Gold subdued today, looking for direction
(USAGOLD – March 21, 2019) – Gold is in a bit of a quandary this morning following the Fed’s surprise policy maneuvers yesterday. The response was strong out of the gate, but things cooled overnight and that subdued mood carried over to the New York open. Gold, as a result, is level on the day as is silver. We suspect that the markets are in for a re-calibration having its beginnings in countless strategy meetings in investment offices across the globe this morning. Most expected the Fed to be come out dovish after yesterday’s meeting. Few expected it to come out as dovish as it did. Though an easier monetary policy is welcome news among investors, the economic weakness it implies is not. It might take a day or two for the real reaction to find its way to the financial marketplace. We await that outcome. . . . .
Quote of the Day
“’The granaries in all the towns are brimming with reserves, and the coffers are full with treasures and gold, worth trillions,’ wrote Sima Qian, a Chinese historian living in the 1st century BC. ‘There is so much money that the ropes used to string coins together rot and break, an innumerable amount. The granaries in the capital overflow and the grain goes bad and cannot be eaten.’ He was describing the legendary surpluses of the Han dynasty, an age characterised by the first Chinese expansion to the west and south, and the establishment of trade routes later known as the Silk Road, which stretched from the old capital Xi’an as far as ancient Rome.” – Charles Clover and Lucy Hornby, Financial Times
Chart of the Day
Why the Dow Jones Industrial Average got so spooked by the Federal Reserve
MarketWatch/Ben Levisohn/3-20-2018
“That the market isn’t up, let alone up more, could be seen as a surprise given just how far out of its way the Fed went not to upset it. It doesn’t expect rate hikes in 2019, and it also set a level for how much it will let its balance sheet shrink. All good, right?”
USAGOLD note: So why did the stock market sell-off yesterday on news that should have sent it on a tear higher? An early take at the link above. . . . .
Gold ETFs rise following Fed rate decision
ETF Trends/Ben Hernandez/3-20-2019
“Following the Federal Reserve’s decision to keep rates flat, gold exchange-traded funds (ETFs) like the SPDR Gold Shares (NYSEArca: GLD) and SPDR Gold MiniShares (NYSEArca: GLDM) gained as the dollar fell. GLD gained 0.65 percent while GLDM rose 0.61 percent.”
USAGOLD note: Not surprisingly, funds and institutions bought gold on the Fed news.
Powell signals prolonged Fed pause as inflation lags, risks loom
Bloomberg/Jeanna Smialek and Matthew Boesler/3-20-2019
“It was very dovish,’’ said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “It suggests that the Fed has jumped to the conclusion that the weakening we have seen since the start of the year will be more fundamental and more persistent, rather than being temporary crosscurrents.”
USAGOLD note: Most of the comments in this article fall in line with our own in yesterday’s Afternoon Update. We see the Fed’s moves yesterday as ultra-dovish. The only way it could have been more dovish is if the Fed had announced a surprise rate cut or the reintroduction of quantitative easing. A consistently weaker dollar might be the end result over the weeks and months ahead – a turn of events likely to be received happily at the White House.
Trump warns China tariffs could remain for ‘substantial’ time
Financial Times/Pan Kwan Yuk/3-20-2019
“We’re not talking about removing them, we’re talking about leaving them for a substantial period of time, because we have to make sure that if we do the deal with China that China lives by the deal,” Mr Trump said. “They’ve had a lot of problems living by certain deals.”
USAGOLD note: This news had a cooling effect on markets yesterday afternoon.
This might be the dollar disaster bears have been waiting for
Bloomberg/Susanne Barton and Katherine Greifeld/3-20-2019
“Before Wednesday, ‘we were mildly bullish with the intention of flipping as soon as the Fed signaled that it was done tightening through QE and rate hikes,’ said Greg Anderson, global head of foreign-exchange strategy at BMO. ‘The Fed dropped those hints a whole lot faster than we thought.'”
USAGOLD note: Many in the professional money management business placed bets on a more moderate approach to rates than what the Fed signaled earlier today. What surprised many is the breadth of support for an ultra-dovish policy on the Board of Governors. As TD Securities’ Mark McCormick told Bloomberg at the link above: “The dots are dinging the dollar.”
Afternoon Update – Gold takes kindly to ultra-dovish policy maneuvering
(USAGOLD – March 20, 2019) – Gold took kindly to the Fed’s dovish policy maneuvers today finishing at $1314 – up $8 on the day and $14 from its intraday low. Silver also reacted positively to the Fed meeting – up $13¢ at $15.52. In a suggested plan that took the market by surprise, policy-makers revealed they would likely raise rates just once between now and the end of 2020 and then hold them steady in 2021. It also put ending its balance sheet runoff on a firm timeline saying it would stop in September and slow the process down in the interim.
