“But here is the bad news: the fact that a ‘temporary’ cash squeeze created so much drama shows that neither the Fed nor investors completely understand how the cogs of the modern financial machine mesh.”
USAGOLD note: Tett dives into the Fed’s cash dilemma and warns of a monetary system facing problems it has not encountered before.
“A splintering West and increasingly interconnected East is creating a newly powerful mega-region, according to Parag Khanna, author of ‘The Future is Asian.’ He swung by the Breakingviews office in Hong Kong to break down the economic and geopolitical rationales behind his idea.”
USAGOLD note: Deep background and insights for those who seek it. . . . . . Keep in mind, as you listen to this interview, Asia’s ancient attachment to precious metals. “The world is very multi-polar,” says Khanna. “Asia is just taking its rightful place alongside the others.”
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!
“The indicator on the bottom of this chart is the gap between the 3-month and 10-year US Treasury bond. As you can see it is now below zero, which means that the interest rate on the 3-month bond is higher than that of the 10-year. This is the very definition of an inverted yield curve and forecasts a future slowdown in the economy and future interest rate cuts from the Federal Reserve. Now as you can see this has happened twice in the past twenty years and both times it did gold soon broke out of a long-term resistance level to launch big massive gold bull runs that lasted for years.”
USAGOLD note: The reasons for those previous massive bull runs are twofold. The first has to do with economics. The Fed immediately talked up and inaugurated stimulus programs to keep the economy from rolling over to a deflationary depression and financial panic. The second has to do with market psychology. The possibility of a systemic breakdown ran at fever pitch causing a worldwide influx of capital into the gold market. The two together amount to the disinflationary argument for gold ownership and one we have made for a long time here at USAGOLD. The best strategy is to understand what’s at work in this economic milieu and make your purchases ahead of the clamor when it becomes evident to the masses.
Image courtesy of the World Gold Council
Repost from 6-11-2019
“‘We expect spot gold prices to trade stronger for longer, possibly breaching $2,000 an ounce and posting new cyclical highs at some point in the next year or two,’ analysts including Aakash Doshi said in a note received Sept. 10. That would exceed the record of $1,921.17 set in 2011.”
USAGOLD note: Bloomberg reposted this article on its front page yesterday. We included Citigroup’s forecast in last Wednesday’s DMR. Here is a link to the complete article. . . . .
Repost from 9-17-2019
“What is amazing about this run-up in gold that we have seen is that it has taken place with the U.S. dollar actually quite firm.”
USAGOLD note: David Rosenberg is chief economist at Gluskin Sheff and Associates and a highly-respected Wall Street analyst. We were a bit surprised at his $3000 forecast for gold. He explains how it is possible to a skeptical host.
Repost from 9-16-2019
“‘I think we’re in the third and final phase of the gold market that’s started in 2001, and this will be the most explosive phase for gold,’ Giustra told Kitco News.”
USAGOLD note: This is one of the better interviews we have seen in awhile on the long-term merits of gold ownership. Giustra explains how he has structured his own gold portfolio.
Repost from 9-16-2019
(USAGOLD – 9/20/2019) – Gold continued to hover around the $1500 mark this morning with little in the way of news on the economic front to push it decidedly in one direction or the other. It is up $1 at $1501. Silver is up 2¢ at $17.82. The Fed will make a fourth $75 billion cash injection into the repo market black hole this morning. Today stock traders will be confronted with quadruple witching – an event that at times generates heavy spikes in derivative trading and volatility.
Despite the gold market’s muddle over the past several weeks, it is still up 17% thus far this year. Analysts, generally speaking, are split on metal’s future direction. Some see it as clinging precariously to these levels and unlikely to hold. Others see it as consolidating for the next move higher. As for us, we go along with something First Eagle Investment Management’s Thomas Kertsos said in an interview at Gold Hub released earlier this morning. First Eagle, a venerable Wall Street firm that has been in the investment business since the 1860s, has more than $100 billion under management and 5% to 15% is allocated to gold and gold-related securities.
“We have a distinctive philosophy around gold,” he says. “We believe gold has unique risk/reward characteristics that enable it to help preserve real value over the long term. We use gold as a potential hedge and do not speculate on its price over the next six to 12 months. We believe it is not possible to forecast the price of gold or, for that matter, the price of other investment assets. This, in fact, is why we have a potential hedge . . .”
Silver, by the way, is up 15% year to date.
