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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Specter of Euro crisis could force Federal Reserve to slow rate hike plans

CNBC/Patti Domm/5-29-2018

“‘The chaos in Europe is pushing down U.S. interest rates so money is flowing to the U.S., fleeing Europe, making people think, that [with falling interest rates], coupled with the rising dollar, that the Fed responds by maybe having second thoughts about the trajectory of Fed policy,’ said Marc Chandler, head of foreign exchange strategy at Brown Brothers Harriman. ‘It also is a risk to the real economy because Europe’s a big trading partner.'”

USAGOLD note:  There’s some justification for this thinking.  If the Fed backs off on its interest rate plan, it could ignite a rally in the gold market.  The Fed may have no choice. The situation in Europe, Asia and emerging countries instigated by the strong dollar may need to be addressed before things spin out of control. June will be too early for the Fed to make a move but it could make a reference to the situation in its statement.  Putting rates on hold in September is not out of the question.  Italy’s debt to GDP ratio, by the way, is nearly 132% – a big number and climbing.  Greece, Europe’s bad boy, has a debt to GDP ratio of 176% not too far from the 180% peak that almost sent it over the edge. Germany, the standard for stability in Europe, has a 62% debt to GDP ratio.

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Crisis in emerging countries proves gold, not Bitcoin, is a hedge currency collapse

Seeking Alpha/Austrolib/5-29-2018

“The Turkish lira, Brazilian real, and Argentine peso are all down heavily against the US dollar. Gold priced in these currencies has risen at nearly the same rates as they have collapsed in dollar terms, meaning gold is successfully hedging against currency collapse. Bitcoin priced in these currencies is still falling over the same time frame.”

USAGOLD note:  Imagine yourself in one of these countries facing the reality of a collapsing currency.  Are you really going to choose Bitcoin over gold if it gets down to cases and your wealth is on the line?  Really??

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Soros bets heavy on European financial crisis

Bloomberg/Nishant Kumar/5-29-2018

USAGOLD note:   According to this article, Soros has placed a $256 million bet against stocks “from Stockholm to London.”

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Dow down almost 500 on Italy concerns, volatility spikes

CNBC/Thomas Franck and Alexandra Gibbs/5-29-2018

USAGOLD note:  U.S. banks are taking a hit. . .Volatility Index spikes almost 40%.

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Incrementum: Gold and the turning of the monetary tides

In Gold We Trust – Annual Report

Incrementum/Ronald-Peter Stoferle and Mark J. Valek/5-29-2018

“Overall, 2017 was clearly positive for gold across all major global currencies with the exception of the euro, where it incurred a slight loss of 1%. The average performance in this secular bull market is still impressive. For example, the average annual performance from 2001 to 2018 has been +9.40%. During this period, gold has outperformed practically every other asset class, and in particular every currency, despite intermittent, sometimes substantial corrections.”

USAGOLD note:  We highly recommend Incrementum’s in-depth report on the gold market – its past, present and future.  It encompasses the essential long-term rationale for gold’s continuing presence in the well-structured investment portfolio.  The short version runs 45 pages and the longer version 230 pages (!).  The link above goes to the 45-page version.

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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
Ext#100
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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Turmoil in Italy – Bond selloff triggers global shock waves

Bloomberg/Heather Burke/5-29-2018

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‘Major’ financial crisis is coming – Soros

Zero Hedge/Tyler Durden/5-29-2018

“In a speech delivered Tuesday in Paris, billionaire investor George Soros warned that the world could be on the brink of another devastating financial crisis, as debt crises reemerge in Europe and a strengthening dollar pressures both the US’s emerging- and developed-market rivals.”

USAGOLD note:  Over the past several days, we have voiced similar concerns on these pages. Though Soros concentrates on Europe in the speech ZeroHedge highlights, we should not discount similar cause and effect in Asia.

