Monthly Archives: September 2019
“What is amazing about this run-up in gold that we have seen is that it has taken place with the U.S. dollar actually quite firm.”
USAGOLD note: David Rosenberg is chief economist at Gluskin Sheff and Associates and a highly-respected Wall Street analyst. We were a bit surprised at his $3000 forecast for gold. He explains how it is possible to a skeptical host.
“When you ask Chad Morganlander about the gold market, he wants to talk about The Clash. To him, there’s no better way to describe the tug of war gripping bullion investors than the band’s classic ‘Should I Stay or Should I Go.'”
USAGOLD note: There will always be speculators with a view to the short term and they will enter and exit positions at the drop of a tweet. At the same time, there will always be those who accumulate the metal as a long-term hedge and they are likely to ride out the short term fluctuations. It is also possible that the very same investor who logged profits in the futures market last week might have simultaneously increased his or her stockpile of physical metal for the longer-term. “Should I stay or should I go?” How about a “Yes” and “Yes”. . .
“The gold market could be due a major breakout in the coming year as fears escalate the US economy will slide into recession, according to a report by JP Morgan Cazenove. The bank’s gold analysts John Bridges and Siddharth Mishra, writing ahead of the Denver Gold Show, scheduled to begin on September 15, said economic conditions may see gold purchases similar in scope to 2008 when the metal’s price moved through $1,900 per ounce.”
USAGOLD note: This article goes on to detail Bridges and Mishra’s outlook for the near and longer terms including its concern that the physical supply will diminish during a time of increased demand.
Repost from 9-6-2019
Financial Times/Richard Koo
“The fear of “Japanisation” has, once again, prompted monetary authorities on both sides of the Atlantic to consider additional monetary easing — but for all the wrong reasons. The extended periods of slow growth and low inflation seen in Japan since 1990 and in the west since 2008 are caused by the disappearance of borrowers, not by the lack of lenders.”
USAGOLD note: Richard Koo is the chief economist for the Nomura Research Institute and a highly respected commentator on the Asian economic scene. This article goes to the heart of what’s wrong with current interest rate policies around the world. It supports the argument that the economy of the future is the economy of today – one pushed by a disinflationary bias that has become progressively more difficult to turn around and the difficulties associated with ‘pushing on a string.’
Repost from 9-11-2019
Copernicus on the debasement of money
“Although there are countless scourges which in general debilitate kingdoms, principalities, and republics, the four most important (in my judgment) are dissension, [abnormal] mortality, barren soil, and debasement of the currency. The first three are so obvious that nobody is unaware of their existence. But the fourth, which concerns money, is taken into account by few persons and only the most perspicacious. For it undermines states, not by a single attack all at once, but gradually and in a certain covert manner.” – Copernicus, Essay on the Coinage of Money (1526)
Few know that Copernicus applied his genius to the insidious effects of currency debasement. The ground-breaking essay linked above probably influenced both John Maynard Keynes (See below) and Thomas Gresham of “bad money drives out good” fame. Supply Side Blog’s Ralph Benko says Copernicus’ essay “has been translated into English several times yet those translations remained difficult to obtain for students of the monetary arts and sciences. It has remained mostly the property of elite historians.” Above we link Edward Rousen’s translation that you might keep company with the knowledgeable elite.
It cost 8¢ to mail a one-ounce letter in 1973 as indicated by the commemorative Copernicus stamp shown above. It costs 55¢ today – an illustration of his assertion that currency debasement “undermines states, not by a single attack all at once, but gradually and in a certain covert manner.” The post office increased the cost of mailing a letter by 5¢ – to 55¢ – beginning in 2019.
“By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” – John Maynard Keynes, The Economic Consequences of Peace (1919)
“The best that we can hope for, however, is that [central banks] will be able to navigate the minefield they are in without being accused of not doing enough, of causing economic harm and of contributing to undue financial volatility. Indeed, the most likely outcome is that they will be viewed as taking measures that are deemed ineffective or, even worse, counterproductive. And it’s a dilemma that is unlikely to be resolved soon.”
USAGOLD note: A downbeat assessment from El-Erian that carries echoes of the central bank summit in Jackson Hole a couple of weeks ago. Some take the policy makers’ shrug of the shoulders approach as good reason to buy gold as a means to long-term asset preservation.
Repost from 9-11-2019
“‘In the United States, outstanding corporate debt stands at almost $10 trillion, almost 50 percent of GDP, [Jay Clayton, chairman of the Securities and Exchange Commission] said. ‘Those are numbers that should attract our attention,’ said Clayton.”