While gold took the projected policy changes as a positive, the Dow had the opposite reaction tracking south on worries that the Fed was reacting to a weakened economy that would affect stock values. It will be interesting to see how the markets react in the coming weeks to what can only be described as ultra-dovish positioning today on the part of the Powell-led FOMC.
Fed sees no rate hikes in 2019, plans to slow balance sheet reduction
Reuters/Howard Schneider and Trevor Hunnicutt/3-20-2019
“In a major shift in its perspective, the Fed also now expects to raise borrowing costs only once more through 2021, and no longer anticipates the need to guard against inflation with restrictive monetary policy.”
USAGOLD note: The Fed will also slow its monthly balance sheet run-off from $30 billion to $15 billion and end it in September. The announcement it will raise rates only once through 2021 was a surprise that the markets are trying to digest. The Reuters article linked above provides a good overview of the Fed meeting and its aftermath.
Short and Sweet
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Two legendary central bankers embrace gold
All is not well with the economy. Growth rates continue to remain stubbornly low in the United States and at recessionary levels in much of the rest of the world. A recent Gallup Poll found that “Americans’ outlook for the economy has soured in the past two months, with 48% now saying economic conditions are worsening – up from 45% in December and 36% in November.”
In The End of Alchemy (2017), Mervyn King, the former governor of the Bank of England, writes of central banks’ frustration in dealing with the persistently stagnant global economy. “Central banks,” he says, “have thrown everything at their economies, and yet the results have been disappointing, Whatever can be said about the world recovery since the crisis, it has been neither strong, nor sustainable, nor balanced. . . [W]ithout reform of the financial system, another crisis is certain – sooner rather than later.”
“Our problem,” Alan Greenspan once said, “is not recession which is a short-term economic problem. I think you have a very profound long-term problem of economic growth at the time when the Western world, there is a very large migration from being a worker into being a recipient of social benefits as it is called. And this is legally mandated in all of our countries.” The western world, he concludes, is headed to “a state of disaster.”
It is interesting to note that both Greenspan and King, two of the most respected central bankers in modern times, have embraced gold since leaving their respective posts. The former Fed chairman has consistently suggested that gold is “a good place to put money these days given the policies of governments.” The former governor of the Bank of England says that he is “very struck by the fact that over many many years, central banks, governments and individuals have always, despite the protestations of economists, held some gold in their portfolio. . .[W]hen unexpected things happen, particularly when governments rise and fall, then gold is a means of payment that everyone is always prepared to accept. And I think that’s why even central banks have always had a role in their portfolios for gold.”
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Central banks register largest January increase in gold reserves on record
“Gross purchases of 48 tonnes (t) and gross sales of 13t led to global gold reserves rising by 35 tonnes on a net basis in January, with sizeable increases from 9 central banks. This is the largest January increase in gold reserves in our records (back to 2002) and illustrates the recent strength in gold accumulation. Demand was concentrated amongst emerging market central banks with diversification the key driver in the face of ongoing geopolitical and economic uncertainty.”
Chart courtesy of the World Gold Council/GoldHub
Repost from 3-12-2019
Comparing US economic output against the rest of the world
“The U.S. economy hit $20.5 trillion in GDP in 2018,” says HowMuch. “What does this number actually mean? Well, GDP stands for “gross domestic product”, or, the total value of goods and services produced by a country in any given year. This means the U.S. produced $20.5 trillion in goods and services over 2018. This is an impressive number in and of itself, seeing as total GDP for the entire world was about $80 trillion in 2017. Yet, what might be more impressive is breaking down GDP by each individual state, and then measuring each state against a foreign nation to see how each state fares in size. What the results show is nothing less than astounding.”
Chart and commentary courtesy of HowMuch.net, March 2019
Repost from 3-14-2019
When the barbarous relic hit $1000
“In modern times the lessons of Zimbabwe and Venezuela point to the catastrophic effects that can follow when a corrupt or incompetent government finances its lavish spending by printing more of its currency. The Gold Standard favors the countries that have gold deposits, but it has the advantage of making it difficult for governments to inflate prices by expanding the money supply. It engenders long-term price stability because the money supply can only grow at the rate at which gold is produced. Inflation can come, though, if a major new source of gold is developed, as happened with Spanish gold from the New World, or with various ‘gold rushes.'”