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Silver and the first chapter in globalization

How silver changed the world

South China Post/Adolfo Arranz/5-28-2018

“It can be argued that when Spain instituted a common currency in the form of the Real de a Ocho, also known as Pieces of Eight, or the Spanish dollar, globalisation’s first chapter had been written. The acceptance of the dollar coins for commercial transactions throughout Asia, the Americas and much of Europe, resulted in a cultural exchange between nations, as well as the relatively free movement of people and goods between the three continents.”

USAGOLD note:  Some interesting history, if you are looking for a bit of diversion. . . . .Silver is not simply and only a commodity metal and it never has been.  It has also been a monetary metal in the past and it remains so today in the minds of many investors around the world. And at the current gold-silver ratio, it is still a worthy consideration for the well-diversified precious metals portfolio.

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Snider: Fed should look at the real economy not its econometric models

Seeking Alpha/Jeffrey Snider/5-25-2018

“[St. Louis Fed’s James Bullard] ‘dovish’ concerns were improperly couched in monetary policy, suspend taper, but ultimately, his view was the correct one – the only member who was even close to getting 2015 right. Unlike what Yellen and the rest were so easily willing to overlook, dramatic market upheaval wasn’t a good sign. QE wasn’t the issue, rather it was the economic outlook, particularly in looming deflationary tendencies, that demanded policymakers reassess the situation.”

USAGOLD note:  As Jeffrey Snider points us in this solid assessment, Bullard’s position is not so much ‘dovish’ as it is ‘cynical’ that inflation hikes are warranted given what is going in the real economy – as opposed to the one structured in the Fed’s econometric models.  Snider says the market indicators “agree with the ‘dovish’ Bullard” or should that read the ‘realistic’ Bullard?

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Charles Schwab CEO says it might be wise to diversify with precious metals

Charles Schwab/Walt Bettinger, CEO/5-11-2018

“Of course, sometimes a negative outlook is justified, which is why it may be wise to diversify with defensive assets, including cash investments (such as certificates of deposit and money market funds), U.S. Treasuries and even precious metals. Such investments may not appreciate as rapidly as stocks during a bull market, but they have historically outperformed during a bear market.”

USAGOLD note:  Who’d a’ thunk?. . . . . .With thanks to John Rubino (Dollar Collapse) for the heads up.  Worth visiting the link for the rest of this short advisory that quotes an interesting statistic of which we were unaware. . . . . .

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Better Business Bureau Five Star Review

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Recent Better Business Bureau Client Review

“When I first became interested in purchasing gold, I merely followed the advertising recommendation of a conservative national personality. This experience was not favorable, as the recommended firm seemed to be just another high pressure marketing boiler room, only interested in making a sale at the highest possible commission. Of course I was disenchanted, and thus lumped (unfairly) all gold brokers into the same category.

A few years later, my interest in purchasing gold overcame my earlier experience and I began seeking a trustworthy firm. As I researched various options, USAGOLD caught my attention. After a few weeks of following their website presence (the Live Daily Newsletter and their weekly video), I began a telephonic dialog with Jonathan Kosares. Recognizing that I was a novice, Jonathan patiently provided general precious metals background and technical information, while also directing me to various educational resources. Since I sought a long term relationship with a stable firm, and because of my earlier experience purchasing gold, my next step was to schedule a personal visit to USAGOLD’s offices in Denver. The meeting at USAGOLD was quite comforting and further instilled a deep sense of trust. . . All that I encountered underscored and reinforced USAGOLD’s unique history and competency with regard to gold and precious metals.

Over the next few months, I engaged in several significant transactions, and all aspects of those transactions could not have been better. I could not have been more pleased with the specific recommendations and pricing, strategies related to IRA/HSA alternatives, balancing exposures to both gold and silver, and the execution of shipping and delivery. I intend to be a lifelong customer, and to this day Jonathan is always available to share his knowledge of precious metals and his perspective on the markets. If you are looking for personal attention from a trustworthy firm that has decades of impeccable history along with a focused depth of expertise, you have found it in USAGOLD.” – R.N., 1/29/2017

Scorecard: 38 45 five star reviews. Zero complaints.
A+ rating. Accredited since 1991.

