Credit Bubble Bulletin/Doug Noland/7-20-2019

“This work highlighted a number of conclusions based on model simulations. In particular, monetary policy can mitigate the effects of the ZLB in several ways: The first: don’t keep your powder dry—that is, move more quickly to add monetary stimulus than you otherwise might… When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress. …My second conclusion, which is to keep interest rates lower for longer. The expectation of lower interest rates in the future lowers yields on bonds and thereby fosters more favorable financial conditions overall… Finally, policies that promise temporarily higher inflation following ZLB episodes can help generate a faster recovery and better sustain price stability over the longer run. In model simulations, these ‘make-up’ strategies can mitigate nearly all of the adverse effects of the ZLB.”

USAGOLD note:  Such are the words of John Williams, president of the Federal Reserve Bank of New York, occupant of perhaps one of the top two or three positions in the federal economic bureaucracy. We highlight the sympathy expressed because it has so much to do with gold’s recent price performance. As for the Credit Bubble Bulletin, I think it important to note that we include Mr. Noland’s thinking weekly at USAGOLD simply because. . . .well. . . .simply because it makes a great deal of sense.

Financial Times/Henry Sanderson/7-19-2019

“These days, the conversation is changing as fears rise about the fate of the global economy and bond yields continue to fall — pushing the total amount of bonds that provide a negative yield to almost $13tn by the latest count, up from $6tn in October, according to data from Barclays. The correlation between the growing volume of negative-yielding bonds and the rising value of gold is striking.”

USAGOLD note:  In a world where bond yields are sinking and could sink below zero, gold’ appeal rises for reason that go beyond its safe-haven, store-of-value attributes.  This article explores in some detail that aspect of gold’s strong performance over the past month and a half and well worth the visit for those contemplating gold ownership or those looking for a good reason to add to their holdings.

World Gold Council/Isabella Strauss-Kahn/7-19-2019

“The dollar is the most widely held reserve asset but, according to International Monetary Fund statistics, gold comes third, accounting for 11% of global reserves. Having been net sellers until 2000, central banks have been net buyers ever since. In 2018 alone, central banks bought 651 tonnes of gold, up 74% compared to 2017 and the highest level since 1971. Over the past decade, central banks have purchased more than 4,300 tonnes of gold, taking their total holdings to around 34,000 tonnes today. The trend has continued in 2019, with net purchases reaching 90 tonnes before the end of the first quarter.”

USAGOLD note:  It is not only the points made in this excellent portrayal but also who is delivering it.  Isabella Strauss-Kahn is the former Director of Market Operations at the Bank of France and Lead Financial Officer for the World Bank. “This is where gold,” she says, “comes into its own, as it fulfills central banks’ three core objectives: safety, liquidity and return.” Her objectives, by the way, fit well those sought by most private investors.

CNBC/Jeff Cox

“Essentially, the view is that next time around policymakers will go even further. That means the use of ‘Modern Monetary Theory’ — in which even more government debt is used to spur growth — along with negative interest rates and the possible step of distributing ‘helicopter money’ or direct cash from central banks like the Federal Reserve.”

USAGOLD note:  We’re not making this up, folks.  And a large number believe that there is nothing wrong with the mad-hatter policy alternatives just listed. If you do not believe that a gold hedge might be the personal policy position of the future, than perhaps you aren’t paying attention.  In a recent Gallup poll, 43% said they believe socialism would be a good thing for America.

Repost from 5-28-2019

Chart Watchers/John Murphy/7-12-2019

“Gold recently rose to a six-year high on falling U.S. interest rates which have weakened the dollar (aided by a more dovish Fed). So gold is rising in dollar terms. The true hallmark of a bull market in gold, however, is its ability to rise relative to other major currencies. And it’s doing just that.”

USAGOLD note:   Murphy says all the top currencies are losing value against gold and says that “global traders have turned to gold as a new store of value. . .”  We made reference to this article and yesterday’s DMR. It includes a couple of interesting charts that affirm Murphy’s criteria for a bull market.

Repost from 7-15-2019

Financial Times/Opinion/Rana Foroohar/7-7-2019

“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.”

USAGOLD note:  Foroohar offers a fascinating delineation of the forces at work in the global economy and financial markets centered around the three “systems” mentioned above.  She talks about things we should all be thinking about.  We have not seen an analysis similar to this anywhere else.  This is good stuff . . .

Repost from 7-8-2019

Money and Markets/JT Crowe/7-12-2019

“The way these things have always worked, in 2007, Iceland went bankrupt, and most people had no clue about that and didn’t know or care, and then later though, Ireland went bankrupt. Few more people noticed. A little while later after that, Bear Stearns went bankrupt. A few more people started noticing. A few weeks later, Northern Rock went bankrupt, then people started catching on. Eventually, Lehman Bros. went bankrupt and by then it was on the evening news all over the world.”

