Daily Gold Market Report
Gold seesaws quietly in a range ahead of next week’s Fed meeting
New China initiative could deliver a ‘demand shock’ in physical bullion market
(USAGOLD – 6/7/2023) – Gold continued to seesaw quietly in a range as investors took to the sidelines ahead of next week’s Fed meeting. It is down $3 at $1964. Silver is level at $23.67. In an article posted st BarChart, analyst Levi Donohue says the gold market, courtesy of China’s banking system, is about to experience “a demand shock that is not being factored into current gold futures prices.”
Chines banks will make “it easy for millions of existing renminbi bank account holders to convert these cash savings into a deliverable physical silver or physical gold bullion with a click of the mouse from within their banking applications.” He advises Western precious metals investors to “brace for a demand shock in the market which will see premiums on gold bullion bars and coins rise and decouple from the paper gold price. China is betting the prospects of its own citizens on gold and as of yet very few people in the West have noticed.”
Signs of de-dollarisation emerging, Wall Street giant JPMorgan says
Yahoo!Finance-Reuters/Marc Jones/6-5-2023
“JPMorgan’s assessment is the most high profile of any large U.S. bank although heavyweight asset managers such as Goldman Sachs Asset Management have also voiced views on the trend.”
USAGOLD note: These mainstream press articles on de-dollarization inevitably include the caveat that the dollar’s global dominance is not going to happen anytime soon. What they overlook is the damage that can be done on the long road to getting there.
Notable Quotable
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“Perhaps we slow investors should adopt a mascot. I suggest the sloth. Hanging upside-down, moving at a few metres a minute, is much like trading infrequently: it saves the costs of doing things more quickly. Sloths take almost two months fully to digest each meal — which is handy, given that they eat mildly toxic leaves that would poison them if absorbed too quickly. Investors are reminded, all too often, that the financial world is lush with toxic get-rich quick products. A slower approach to finance makes market movements a great deal more digestible.”
Tim Hartford
Financial Times/The Undercover Economist
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US banks prepare for losses in rush for commercial property exit
Financial Times/Stephen Gandel, Joshua Chaffin and Eric Platt and Joshua Oliver/6-5-2023
“Some US banks are preparing to sell off property loans at a discount even when borrowers are up to date on repayments, a sign of their determination to reduce exposure to the teetering commercial real estate market.”
USAGOLD note: Something wicked this way comes…… And the banks see the signs.
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Ex-Treasury chief Larry Summers says the Fed should consider a big bump in interest rates
MarketsInsider/Zahra Tayeb/6-6-2023
“Hiking interest rates by 50 basis points in July should be an option on the table at the Federal Reserve, even if it pauses its tightening campaign at its meeting this month, according to former Treasury Secretary Larry Summers.”
USAGOLD note: Appears Mr. Summers, still echoing Paul Volcker, sees inflation as much more resilient than either the Fed or Wall Street.
Why the Fed is hard to predict
Project Syndicate/Mohamed A. El-Erian/5-30-2023
“The real reason that we have so much policy confusion is that the Fed is relying on an inappropriate policy framework and an outdated inflation target. Both of these problems have been compounded by a raft of errors (in analysis, forecasting, communication, policy measures, regulation, and supervision) over the past two years.”
USAGOLD note: El Erian says that no one knows what is going to happen at it June meeting – not even the Fed itself. It lacks, he says, “a solid strategic foundation.” Our interpretation? It bends with the wind and has become vulnerable to political pressure, it is unpredictable and not the kind of Fed Wall Street is likely to find reassuring.
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Gold in six easy lessons
1. Don’t buy it because you need to make money; buy it to protect the money you already have.
2. Don’t look at price as a barrier; look at it as an incentive.
3. Don’t buy the paper pretenders; buy the real thing in the form of coins and bullion.
4. Don’t fall prey to glitzy TV ads; do your due diligence instead.
5. Don’t allow naysayers to divert your interest; allow yourself the right to protect your interests as you see fit.
6. Don’t forget the golden rule: Those who own the gold make the rules!
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Fred Hickey: ‘Long term, conditions are perfect for gold to go to record high’
theMarketNZZ/Interview of Fred Hickey by Christoph Gisiger/5-26-2023
“Even the central bank of Singapore, which is friendly to the US, bought 70 tons in the first three months. This buying activity from eastern countries has lifted gold to the current level close to $2000 per ounce. And that’s even without the participation of western institutions who have very low positions right now. But it’s those western institutions that will propel gold to new record highs once they come into the market.”
