(USAGOLD –2/29/2021) – Gold pushed marginally higher in early trading on a general lack of news and quiet financial markets across the boards, including government bonds. The markets, it seems, are awaiting the next turn of the page in the bond market drama and contemplating nervously what the Fed might do if the plot shifts again to the dark side. Gold is up $3 at $1729.50. Silver is down 27¢ at $26.38.
Chartered market technician AG Thorson is taking an aggressive stance in the face of gold’s sell-off since last August. “I am beginning to see investors panic and turn bearish on gold as prices slip below $1750,” he writes in an FX Empire article. “That tells me we could be approaching a selling climax and an important low. The big picture chart of gold remains decisively bullish and points to higher prices for years to come. … Just like there was a brief opportunity to buy gold at pre-911 prices a few months after the event, investors are receiving a similar chance in gold now, in my opinion. I believe now is the time to be greedy when others are fearful.”
Chart of the Day
Percent increase or decrease over the prior year
Chart note: In 2020, silver recorded its best percentage gain in a decade – 46.3% – and posted its third-largest gain over the 20 year period. It has posted gains – sometimes significant – in twelve of the last twenty years. So far in 2021, silver is down about 3%.
“Investors are worried that a flood of cash could soon disrupt U.S. money markets, as the Treasury rushes to rid itself of money that Congress won’t allow it to keep. It’s a possibility that the Federal Reserve would do well to anticipate. “
USAGOLD note: Should this newfound liquidity actually materialize, it will be interesting to see what all this excess cash means for the economy and financial markets. Dudley sees it as another wolf at the Fed’s door.
Food prices soar faster than inflation, incomes
Bloomberg/Emily Cadman, Deena Shanker, Leslie Patton, Charlie Wells/2-28-2021
“In Indonesia, tofu is 30% more expensive than it was in December. In Brazil, the price of local mainstay turtle beans is up 54% compared to last January.”
Economist Stephen Moore rings warning bell on inflation
“I kind of laughed when I saw this week Fed Chairman Jerome Powell say, ‘Hey there’s no inflation out there; we don’t see any inflation’: He should get out more,” Moore said. He should go to the grocery store. He should go to the gasoline pump.”
USAGOLD note: It’s all about soaring commodity prices across the boards and beginning to filter into pricing on everyday items.
“Gold and silver, like other commodities, have an intrinsic value, which is not arbitrary, but is dependent on their scarcity, the quantity of labour bestowed in procuring them, and the value of the capital employed in the mines which produce them.”
British political economist (1772-1823)
“The 90-year-old chief executive of Berkshire Hathaway told shareholders in his closely followed annual letter that it was best to eschew the fixed-income market, in which the company is itself a large player.”
USAGOLD note: Stay tuned. The bond market is experiencing technical difficulties. It appears his admonition to “never bet against America” does not extend to the bond market.
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YahooFinance/Nick BAker, Elizabeth Stanton and Steve Matthews/2-26-2021
“The mood was bordering on frantic.” – Emily Roland, John Hancock Investment Management
USAGOLD note: Detailed background on last week’s bond market panic …… And, we might add, we are hardly out of the woods.
Graphic image courtesy of HowMuch.net • • • Click to enlarge
Repost from 2-26-2021
“The U.S. needs to rethink its currency strategy. Our leaders are grudgingly realizing that the strong-dollar policy no longer suits either national interests or current economic realities.”
USAGOLD note: The strong dollar policy has always been something of an illusion. As measured by the dollar index, the greenback has been in a overall decline since 1971. But measuring the dollar’s value against other currencies is just one way of assessing its strength or weakness. The other way is to measure it in terms of purchasing power – an exercise that fully undermines any pretense that it serves adequately as a store of value.
Repost from 2-25-2021
“The nation’s top producer is studying mining beyond the current depth of about 4 kilometers (2.5 miles) at Mponeng to potentially extend the mine’s life by 20 to 30 years, Chief Executive Officer Peter Steenkamp said. Ore reserves below that level are ‘massive’ and Harmony is exploring ways and the investment needed to tap them, he said.”
