“Big bullion banks including HSBC have pulled back from trading gold futures after disruption in the market that flared up in the coronavirus crisis.”
USAGOLD note: An interesting look at what happened back in March when COVID-19 disrupted the flow of bullion in the gold market and affected settlement on the COMEX. Some bullion banks were caught short forcing them to take a major mark to market loss when premiums bolted higher. Delivery first notice day, by the way, was yesterday (5/28/2020), so we will see in time whether or not a similar event to March is in progress on the June contract.
“There is absolutely nothing wrong with this economy that a miracle cannot fix… to fine-tune a phrase of Alexander Woollcott. We believe the economy was going at partial throttle even before the pestilence ran it down. It gave the appearance of an exotic racing auto — sleek, finely lined, waxed to a blinding sheen … But beneath this racer’s shining surface lurked a lemon…”
USAGOLD note: Things not being what they seem is the theme of the day and instead of the “V-shaped” recovery we all wish for, Maher worries it is an illusion. Instead he sees “More debt, more warfare against savers, more monetary and economic bedlam, more of all of it — only more so.”
“Over the last decade, the Federal Reserve, and Central Banks globally, have engaged in never-ending ‘emergency measures’ to support asset markets. While the stated goal was that such actions were to foster full employment and price stability, there has been little evidence of success … What monetary policy did not do was lead to ‘general fluctuations in price levels.’ Despite the annual call by the Fed of higher rates of inflation and economic growth, the realization of those goals remains elusive.”
USAGOLD note: Roberts argues that deflation is the longer-term threat, but inflation potentially looms in the short term. That, he explains, will present the Fed with a whole new and different set of problems.
Repost from 5-24-2020
“Two French kids reportedly stumbled upon more than $100,000 worth of gold while they were in coronavirus lockdown. According to local media, the children — both around 10 years old — made the discovery when their family went to stay with an older relative in the French town of Vendome after lockdown measures were enforced in March.”
USAGOLD note: May your lockdown be equally productive.
Repost from 5-24-2020
“Those who have lived through currency crises know that they are swift, brutal, and irreversible. The lucky who have income or saving in a non-local currency see a sudden, dramatic increase in their purchasing power. Most see their living standards collapse. When the dollar fails, so will nearly all of the other global currencies, since most central banks use dollars as their core reserve asset. Gold will prove to be the only non-local currency.”
USAGOLD note: Oliver offers three end-game scenarios emanating from the current crisis, one of which, he predicts, could take gold to the $10,000 per ounce level. It involves a helicopter drop of money that causes a global currency crisis.
Repost from 4-19-2020
“As I had the opportunity to directly question Taleb on gold, he told me truly despises gold. He hates gold. He couldn’t care less about the gold market. Yet Taleb does invest a large share of his ‘safe assets’ in physical gold. Gold is the robust investment par excellence. In case the global economy is on the verge of collapse, gold will keep afloat and survive. Or things might go great, but even then an investment in gold will not result in enormous, unrecoverable losses and ruin. Or as some gold investors rightly remark: for a more or less regular gold coin you could buy hundreds of liters of wine centuries ago and for the value of a similar coin in present times that probably still holds true. Taleb calls this the Lindy effect: gold has been a store of value for, according to some accounts, 4,000 years. We can reasonably expect gold, therefore, to continue to be a store of value for the next 4,000 years.”
USAGOLD note: Nicholas Taleb has always held a place of honor in my reference list of economists and market commentators even before I learned of his love-hate attachment to gold through Olav Dirkmaat’s excellent profile linked above. Taleb’s latest book is Skin in the Game.
Repost from 4-27-2018
“US Congress has authorized several trillion dollars in Covid-fighting stimulus programs. So what’s holding the dollar up? I remain amused by all the calls of hyperinflation and high inflation given the Fed has turned on the printing presses. However, currencies cannot be viewed in isolation. To those expecting a total US dollar collapse, here’s my word of advice. Stop being so US-centric.”
USAGOLD note: When the printing press is running at full speed for all currencies, gold is the clear winner and that is why it is at all-time highs in many of the world’s currencies. The exception is the dollar, but that might be temporary. Mish asks a second question (the first is in the headline): “Got gold?”