USAGOLD note: One wonders if anyone is paying attention . . . . We should keep in mind too that a large portion of that debt went to stock buybacks – a major lubricant to the stock indices.
Chart courtesy of HowMuch.net
Repost from 9-9-2019
(USAGOLD – 9/16/2019) – Gold surged overnight as markets weighed the potential outcome of the drone attack on Saudi Arabia’s key oil processing facility on Saturday. The headline to a Bloomberg article this morning summed up the impact on the gold market: Gold rallies on concern Saudi attack may presage wider conflict. In the past, we have featured four major concerns in these reports underpinning and driving gold demand – recession fears, central bank interest rate policies, the trade wars and competitive currency devaluations. To that already formidable list, the markets will now add a fifth – the possibility of expanded conflict in the Persian Gulf.
Gold and silver have leveled as COMEX opens. Still, gold is up $14 over Friday’s close. Silver is up 39¢ at $17.82. Brent crude, by the way, is up about 10% (+$6.30) at $65.80 and the dollar index is up sharply as well.
This morning’s headlines pushed another important event for the week into the background – the Fed meeting on Tuesday and Wednesday. Historically gold and silver tend to retreat in advance of FOMC meetings. Given the volatile circumstances in the Persian Gulf, that might not be the case this week.
Quote of the Day
“What a difference a few years makes. Back in the summer of 2015, a WSJ op-ed writer, who somehow was unaware of the past 6,000 years of human history, infamously and embarrassingly said ‘Let’s Be Honest About Gold: It’s a Pet Rock.’ Fast forward to today, when with every central bank once again rushing to debase its currency in what increasingly appears to be the final race to the debasement bottom, when even BOE head Mark Carney recommends that it is time to retire the dollar as the world’s reserve currency,
pet rock gold has emerged as the second best performing asset of the year… and at the rate it is going – 4th in 2017, 3rd in 2018, 2nd in 2019 – gold will be the standout asset class of 2020.” – Tyler Durden, ZeroHedge
Chart of the Day
Chart note: It has been a good year thus far for gold and silver. Gold is up 16.1% since the beginning of 2019 and silver 12.8%. Silver is still in catch-up mode with its ratio to gold now sitting just under 85.5 to one. This chart reflects London pricing and does not include Friday’s weaker U.S. close near $1489 for gold and $17.42 for silver.
“Emerging markets have beefed up gold holdings, undeterred by prices near their highest levels in more than six years, as countries such as Russia and China diversify their foreign-exchange reserves—a trend that is likely to continue.”
USAGOLD note: In Friday’s DMR we mention funds, institutions and central banks as three players largely absent in previous bull market rallies going all the way back to the early 1970s. That circumstance introduces a new and important dynamic to present-day gold market analysis. This article will bring you to speed on the central bank component of that trinity.
“The ill effects of these trends will initially vary depending on how profitable a country’s banks are, as well as their interest margins and the quality of their loan portfolios. European and Japanese banks facing low profit margins and a growing pile of non-performing loans are especially vulnerable. And, ultimately, the problems will spread. U.S. banks have begun to lower earnings guidance, blaming lower rates.”
USAGOLD note: Another incisive piece of analysis from Satyavit Das. At the link above, he offers a critique and a warning on the negative feedback loop associated with negative rates.
“‘I think we’re in the third and final phase of the gold market that’s started in 2001, and this will be the most explosive phase for gold,’ Giustra told Kitco News.”
USAGOLD note: This is one of the better interviews we have seen in awhile on the long-term merits of gold ownership. Giustra explains how he has structured his own gold portfolio.
“Silver is not just coins, bars, jewelry and the family silverware. It stands out from gold a variety of practical, industrial uses that account for 56.1% of annual consumption. Silver demand will continue to grow due to its role in renewable energy, notably as a key component in solar voltaic cells.”
USAGOLD note: The link goes to the first installment of a new three-part Visual Capitalist series focusing on silver.
USAGOLD note: The price of brent crude was up 20% at the open. Gold, silver up sharply.
Note: Commitment of Traders reports are published Friday with data from the previous Tuesday.
Gold Non-Commercial Speculator Positions:
Large precious metals speculators sharply cut back on their bullish net positions in the Gold futures markets this week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday.
The non-commercial futures contracts of Gold futures, traded by large speculators and hedge funds, totaled a net position of 269,725 contracts in the data reported through Tuesday September 10th. This was a weekly reduction of -30,822 net contracts from the previous week which had a total of 300,547 net contracts.