Quote of the Day
“Markets may have rallied on Donald Trump’s potential trade ‘deal’ with China, but the corporate world isn’t buying it. That’s one of the key points I took away from several days spent last week at a summit for global chief executives. They were busy preparing for a new world order that many believe will involve a stand-off not between two countries (the US and China) but between three systems — liberal democracy and free markets, state-run capitalism and cyber-libertarianism.” – Rana Foroohar, Financial Times
Chart of the Day
The biggest foreign holders of U.S. debt
Chart note: “The total amount of treasury securities issued to foreign countries is $6.433 trillion,” says HowMuch.net. “China currently holds the most U.S. debt due to a variety of factors, including China’s desire to keep the yuan weak compared to the dollar. Most of the treasury securities held by other countries are in the form of treasury notes and bonds, rather than treasury bills. The top five countries in the visualization (China, Japan, Brazil, United Kingdom, and Ireland) account for almost half of the treasury securities held by foreign countries.”
“‘Just think about it this way: You have a 35-40% marginal tax rate, you’re getting 2% on your cash if you’re lucky,’ he continued. ‘You keep 60% of the 2%, that’s 1.2%. The inflation rate is running 2%: You have a negative on savings.'”
USAGOLD note: And, we are led to believe, rates are likely to go still lower. In this increasingly upside-down, mad-hatter financial environment, one Danish bank is offering to pay borrowers .5% a year to take out a mortgage. Jyske Bank, the Danish lender offering the loan, automatically reduces the size of your mortgage each month.
“Silver has pulled back 11% from its highs at $19.70/oz. Despite this pullback, bullish sentiment has not budged much, and is currently sitting at 61% bulls based on DSI data. While an oversold bounce is possible, I believe we will likely see a slightly lower low in silver below $17.50/oz, before this correction is completely over.”
USAGOLD note: Current pricing ($17.87 as this is posted) is not too distant from this analyst’s target. For the longer-term investor, it might make sense to start now rather than waiting for some ultimate target that may or may not be achieved. We offer an affordable storage plan for those who do not take delivery – a good option for the buyer thinking about making a significant purchase. Too, you can take delivery on some or all of your holdings if so desired down the road. We do quite a bit of business in silver Eagles and Maple Leafs within IRAs. Please give us a call if you would like to learn more. We can walk you through the options.
“Intensifying trade conflicts have sent global growth momentum tumbling toward lows last seen during the financial crisis, and governments are not doing enough to prevent long-term damage, the OECD said in its latest outlook.”
USAGOLD note: We cited this OECD report in yesterday’s DMR. Sounds very much like the mindset during the 1930s and Roosevelt’s New Deal. The OECD’s call on governments to do more is expressed often in top analytical circles where the view prevails that central banks have pretty much run out of ammunition.
“Emerging markets have beefed up gold holdings, undeterred by prices near their highest levels in more than six years, as countries such as Russia and China diversify their foreign-exchange reserves—a trend that is likely to continue.”
USAGOLD note: In Friday’s DMR we mention funds, institutions and central banks as three players largely absent in previous bull market rallies going all the way back to the early 1970s. That circumstance introduces a new and important dynamic to present-day gold market analysis. This article will bring you to speed on the central bank component of that trinity.
Repost from 9-14-2019
“TS Kalyanaraman, chairman and managing director, Kalyan Jewellers said that rise in gold prices has had an impact the consumer sentiments and gold buying trends. ‘But we believe that these sentiments are short-term and we are expecting the demand to pick up soon,’ he added.”
USAGOLD note: Year to date, gold is up 19.65% in rupee terms. Simultaneously, the rupee is down about 4% against the dollar. If investors believe that the rupee is headed still lower, it stands to reason that gold demand might remain steady through the festive season even if prices are rising.
“‘I think the economic data has gotten a little bit better, yet I still think, when we put it all together … it seems that there is an increasing probability of a recession before the 2020 election,’ Gundlach said in an interview with CNBC’s Scott Wapner.”
USAGOLD note: Professional investors, including Gundlach, often cite recession concerns as one of the prime motivations for gold ownership – the ultimate asset of last resort.
“Bloomberg terminals, the financial software system used by countless analysts and traders around the world, has a problem: its system cannot price callable bonds using negative interest rates. Programmers never considered such a scenario, and thus failed to code the system accordingly. So users get an error message when they attempt to force negative bond yields into their machines.”
USAGOLD note: A fascinating look at the real meaning of and wider implications for negative interest rates. “Under what scenario,” Deist asks, “would anyone lend $1,000 to receive $900 in return at some point in the future?” His answer is an eye-opener.