Repost from 5-25-2020
The naughty boy who blurts out unpleasant truths
“In the first place, the ‘classic’ writers, without neglecting other cases, reasoned primarily in terms of an unfettered international gold standard. There were several reasons for this but one of them merits our attention in particular. An unfettered international gold standard will keep (normally) foreign-exchange rates within specie points and impose an ‘automatic’ link between national price levels and interest rates. The modern mind dislikes this automatism, as much for political as for economic reasons: it dislikes the fetters this automatism clasps on government management of the economic process – dislikes gold, the naughty boy who blurts out unpleasant truths. But most of the economists of the period under survey liked it for precisely the same reasons. Though they compromised in practice as in theory and though they admitted central-bank management, the automatism – a phrase beloved by Lord Overstone [Samuel Jones Loyd, 1st Baron Overstone] – was for them, who are neither nationalists nor etatistes, a moral as well as an economic ideal.” –– Joseph Schumpeter, History of Economic Analysis (1954) Published posthumously
Dr. MoneyWise says. . . .And to Dr. Schumpeter’s well-considered discourse on the practical merits of the gold standard, I will add a simple thought of my own: Absent the gold standard, the prudent investor who stores gold benefits in concert with the blurting of those unpleasant truths.
“Change may be afoot. The ‘anything it takes’ economic policy of central banks and governments around the world is shaking things up across the spectrum of investment types. Since March 23, 2020 silver has been one of the top-performing major commodities, outperforming gold by a significant margin.”
USAGOLD note: Silver is playing catch-up with gold. It is up 15.2% over the past 30 days. Gold is up 2.9% over the same period.
Repost from 5-24-2020
(USAGOLD – 5/29/2020) – Gold climbed higher in overnight markets tacking $13 onto the price to stand at $1736. Silver is up an impressive 36¢ at $17.82. The metals began their latest uptrend with renewed support at the $1700 and $17 levels respectively earlier in the week then gained momentum on mounting tensions in Hong Kong and lingering concerns about the longer-term results from global stimulus programs. Those who fear policymakers’ efforts will fall short worry about an outcome like the 1930s Great Depression. Those who think the money printing will revive moribund economies worry it will also create a runaway inflation. Both camps have turned to precious metals for safe-haven purposes and, over the past few months, prices have pushed steadily to the upside as a result. On the week, gold is level while silver has gained about 3.5%.
Incrementum is out with its widely-anticipated In Gold We Trust annual report. It offers the prospect of a bright future for gold in the coming decade: “Our forecast, or rather our conclusion from last year, that gold was in a new bull market, has come true. The strength of the trend was accentuated even further last year, which is why we assume that new all-time highs will soon be reached in US dollar terms. For us it is obvious that the gold price – against any currency – is about to enter a golden decade, i.e. the purchasing power of EUR, USD, etc. measured in gold will continue to fall. … Last year we took a clear position and concluded that we were in the early stages of a new gold bull market. This thesis was confirmed with the breakout above the resistance zone at $1,360-1,380 and the subsequent start of the rally. However, this significant price rise should be taken with a grain of salt. To reach the inflation-adjusted all-time high of 1980, gold would still have to rise to $2,215.” Ultimately, Incrementum sees gold reaching between $4,800 and $8,900 by 2030.
Chart of the Day
Sources: ICE Benchmark Administration Limited (IBA), St. Louis Federal Reserve [FRED]
Chart note: This long-term chart on the annual average price of gold since 1970 dispels the notion that gold is somehow volatile or unpredictable and as a result unreliable as a long-term portfolio safe haven. To the contrary, it shows gold living up to its reputation as a reliable portfolio safe haven during times of rapidly changing economic circumstances. The strong showing for 2019 is worth noting with the average price at $1392 per ounce. At this morning’s $1732 price, gold is now trading almost 25% higher than 2019’s average price.
“Buzz that Goldman would release a report discussing the state of the economy as well as gold and cryptocurrencies set enthusiasts ablaze, with many hoping the bank would finally put its weight behind digital tokens. But Goldman disappointed and upset many once details of its report were brought to light, with the bank blasting Bitcoin and other coins as unsuitable investments for its clients.”
