CNBC/Evelyn Chang/5-23-2019

“The latest U.S. actions on trade are preventing negotiations with Beijing from proceeding, China’s Commerce Ministry said Thursday. ‘If the U.S. would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue,’ Ministry of Commerce spokesperson Gao Feng said Thursday in Mandarin, according to a CNBC translation.”

USAGOLD note:  This statement sent stocks lower in the U.S. overnight market and gold higher.

Bloomberg/Joanna Ossinger/5-19-2019

“Traditional hedges gold and the yen have performed poorly since the beginning of the U.S.-China trade war, but that could now change given the more dovish monetary backdrop, according to JPMorgan Chase & Co. A combination of a Federal Reserve that has stopped tightening policy and investor positioning that suggests the two assets are under-owned, could see their performance as hedges improve in 2019 and 2020, wrote strategists including John Normand in a note Friday.”

USAGOLD note:  As we say repeatedly here, the ideal time to buy gold is when everything is quiet. . . .or to put it another way, when it is under-priced, under-owned and under-appreciated.  Gold and the Japanese yen, as you can see in the charts below, have been travelling companions since the last financial crisis.  The markets perceive both to be safe-havens, though there is no guarantee that the two will remain travelling companions in the future.

Japanese yen
Gold

Bloomberg/Enda Curran and Hooyeon Kim/5-22-2019

“Central banks across Asia are moving to defend their currencies from recent declines as escalating trade tensions between the U.S. and China weigh down exports and economic growth. Officials in Beijing, Seoul and Jakarta were among those taking steps on Wednesday to arrest weakness that’s affected most key currencies in Asia this month. The yen, a traditional haven, is the main exception to the trend.”

USAGOLD note:  This is one of the quiet crises developing around the globe – the collateral effects of the strong dollar. If debt is denominated in dollars, the debtor country pays dearly when those debts come due when the dollar is rising. One cannot help but be reminded of the Asian financial crisis of the late 1990s – a problem that began with depreciating currencies and capital flight that nearly rolled over to a full-out global financial contagion.

FoxBusiness/Steve Forbes/5-17-2019

“The morality and strength of capitalism (or free enterprise, free markets, whatever term you choose for the U.S. economic system) is that it allows people to succeed by meeting the needs and wants of others. People in a capitalist society are constantly trying to come up with ways to make everyone’s lives better. The failures critics blame on capitalism are caused by the mistakes of government, not an economic system that rewards hard work and innovation. Those failures are many.”

USAGOLD note: Margaret Thatcher said it best: “The problem with socialism is that you eventually run out of other people’s money.”

CNBC/Yun Li/5-22-2019

“China is exploring more drastic action as a result of its trade fight with the U.S., according to the South China Morning Post. While China is open to resuming trade talks, ‘government advisers are now highlighting the risk of sourcing critical supplies from an increasingly hostile US…and are exploring ways for the country to cut its exposure to the US,’ the paper said, citing Chinese researchers. The article was titled, ‘Donald Trump’s trade war and Huawei ban push China to rethink economic ties with US.’”

USAGOLD note:  The more this kind of thinking becomes entrenched on both sides, the deeper the roots of the trade war are likely to sink with economic consequences for both countries – and it follows from there for financial markets here, there and elsewhere.

MarketWatch/Sven Henrich

“As with many terminal patients, the initial hope is that aggressive treatment would work and cure the patient. But when the one-time emergency round of drugs didn’t cure the patient, additional drugs were needed and turned the patient into a hopeless junkie. After multiple injections, a sense of dread was making the rounds.”

USAGOLD note:  Past and present Fed policy pulled together in one dreary allusion summed up in the subhead:  The central bank, under Jerome Powell, can’t wean the stock market off stimulus.  Neither central banks nor presidents want the crash to occur on their watch if it can be helped. . .But then again, the crash can occur despite the best intentions of those charged with avoiding it.

Repost from 2-4-2019

Financial Times/Joe Rennison and Colby Smith

“Except for a small net purchase in February, China has now sold Treasuries every month since September. A fear in the US is that China could ramp up its sales of Treasuries in an attempt to disrupt the market and put upward pressure on US interest rates, in effect raising borrowing costs for Washington.”