The week’s net position was the result of the gross bullish position (longs) dropping by -31,271 contracts (to a weekly total of 334,114 contracts) while the gross bearish position (shorts) fell by just -449 contracts for the week (to a total of 64,389 contracts).
Gold bullish bets dropped this week by the largest amount in sixteen weeks after rising above the +300,000 net contract level last week. That was the first time bullish bets had been above that level since September 6th of 2016, almost exactly three years prior. Gold bullish bets have been on a remarkable run since this year’s low-point on April 23rd when the net position stood at just +37,395 contracts. Since that time, just twenty-one weeks ago, bullish positions have exploded higher by a total of +232,330 net contracts and have risen in fourteen out of the twenty weeks following the low.
Gold Commercial Positions:
The commercial traders position, hedgers or traders engaged in buying and selling for business purposes, totaled a net position of -305,611 contracts on the week. This was a weekly rise of 32,130 contracts from the total net of -337,741 contracts reported the previous week.
Over the same weekly reporting time-frame, from Tuesday to Tuesday, the Gold Futures (Front Month) closed at approximately $1499.20 which was a decrease of $-56.70 from the previous close of $1555.90, according to unofficial market data.
Silver specs edged bullish bets lower 1st time in 4 weeks
Silver Non-Commercial Speculator Positions:
Large precious metals speculators slightly trimmed their bullish net positions in the Silver futures markets this week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday.
The non-commercial futures contracts of Silver futures, traded by large speculators and hedge funds, totaled a net position of 60,231 contracts in the data reported through Tuesday September 10th. This was a weekly reduction of -1,894 net contracts from the previous week which had a total of 62,125 net contracts.
The week’s net position was the result of the gross bullish position (longs) falling by -4,564 contracts (to a weekly total of 100,413 contracts) while the gross bearish position (shorts) declined by a lesser amount of -2,670 contracts for the week (to a total of 40,182 contracts).
The Silver speculative bets dipped this week following three straight weeks of gains that had added over +22,000 contracts to the overall net bullish position. Speculator sentiment has risen for ten out of the past fifteen weeks that has taken the net position from a total of -8,443 contracts on June 4th to a total of +60,231 contracts as of this week. Despite the small pullback, this week marked the first time since November of 2017 that the net position has been above +60,000 contracts for two straight weeks.
Silver Commercial Positions:
The commercial traders position, hedgers or traders engaged in buying and selling for business purposes, totaled a net position of -84,768 contracts on the week. This was a weekly decrease of -90 contracts from the total net of -84,678 contracts reported the previous week.
Over the same weekly reporting time-frame, from Tuesday to Tuesday, the Silver Futures (Front Month) closed at approximately $1818.60 which was a loss of $-105.10 from the previous close of $1923.70, according to unofficial market data.
Specs add to US Dollar Index bullish bets
US Dollar Index Speculator Positions
Large currency speculators continued to raise their net bullish positions in the US Dollar Index futures markets this week while speculators also boosted their Japanese yen positions, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday.
The non-commercial futures contracts of US Dollar Index futures, traded by large speculators and hedge funds, totaled a net position of 32,032 contracts in the data reported through Tuesday September 10th. This was a weekly gain of 296 contracts from the previous week which had a total of 31,736 net contracts.
This week’s net position was the result of the gross bullish position (longs) dropping by -4,927 contracts (to a weekly total of 49,483 contracts) compared to the gross bearish position (shorts) which saw a decrease by -5,223 contracts on the week (to a total of 17,451 contracts).
US Dollar Index bullish bets edged higher for a third straight week and have now risen in nine out of the past eleven weeks. This week’s gain brings the USD Index position to the most bullish level in twenty-six weeks dating back to the middle of March.
“An unprecedented assault promises major disruption and sets the stage for a new and dangerous period for world oil markets.”
USAGOLD note: An early, balanced look at the impact of yesterday’s drone strike. . . . .
“Secretary of State Mike Pompeo said that Iran is responsible for the drone attacks on important facilities in Saudi Arabia’s oil-rich Eastern Province that reportedly forced the kingdom to shut down half of its oil production on Saturday.”
USAGOLD note: Major. No mention is made how quickly production can be restored. The exposed vulnerability of the global oil supply, however, is something markets will be forced to blend into the equation. Saudi oil production cut by 50%, according to this CNBC report. . . . . .
“Accompanied by Mephistopheles, Faust attends the court of a ruler whose empire is facing financial ruin because of profligate government spending. Rather than urging the emperor to be more fiscally responsible, Mephistopheles — disguised, revealingly, as a court jester — suggests a different approach, one with disturbing parallels to our own age.”