[Link]

USAGOLD Recommendation: The precious metals industry is unique in the financial industry in that it is not subject to oversight or regulation by third-party government entities like the SEC or CFTC. As such, marketplace forums and feedback sites often serve as a replacement for investors attempting due diligence. While several options can be found, by far the most impartial and least susceptible to vested influence is the Better Business Bureau. When looking at a company’s BBB profile, don’t focus solely on the rating. To be honest, pretty much everybody has an ‘A’ or ‘A+’ rating. What is far more important to assess is the number and nature of complaints, number and caliber of positive and negative reviews, longevity with the BBB, as well as the number of ‘stars’ given a company through the actual customer review system.

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The 2020s might be worst decade in history

Forbes/John Mauldin/5-24-2018

“As this recession unfolds, we will see the Fed and other developed world central banks abandon their plans to reverse QE programs. I think the Federal Reserve’s balance sheet assets could approach $20 trillion later in the next decade. Not a typo—I really mean $20 trillion, roughly five times as much as what we had after 2008.”

USAGOLD note:  Mauldin makes reference to Strauss and Howe’s Fourth Turning in this article and we live day to day the social, economic and political breakdown described in that book.  It is the matrix in which everything else is grown.  We will not get to place where the Fed buys up another $16 trillion in debt without a systemic financial disturbance that will make the 2007-2008 breakdown look like a minor tremor.

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On war, gold, my years in Congress

Mises Institute/Jeff Deist/5-25-2018/Ron Paul Interview

“We had our first [Gold Commission] meeting and it was held in secret and [Donald] Regan was the chairman. He was Treasurer and he said, ‘we have to keep this secret because we don’t want to mess up the gold markets and all.’ And guess who came to our rescue? Several people did, but [syndicated columnist and journalist] Bob Novak did. Novak was a gold guy and he started writing about it and he got enough people to pester them and then they turned the commission’s documents over. Few people in Washington wanted an open discussion.”

USAGOLD note:  Ron Paul reminisces about key figures, his campaigns, Congress  . . . .  an interesting read.

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Mindless robots have taken over the market, says Don Coxe

Financial Sense/Jim Puplava/5-23-2018

“As market pricing becomes increasingly automated, Coxe worries that this threatens to undermine the qualitative individual (human) decision-makers provide in valuing goods and services. ‘What we’re doing once again is preventing the ordinary responses to shocks from functioning,’ Coxe said. ‘Therefore, we’ll get new kinds of shocks.'”

USAGOLD note:  We agree with this sentiment, especially the use of the words “mindless robots” which in our opinion is pretty much telling it like it is. No one knows where we will end up once the holodeck shuts down, but gold – the one investment that remains fully grounded in reality – will likely help us dematerialize in the danger zone and rematerialize safely on the other side.  My worry is that we get one major all-encompassing shock because so many smaller shocks, and their healthy resolution, have been bumped down the road, or better put – ignored – as the machines increasingly behave with a mindlessness of their own.

Related:Biggest, most heavily traded markets vulnerable to flash crashes’ warns Goldman. Also, the last issue of News & Views – The case for gold in the era of financial virtual reality

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Part 4 – ‘American Default: The Untold Story of FDR, the Supreme Court and the Battle over Gold’

Bloomberg/Sebastian Edwards/5-25-2018

USAGOLD note: Roosevelt and Congress devalue the dollar as a means to igniting inflation and reinforce restrictions on American’s ability to own gold bullion.  The Supreme Court nullifies the gold clause.  The United States moves forward in the first stages of establishing a fiat monetary system that comes to full fruition 38 years later under Richard Nixon and makes the private ownership of gold an important option for American citizens.

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Latest special almost sold out. . . .

SOLD OUT!

United States $20 St. Gaudens
1908 ‘No Motto’ Hoard

Just a short note to say that the special launched yesterday is almost sold out – only 20 coins remain.  Buyers are back in the market.  Our last three specials sold out quickly – within a few days. If you have had your eye on this special, you might want to call and secure your order.

1-800-869-5115 Ext#100 or go to our Online Order Desk.