Should I buy a gold ETF?
Are you looking for a price bet or the real thing?
For safe-haven, asset-preservation purposes, the best alternative is not futures, options, mining stocks or even ETFs, but delivery of the metal itself in the form of gold coins or bullion. Some think that owning an ETF is akin to owning real gold, but it is not. It is essentially a price bet simply because only owners of 10,000 ounces or more (with most trusts) can take delivery of the metal represented by the shares. Then there is the problem of counterparty risk. “Unlike physical gold bullion – which is a tangible asset,” says Mauldin Economics’ Olivier Garret, “ETFs are a financial product that have counterparty risk. Counterparty risk is present when there’s a possibility the other party in an agreement will default or fail to live up to their obligations. . .[O]ne of gold’s primary benefits is being the only financial asset that is not simultaneously somebody else’s liability. Therefore, these ETFs are a poor substitute.” In short, by owning an ETF instead of the real thing, investors expose themselves to one of the primary risks they hope to avoid through gold ownership.
The USAGOLD storage option – strong competition for the ETF
One of the advantages of a gold or silver ETF is that the trustee stores the metal for you and makes it easy to buy and sell. We can open a fully-allocated storage account for you that offers the same advantages. In fact, the annual cost of storage and insurance is actually lower than most ETF fees. You can buy and sell with a phone call. Most importantly, because specific coins and/or bullion are stored in your account, you can still take delivery in part or full whenever you so wish – something, as mentioned above, that the ETFs offer only to their largest institutional clients.
“There is nothing to suggest that the dollar dominance should remain in perpetuity. In fact, the dominant international currency has changed many times throughout history going back thousands of years as the world’s economic center has shifted. After the end of World War II, the U.S. accounted for biggest share of world GDP at more than 25%. This number is brought to more than 40% when we include Western European powers. Since then, the main driver of economic growth has shifted eastwards towards Asia at the expense of the U.S. and the West.”
USAGOLD note: We made reference to this JP Morgan analysis on the US dollar in yesterday’s DMR. JPM suggests that its clients diversify dollar exposure by shifting to other developed market currencies and precious metals. It says that aforementioned shift away from the dollar is already under way.
Repost from 7-25-2019
“Monetary policy nowadays is ‘not causing any growth to be stimulated but it is having an effect in currency markets, and we’re in a very dangerous situation,’ Shelton told CNBC’s Rick Santelli during a ‘Squawk on the Street’ interview. ‘It’s not unlike the 1930s when you had beggar-thy-neighbor competitive depreciations.'”
USAGOLD note: The risks are not just to currencies but to financial markets and institutions as well. Shelton goes to say that “it would be nice to be virtuous in a vacuum, but I don’t think we have that luxury.” In other words, the United States, in her view, should act at this juncture to depreciate the dollar – something that must be done through the concerted action of both the Treasury Department and the Federal Reserve.
Repost from 8-2-2019
Evy Hambro, global head of thematic investing at BlackRock, discusses the outlook for gold and precious metals on “Bloomberg Surveillance.”
USAGOLD note: BlackRock takes a seat on the gold bandwagon: “. . . an opportunity carry, that is a very positive environent.”
Repost from 9-6-2019
“Accompanied by Mephistopheles, Faust attends the court of a ruler whose empire is facing financial ruin because of profligate government spending. Rather than urging the emperor to be more fiscally responsible, Mephistopheles — disguised, revealingly, as a court jester — suggests a different approach, one with disturbing parallels to our own age.”
USAGOLD note: Dr. Jens Weidmann, President of Germany’s Bundesbank, made reference to Goethe’s treatment of money printing as a Faustian bargain in a speech delivered in 2012 (See below). For a scholarly approach to that section of Goethe’s famous play, Faust, we post the link to Samuel Gregg’s short essay above. All posted on a Friday for those looking for something to delve into over the weekend. We thought it a fitting addition to the board after Mario Draghi’s announcement yesterday that the ECB would launch a new round of quantitative easing for the European Union.
Money creation and responsibility/Jens Weidmann/Bank-Historical Research conference/9-18-2012
“Let me remind you briefly of the ‘money creation’ scene in Act One of the Second Part of Faust. Mephistopheles, disguised as a fool, talks to the Emperor, who is in severe financial distress, and says
“In this world, what isn’t lacking, somewhere, though? Sometimes it’s this, or that: here’s what’s missing’s gold.”
The Emperor finally responds to Mephistopheles’ subtle attempt to persuade him,
“I’m tired of the eternal ‘if and when’: We’re short of gold, well fine, so fetch some then.”
