Real yields drop to record low, investors lap up inflation debt
Yahoo!Finance-Bloomberg/James Hirai and William Shaw/7-26-2021
“The real yield on 10-year Treasuries fell to a record low as concerns mounted over the outlook for economic growth even as investor flows fueled appetite for inflation-linked debt.”
USAGOLD note: If the Fed continues to hold rates in the current range and inflation continues to ratchet higher, the real yield will move further into the negative, a situation that has encouraged gold demand in past cycles, just as it is encouraging demand for TIPS now.
Stanley Druckenmiller: ‘This Is the biggest bubble I’ve seen In my career’
MSNBC-YouTube/Interview of Stanley Druckenmiller by Stephanie Ruhle/7-23-2021
“If I was Darth Vader and I wanted to destroy the US economy, I would do aggressive spending in the middle of an already hot economy. You usually get a bubble out of that, and you get inflation of that. Frankly, we now have both. This is the biggest bubble I’ve seen in my career. … What are we going to get out of this? You’re going to get a sugar high, the higher inflation, then an economic bust.”
USAGOLD note: By passing a $3.5 trillion infrastructure bill, Druckenmiller thinks the government will throw fuel on the inflationary fire that could consume both Wall Street (in the form of a burst financial bubble) and Main Street (in the form of runaway inflation.)
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McConnell sends warning shot across Democrats’ bow on debt ceiling
PunchbowlNews/John Bresnahan, Anna Palmer and Jake Sherman
Repost from 7-23-2021
“Senate Minority Leader Mitch McConnell is taking a very hard line on the debt ceiling. His message — if Senate Democrats want to raise the debt ceiling, they’re going to have to do it themselves because no Republicans will vote for it in the current ‘environment’ on Capitol Hill.”
USAGOLD note: Though somehow, someway Congress always gets the debt ceiling passed, this time around things could get dicey given the extraordinary level of government spending over the past 18 months. The Republicans appear to be intent on sending a message to the Biden administration. “I can’t imagine a single Republican in this environment that we’re in now,” says McConnell in a strongly worded statement, “– this free-for-all for taxes and spending — to vote to raise the debt limit.” Back in 2011, when the debt ceiling became a major point of contention in Congress, Standard & Poor’s downgraded the U.S. credit rating from AAA to AA+. A similar event could generate an earthquake in the already shaky bond market.
Pension funds intend to increase gold holdings in coming year – survey
Repost from 7-22-2021
“Gold is an increasingly important asset for European pension funds, with new research showing many funds intend to increase their holdings of the yellow metal in the coming months.”
USAGOLD note: There was a time, not that long ago, when investing in gold would have been unheard of among pension fund managers. Now, 73% say “it offers increasingly attractive diversification benefits.” Pension funds globally, we will add, have considerable assets to hedge – over $50 trillion (2019), according to Statista.
Total assets of pension funds worldwide
(trillions of dollars)
Chart courtesy of Statista.com
They don’t hate gold because it’s gold. They hate it because it’s not government money.
Mises Institute/Ludwig von Mises
Repost from 6-8-2021
“The struggle against gold, which is one of the main concerns of all contemporary governments, must not be looked upon as an isolated phenomenon. It is but one item in the gigantic process of destruction that is the mark of our time. People fight the gold standard because they want to substitute national autarky for free trade, war for peace, totalitarian government omnipotence for liberty.”
USAGOLD note: This article is excerpted from von Mises’ Human Action published in 1949. It is a refutation of John Maynard Keynes’ reference to the gold standard in 1944 as a “barbarous relic” and one of the most concise, realistic and principled available even now over seventy years later. It is unlikely we will ever go back to the gold standard. Such is the stuff of dreams, but if we have learned anything at all during the last fifty years of the fiat money system, it is that gold has proven to be an adequate and reliable hedge against its excesses.
Yellen says its OK if Biden $4 trillion stimulus triggers inflation and higher rates
Repost from 6-7-2021
“‘We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,’ she said. ‘We want them to go back to’ a normal environment, ‘and if this helps a little bit to alleviate things then that’s not a bad thing — that’s a good thing.’”