USAGOLD note:  Rogers makes an important point for investors to consider in terms of formulating a crisis response.  Of course, the best strategy is to diversify ahead of time in the interest of buying right and keeping the psychological damage to a minimum. It takes awhile for the public to actually believe that a crisis is underway.  Most often, a major event – like Lehman Brothers in late 2008 – precipitates the full-out response. Up until then, the markets (including gold) tend to react slowly and gather pace gradually as investors sort out whether or not the crisis is real or a false alarm that the authorities have under control.  Once the seminal event occurs, the market reaction can last many months – even years.

Repost from 7-15-2019

The Business Times/Willem Middelkooop/7-19-2019

“Beijing wants to increase its gold reserves in the shortest time possible to at least 8,000 tonnes. This would put China on a par, in terms of its gold to gross domestic product (GDP) ratio, with the US and European Union. It would open the way, should the need arise, for a possible joint US-EU-China gold revaluation to support the financial system.”

USAGOLD note:  A bullish overview of possibilities for gold in the official sector . . . .

MarketWatch/Greg Robb/7-18-2019

“Given that its benchmark interest rate is so close to zero, the most effective strategy for the Federal Reserve is to cut rates at the first sign of trouble, said New York Fed President John Williams, on Thursday.”

USAGOLD note:  Williams, Clarida and Powell – a pretty formidable trifecta – laying  groundwork for the July end FOMC meeting.

Bloomberg/Christopher Condon and Rich Miller/7-18-2019

“‘You don’t need to wait until things get so bad to have a dramatic series of rate cuts,’ Clarida said Thursday in an interview on Fox Business Network, citing economic research. ‘We need to make a decision based on where we think the economy may be heading and, importantly, where the risks to the economy are lined up.’”

USAGOLD note:  Clarida’s comments directly address the critics who are questioning the Fed’s lean to lower rates at a time when the economy is still showing some good numbers.

Bloomberg/Saleha Mohsin/7-18-2019

“Treasury Secretary Steven Mnuchin said there is no change in the U.S.’s dollar policy ‘as of now’ but wouldn’t rule out a shift at some stage in the future. There has been ‘no change to the dollar policy,’ he said during an interview Thursday following a Group of Seven finance ministers’ meeting in Chantilly, France. ‘This is something we could consider in the future but as of now there’s no change to the dollar policy.’”

USAGOLD note:  It will be interesting to see how Mnuchin’s comments will play in the markets as the day moves along. Looks like he’s leaving the door wide open for  a “change.”

Reuters/Andrea Shalal/7-17-2019

“The International Monetary Fund said on Wednesday the U.S. dollar was overvalued by 6% to 12%, based on near-term economic fundamentals, while the euro, the Japanese yen and China’s yuan were seen as broadly in line with fundamentals.”

USAGOLD note:  So what will it devalue against?  Bitcoin? Some think this was the news behind gold’s rally yesterday.

TheEconomist/Buttonwood

“There is one other destination you might consider, if only because others are starting to think the same way. And that is gold.”

USAGOLD note: Deductive logic, game theory point to gold . . . A well-written thinking man or woman’s approach to the financial markets and gold.

Repost from 2-15-2019

EurasiaFuture/Adam Garrie/7-11-2019

“Perhaps ironically, Powell’s monetarily authoritarian remarks about gold were likely inspired by the fact that Donald Trump seeks to appoint the pro-gold Judy Shelton to the Federal Reserve’s influential board of governors. In this sense, Powell’s remarks are symptomatic of someone speaking from defensive position. As such, Powell’s defensive remarks are demonstrative of the fact that more and more people are looking to gold as a means of getting out of the inflationary traps and debt traps that are implicitly cyclical when one’s economy is predicated on the artificial value of a fiat currency.”

USAGOLD note: When Jerome Powell was asked about the gold standard during testimony before the Senate Banking Committee, it was not the first time a Fed chairman was questioned on the subject.  Alan Greenspan and Congressman Ron Paul had a long-running discussion on the merits of gold and the gold standard in the late 1990s and early 2000s.  We thought so much of those exchanges that we posted the transcripts in their entirety at the USAGOLD website’s Gold Classics Library where they still reside today.  The following is an excerpt from the Editor’s Note introducing the Greenspan-Paul dialogue:

“In putting this page together, I was struck with Dr. Paul’s ability to cut through the political gamesmanship that necessarily comes with being chairman of the Fed to Alan Greenspan, the man and political/economic philosopher. What emerges is a powerful figure conflicted between the practical manager charged with operating within the current fiat monetary system and the philosopher-academic with a ‘nostalgia,’ as he puts it, for the days of the gold standard. Without Dr. Paul’s incisive questioning, I doubt that this aspect of the Greenspan character would have found its way to the public venue and the historical record. Though the relationship appears adversarial at first blush, one also detects a certain amount of mutual respect and interest. Says Dr. Paul of the exchanges: ‘My questions are always on the same subject. If I don’t bring up the issue of hard money vs. fiat money, Greenspan himself does.'”