If you are not on our list to receive notification of specials by e-mail and would like to be, please let us know by sending an e-mail to orderdesk@usagold.com.

Many thanks to our participants. . . . .and a pleasant Memorial Day weekend to everyone.

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Gold in the Attic

Every once in a while we rummage around USAGOLD’s creaky old attic and dust-off a golden vignette from our storied past. Here is a more detailed analysis posted here at our live daily newsletter in November, 2015.  This analysis of a hoard of Roman silver coins found in Switzerland 1700 years after they were stashed away tells the familiar tale of a scrupulous saver attempting to hedge the quiet theft of wealth through the process of inflation.  It is titled. . . . .

How 4,000 Roman coins found buried in a
Swiss orchard reinforce gold ownership today

“The coins’ excellent condition indicated that the owner systematically stashed them away shortly after they were made, the archaeologists said. For some reason that person had buried them shortly after 294 and never retrieved them. Some of the coins, made mainly of bronze but with a 5% silver content were buried in small leather pouches. The archaeologists said it was impossible to determine the original value of the money due to rampant inflation at the time, but said they would have been worth at least a year or two of wages.” – The Guardian/11-19-2015

by Michael J. Kosares

I was initially at a loss to explain why anyone would go to so much trouble to hoard so many coins with such a low silver content – about 5%. The only rational explanation is that the hoarder had decided that even worse debasement was on its way. And, a quick review of Roman history tells us that this indeed was the case.

In the next generation of the denarius, issued by Emperor Diocletian, bronze coins were simply dipped in silver and passed into circulation. By 294AD, the latest date in the hoard, Diocletian abandoned silver coinage entirely and began issuing bronze coins instead. Prior to that, prices had risen over a roughly twenty year period by 1000%. Value-conscious barbarian troops hired by the emperors demanded to be paid in gold aureus and for good reason as you will discover below. By the end of the third century, the currency was crumbling and along with it the empire.

For a fascinating short course on the connection between the fall of the Empire and inflation, I would recommend this lecture by professor Joseph Peden in 2009, titled “Inflation and the Fall of the Roman Empire” and published at the Mises Institute. Peden quotes a 5th century account of the Roman inflation by a Christian priest named Salvian. Says Peden,

“Salvian tells us, and I don’t think he’s exaggerating, that one of the reasons why the Roman state collapsed in the 5th century was that the Roman people, the mass of the population, had but one wish after being captured by the barbarians: to never again fall under the rule of the Roman bureaucracy. In other words, the Roman state was the enemy; the barbarians were the liberators. And this undoubtedly was due to the inflation of the 3rd century.”

It is instructive to note that for Rome, as has been the case in a myriad of episodes through history, inflation was not an event but a process. The ancient Roman version unfolded over a more than a 200 year period. “By the time of Trajan in 117 AD,” says Peden, “the denarius was only about 85 percent silver, down from Augustus’s 95 percent. By the age of Marcus Aurelius, in 180, it was down to about 75 percent silver. In Septimius’ time it had dropped to 60 percent, and Caracalla evened it off at 50/50.”

By the end of the third century, as demonstrated by the Swiss find, the denarius had gone to 5% silver, then, as mentioned above, a thin coating of silver, then no silver at all, only bronze. In short, a chart could have been constructed at the time showing an ounce of silver in a steady upward progression in terms of denarii from 117 AD through 300 AD. One wonders if the pundits at the time would have deemed it to have been in a bubble.

About 1200 years later, Thomas Gresham would draft “Gresham’s Law” stated simply as ‘bad money drives out good.’ Had Gresham the opportunity to visit the British Museum and study ancient Roman coinage, he would have found a ready example of his law in action. One expert told The Guardian newspaper that the original owners hoarded the Roman coins found in Switzerland because “the silver contained in them guaranteed a certain value retention in a time of economic uncertainty.”

