Everything is collapsing at once – here’s what to do about it

MoneyWeek/Merryn Somerset Webb/5-23-2022

“I’m not often glad I am no longer the young person in the room, but this month I am. If you have only been knocking around in markets for, say, 15 years, you are seeing the collapse of everything that you have been told is true and have observed to be true about markets.”

USAGOLD note: As the new verities fall one after the other and Somerset Webb returns to an old verity saying that what is new to most market participants is actually old and a return to the 1970s. “With that in mind, ” she says, “hold gold.” But that is the bottom line in a very interesting longer analysis of the economic times at the link. The Misery Index – the combination of inflation and unemployment – became the poster child of the stagflationary 1970s.  As it rose, so did the price of gold, as shown in the chart below.

The Misery Index and the price of gold
(% change from year ago,1970s)
overlay chart showing gold and the misery index 1970-1980
Sources: St. Louis Federal Reserve [FRED], ICE Benchmark Administration, Bureau of Labor Statistics

 

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A stocks rescue is the last thing the Fed wants

Bloomberg/John Authers/5-20-2022

antique etching of a fool cracking the whip for a dancing bear“It’s very unlikely that the Fed will blink this time.… It needs share prices to fall enough to influence behavior, which means that policymakers need this to turn into a true bear market, and not like one of the 20%-ish declines that were followed by rescues and resumed exuberance. It needs to avoid disorderly conditions that could create systemic problems, and a serious crash that would drive a recession.”

USAGOLD note: The difficulty comes in controlling a panic once it begins, particularly if the Fed’s stated intention is to stand aside. Authers cites the comment from Kansas City Fed President Esther George: “I think what we are looking for is the transmission of our policy through markets understanding, and that tightening should be expected. It is one of the avenues through which tighter financial conditions will emerge.” If that is the consensus view at the Fed, it might end up with more than it bargained for. Wall Street’s memory is notoriously short, but some will remember that the Fed’s tightening into a slowdown in the late 1920s instigated the crash of 1929 and the subsequent full-scale depression.

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Thinking about buying gold and silver?


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!


Thinking gold is the right move for your portfolio?

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We are helpless in face of inflation, claims Bank of England Governor

The Daily Telegraph/James Warrington and Giulia Bottaro/5-16-2022

“Appearing in front of MPs this afternoon, Andrew Bailey admitted he’d felt helpless to control soaring prices amid an energy market shock and the war in Ukraine, adding: ‘It’s a very, very difficult place for us to be in.'”

USAGOLD note: Has Andrew Baily just framed the new central bank conundrum? Unlike the Fed, the Bank of England, he says, will not sell government bonds from its asset portfolio in times of turmoil. One might ascertain from that, it would likely even buy more if circumstances necessitated it. The Telegraph article goes on to describe British inflation as “runaway.” We would venture a guess that such thinking stands a very good chance of making its way across the Big Pond before too long.

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Investors withdraw over $7 billion from tether, raising fresh fears about stablecoin’s backing

CNBC/Ryan Browne/5-17/2022

“Investors have withdrawn more than $7 billion from tether since it briefly dropped from its dollar peg, raising fresh questions about the reserves underpinning the world’s largest stablecoin. Tether’s circulating supply has slipped from about $83 billion a week ago to less than $76 billion on Tuesday, according to data from CoinGecko.”

USAGOLD note: It has been said that if tether goes, so will the whole of the crypto superstructure. Will the buck be broken? Judging from the withdrawals, it looks like it is going to be tested. Per this report tether tokens are backed one to one by a pool of cash ($4.2 billion), Treasuries ($12.3 billion), and commercial paper ($24.2 billion). Last July, the company told CNBC it would produce an audit in a matter of months. It has yet to do so.

line chart showing tether token in dollars
Chart courtesy of TradingEconomics.com

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Goldman Sachs’ former CEO says there’s a ‘very, very high risk’ of recession for the US economy and companies and consumers should prepare

MarketsInsider/Hamza Fareed Malik/5-16-2022

cartoon showing cowboy riding snail shouting yeehaw“If I were running a big company, I’d be very prepared for it. If I was a consumer I’d be prepared for it.” – Lloyd Blankfein, Goldman Sachs

USAGOLD note: The only way to prepare for a recession is to act as if you are already in the middle of it – cut back on spending, lay off staff, reduce debt, etc. At the same time, Along with a recession, Blankfein foresees inflation persisting. In short, it appears Blankfein has grabbed a seat on the stagflation bandwagon.
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Short and Sweet
Inflation is a process not an event
But history, as we are learning now, shows runaway inflation can come suddenly and without warning

graphic image showing decline of the denarius over 200 y ears

Image courtesy of Visual Capitalist • • • Click to enlarge

We sometimes forget that inflation is a process rather than an event. One of the better-known examples of that axiom is the nearly two centuries-long debasement of Rome’s silver denarius. The Roman citizen who had the wisdom to hedge that process by going to gold at nearly any point along the way ended up preserving some portion, if not all, of his or her wealth. Those who did not suffered its debilitating effects. In the inflationary process, the line between cause and effect is not always a straight one, and its timing difficult to discern. History teaches us, though, that when runaway inflation does arrive, it comes suddenly, without notice, and with a vengeance. That is why it pays to view gold as a permanent and constantly maintained aspect of the investment portfolio. “A change of fortune,” Ben Franklin tells us, “hurts a wise Man no more than a change of the Moon.”
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(Related please see:  News & Views Special Report / March 2020 / Hedging the decline and fall of a currency – The baseline case for gold hasn’t changed much in 1700 years)