USAGOLD note: As we have said here so many times over the years, the best recourse for the average investor in the absence of a gold standard is to put one’s self on the gold standard through physical ownership of gold coins and bullion.
Repost from 3-15-2019
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Gold edges tentatively higher; fourth straight up day
(USAGOLD – March 20, 2019) – Gold edged tentatively higher for the fourth straight day after spending a quiet night overseas. It is up $3 from yesterday’s close at $1309, but up $6 from Asia’s low earlier this morning. Silver is up 3¢ at $15.41. The fact that gold has traded marginally higher during the week of an FOMC meeting is in itself noteworthy. Typically it struggles during Fed Week. The fact that it held its own tells us that investors are expecting a dovish result from today’s statement and press conference. That’s not to say that the Fed is incapable of delivering a surprise.
Will Rhind, CEO of Granite Shares ETFs, has a positive outlook on gold. “You’ve had a bit of a V-shaped recovery in the market,” he recently told CNBC, “but [with] gold prices selling off, this could well be a buying opportunity for gold at this point. . .That’s a weaker dollar platform in my mind, one of the key things that helps drive gold prices. So, for me, I think: Look at this price and think about defensive positioning.” The selling off he mentions came when gold dipped below the $1300 level earlier this month. Gold is up $25 from those lows.
Quote of the Day
“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.” – William Strauss and Neil Howe, The Fourth Turning
Chart of the Day
Chart note: This chart shows the percent change year over year in the volatility index along with the price of gold. As you can see, past bouts of increased volatility have preceded upward movement in the price of gold. The last spike in volatility came at the end of last year and it matched in magnitude spikes that occurred during the 2007-2008 credit crisis.
The trade of the century
Bloomberg/Sarah Ponczek/3-19-2019
“One of last year’s best-performing hedge funds says the ‘trade of the century’ is to buy gold and sell stocks as risk assets are due for another meltdown.”
USAGOLD note: Denver’s Crescat Management, the subject fund for this Bloomberg article, is just one among many professional money managers these days moving to gold as a hedge against what it sees as a potential stock market meltdown. For concerned private investors with a longer-term outlook who are not typically risk-takers and market traders, a judicious hedge in gold and silver coins and bullion seems a prudent course of action.
Silver demand in India set for 4-year high on farm cash payout
Bloomberg/Swansy Alonso/3-19-2019
“Silver will see a resurgence in demand this year from rural Indians spending cash handouts from the government designed to aid local economies ahead of the general election, according to Metals Focus Ltd.”
USAGOLD note: Two other factors are driving Indian demand for silver – low international prices and a weakening rupiah, as reported here yesterday.
Argentina’s peso, nothing but trouble
“While this spike caught most observers off balance, it didn’t surprise me. . . By my measure, Argentina’s annual inflation rate is 100%/yr (see the accompanying chart at link above). That’s nearly double the official rate reported for the end of February.”
USAGOLD note: Emerging country debt and currency problems stimulate two important sources of physical gold demand. The first is within the country itself as investors up and down the economic ladder – from private individuals to financial institutions – move to safeguard their assets from currency depreciation and systemic risks. The second is external to the country as investors elsewhere move to insulate their portfolios against the risks its problems might impose on the rest of the interlocking global banking system.
Commerzbank predicts gold to rise in 2019, pull silver with it
ETF Daily News/Allen Sykora/3-19-2019
“‘Gold is likely to rise to $1,400 per troy ounce by year’s end. . . ‘We expect a silver price of $16.50 per troy ounce at year’s end. This would mean a gold/silver ratio of 85.’”
USAGOLD note: Commerzbank believes that central banks continue to be a strong market for gold for the rest of 2019. . . .
Gold benefitting as central banks de-dollarize
“‘Even though USD still accounts for 39.9% of international payments according to SWIFT, its market share has declined, as the global economy has become less U.S. and USD-centric,’ the [Bank of America Merrill Lynch] analysts said. ‘We believe that de-dollarization is an important factor behind the addition of gold to central bank gold reserves.’
USAGOLD note: We note that de-dollarization is occurring at a time when the greenback is on the rise in in global markets. One wonders how the process will be affected if the dollar begins to decline as many analysts are forecasting for 2019.
There’s a fight brewing over government debt, low inflation and what to do about it
“‘This is an Alice in Wonderland world,’’ said former International Monetary Fund chief economist Olivier Blanchard. It’s one that Japan has long been familiar with, and Europe may be getting used to. In the U.S., it’s prompting policy makers to reconsider how public finances and interest rates should be managed. Possible results include even bigger government deficits and debt, and faster inflation — all anathema to Econ 101.”