USAGOLD note: We post this not as an endorsement of the stock but as a matter of interest. The use of the word “massive” with respect to the ore body directly below admittedly caught our attention.
Repost from 4-4-2020
“[DoubleLine Capital’s Jeffrey] Gundlach said, and buyers should be aware that holding shares doesn’t amount to having gold bars. ‘What happens if physical gold is in short supply and everyone wants to take delivery of their paper gold?’ Gundlach said. ‘They can’t squeeze blood out of a stone.'”
USAGOLD note: Gundlach hoists the same red flag we have raised often on this page. Gold ETF’s are a price bet. Gold coins and bars are a safe-haven store of value. And never the twain shall meet.
Repost from 1-13-2021
“Fast forward to today, when in Morgan Stanley’s Sunday Start periodical, the bank’s global head of economics, Chetan Ahya, doubles down on this topic and in “Five Reasons why we are inflation bulls” lists all the reasons why not only are 10Y yields set to rise (perhaps violently), but why runaway inflation may be just months away ……”
USAGOLD note: Runaway inflation is usually thought of as the double-digit variety accompanied by commodity shortages. Wall Street has wobbled under such conditions in the past as rising interest rates become an issue. As some have pointed out, we are already getting some fairly stiff increases in the food sector.
Repost from 2-24-2021
“The SLV silver ETF made headlines in recent weeks. Many young U.S. investors put money in silver through this fund. Here are the biggest institutional investors.”
USAGOLD note: Precious metals’ ETFs are the favored vehicle among big financial institutions looking for a place to store and trade large volumes of metal. As reported at the link above, the top five shareholders in SLV are Morgan Stanley, Bank of America Corp, Jane Street Group, Wells Fargo and UBS Group.
Chart courtesy of GoldChartsRUs.com • • • Click to enlarge
Why the U.S. needs to encourage Americans to hold gold
We have always believed that citizen ownership of physical gold is in the national best interest, not just the best interest of its accumulators. In the event of a worldwide economic breakdown or a realignment of the global monetary system, it would be good for the country to have a storehouse of gold held by the populace. China encourages citizen gold ownership for precisely that reason.
“With a growing number of countries encouraging their central banks and citizens to acquire gold,” writes The Federalist‘s Sean Fieler, “it is increasingly reasonable to assume that gold will be part of the world’s monetary future, not just its past. The U.S. Treasury should embrace policies that will attract more of the world’s gold to America and better position our citizens and our nation for whatever the monetary future may hold.”
Repost from 2-24-2021
“After a while, investing will go from being easy to being hard again, and then everyone will go back to pipefitting or whatever else they do to earn a check. But now we have pipefitters who are contemplating leaving their jobs to stay home and day trade because it is just that easy. You buy something, and it goes up. You can be your own hedge fund. There was a study of day traders in South Korea some years ago. The researchers observed the behavior of a few thousand of them. After six months, 90% of them had given up. After a year, the 1% who were left barely had enough money to cover their daily expenses.”
USAGOLD note: Ran into this Dillian assessment while researching another topic. As always, he cuts to the nitty-gritty. This time his subject is the current speculative mania and how it might be affected down the road by Fed tapering. One drinks and dances until the music stops. The next day’s hangover is the price paid, but for many, as Dillian points out, it can be considerably worse than the average morning-after headache.