USAGOLD note: Need we say more?
Image: A fool trades his gold for tulip bulbs during the 17th century Tulipmania.
“Only centenarians are old enough to actually remember, but the crash of 1929 was followed by 5 months of a very impressive and convincing recovery in stocks. After the October/November crash, the Dow Jones rallied about 45% from 200 in November all the way back up to 290 by April of 1930 … We see history with a retrospective eye, but nobody experiencing it knew that the October 1929 crash was just the beginning. By April 1930, many thought it was the end and pointed to that 45% surge to confirm their wishful thinking.”
USAGOLD note: Things are not always what they seem to be … That is why it is always prudent to hedge your bets with a long-term store of value.
“A total of 1,287 of S&P’s ratings are now on a downgrade warning – either with ‘negative outlooks’ where a move might take two years, or on ‘CreditWatch with negative implications’ where the risk is almost immediate.”
USAGOLD note: It is difficult to forecast the extent of financial damage that would be unleashed by a massive downgrade of credit-worthiness on the level this article suggests. Two-thirds of debt issuers – private and public – face downgrades the result of the COVID-19 pandemic with many suddenly risking “fallen angels” status – going from investment grade to junk.
“The economist (and host of a biweekly economic news broadcast) does expect things to get better before they get worse: He foresees a slow, lackluster (i.e., “U-shaped”) economic rebound in the pandemic’s immediate aftermath. But he insists that this recovery will quickly collapse beneath the weight of the global economy’s accumulated debts.”
USAGOLD note: The economist mentioned is Noriel Roubini otherwise known as “Doctor Doom.” Roubini has shied away from a public pronouncement advocating gold ownership, but his analysis offers one of the more consistent and cogent rationales in its favor available. He was right in 2006 just before the crisis in 2008 and Wall Street’s bulls fear he might be right now.
“This time around, the coronavirus is causing interruption on an unprecedented scale, including the supply of physical gold. Three of Europe’s biggest gold refineries are based in the Swiss canton of Ticino. On March 24, cantonal authorities ordered all three refineries to close. Although they’ve been allowed to reopen since April 5, they’re still only operating at around 50% of their normal capacity, meaning there’s a squeeze on the supply of physical gold.”
USAGOLD note: With all the analysis published on gold ownership, we sometimes lose sight of simple availability of the metal as a fundamental factor driving market sentiment. We saw what happened in late April when a delivery squeeze developed relative to the effects of the coronavirus. End of May another delivery squeeze could develop when the heavy-volume June contract comes up for delivery.
Image courtesy of Visual Capitalist
Repost from 5-26-2020
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!
“It is also sobering for western investors who fear Covid-19 may herald a Japanese-style future for the US and European economies. That would imply continual dependence on fiscal and monetary pump priming to fight endemic deflation, at the cost of ever bigger government debt: Japanification, in a word.”
USAGOLD note: Plender makes the same point advanced recently by Reinhardt and Rogoff: This time around, it is different … With the dangers of unemployment and zombified companies looming large, central banks, he says, will find it extremely difficult to retreat from monetary largesse. This time around, the result is likely to be a return of inflation – not Japanification.
Repost from 5-24-2020
“While people tend to think that a currency is pretty much a permanent thing and believe that ‘cash’ is the safe asset to hold, that’s not true because all currencies devalue or die and when they do cash and bonds (which are promises to receive currency) are devalued or wiped out. That is because printing a lot of currency and devaluing debt is the most expedient way of reducing or wiping out debt burdens. When the debt burdens are sufficiently reduced or eliminated, the credit/debt expansion cycles can begin all over again … “
USAGOLD note: Dalio goes on to offer a well-structured history lesson that begins with an observation: “Of the roughly 750 currencies that have existed since 1700, ” he says, “only about 20% remain, and of those that remain all have been devalued.” From there, he addresses the historical benefits of gold ownership. As most who frequent this page already know, Mr. Dalio, who heads up the world’s largest hedge fund, recommends gold ownership as a safe haven and store of wealth.
Chart courtesy of VisualCapitalist
Repost from 5-12-2020