USAGOLD note:  Financial Times points out that the yuan remained flat during March when the liquidations were conducted hinting at a connection with trade negotiations.  FT quotes Deutche Bank’s Torsten Slok as saying “Normally the answer to why this has happened has been very similar — it’s been the exchange rate. This time the number is more surprising. There are a lot of open questions.”  There is another question not covered in the articles we have read on this subject:  Will sales by China prompt sales from other nation states as part of the de-dollarization trend? At the moment, foreign invetors hold over $6 trillion in U.S. debt paper, as shown in the chart below.

Repost from 5-17-2019

Washington, Wall Street wake up to reality Beijing is happy to walk away
MarketWatch/Steve Goldstein

Steve Bannon: ‘No chance’ Trump will back down in China trade war
CNBC/Matthew J. Belvedere

China calls for People’s War against the US, fight for a new world
ZeroHedge/Tyler Durden

USAGOLD note:  We group these three articles to make a point. Together they point up how quickly the situation between the US and China has moved from negotiable to intractable. The third tells how China seems to be putting its population on a war footing psychologically – something we found to be particularly relevant at this juncture.  The financial markets may need to make some further adjustments to accommodate this new reality.

Repost from 5-16-2019

. . . but please check back.  We will update if anything of interest develops.

The New York Sun/James Grant speech/5-7-2019 . . . . . Also see Grant’s Interest Rate Observer

“The trouble is that the costs of radical monetary policy are dark and prospective; the gifts they bestow are bright and immediate. Those gifts are likewise transitory. Over-encumbered businesses finally fail, inflated asset prices ultimately revert to lower, more reasonable levels. The dividends and the yields that income-needy people have stretched sadly prove illusory. New federal regulations follow hard on the Congressional hearings called to ventilate society’s rage at the bankers — not the central bankers, mind you — who brought down the chaos.

What’s to be done?

An overhaul of the Ph.D. standard, for starters. The 700 doctors of economics on the Fed’s payroll seem not to understand the limitations of economic modeling or the relevance of the financial past. Send them to NASA, which is where they wanted to work in the first place. Replace them with a half dozen historians, a couple of philosophers and a physician. The historians would study the recurring patterns of economic and financial affairs, the philosophers would contemplate the true nature of money and the physician would repeat at intervals, ‘First do no harm.’”

USAGOLD note:  James Grant, the editor of Grant’s Interest Rate Observer, delivered this speech in acceptance of the 2019 Bradley Prize in Washington, D.C. He was honored along with two other recipients – The New Criterion‘s Roger Kimball and Judge Janice Rogers Brown.  The Bradley Prizes honor scholars and practitioners whose accomplishments reflect The Lynde and Harry Bradley Foundation’s mission to restore, strengthen and protect the principles and institutions of American exceptionalism.

Coin Week/Industry Council for Tangible Assets/5-16-2019

“On Thursday, May 16, 2019, Kansas governor Laura Kelly (D) signed into law House Bill 2140, which provides a sales-tax exemption on sales of gold and silver coins and on all gold, silver, platinum, and palladium bullion. . .’Kansas now joins the 38 other states with a sales-tax exemption,’ said Chief Operating Officer David Crenshaw.”

USAGOLD note:  Good news from Kansas. . .

The Street/Bradley Keoun/5-21-2019

“Some traders have speculated that China might liquidate its $1.1 trillion of U.S. Treasury bonds as a way of striking back against President Donald Trump’s tariffs on imports from the country. But such a scenario might hide the real urgency: The Chinese government might need the cash, according to the wealth manager deVere Group.”

USAGOLD note:  China last drew down its reserves in 2014-2016 to defend the yuan.  It may need to do the same thing now.  Chinese monetary officials have expressed an interest in the past in China’s stemming capital flight and  keeping the yuan stable. Doing so, ties into its ambition to position the yuan against the dollar as a reserve currency –  particularly in Asia.