To which Mephistopheles replies
“I’ll fetch what you wish, and I’ll fetch more.”
–– from Jens Weidmann’s speech
Repost from 9-12-2013
“‘Denmark would be interested in purchasing the United States in its entirety, with the exception of its government,’ the spokesperson added.”
USAGOLD note: A little humor to launch the weekend. . . .
Repost from 9-12-2013
(USAGOLD – 9/19/2019) – Gold regained its footing after yesterday’s FOMC-related sell-off – up $12.50 in today’s early going at $1504. Silver is up 21¢ at $17.90. The Fed plans to pump another $75 billion in cash into the repo market today “to restore order in the banking system,” as Bloomberg put it their early market report. The metal dipped to a $1485 low during Asian trading hours but recovered quickly as news of a third day of Fed rescue operations sunk in and the Paris-based OECD warned of “entrenched uncertainty” in the global economy. The safe-haven trade, in short, returned to the forefront.
We are reminded in all of this of a recent quote from Financial Times‘ Rana Forooha. “What comes next?” she asks. “The answer, I believe, is very likely to be a synchronised global recession, punctuated by a step-by-step market downturn — one in which there may be the odd rally, but the general direction is down. This could last for some years. In the next few weeks, I would expect new lows in bond yields, a deepening of the yield curve inversion, higher prices for ‘safety’ assets like the yen and Swiss franc, and a continued bull market in gold.”
Quote of the Day
“Rather than let the market adjust itself, government typically starts the process all over again with a new and larger ‘stimulus package.’ The more often this happens, the more ingrained become the distortions in the way people consume and invest, and the nastier the eventual depression. This is why I predict the Greater Depression will be … well … greater. This is going to be one for the record books. Much different, much longer lasting, and much worse than the unpleasantness of 1929-1946.” – Doug Casey, International Man
Chart of the Day
Chart note: This chart compares price appreciation for gold and the dollar index. Gold has consistently outperformed the dollar in twelve of the last eighteen years – a formidable record. Even if one were to add in average yields on dollar-based investments, gold still comes out the clear winner in those twelve years. Gold had an off-year in 2018 – down 1% while the dollar was up almost 7%. So far in 2019, though, gold has returned to form with a more than 16% gain thus far this year (through September 13, 2019).
“At first blush, this looks like a situation where the Fed has loosened policy. It is not. Instead, it is simply the next step in the ‘midcycle adjustment’ of monetary policy that began at the start of the year, as Fed Chairman Jerome Powell has put it.”
USAGOLD note: This article lends credence to Trump’s criticism of the Fed.
“‘While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy,’ Powell said Wednesday in prepared remarks at a press conference in Washington, after the Fed cut interest rates for a second straight meeting.”
USAGOLD note: Move along. Nothing to see here. . . . .
“Gold and gold mining stocks suffered a setback in the first half of September, thanks in part to diminishing trade war fears. But while gold’s ‘fear factor’ is on the wane, the yellow metal’s currency component is showing signs of strengthening. In today’s report we’ll examine the increased prospects for gold to continue its rising trend in Q4 due to a combination of a weaker dollar and a stronger demand outlook for commodities in general.”
USAGOLD note: Counterintuitely, gold and the dollar have been rising together the past few months. Now, says Droke, they could be headed in opposite directions. Obviously, this article was posted prior to the drone attack on the Saudi Arabian oil facility. The “fear factor” has now officially returned to the gold market.
“Troubled oil meets calming waters.”
USAGOLD note: Game theory favors no further U.S. military involvement in the Middle East, according to Authers latest. “The problem: game theory can be wrong” – the predictability of unpredictability. Very much worth a visit for the rest of the story. . . . . .
“Government by tweet and investing by ETF represent the death of thought, responsibility, and moral action. Investors must resist these falsehoods. Technological demagogues convince people to surrender their freedom, to believe that the world is binary and capable of capture in 140 tweets. Free people must reject these tyrannies. Monetary charlatans tell citizens that it is prudent to print trillions of fiat dollars to bail out governments and businesses from their inability to competently manage their affairs. Citizens must reject these delusions.”
USAGOLD note: Lawrie Williams builds a solid piece around a long quote from Credit Strategist‘s Michael Hewitt. Williams cites a persistent mantra in Hewitt’s newsletters: “Buy gold and save yourselves.” This article is worth a visit. The rest of Hewitt’s observations will strike a chord with many of you.
Repost from 5-29-2019