In ‘The Story of Money for Understanding Economics” researcher Vincent Lannoye tells us that during the Roman inflation, “The less debased gold coins had been stashed under the mattress for decades, maybe centuries. These precious and valuable coins hardly circulated, as it can be deduced from their high concentrations in hoards discovered by archaeologists.” Peden puts a finer point on the role of gold during the Roman inflationary period:

“Now one interesting thing with all this inflation should be a great comfort to us: historians of prices in the Roman Empire have come to the conclusion that despite all of this inflation — or perhaps we should say, because of all of this inflation — the price of gold, in terms of its purchasing power, remained stable from the first through the fourth century. In other words, gold remained, in terms of its purchasing power, a stable value whereas all this other coinage just became increasingly worthless.”

In 1700 years, as you can see in the chart above, not much has changed. Since 1971, when the United States detached the dollar from gold and ushered in the era of fiat money, the dollar has lost 83% of its purchasing power. The 1971 dollar is now worth 17¢. Gold in the meanwhile has risen from $35/oz. then to roughly the $1100 level today (with a stop at $1900/oz in 2011.) Over the long run, gold in the modern era has maintained its purchasing power as it did in Roman times, while the dollar, like the denarius, has been steadily debased. So it is by the circuitous route just taken, you now know why 4000 Roman coins recently found buried in a Swiss orchard reinforce gold ownership today.

Final Note 1: We should not become desensitized to the prospects of future inflation as a result of the lull we have encountered in recent years. Even though price inflation is relatively subdued of late, monetary inflation continues unabated with consequences yet to be determined. In the inflationary process, it should be remembered that the line between cause and effect is not always a straight one. History teaches us that when inflation does arrive, it comes suddenly without notice and with a vengeance.

Final note 2: I should add that at any point along the way in the Roman inflationary period, the hoarder who had stashed away earlier silver coinage would have effectively hedged the event, as this article illustrates. In the modern era, though more volatile than gold, silver has functioned effectively as a safe-haven asset in the portfolio. A chart like the one above could be drawn with silver as the overlay instead of gold.

 

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Turkey’s currency, inflation problems driving up gold coin demand

Bloomberg/Cagan Koc, Rupert Rowling and Eddie van der Walt/5-24-2018

“‘Turkish people have an interesting behavior — they buy gold when the prices are rising, they think it’s gonna rise more,’ said Gokhan Karakan, 32, who runs a gold exchange office in the heart of Istanbul’s Grand Bazaar. ‘People think there is a trend here and choose to buy gold until uncertainty is out of the way.’”

USAGOLD  note:  The rising dollar is putting enormous downward pressure on emerging country currencies, including Turkey’s lira. At the same time, the internal problems created in these countries as a result of that process – the inflation and systemic bank risks – also inspire strong demand for gold coins and bullion. As this Bloomberg article notes, ancient Lydia located in present-day Turkey is where gold coins, like the one shown to the left, were first minted in the sixth century BC.  Croesus, the Lydian king who struck the first gold coin in electrum (an alloy of gold and silver), is the ruler who gave rise to the legend of King Midas and the golden touch.

Photo courtesy of the British Museum, London, UK

 
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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 to 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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China-U.S. trade war timeline offers perspective

tradevistas/Lauren Kyger/5-24-2018

USAGOLD note:  Nice visualization and summary for those who would like to gain a little perspective on what has gone down thus far . . . .

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The Gamble: If gold won’t go up, push the dollar down

Bloomberg/Sebastian Edwards/5-24-2018

USAGOLD note: Part three in this interesting four part series on Roosevelt’s gold gambit.  Secretary of the Treasury Dean Acheson opposes Roosevelt’s plan to his detriment.

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Trump calls off summit meeting with North Korea, extends gold upside

@realDonaldTrump: “Sadly, I was forced to cancel the Summit Meeting in Singapore with Kim Jung Un. “

USAGOLD note:  The cancellation of talks with North Korea added to gold’s upside this morning.