USAGOLD note: Hickey says “gold does best when stocks are going down.” He adds that stocks are being held up by “this FOMO move” in tech stocks but it will eventually end.
Elon Musk warns house prices are set to plunge – and says commercial real estate is in meltdown
MarketsInsider/Zahra Tayeb/5-30-2023
“Elon Musk is once again ringing the alarm on the US real estate sector. ‘Commercial real estate is melting down fast. Home values next,’ the Tesla and SpaceX chief tweeted on Monday. The tech billionaire made the comment in response to a tweet by Craft Ventures founder David Sacks, who pointed out a big chunk of commercial real estate debt is due to mature soon.”
USAGOLD note: There will be repercussions…… in the banking sector and the overall economy. Let’s hope they are not major.
Unruly politicians and unchecked spending risk US debt catastrophe
Financial Times/Michael Strain/5-26-2023
“The nation has arrived at the brink of disaster because of a collision of structural problems in the economy and political system. A deal to increase the debt ceiling and cut certain categories of federal spending would fix the immediate crisis, but would not address these festering problems.”
USAGOLD note: The real debt crisis……The problem of too much debt and its future growth overshadows any debt ceiling arrangement the politicians might stitch together now. Michael Strain is the American Enterprise Institute’s director of economic policy studies.
Sources: St. Louis Federal Reserve [FRED], US Department of the Treasury, Fiscal Service
Short and Sweet
The next great monetary experiment
Daily Reckoning’s Brian Maher warns of the potential consequences of modern monetary theory. “This MMT sounds like a recipe for immense inflation, even hyperinflation,” he says. “You are spending all this money directly into the economy. It will drive consumer prices through the attic roof, you say. This is crackpot. A witch’s sabbath of inflation would surely result. Yes, but here the MMT crowd meets you head on… They agree with you. They agree MMT could cause a general inflation, possibly even a hyperinflation.” [Link to full article]
Modern Monetary Theory (MMT), we would add to Maher’s observation, is neither modern nor a theory. John Law, the Scottish financier, tried a version of it almost exactly 300 years ago (1717-18) in France.* He did so with the blessing of the French monarchy and with a rationale very similar to MMT’s proponents today. MMT entails, simply put, a federal government fiscal policy without spending limits coupled with the power to print whatever money is required to finance any deficits. In the end, Law’s theories (to his surprise if we are to believe the historical account) bankrupted the French people and the government, reduced the economy to ashes, and created such a distaste for paper scrip among the citizenry that it took 80 years for France to reintroduce paper money as a circulating medium.
In The Story of the Greatest Nations (1900), Edward S Ellis and Charles F. Home tell of the public mania that engulfed the French people and led to ultimate financial ruin for thousands:
“The shrewder speculators* became alarmed. They began to sell their shares of stock, and hoard in gold the enormous wealth they had acquired. This resulted in a demand on the government for metal in exchange for its paper, and soon the government had no metal to give. Then the crash came. Those who had the government paper could buy nothing with it. Those who held the Mississippi stock could scarce give it away. It was worthless. The government itself refused to accept its own paper for taxes. A few lucky speculators had made vast fortunes; but thousands of families, especially among the wealthier classes, were ruined.”
That snippet provides a hint as to the steps taken by those who survived Law’s version of modern monetary theory. For those to whom all of this has a distinct ring of familiarity, perhaps a judicious hedge makes some sense. A number of analysts have made the argument that we do not have to wait for the formal launch of modern monetary theory. It is already here.
* Please see this link for a summary of Law’s Mississippi Company land scheme.
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The end of King Dollar? The forces at play in de-dollarisation
Yahoo!Finance-Reuters/Naomi Rovnick and Libby George/5-25-2023
“Rivalry with China, fallout from Russia’s war in Ukraine and wrangling once again in Washington over the U.S. debt ceiling have put the dollar’s status as the world’s dominant currency under fresh scrutiny.”
USAGOLD note: Though the dollar is likely to remain the currency of choice in international transactions, its status as a reserve holding is in decline. Gold could be among the long-term beneficiaries if the trend continues. In fact, central bank gold demand set a record in 2022 and continues at a record pace in 2023. Reuters says “mushrooming alternatives could create a multipolar world.”