Bloomberg/Liz McCormick and Alex Harris/5-21-2019

“As soon as next year, analysts say the Fed will resume large-scale buying of debt securities — this time just U.S. Treasuries — in amounts that may ultimately exceed its crisis-era purchases. According to an estimate by Wells Fargo & Co., the central bank’s balance sheet will rise past its historic peak as it adds over $2 trillion to its Treasury debt holdings in the next decade.”

USAGOLD note:  We used to call this kind of government debt buying by the Federal Reserve monetization, which was a fancy name for printing money.  Now, it is repackaged with a nice big bow and passed off to the public as a means to “keeping ample reserves in the banking system.” Nowhere  in this article is it even mentioned that the buying might have to do with the large needs of the federal government at a time when foreign lenders are in retreat.

Northwestern Now/Megan Fellman/5-9-2019

“Now a team of Northwestern University materials scientists have experimentally replicated the medieval gold purification method outlined by Nixon and Rehren in a 2014 paper using the same material resources and found the process works incredibly well. The unusual method involves heating a mixture of gold, sand and glass to high temperatures and separating out the gold.”

USAGOLD note:  And we suspect considerably less expensive than some of the methods used today. . . .

[Click to enlarge]

Visualization courtesy of HowMuch.com

Financial Times/Martin Wolf/5-15-2019

“Start then with inflationary fire. Much of what is going on right now recalls the early 1970s: an amoral US president (then Richard Nixon) determined to achieve re-election, pressured the Federal Reserve chairman (then Arthur Burns) to deliver an economic boom. He also launched a trade war, via devaluation and protection. A decade of global disorder ensued. This sounds rather familiar, does it not? In the late 1960s, few expected the inflation of the 1970s.”

USAGOLD note:  True, “in the late 1960s, few expected the inflation of the 1970s.”  But the few who did profited enormously by purchasing gold at $35 per ounce just before the United States devalued the dollar and holding it through the following highly inflationary decade. It rose nearly 25 times.  What the current president is attempting to do today de facto is what Nixon had the luxury of doing de jure by simply raising the official dollar price of gold.  The current president given his proclivity for easy money must envy the way it was in 1971.  That aside, the subheadline to this article is the one that caught by attention: Some fear the fire of inflation; others the ice of deflation.  Either way, as we have said many times here, gold historically has been an effective hedge against either – fire or ice.

Repost 5-16-2019

FoxBusiness/Julia Limitone/5-16-2019

“‘Excise taxes,’ [said Greenspan] when they are imposed are the same as any tax – they withdraw purchasing power from an economy.’ ‘So if you have two industrial giants, both taking on severe levels of that type of analysis, in other words having a great deal of loss of purchasing power, it’s not good for either one… there is a winner in the fight. But both sides lose. So the winner is the one who loses the least.'”

USAGOLD note:  Greenspan once again cuts to the chase.  The problem presented by the loss of purchasing power is that consumers and businesses step up purchases in order to preserve capital which drives prices even higher.  That is how runaway inflation is ignited in a previously placid economy.

Repost from 5-17-2019

Bloomberg/Benjamin Bain/5-15-2019

“The go-ahead from the U.S. Commodity Futures Trading Commission, announced Wednesday, comes after ICE announced in February that it planned to impose a 3-millisecond trading delay on gold and silver contracts. The pause would be the first-ever speed bump for futures, showing that an idea popularized in Michael Lewis’s 2014 book ‘Flash Boys’ to rein in high-frequency traders is gaining more adherents.”

USAGOLD note:  Interesting that ICE would choose gold and silver as the two streets in which to install the speed bump.  The CFTC says that the speed bumps “have the potential to significantly impact futures’ markets function and quality” and that it would promote more trading through “slowing down high-speed traders engaged in latency arbitrage.” The CFTC, it would seem, is handing high-speed trading a ticket. Hopefully the net effect will be something of a return to normalcy as the advantage of high-speed trading is throttled.

Repost from 5-17-2019

Scrap Monster/Paul Ploumis/5-20-2019

“Venezuela has sold nearly 14 tons of gold, worth approximately $570 million, from its reserves during the month of May this year. The country’s reserves have plunged to 29-year low of $7.9 billion, in accordance with data provided by Venezuela’s monetary authority.”