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Looking to prepare your portfolio for whatever uncertainty lies ahead

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Crises of growth, energy, food and debt all at once is a nightmare scenario

Financial News/Mohamed A. El Erian/5-15-2022

cartoon image of an investor experiencing headline shock“Big shocks to the global economy, such as Russia’s invasion of Ukraine, understandably capture the most attention. But a new worldwide pattern of little fires everywhere may be equally consequential for longer-term economic well-being. Over time, these small fires can coalesce into one that is just as threatening as the initial large fire that acted as the catalyst.

USAGOLD note: Remember nuclear proliferation? Now, according to El Erian, we have nothing less than systemic risk proliferation coming at us from multiple directions. “If that nightmare scenario materialises,” he warns referencing the risks listed in the headline, “the effects will be felt far beyond individual developing countries – and will extend well beyond economics and finance.” As we pointed out in the May issue of News & Views, today’s headlines serve as a constant reminder of why we own gold.

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Gold advances incrementally on Lagarde pivot
Commerzbank says selling pressure on gold in the futures market seems to have abated

(USAGOLD – 5/24/2022) – Gold advanced incrementally again this morning as the dollar weakened further against its rivals and global stock markets continued to respond to inflation’s ill effects. “The US dollar might just have peaked,” writes Bloomberg’s John Authers in his regular column overnight, “and if it has then a blog post by Christine Lagarde has a lot to do with it.” With the euro playing such an outsized role in the US dollar index, the ECB president’s seeming pivot to a more hawkish stance makes a significant difference. Gold is up $6 at $1862. Silver is up 15¢ at $22.03. As a matter of perspective, gold is up $60 over the past ten days; silver is up almost $1.50.

Germany’s Commerzbank reports that the selling pressure on gold seems to have waned and that it is “apparently finding favor among ETF investors again.” According to the CFTC’s statistics,” it says in an update released overnight, “speculative financial investors had withdrawn further in the week to 17 May, reducing their net long positions to their lowest level since last September. In our view, however, this should now have adjusted the market, meaning that the selling pressure generated by this group of investors should have abated significantly.” (For more, please see Hickey sees managed money report as ‘extremely bullish’ for gold.)

Euro/dollar
(Five day)
line chart showing euro gains against dollar past five days

Chart courtesy of TradingView.com

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Posted in Daily Market Report, dailyquotes, Today's top gold news and opinion |

Hickey sees managed money report as ‘extremely bullish’ for gold

Fred Hickey/The High-Tech Strategist/5-20-2022

“Today’s COT report for gold (as of Tuesday) is extremely bullish. Managed Money (mostly hedge funds) net long futures contracts plunged 30% on the week to a net 43,360 contracts, the lowest level of the year and below late January’s level, just before gold soared $260/oz to a near-record high. Managed Money almost always has its lowest net long futures contracts at gold bottoms and largest net long positions at tops. The 43.4K net long contracts this week is just slightly higher than the lows seen around early August and late-September of last year when gold was trading sub-$1750.”

USAGOLD note: In the chart below, you can see managed money position bottoms signaling gold price uptrends, as Hickey indicates.

Gold future and options fund net positions vs price
(Managed Money)
9overlay line chart showing the price of gold and net trader positions based on COT report
Chart courtesy of MacroMicro.com

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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

October 2019

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Bitcoin could fall to $8,000, a more than 70% plunge, Guggenheim’s Minerd says

CNBC/Lauren Feiner and Arjun Kharpal/5-23-2022

graphic image of a melting bitcoin“‘When you break below 30,000 [dollars] consistently, 8,000 [dollars] is the ultimate bottom, so I think we have a lot more room to the downside, especially with the Fed being restrictive,’ Minerd told CNBC’s Andrew Ross Sorkin in a ‘Squawk Box’ interview at the World Economic Forum in Davos, Switzerland on Monday.”

USAGOLD note: Bitcoin finds itself more closely allied with tech stocks than gold in the trading realm. If Minerd is correct, bitcoin’s collapse could be part of a much wider meltdown.

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Market Overview

Landscape mode is recommended for mobile phone viewing.

Market Data by TradingView
Delayed data except FOREX

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Gold outlook to Q1 2023: Is gold returning from the alternate universe?

