alike await the next turn of the wheel in the trade talk saga. The yellow metal is off $1 at $1282. Silver is down 5¢ at $14.88. While the paper gold market continues to be most influenced by immediate concerns, physical buyers continue to hedge the more protracted scenario – mostly centered around gold’s longer-term role as a hedge against currency debasement within national economies.
In India, where the rupiah has declined almost 45% against the dollar since 2009, investors continue their long history of accumulating gold for asset preservation purposes. “Today,” reports India’s Financial Express, “is Akshay Tritiya, also known as Akha Teej, a Hindu festival which is considered auspicious for buying the yellow metal. The experts are bullish on buying gold today as the investment will fetch good returns from long-term investment point of view.” The Financial Express goes on to say that it has been a good year for the monsoon and that farmers, a traditionally strong market for gold, will begin accumulating the metal from today. Along these lines, it is of particular interest that 20% of the wealthy worldwide intend to increase their gold holdings in 2019, according to a recent report from KnightFrank, the British property consultancy.
Quote of the Day
“Financialization is the smiley-face perversion of Smith’s invisible hand and Schumpeter’s creative destruction. It is a profoundly repressive political equilibrium that masks itself in the common knowledge of ‘yay, capitalism!’. Financialization is a global phenomenon. In China, it’s transmitted through the real estate market. In the US, it’s transmitted through the stock market. Financialization is the zombiefication of an economy and the oligarchification of a society.” – Ben Hunt, Epsilon Theory
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.
“They are snapping up the metal at the fastest rate in almost half a century in a trend that looks set to continue. Over the 12 months through March 31, they purchased a whopping 715.7 metric tons of gold bullion worth around $29.4 billion, according to a recently published report from the industry group World Gold Council.”
USAGOLD note: The gold repatriation movement is part of the same process. Global central banks are hedging their bets and establishing or building a line item on their balance sheet apart from the U.S. dollar and other paper currencies, detached from counter-party risk, and liquid at a moment’s notice anywhere in the world.
Image: Swiss National Bank gold reserves (1975)
“‘We agreed on a number, which was very, very good – $2 trillion for infrastructure. Originally we had started with a lower – even the president was eager to push it up to $2 trillion,’ Schumer said.”
USAGOLD note: The article goes on to state that the program faced “hurdles” in Congress because the players did not address how the program would be funded. We should keep in mind that this $2 trillion expense will be above and beyond what the federal government is already spending.
“Our Fibonacci price modeling system is suggesting an upside price target of $22 per ounce for this move, which breaks the previous July 2016 highs of $21.22. We believe the ultimate upside target of this next bullish move is bear $28 to $29 based on longer-term Fibonacci price modeling.”
USAGOLD note: As we like to mention regularly, when we post an opinion like this it is not necessarily because we endorse it. Rather, we think it worth passing along so that the reader can make his or her own judgement as to its usefulness. We continue to advise ownership of gold and silver for long-term asset preservation purposes rather than as vehicles for speculation.
“Ultra-high net worth individuals (UHNWIs) in India are looking at gold as a viable investment option in 2019, reports suggest. According to a survey conducted by independent global consultancy company Knight Frank, 14 percent Indian UHNWIs are likely to hike their investment in the gold asset class, which is three percent higher than it was in 2018.”
USAGOLD note: The article goes on to note that 20% of the wealthy worldwide intend to increase their gold holdings in 2019.
Will 2019 be the year of the big breakout for gold?
“In each of the last three years, gold has gotten off to a strong start only to fizzle as the year moved along. Will 2019 be the year gold finally breaks the pattern? A good many investors, fund managers and analysts think that 2019 might very well be the year when gold breaks the restraints and pushes to higher ground. One of those is Carter Worth of Cornerstone Macro in New York who CNBC’s Melissa Lee refers to as “the chart master.” In a recent interview with Lee, Worth referred to a rendition of the long-term chart below saying that there is “a well-defined set-up and a lot of tension.” He says that combination is going to resolve to the upside – “a breakout to all-time highs.” With respect to gold’s relationship to the dollar, Worth says “Gold’s got its own momentum now. . .It is all setting-up for higher gold prices and trouble for equities, trouble for the economy.”