Knowledge Leaders Capital/Bryce Coward/7-16-2019

“We have been surprised over recent weeks to read a slue of commentary proclaiming that the economy is in great shape and Fed Chairman Powell is just pandering to markets by signaling rate cut(s) in July and beyond. Specifically, “strong” readings from the employment report, inflation and now retail sales have received much attention even as much more leading data continues to point to weakness among these very indicators in the second half of 2019. In this post we’ll try to show why Chairman Powell is right to cut rates here and now and why incoming data has done little to alter the intermediate-term outlook of a slower economy ahead.”

USAGOLD note:  We thought this article helpful in showing some of the statistical categories that could influence the Fed’s decision on rates come the end of July.  The article’s most important message is that the Fed is looking at a great deal more than the numbers emphasized in surface analysis of the economy.  We would add that it is not just chairman Powell who makes the decision on rates, but a panel of economic experts that meets as the Federal Open Market Committee. Powell often makes reference to “we” when he talks about monetary policy decisions and he has shown an inclination toward being a “consensus” Fed chairman.

MarketWatch/Steve Goldstein/7-17-2019

“There have been three times when shocks from outside the U.S. have hit home — the late 1990s, encompassing the Mexican peso crisis, the Asian financial crisis and the collapse of Long-Term Capital Management; the 2011-13 European recession; and the 2015-16 Chinese slowdown. The Morgan Stanley note points out the Fed has responded on all three occasions.”

USAGOLD note:  The next international shock can come from any one of several locations – or more than one all at the same time.  The Fed is trying to throw a blanket over the problem with lower U.S. rates, and, yes, we agree with Morgan Stanley it is much larger factor in monetary policy than many think due to  the potential for default on dollar-denominated debts and the fear of igniting a contagion if it fails to move.

Bloomberg/Katherine Greifeld and Saleha Mohsin/7-17-2019

“Administration officials believe that for any move on the dollar to succeed, the Fed must agree with the policy and clearly communicate its support, according to people familiar with the matter. The Treasury Department and Fed have coordinated the last three U.S. currency interventions, splitting the amount transacted evenly between them in 1998, 2000 and 2011 in order to nudge the dollar’s value.”

USAGOLD note:  As we mentioned in a previous post, the Treasury’s ability to sell dollar holdings is limited.  For a devaluation policy to have teeth, the Fed must join-in with dollar balances it can tap to sell into the foreign exchange market against various competitive currencies.

Financial Times/Ortenca Aliaj and Robin Wigglesworth/7-17-2019

“Kyle Bass, the outspoken hedge fund manager who rose to prominence through prescient bets against the US housing market, Greece and Iceland, is now wagering that US interest rates will collapse to near zero next year as the country enters a recession and the Federal Reserve is pushed into crisis mode.”

USAGOLD note:  Bass has a wide following among gold owners. Let’s not forget that he was the advisor who recommended that the University of Texas buy gold with its wealth fund (which it did).  He now believes, as this article reveals, that the United States could go the way of Europe and Japan – deep into the realm of “the zero bond yield world.” If gold’s performance has been impressive the result of potentially lower rates, how might it react if the yield on the 10-year Treasury actually went to zero?

(USAGOLD – 7/17/2019) – In the absence of other news, we see silver’s upside over the past few days as the primary influence on gold’s strong move today. Silver is pulling gold higher along with it.  We also see gold’s holding firmly above the $1400 level as an important technical factor encouraging many speculators to go long and others to cover their short positions. Too, it doesn’t hurt to have people the stature of Ray Dalio speaking so forcefully in gold’s favor as a long-term hedge. (Scroll below)

TODAY. . . .
Gold –– + 1.56%
Silver –– + 2.50%

Stay tuned. . . .We will update if more information becomes available.

Axios/Dion Rabouin/7-5-2019

“The world’s debt rose by $3 trillion in the first quarter of 2019 — an almost unprecedented borrowing binge that brought total global debt to $246.5 trillion. High levels of debt put countries in a vulnerable position in the event of a downturn and could endanger the world’s economic recovery, said economists from the Institute of International Finance, which released the study today.”

USAGOLD note:  Question – Why is gold up in almost every national currency on the globe?  Answer – Because most of the countries in the world are in debt up to their eyeballs and the citizen/investor feels a need to protect his or her hard-earned savings.

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