USAGOLD note: It is hard to imagine how the principles of the Mad Hatter Modern Monetary Theory can gain credence in the public debate without encouraging a large, consequent flight out of the dollar and into gold and silver.
Repost from 3-15-2019
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The road to confetti is long and winding
“Does the deployment of helicopter money not entail some meaningful risk of the loss of confidence in a currency that is, after all, undefined, uncollateralized and infinitely replicable at exactly zero cost? Might trust be shattered by the visible act of infusing the government with invisible monetary pixels and by the subsequent exchange of those images for real goods and services? . . . To us, it is the great question. Pondering it, as we say, we are bearish on the money of overextended governments. We are bullish on the alternatives enumerated in the Periodic table. It would be nice to know when the rest of 
the world will come around to the gold-friendly view that central bankers have lost their marbles. We have no such timetable. The road to confetti is long and winding.” – James Grant, Grant’s Interest Rate Observer
Dr. MoneyWise says. . . .Some think it takes an advanced degree in economics to understand the merits of a diversification in gold and silver when all it takes is a little common sense. Common sense ownership of unencumbered metal saved the skeptical saver in the time of the French assignat inflation in 1789, the nightmare German inflation in 1923, the global bank collapses in 1932, the American stagflationary breakdown in the 1974 and Venezuela’s inflation in 2018 – even though those episodes span almost 250 years. As old Ben Franklin once said: “A change of fortune hurts a wise Man no more than a change of the Moon.”
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Sales of gold and silver should not be taxed
“When you exchange a $20 bill for two $10 bills, you don’t pay sales tax on the transaction, even though, theoretically, you are “buying” the tens. The notion is utterly preposterous. Yet if you purchase a gold coin that was created by the U.S. Mint and is legally usable for commercial transactions, in some states you have to pay sales tax on that coin.”
USAGOLD note: It probably goes without saying that we agree with Mr. Forbes assessment and welcome his prominent voice in the effort to end sales and capital gains taxes on gold and silver (money) transactions on a national basis. As it stands, 38 out of the 50 states have some version of a sales tax exemption in place on citizen purchases of gold and silver coins and bullion. West Virginia joined the group of exempt states just last week.
Repost from 3-14-2019
Gold pushes steadily higher in advance of today’s Fed meeting
(USAGOLD – March 19, 2019) – Gold pushed steadily higher overnight in advance of today’s Fed meeting – up $7 at $1310. Silver is up another 8¢ this morning at $15.42. The advance which began in Asia carried over to European trading and the open in New York. It’s principal influence remains an anticipated dovish result to the meeting on two fronts – the direction of interest rates and an announcement of a time certain for ending the Fed’s quantitative tightening program.
In a report that asks if the world is running out of gold, Germany’s Deutche Welle answers with a quote from CFRA researh analyst Matthew Miller: “The largest and most prolific reserves have already been found. Gold miners are struggling to grow reserves in line with their production.” John Ing, an analyst at Canada’s Maissons, offers a different take on the situation. “Finding gold is a function of the gold price,” he says. “There is no shortage of gold in the world but just at this price there is a shortage. It’s quite possible that gold will be $2,000 per ounce, you will see a rush of exploration and more deposits being found.”
Quote of the Day
“If you could go back to 2007 would you really choose these policies again? Had they been used as short-term shock therapy only, the central bankers might have got away with it. As it is they now made our economies more dysfunctional than ever – and, worse, they can’t find a way out. . .They helped get us into this. They are not having much luck getting us out. But our elected governments have still ceded such enormous power over our financial system to them that we have no choice but to listen to their every word – if we want to have a chance of figuring out how the next (inevitable) crisis will play out, that is. Of all the things that have happened since 2007 that, I think, is the one that makes the least sense of all.” – Merryn Somerset Webb, Editor-in-Chief, Money Week
Chart of the Day
Chart note: This quarterly chart zeroes-in on why the national debt matters to ordinary Americans. Rising interest rates and massive growth in the gross debt will push these numbers much higher – so much so that it will exceed in the near future what the nation spends on national defense. . . .and the higher interest rates grow the greater the problem will become. One would think that like Italy or Greece, at some point, the level of debt and interest payments will affect the national credit rating. Last, please note the acceleration in debt payments over the last twelve months (the last bar represents Q3-2018).