Man credited with calling the 2008 crisis says the next 20 years in the stock market will ‘break a lot of hearts’
“Jeremy Grantham, an investor credited with predicting the 2000 and 2008 downturns, told CNBC on Thursday that investors should get inured to lackluster returns in the stock market for the next two decades, after a century of handsome gains. ‘In the last 100 years, we’re used to delivering perhaps 6%,’ but the U.S. market will be delivering real returns of about 2% or 3% on average over next 20 years, the value investor and co-founder of Boston-based asset manager GMO told CNBC in a rare interview.”
USAGOLD note: Grantham, of course, is a Wall Street legend. So his blunt warning is difficult to ignore. When euphoria dominates stock market psychology, the contrarian opinion is heard as a whisper.
Repost from 4-27-2019
“There wasn’t a group of people more wrong about the 2008 financial crisis than those at the Federal Reserve. Mere months before the disaster hit in earnest, the nation’s highest economic and financial officials were vocal that there was nothing to worry about. Most memorable of these are perhaps two comments from former Fed Chairman Ben Bernanke… In January 2008, he said, ‘The Federal Reserve is not currently forecasting a recession.’”
USAGOLD note: With that, Nick Giambruno kicks-off an in-depth tour that comes to some interesting conclusions. About mid-way through, he cites recent statements from Jerome Powell that echo Bernanke’s in 2008 and warns that “we’re near the peak of the largest bubble in human history” – quite a claim when you consider its historic competitors in the league of extraodinary popular delusions.
Repost from 4-30-2019
Fortune/Jeff John Roberts/April 2019
“Unsurprisingly, Grayscale CEO Barry Silbert, whose company will profit if investors ‘drop gold’ for Bitcoin, thinks people will make the leap. In his view, Bitcoin is a superior store of value because—as the commercial suggests—it is a lighter and more practical way to hold a long-term investment. Silbert also believes a generation who grew up with the Internet is less enamored with precious metals.”
USAGOLD note: There is an old Gatorade commercial many of you might remember that centers around the incomparable Michael Jordan. . . “Be like Mike. . . I wanna be like Mike.” That jingle came to mind reading the article linked above. Without going into a lengthy dissertation on the subject, we will simply say that bitcoin will never be like Mike, no matter how much it wants to be. It can buy his shoes, wear his #23 jersey, even shave its head in the same way, but it will never get 50 points in a game, never win six professional championships, never-ever be able to launch a dunk from the foul line – and spending millions on a TV commercial isn’t going to make it so. . . .
[LINK – I wanna be like Mike]
Chart note: The chart on the average annual bitcoin price from 2015 to present speaks volumes. Does this chart represent an asset you would choose as a safe haven and reliable store of value? Compare this four-year history to the 2000-year history of gold as a safe haven under a variety of circumstances – inflation, deflation, hyperinflation, stagflation, disinflation. Bitcoin could have some merit as a speculative investment or even as a facile means of payment, but it has a long way to go before serious money considers it a genuine safe haven – the “go-to player” when the chips are down and the game is on the line. In short, it would like to be like Mike, but it isn’t.
Repost from 5-2-2019
“Xi said China would keep the Chinese currency stable within a reasonable range, but would not engage in any ‘beggar-thy-neighbour’ currency devaluation, one of the criticisms of the US towards China. . .Amid concerns that China had failed to live up to its reform pledges, Xi said, ‘China treasures its promises and commitments with a thousand taels of gold.'”
USAGOLD note: That cryptic reference might have been directed to China’s partners along the New Silk Road, i.e., that China has significant gold on hand to back its promises of aid. Such a commitment will play well in Asia where gold remains a highly-valued measure and symbol of real wealth.
Repost from 5-1-2019
(USAGOLD – 5-6-2019) – Gold at first reacted positively to China trade negotiations breakdown rising in Asian markets as stocks slid. In European trading though it began to turn south as China’s yuan hit the skids and it looked like the dollar would emerge as the early beneficiary in this turn of events. It is now trading at $1279 and level on the day. Silver is down 12¢ at $14.78. We caution that it is early in the day and that it will take some time for the full effects and reactions get sorted out. The Dow Jones Industrial Average is down sharply as this report is posted.
Though the safe-haven trade seems to have migrated to the dollar as an initial reaction, investors in China – including its government, commercial banks and central bank – could become even more aggressive than they are already in buying physical gold bullion as an alternative to the dollar. At the very least, China is likely to continue its policy of shunning U.S. Treasuries’ purchases at a time when the U.S. is issuing debt in unprecedented volumes. In the end, a major breakdown in the trade negotiations between the United States and China could lead to unforeseen consequences for both countries that will play out in the full course of time. . . . . . It is appropriate that we would feature the movement of gold West to East in today’s Chart of the Day.