USAGOLD note: We should not overlook Venezuela’s out-sized role in keeping a lid on the gold price in recent months offering gold in a market all too willing to scoop it up at bargain-basement prices. Scrap Monster reports that the country sold 23 tonnes of gold since the beginning of April.  It goes on to say that Venezuela has sold 40% of its gold reserves since 2018, but that the Bank of England has blocked sales from its London holdings. With that set of facts in mind, one has to ask whether or not Venezuela might be at the bottom of the barrel.

BloombergOpinion/John Authers/5-20-2019

“Round numbers tend to matter in markets. So it is that the foreign-exchange community is dominated by one question, which is whether China’s yuan will breach the seven-per-U.S.-dollar level. The question is freighted with history.”

USAGOLD note:  Chinese authorities have indicated through various channels that they will defend the value of the yuan in international markets, and, in fact, is believed to have set its reference rate for the yuan yesterday, “a sign,” says another Bloomberg report, “that Beijing is seeking to slow depreciation.”  Whether or not China continues with that approach is one question.  The other is where that line in the sand will be drawn, i.e., at 7 to one or another number – more or less. Authers walks us through the possibilities in this detailed article.

Financial Times/Tom Mitchell/5-20-2019

“As the trade dispute escalates between China and the US, classic Chinese movies about the ‘War to Resist America and Aid Korea’, as the Korean war of the 1950s is known in China, have made a reappearance on Chinese primetime state television. This is one of the many signs in China hinting at what analysts believe will now be a protracted trade conflict with Washington.”

USAGOLD note:  If we were to point one thing that has changed dramatically over the past week or so, it is the tightening of positions on both sides in the trade war and the Chinese government putting its population on a war footing – economic war, that is. . . . .It speaks volumes.

The Sounding Line/Interview of Nassim Taleb/5-20-2019

“The problem is centralization causes deficits. You can pretty much take that as a rule. Centralization lowers skin in the game… Whereas when you have decentralized communities, like in Switzerland, people are much more fiscally responsible because those who make decisions live in the community… We have a problem of agency between us and those supposed to represent our interests. They do not represent our interests, so they run deficits… So we need to have some kind of laws banning the government from deficits.”

USAGOLD note:  An interesting take on the modus operandi behind the national debt tying into his theories on having skin in the game. He is right, of course, about centralization being at the core of the deficit problem.  We do not suspect that his remedy will be introduced in Congress anytime soon.

Financial Express/Banikinkar Pattanayak/5-20-2019

“Households in India may have piled up around 24,000-25,000 tonnes of gold, remaining the world’s largest holders of the precious metal, Somasundaram PR, managing director (India) of the London-headquartered World Gold Council (WGC), has told FE. At Friday’s international price, the value of the holdings (25,000 tonne) would be as much as $1,135 billion, or equivalent of more than 40% of India’s nominal gross domestic product (GDP) in FY19.”

USAGOLD note:  To give you an idea just how much gold the people of India own in the overall scheme of things, the total amount of gold held by governments and central banks globally is 33,976 tonnes, according to World Gold Council statistics.

The Alchemist/Mike Silva/January 2019

“Absolutely. As long as we have a financial system, we will have financial crises. The only question is how often and how severe. Personally, I think a crisis is likely to happen sooner rather than later because of the large number of possible crisis triggers that are currently being squeezed. . . . Fortunately, because of improved capital, liquidity and risk management, the next financial crisis is unlikely to result in a banking crisis. But it could still  easily result in sufficiently deep losses across a sufficiently broad range of assets to trigger an extraordinarily painful recession, or worse. The likelihood that the US has seen its last depression is about as high as the likelihood that it has seen its last war. Just saying.”

USAGOLD note:  In this fascinating peak behind the curtain, Mike Silva tells the inside story of the 2008 financial crisis from the perspective of someone who, as Tim Geithner’s chief of staff at the New York Fed, was at the policy-making epicenter during the breakdown. Silva delivered his remarks in a speech before the London Bullion Marketing Association in October 2018.

Image by Benji the Pen [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], from Wikimedia Commons [Edited]

Repost from 2-13-2019