USAGOLD note: The Biden administration and the Fed want a new “new normal” that is an upgrade from the old new normal which was actually secular stagnation. At no time, though, did she mention allowing the real rate of return to go positive or that the Fed would quit printing money being applied to the federal government’s financing needs. With the statement, Yellen identifies the elephant in the room – the Japanification of the United States.
President Biden pushes more spending to boost economic recovery
Repost from 7-22-2021
“The president argued the nearly $1 trillion bipartisan infrastructure bill and Democrats’ more than $3 trillion human infrastructure plan will drive down prices and bring more Americans back to work.”
USAGOLD note: As we have said so often in the past, few on Wall Street will quarrel with the print and spend policies of the Biden administration given the situation in which we find ourselves. At the same time, those in the know are moving to protect themselves from its consequences, both intended and unintended.
Short and Sweet
Is the dollar the Humpty Dumpty of the global monetary system?
The dollar at the moment is something of a Humpty Dumpty in the global monetary system – sitting on his wall oblivious and seemingly immune to all that goes on around him. Whether or not there will someday be a Great Fall remains to be seen, but increasingly forces are lining up against it. Over the past few years, we have seen protracted movement among various central banks out of the dollar and into gold and other currencies. Though the dollar remains something of a Humpty Dumpty oblivious to all that goes on around him, a good many analysts believe it is poised for a major decline.
It is with that in mind that we took an interest in a Bloomberg report posted recently that “[g]old stored at the Bank of England has been selling for unusually high premiums recently, signaling that central banks may be back in the market buying.” The report goes on to say that the reason for the burgeoning gold demand from central banks is “to diversify their portfolios away from the U.S. dollar to safeguard their finances amid concerns over the Fed’s ultra-loose monetary policy, massive U.S. government spending and inflationary pressures.”
We see that as a rational response to current economic circumstances and a way of taking advantage of the dollar’s current strength to load up on gold. For example, Brazil, the world’s ninth-largest economy, recently reported a hefty 42-tonne purchase of gold to shore up its central bank reserves. Poland has announced its intent to add another 100-tonnes to its coffers in the months ahead. And those are only two in an expanding list of central banks in the market to buy gold. We hasten to add that it is not just the United States that is in the business of debasing its currency, but most, if not all, of the states issuing internationally traded currencies.
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Gold steady ahead of Fed meeting results and press conference
Greenlight’s Einhorn sees gold gaining as Fed stays behind the inflation curve
(USAGOLD – 7/28/2021) – Gold is steady ahead of today’s Fed meeting results and Chairman Powell’s press conference. With both bond yields and the dollar gaining ground, Wall Street, it seems, anticipates a slightly hawkish result. The yellow metal is level at $1800. Silver is attempting to regain its footing after yesterday’s steep decline. It is up 7¢ at $24.82. Though most of Wall Street, as reflected in recent financial market pricing, buys into the Fed’s assessment that inflation is a temporary problem, Greenlight Capital’s David Einhorn sees things much differently.
“Chairman Powell,” he says in his quarterly client letter released Monday, “is committed to remaining very accommodative for a long time and then only gradually tightening. We believe he will find whatever excuse he needs to do so, no matter what the data shows. The result, we believe, is that inflation won’t be aggressively addressed. So, the risk is to the upside. In our macro book, we hold inflation swaps and gold. The former will benefit from reported inflation being higher than the market expects. The latter should benefit as the market realizes the Fed is behind the curve and has no plans to catch up.”
Chart of the Day
Chart courtesy of GoldChartsRUs.com • • • Click to enlarge
Chart note: Since the 2000s, there has been a strong relationship between growing gold ETF stockpiles and the price of gold. The reduction in holdings over the past 18 months reflects declining interest on the part of institutional investors. Some analysts believe institutional and fund participation in the gold market could turn quickly should inflation prove to be persistent or id some other economic and/or financial market uncertainty surfaces.
Hawks vs doves: US Federal Reserve divided over when to dial back economic support
Financial Times/Colby Smith and James Politi/7-26-2021
“Jay Powell, the chair of the Federal Reserve, is facing a growing rift among top officials at the US central bank over when to start withdrawing the huge injection of monetary stimulus that was deployed at the onset of the pandemic.”