Quote of the Day
“Most serious accidents have multiple causes. A series of mistakes or pieces of bad luck line up to allow disaster. The Torrey Canyon was hampered by an unforgiving schedule, barely adequate charts, unhelpful winds and currents, confusion over the autopilot, and the unexpected appearance of fishing boats in the intended course. But reading Richard Petrow’s contemporary account of the Torrey Canyon disaster, a clear lesson is that Capt Rugiati was too slow to adjust. He had a plan, and saw far too late that the plan was doomed to failure — and with it, his ship.” – Tim Hartford, Financial Times columnist
Chart of the Day
Chart note: This chart shows the oft-referenced flow of gold west-to-east combined with the growth of internal reserves the result of channeling mine production into central bank holdings. The principal players – China, Russia, Turkey and India – are the beating heart of the global market for physical gold bullion. There is no evidence that there will be a major reversal in this structural pattern in global supply and demand anytime soon. Please take note that the four countries combined monthly demand is now running consistently above global production, as shown on the bottom segment of the chart.
“Wall Street strategists urged calm after the latest threats from President Donald Trump after a series of tweets Sunday afternoon. Trump warned that tariffs on on $200 billion worth of Chinese goods could rise to 25% on Friday and China was considering cancelling this week’s trade talks with the U.S. in light of the threat.”
USAGOLD note: Reading through the reactions from CNBC’s various sources reveals Wall Street in a nervous wait and see mode with little in the way of a concrete opinion as to what might happen next. . . . . . .Most of the statements are speculative and well-hedged.
“Not that the candidates are shedding any tears. A campaign aide for Senator Bernie Sanders — who is running for the Democratic nomination — touted the concerns among investors as a victory that signals growing support for his ideas like Medicare for All. The aide said it shows that investors who didn’t consider Sanders a real threat before now believe he can win.”
USAGOLD note: It is of more than passing interest that the markets are beginning to react to the possibility of a Democratic win in 2020 sooner rather than later. . .The concern is not misplaced. An assortment of polls now show Trump trailing both Biden and Sanders in the upcoming election and by uncomfortable margins.
“In my 30 years of studying Bubbles, a few things have become clear – I would argue indisputable: They always burst. During the Bubble, virtually everyone dismisses Bubble analysis, instead believing the boom is well-founded and sustainable. The pain on the downside is proportional to the excesses during the preceding boom. Tremendous damage is inflicted during the final ‘Terminal Phase’ of excess. There’s no sound reason to believe China has discovered some magic formula for escaping the downside. Rather, there’s every reason these days to contemplate what a bursting Chinese Bubble will mean to China and the rest of the world.”
USAGOLD note: Noland explains how the specter of China haunts the global economy and perhaps Fed monetary policy decisions as well. He also provides his take on what he calls the “transitory histrionics” following the Fed meeting of last week.
“Tsaklanos expects ‘the gold market to build up energy during the summer.’ Any breakthrough, he predicts, ‘is likely going to happen in October or November, and it would pave the way to $1,550.'”
USAGOLD note: There is much on the table with respect to the price of gold, as well as other markets, much requiring a squaring of the books – a coming to terms. Time will tell whether or not that happens before the end of the year, but there are a good many who have come public with the determination that we are now in the calm before the storm.
“The U.S. government will have to stop borrowing money between July and December if Washington doesn’t agree to raise a legal restriction on public debt, the Treasury Department said on Wednesday.”
USAGOLD note: Here we go again. . . . . .And with the level of partisan rancor on the loose in Washington at the present, who knows where we end up this time.
“Having lamented low inflation as one of the great challenges facing central bankers today in March, Jay Powell on Wednesday wrongfooted many investors with comments that seemed to play down the gravity of the problem.”
USAGOLD note: It seems that the complaint from “investors” (as this article refers to the aggrieved parties) was that Powell did not unequivocally verify their market bias – or more accurately provide impetus for profit on their positions. “Powell blindsided us on Wednesday — he upset the entire market view on inflation,” said Tim Duy, at economist at the University of Oregon in the Financial Times article linked above. “[Inflation] outcomes are too low relative to the target, but suddenly they don’t seem to be worried about it. There is something very weird going on.”