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DMR–Gold higher on cautious Fed, threat of auto tariffs

Gold continued to push higher this morning finding support in overseas markets that carried over to the New York open. The yellow metal is up $4 at $1299.  Silver is up 14¢ at $16.64. May’s Fed minutes has probably been the biggest contributor to the upside. As pointed out in last night’s LATE REPORT, the Fed is signaling a passive policy stance and remaining cautious on rate hikes with a less than clear economic future on the horizon. Gold is also benefiting from having dropped near then bounced off the support trend line – an encouraging technical indicator for traders and speculators. Renewed trade tensions with China – and now  Japan and Europe with the president now threatening automobile import tariffs – are also working in gold’s favor.

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 courtesy of tradingeconomics.com

Chart note:  This chart illustrates how things can swing from placid to nearly out of control in a short period of time.  As you see, for six years between 2008 and 2014, the Argentina peso held relatively steady against the U.S. dollar (right scale).  Then the wheels came off. By 2016 the inflation rate hit over 40% (left scale).  Since then it has retreated to the  25% level, but Argentina remains something of a bellwether for emerging countries around the world facing similar problems of  debt and currency depreciation.  Those who own gold in Argentina and other countries where inflation (and not to speak of systemic risks) has suddenly jumped into the public perception know the value of putting-in the proper hedge ahead of the first signs of crisis.  Few believe that Argentina’s problems will vanish as quickly as they appeared.

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Posted in Today's top gold news and opinion |

Japanese investors once bitten, twice shy on U.S. Treasuries

Bloomberg/Chikako Mogi and Takako Taniguchi/5-24-2018

USAGOLD note:  Some insights as to why Japanese banks are staying away from U.S. Treasuries and even selling . . . .

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Posted in Today's top gold news and opinion |

‘Biggest, most heavily traded markets vulnerable to flash crashes’ warns Goldman

MarketWatch/Barbara Kollmeyer/5-23-2018

“Not a bad time, then, to take a look at whether the market’s itchy finger is jerked by emotion or machines. That’s a point driven home by our call of the day from Goldman Sachs, which says computer-driven trades could amplify the next selloff.”

USAGOLD note:  We have addressed this issue in detail over the years and always come back to the notion that gold and silver remains the best hedge against the potential madness of machines and a derivative-driven financial breakdown.  The reasoning is straightforward: There is no counter-party risk in gold and silver ownership.  Prices might be temporarily driven lower in a paper asset meltdown, but after the smoke clears, it will be one of the only assets – and perhaps the most liquid and acceptable – that can be traded for assets ending up on the bargain table.  For those who would dismiss that perception as wishful thinking, I would only point to the aftermath of the 2008 meltdown as representative. Gold and silver at first fell in value in 2008, then went vertical starting in 2009 after the smoke had cleared substantiating its store of value reputation.

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Posted in Today's top gold news and opinion |

Gold could go above $1600 on peak mine production

NewsMax/Peter Reagan/5-23-2018

“So we aren’t “out” of gold, and likely won’t be for quite some time. But the economically viable gold supply for mining companies might be at its ‘peak.’ The rest may be too expensive to mine (until gold prices skyrocket, that is).”

USAGOLD note:  More from Goldcorp’s Ian Tefler on ‘peak gold’. . . . .

 

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Posted in Today's top gold news and opinion |

DMR Update–Minutes reveal a cautious Fed with a policy more passive in nature that could be good for gold

LATE REPORT

We continue to believe that a Powell-led Fed will stay cautious on raising rates.  The economic outlook is far from clear, though the obvious intent is try to jump-start inflation.  The problem with inflation – as most of the historical examples tell us – is that things can seem very quiet for awhile then get very noisy in a hurry.

With respect to gold, the latest revelations of Fed group think in and of themselves are not likely to send demand on a tear, but it could allow for a steady increase in interest, and perhaps, even price appreciation over time, though I hesitate to say such a thing [smile]. There are, at the same time, a number of other potential incentives for gold to attract investor/speculator interest on a short term basis outside the effects of Fed policy – like the geopolitical situation, for one; bond and stock market concerns for another.

We believe the important point to consider from a gold perspective is that the Fed is flashing all sorts of signals that its policy is going to be more passive in nature. . . . .The markets, including the international gold market, will need to figure out what that might mean. For the owners of physical metal, time is on our side.

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Posted in Today's top gold news and opinion |