(USAGOLD – 3/1/2021) – Gold is tracking marginally higher in early Monday trading as bond yields stayed stubbornly high and the dollar firmed in overseas markets. It is up $2.50 at $1739. Silver is up 24¢ at $26.99. At the moment, the confusion and volatility of last week have cooled a bit, but the underlying dangers made evident remain. Gold Newsletter‘s Brien Lundin offers a candid assessment of what we might expect from precious metals under the volatile circumstances at work in financial markets – particularly the bond market:
|“I’ve pounded the table over recent years with my view that, because of the overwhelming size of the federal debt, the Fed couldn’t raise rates. Not only that, they couldn’t allow rates to rise. The costs of servicing the debt at higher rates would drown the federal budget in red ink. And as a corollary to all of this, the size of the debt also demanded a very significant devaluation of the dollar. And this scenario was extraordinarily bullish for gold and silver. While I have addressed it, however, I haven’t spent enough time talking about the alternative scenario: That the Fed would actually lose control of interest rates.…
Right now, gold is suffering through a transition phase as inflation data and expectations are lagging the bond market responses. Eventually, gold will benefit as sentiment begins to regard the metal as not only an inflation hedge, but also a bulwark against risks to the financial system. This phase could end tomorrow or it could last months. There’s really no telling. In the meantime, we’ll have to suffer through times when the market, which doesn’t yet appreciate the true role of gold, will reflexively sell it when yields surge.” [Emphasis added.]
And, we will add, speculators will reflexively buy it back at some point in order to capture profits. Long-term investors, who see precious metals as a store of value and own them outright, often greet these bouts of downside reflexivity as buying opportunities. Since the early 2000s, that strategy has consistently paid dividends for the patient investor while protecting and building wealth.
Chart[s] of the Day
Charts courtesy of ShadowStats.com • • • Click to enlarge
Chart note: ShadowStats tracks alternative data series to official statistics. Above are its renditions of the inflation and unemployment rates. With respect to the inflation rate, Shadow Stats uses the same methodology used by the Bureau of Labor Statistics in 1980. As for the unemployment rate, it includes so-called “discouraged workers” who were “defined out of existence in 1994.” As you can see, in both instances, the picture painted for the American public would be much different on these key statistics had the BLS stuck to its earlier formulations. The inflation rate would be running near double digits and the unemployment rate would be over 25%
Bloomberg/Katia Porzecanski and Nishant Kumar/2-26-2021
Image courtesy of VisiualCapitalist.com
“Offering a curmudgeonly riposte to today’s raucous financial markets, the 76-year-old billionaire said in a letter to clients of his $42 billion Elliott Management Corp. that a ‘flamboyant line-up’ of excesses will come back to haunt investors. To Singer, who has long warned of an ugly end to the Federal Reserve’s easy-money policies, it’s all just a bit too much.”
USAGOLD note: Singer has long been a proponent of gold ownership. This article reports that Elliott (Singer’s investment fund) made money thanks to “a combination of portfolio-protection trades related to interest rates and gold, together with our core activities.” Given the billionaire’s mindset, we highly doubt he has given up on gold in this latest downtrend.
“Worryingly, many of the conditions that led to the extreme inflation episodes in Weimar Germany and in 1990s Russia have started to emerge. First, central bankers have been running ‘quasi-monetization’, or asset-purchase (QE) programs for over a decade with a stupendous increase during the past pandemic year (see Figure 1). Secondly, supply-chain disruptions have also started to emerge, which will start to crimp production capacities at some point. These are the two ‘pre-conditions’ for an inflationary crisis to materialize.”
USAGOLD note: Rarely in history have central banks made a public announcement of creating inflation simply because it is a kind of Frankenstein creation that takes on a life of its own and can become a monster. Yet that is precisely what central banks are doing at the present. Malinen describes the internal machinery of inflation – the hidden engine under the hood that drives the process. He says if the beast gets away it could create “total chaos in the financial markets…with the world descending into chaos.”
“During my 20 years at the top of the chess world, from 1985 to 2005, chess-playing machines went from laughably weak to the level of the world champion. It was a startling transformation to experience firsthand, and it was impossible not to feel unsettled, even threatened, by their rapid progress. These are the same sensations that many are feeling today, as intelligent machines advance in field after field. Few people will experience the dramatic, head-to-head competition against a machine that I experienced, of course, but the sensation of being challenged, surpassed and possibly replaced by an automaton, or an invisible algorithm, is becoming a standard part of our society.”
Russian chess master