Why gold is still the best basis for money
“Why is it that the collective intelligence (let’s be generous) of today’s central bankers, and indeed all the central bankers since 1971, cannot outperform a yellow rock? This probably strikes some as bizarre, but it has always been thus. Way back in 1928, in a book called The Intelligent Woman’s Guide to Socialism and Capitalism, George Bernard Shaw declared: “You have to choose … between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”
USAGOLD note: Whether or not gold is the best basis for money may be a moot point. Whether or not private investors should own it because the money is not gold-backed, on the other hand, remains a vital question.
How to understand the Fed’s dovish turn
MarketWatch/Noriel Roubini/3-18-2019
“Richard Clarida, a well-respected economist and market expert, joined the Fed Board as vice chair in the fall of 2018, tipping the balance of the FOMC in a more dovish direction. Before then, Fed Chair Jerome Powell’s own dovish tendencies had been kept in check by a slightly less dovish staff and the third member of the Fed’s leadership troika, New York Fed President John Williams, who expected inflation to rise gradually above target as the labor market tightened.”
USAGOLD note: Noriel Roubini on the rapidly changing climate at the Fed as alluded to briefly in yesterday’s DMR . . . Interesting stuff as the Fed meeting begins today and ends with a statement and Powell press conference tomorrow afternoon.
Short and Sweet
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When the United States owned
most of the gold on Earth
Chart courtesy of GoldChartsRUs
Few Americans know that just after World War II the United States owned most of the official sector gold bullion on earth – about 22,000 metric tonnes or 80% of the world total. As part of the 1944 Bretton Woods Agreement, though, the United States allowed unrestricted redemptions from its reserves at the benchmark rate of $35 per ounce. In the 1960s, a group of European nation-states, led by Germany and France, got the idea that U.S. trade and fiscal deficits had undermined the dollar, making gold a bargain at the $35 benchmark price.
Steadily over the next decade, they exchanged dollars for gold at the U.S. Treasury’s gold window. By the early 1970s, 14,000 tonnes of gold – or 64% of the stockpile – had departed the U.S. Treasury never to return. The transfer of gold finally ended in 1971 when President Nixon halted redemptions, devalued the dollar and freed the greenback to float against other currencies.
The era of global fiat money with the dollar as its centerpiece had begun. Gold went from its official role as backing the dollar to one as a hedge among private investors against its depreciation. Since that role reversal, gold has risen in fits and starts from the $35 official benchmark in 1971 to a peak of over $1900 in 2011. It is trading now in the $1300 range. For the central banks that made those original redemptions at $35 per ounce, the gains have been extraordinary – over 3700% at current prices or 7.5% annually compounded over the 47-year year period. Simultaneously, the dollar lost 84% of its purchasing power. In short, for those central banks that redeemed their dollar for gold in the 1960s, gold lived up to its historical billing as a means to long-term asset preservation.
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The ecstasy of gold
MasterInvestor/Mark Watson-Mitchell/3-18-2019
“It is now evident that central banks have been buying-up gold at a rate not seen since World War II, driven by concerns over geopolitics, government debt, inflation and the strong dollar. And although the yellow metal has at times caused short-term pain, it can give better returns than other asset classes in the long-term.”
USAGOLD note: An abridged, information-packed history of the gold market and a less than 10-minute read . . .
Image courtesy of © Degussa Goldhandl 2019.
A 42% surge in India’s gold bar imports
“The combined gold bar imports during the initial eleven-month period of the current fiscal year totaled $7,183.02 million. The imports surged higher significantly by 41.80%, upon comparison with the imports that had totaled only $5,065.71 million during the corresponding eleven-month period of the previous fiscal year.”
USAGOLD note: About a month ago, reports were circulating that investment gold demand would drop in India due to increasing acquisition prices in rupiah terms. We questioned that assumption saying that the increase seemed small when compared to the concern Indians might have about the future value of their currency. It turns out we were right on that score. Bullion sales are up 42% over the past eleven months in India as investors move to protect their assets against further depreciation of the rupiah.
The relevance of gold as a strategic asset
“Gold is a highly liquid yet scarce asset, and it is no one’s liability. It is bought as a luxury good as much as an investment. As such, gold can play four fundamental roles in a portfolio:
–a source of long-term returns
–a diversifier that can mitigate losses in times of market stress
–a liquid asset with no credit risk that has outperformed fiat currencies
–a means to enhance overall portfolio performance.”
USAGOLD note: Why gold makes sense for private investors as a long-term, all-weather portfolio addition. . . . . . .
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