USAGOLD note: For those seeking clarity on where individual members of the FOMC now stand on tapering and rates, this article offers a full rundown and is well worth a read at the link. It identifies the hawks, doves and centrists and where Fed leadership itself stands at this time. We should know more about the outcome this afternoon, but few are expecting any major surprises despite the rise of inflation and Delta variant cases.
Notable Quotable
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“Cash over the long run is the worst-performing asset class and therefore the riskiest asset class. So where do you go? To me, going to any one asset increases risk. So the best way to deal with the challenging environment I foresee is by diversifying well. . . [G]old is just an alternative currency to fiat paper currencies. If your portfolio is likely to perform poorly in the adverse environment I’ve been describing – less effective monetary policy, the need to run larger fiscal deficits and monetize them, and challenging politics – the behavior of gold as alternative cash has some diversifying merit.”
Ray Dalio
Bridgewater Associates
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China’s net gold imports via Hong Kong rebound in June
Reuters/Brijesh Patel/7-26-2021
USAGOLD note: Reuters reports a hefty 42% increase in China gold imports through Hong Kong in June. MKS’ Bernard Sin reports “good buying interest” from bargain hunters taking advantage of lower prices. The East buys gold on weakness. The West buys it on strength.
Investing in gold during uncertain times
Fidelity International/Grahm Smith/7-23-2021
“In the current environment of rising inflation, however, the link between gold and inflation may well become more pronounced.”
USAGOLD note: We referenced this analysis in yesterday’s Daily Market Report and repost it here for those who may have missed it. It is not simply what is said, though it is pertinent, but who is saying it. Fidelity International is the overseas arm of Boston-based Fidelity Investments – one of the largest financial firms in the world. It believes gold is on track “to rescale the record high levels it saw last July at just over $2,000.”
The dearth of safe-assets era is over
Bloomberg/Allison Schrager/7-26-2021
“The safe-asset shortage is over. Should we worry?”
USAGOLD note: The short answer is “Yes. We should worry.” Why? Because the federal government is producing debt at an unprecedented scale at a time when demand is likely to diminish due to corrosive effects of inflation. In many ways, Schrager states the obvious, but for some, the ongoing bond glut will come as a revelation.
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Opinion: Money printing is a flawed experiment that’s done America more harm than good
Repost from 7-21-2021
“Investors are captive to Modern Monetary Theory (MMT) and its convenient non-answers to the vexed issues of economic stagnation, unsustainable public finances and debt. People’s savings are underwritten by high asset prices, courtesy of this novel brand of economics.”
USAGOLD note: According to Modern Monetary Theory, governments cannot go bankrupt because they can print money. At the same time, when money printing leads to inflation, it is the citizenry that is harmed. “By a continuing process of inflation,” wrote John Maynard Keynes in The Economic Consequences of Peace (1919), “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.” Mr. Das article is highly recommended.
Coming to a grocery store near you: The 2021 price shock
Bloomberg/Megan Durisin and Deirdre Hipwell
Repost from 4-25-2021
“This week, the Bloomberg Agriculture Spot Index — which tracks key farm products — surged the most in almost nine years, driven by a rally in crop futures. With global food prices already at the highest since mid-2014, this latest jump is being closely watched because staple crops are a ubiquitous influence on grocery shelves — from bread and pizza dough to meat and even soda.”
USAGOLD note: If true, it could be the first rumblings of inflation hitting Main Street …… The Fed’s 2% line in the sand could go vertical quickly and without warning.
‘Confusion and disorientation’ driving ‘crazy’ moves in the market, Mark Mobius says
Repost from 6-10-2021
“Any pullback in the money supply as a result of central banks pulling back will be, I think, very bad for the markets. So I think we have to watch this very carefully. We’re in a very uncertain time, that’s for sure.” – Mark Mobius
USAGOLD note: Mobius has recommended gold ownership in the recent past as a refuge in times of uncertainty.
Brazilian central bank buys 41.8 tonnes of gold to bolster reserves
Repost from 7-21-2021
“After years without substantially changing the amount of gold in its international asset reserves, the Brazilian Central Bank headed by Roberto Campos Neto bought 41.8 tons of the metal in June.”
USAGOLD note: The trend of aggressive central bank gold buying continues……It would be interesting to know if the metal was purchased in the open market or by private arrangement.