Wisdom Tree/April 2022

photo of 100-ounce gold bars arranged in a herringbone pattern

“For most of the past year, gold has been ignoring the red-hot inflation that we have been living in. Our internal forecasts model indicates that gold, when factoring in a US inflation rate of 7.9% in February 2022, should be trading at closer to US$2150/oz rather than US$1920/ oz where it is currently trading (7 April 2022). It’s as if gold has been living in an alternate universe. However, gold has been picking up recently, catalysed by safe-haven demand driven by the war in Ukraine. We have periodically observed such instances of geopolitical shocks bringing gold back to life. If sustained, gold could be on an upward trajectory, despite bond yields rising and the US Dollar remaining quite firm.”

USAGOLD note: Wisdom Tree’s consensus forecast has gold at $2315 by the first quarter of 2023. Its bullish scenario, based on sticky near double-digit inflation and a sharp correction in the dollar index, puts it at $2680. Its bearish forecast, which would result from the Fed successfully taming inflation, puts it at $1790 by the first quarter of 2023. “We believe that gold has reached a turning point,” concludes the Ireland-based investment firm, “after being relatively subdued in the second half of 2021. The metal has been catalysed by rising geopolitical risks and it will become increasingly difficult for the metal to keep ignoring the elevated inflation environment we live in.” For the full report, please go to the link at the top of this post.

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Stagflation danger stalks global economy beset by war fallout

Bloomberg/Enda Curran and Yuko Takeo/5-19-2022

graphic image of 1970s reducs coming soon to an economy near you“The world economy is increasingly succumbing to the threat of stagflation reminiscent of its 1970s ordeal, a mounting headache for global finance chiefs already navigating the fallout from the war in Ukraine. “

USAGOLD note: We remember distinctly when Alan Greenspan warned of stagflation’s return about two and half years ago to a gigantic yawn on Wall Street. He revisited those concerns October last year writing presciently, “If growth expectations continue to decline and price expectations continue to rise, we may be heading into a stagflationary environment as increased supply-side costs erode consumer purchasing power and, ultimately, final demand.” That’s about as succinct a portrayal of where we now stand as you are going to find. The real question is “how bad is it going to get?” Hopefully, we’ll hear more from Mr. Greenspan on the subject now that the rest of the financial world is catching up with him.

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How to choose a gold firm
It may be the most important choice you make as a gold owner

photo shows choosing a king on the chessboard

It is surprising how many prospective investors simply dive into gold and silver investing without much in the way of a consumer inquiry. That lack of simple due diligence has ended up costing a good many investors thousands of dollars, and sometimes even hundreds of thousands before the damage is detected.

Here you will find some brief but useful guidelines
to help
you choose the right gold and silver company.


To end right, start right.
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Reliably serving physical gold and silver investors since 1973

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Carnage in Cryptolandia

The New York Sun/Scott Norvell/5-13-2022

“Fingers are being pointed. Conspiracy theories are being floated. Some victims are said to be suicidal, and a chief executive is reportedly under police protection in Korea. There are also lessons that, if history is any indication, would be largely forgotten by the time the next mania comes along.”

USAGOLD note: What’s frightening is how quickly it happened. Luna-Terra investors lost millions in a matter of days and the whole crypto sector continues to wobble dangerously.

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Blame the central banks, say the politicians!!!

Morning Porridge/Bill Blain/5-16-2022

graphic image of walking a tightrope between night and day

“Most of the market stabilization liquidity injected by central banks flowed into financial assets, where price inflation was mistaken for investment genius.”

USAGOLD note: That quote from Bill Blain is one for the ages. Now your favorite central banker, no matter where you call home, is walking a tightrope stretched over a financial abyss. The real question with respect to how you invest your money is whether or not you think he or she will make it.

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Stock market may become a ‘meat-grinder of forlorn hope’ for dip-buyers

CNBC/Elliot Smith/5-16-2022

graphic illustration of investor running on falling dominoes“Investors looking for value in the stock market during the ongoing downturn may be ‘deluding themselves,’ according to Sean Corrigan, director at Cantillon Consulting.”

USAGOLD note: More and more, analysts are pointing to something we have considered the real problem all along – LEVERAGE. The Fed will find it everywhere in financial markets, if it cares to look, and it will not be long, in our view, until confronting it will be unavoidable. “People always say the market comes down on profit-taking,” says Corrigan. “it comes down on loss realization. The guy who sells at the top sells to the next two guys, who realize it’s not going to hold, who sell to the next guys and if any of those are leveraged, we’re in trouble.”

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Short and Sweet
The coronavirus pandemic will forever alter the world order
‘Many countries’ institutions will be perceived as having failed.’

photo of Henry Kissinger making a point

In a Wall Street Journal editorial published in April 2020, former Secretary of State Henry Kissinger warned that the pandemic had created “political and economic upheaval that could last for generations” and that this crisis is even more complex than the one that began in 2008. “When the Covid-19 pandemic is over,” he says, “many countries’ institutions will be perceived as having failed. Whether this judgment is objectively fair is irrelevant. The reality is the world will never be the same after the coronavirus.” If global authorities – governments and, in this case, central banks – will be perceived as having failed, then what will be the knock-on effect in financial markets that have leaned heavily on their largesse since 2008? The new normal may be in the process of being replaced by a new abnormal that every investment portfolio should take into account.

Ready to include a safe haven in your portfolio plan?

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