Daily Gold Market Report
Gold marginally higher as investors remain wary of inconclusive outlook
$1.1 trillion+ Treasury debt release muddies financial outlook
(USAGOLD – 6-6-2023) – Gold is marginally higher in early trading as investors remain wary of an inconclusive economic and financial picture. It is up $2.50 at $1966.50. Silver is up 11¢ at $23.71. One of the components of that muddied outlook is the $1 trillion+ tsunami of federal borrowing the Treasury Department is expected to unleash by the end of August. Many Wall Streeters are worried about the threat it imposes on the financial system. “This is a very big liquidity drain,” JP Morgan’s Nikolaos Panigirtzoglou told Bloomberg. “We have rarely seen something like that. It’s only in severe crashes like the Lehman crisis where you see something like that contraction.”
“Since the early 1970s, the logic for gold ownership has been inextricably bound to the cash flow problems of the federal government. As the national debt increased so did the well-documented damage associated with it – to the dollar, to financial markets and to the economy in general. Simultaneously, gold’s role as an inversely correlated portfolio hedge grew over that nearly one-half century as well.” – The National Debt and Gold: Here’s why the two have risen together since the 1970s and why the correlation is likely to continue
Cartoon courtesy of MichaelPRamirez.com
Fed chair spoke with UBS CEO amid banking crisis
“Powell’s calendar shows the abruptness with which the banking sector problems — which have since triggered three U.S. bank failures in addition to the UBS-Credit Suisse deal — erupted nearly three months ago.”
USAGOLD note: Investors worry about a black swan event, but what we have had thus far is a cluster of gray swans – abrupt but predictable mini-crises instigated primarily by highly publicized but poorly understood central bank policies. Nevertheless, collectively they have taken their toll and uncovered vulnerabilities that may yet instigate the next black swan. Mark Spitznagel, who with Nicholas Taleb (originator of the term “black swans.”) conducts business as Universa Investments, says that decades of easy money is leading to a “mega-tinderbox time bomb” in the financial system. “He just doesn’t know when the bomb will go off, ” according to a Wall Street Journal article published last weekend.
Notable Quotable
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“I’m no insect. Gold is a great way to make a lot of money.”
Thomas Kaplan
Electrum Group
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Fed poised for another big policy mistake?
Credit Bubble Bulletin/Doug Noland/6-2-2023
Selected quotes from Friday’s report:
“It’s not a close call. If the Fed “Skips” policy tightening at the June 14th FOMC meeting, it will be yet another big policy mistake. The long string of errors has greatly damaged the Federal Reserve’s inflation-fighting credibility. It has also promoted dangerously dysfunctional market structure. At this point, the Fed should err on the side of demonstrating resolve in reining in inflationary excesses.”
. . . . . . . . . . . . . .
“Financial markets are also poised to sustain inflationary pressures. Resurgent Bubble Dynamics have fueled a major loosening of financial conditions. Surveys and anecdotes point to a degree of bank lending tightening. But this has been more than offset by risk embracement, leveraged speculation, and liquidity excess throughout the financial markets.”
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“Basically, the Fed/GSE liquidity backstop was integral to the pricing and liquidity dynamics that made derivatives so appealing for both hedging and speculating. And the bigger this complex became – and the more critical to the markets and economy – the more the Fed was compelled to quickly intervene to stabilize markets. Last year’s heightened concerns that the unfolding tightening cycle created ambiguity with respect to the Fed’s liquidity backstop were allayed by the Bank of England’s September and the Federal Reserve’s March interventions.”
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Jim Rogers predicts worst bear market of his life, de-dollarization, and higher interest rates.
MarketsInsider/Theron Mohamed/5-29-2023
“You should be extremely worried. If you’re not, you don’t know what’s going on. Many countries are starting to look for alternatives to the US dollar, partly because of its horrendous debt problem. I’m looking every day, because I know that something bad is going to happen in the currency markets in the next two or three years.” – Jim Rogers
USAGOLD note: Rogers says the world has never seen the debt and money printing it has in the last few years. “There will be trouble in all markets,” he adds.
Traders are duped by bear market rally, Morgan Stanley’s Wilson says
Bloomberg/Alexandra Semenova/5-26-2023
“We would characterize this as the bear market is continuing, This is what bear markets do: they’re designed to fool you, confuse you, make you do things you don’t want to do, chase things at the wrong time and probably sell them at the wrong time.” – Mike Wilson, Morgan Stanley chief US equity strategist
USAGOLD note: As Richard Russell (deceased but not forgotten) once put it “bear markets are sneaky beasts and they like to do their damage as secretly and as unobtrusively as possible. I hate to say it but somewhere ahead, the bears going to get it all together and the innocent little stream is going to turn into a waterfall. What can you do about it? Stay out of the market? Protect yourself by remaining in pure wealth, gold.”