USAGOLD note: Dr. Jens Weidmann, President of Germany’s Bundesbank, made reference to Goethe’s treatment of money printing as a Faustian bargain in a speech delivered in 2012 (See below). For a scholarly approach to that section of Goethe’s famous play, Faust, we post the link to Samuel Gregg’s short essay above. All posted on a Friday for those looking for something to delve into over the weekend. We thought it a fitting addition to the board after Mario Draghi’s announcement yesterday that the ECB would launch a new round of quantitative easing for the European Union.
Money creation and responsibility/Jens Weidmann/Bank-Historical Research conference/9-18-2012
“Let me remind you briefly of the ‘money creation’ scene in Act One of the Second Part of Faust. Mephistopheles, disguised as a fool, talks to the Emperor, who is in severe financial distress, and says
“In this world, what isn’t lacking, somewhere, though? Sometimes it’s this, or that: here’s what’s missing’s gold.”
The Emperor finally responds to Mephistopheles’ subtle attempt to persuade him,
“I’m tired of the eternal ‘if and when’: We’re short of gold, well fine, so fetch some then.”
To which Mephistopheles replies
“I’ll fetch what you wish, and I’ll fetch more.”
–– from Jens Weidmann’s speech
“‘Denmark would be interested in purchasing the United States in its entirety, with the exception of its government,’ the spokesperson added.”
USAGOLD note: A little humor to launch the weekend. . . .
Market cycles will endure as long as humans exist
“Four of the most dangerous words in the investment world are ‘It’s different this time.’ When people use them, what they’re saying is that the norms of the past no longer apply. . .Both these notions were soon shown to have been erroneous, and the market bubbles abetted by that optimistic thinking were popped, bringing on painful market crashes.”
Dr. MoneyWise says. . . . Old Ben Franklin said it best. “By failing to prepare, you are preparing to fail.” And I will add, we do not know when the next crisis will begin, but begin it will. And when it does, only two kinds of investors will be there to greet it: Those who prepared and those who did not.
Huge cosmic explosions that produce platinum, silver and gold may be more common than previously thought
“‘A kilonova is a flash of light produced by the radioactive debris of a neutron star collision,’ Troja said. ‘During the collision a lot of neutron-rich stuff is spewed into space at a velocity that is 20-30 percent the speed of light. In these extreme conditions something very special happens: neutron star matter turns into gold, silver, platinum, uranium… all the metals heavier than iron are forged in these cosmic collisions.'”
USAGOLD note: I would not be surprised to see the Wall Street anti-gold crowd use this discovery as a justification to short gold on the COMEX [smile].
NASA image, Spitzer Space Telescope Cassiopeia A – supernova remnant, public domain/WikiMedia Commons
Repost from 10-18-2018
Bloomberg/Yuliya Fedorinova and Anna Andrianova
“The country quadrupled gold reserves in the past decade as it diversified away from U.S. assets, a move that has paid off recently as haven demand sent prices to a six-year high. In the past year, the value of the nation’s gold jumped 42% to $109.5 billion and the metal now makes up the biggest share of Russia’s total reserves since 2000.”
USAGOLD note: Russia’s reserve gains via appreciation of the precious metal will not be lost on a whole host of other countries looking to move in the same direction. This is an interesting article. . . .
Repost from 9-9-2019
“The U.S. Federal Reserve’s balance sheet could end up between $3.8 trillion and $4.7 trillion by 2025, according to projections collected by the New York Fed.”
USAGOLD note: That number is the result of a survey of Wall Street traders. One wonders how seriously they considered the possibility of another 2008-style meltdown in the survey.
Repost from 9-9-2019
“We can conclude that the basis for highly geared interest rate arbitrage by borrowing gold is running into a brick wall. Not only is there no incentive for lessors but also there is also a diminishing appetite for lessees, because the opportunities are vanishing. Synthetic gold liabilities are being gradually reduced, not only by ceasing the creation of new obligations, but by buying bullion to cover existing ones. This will have been particularly the case when the USD yield curve began to invert in recent months (itself a backwardation of time preference), and was the surface reason, therefore, that the gold price moved rapidly from under $1200 to over $1500.”
USAGOLD note: Macleod revisits a largely forgotten aspect of the gold market – bullion banks and their influence on the pricing mechanism. This article is a must read.
Repost from 9-2-2019
“Gold is one of the oldest means of exchange in the history of civilization and many governments around the world maintain large reserves. However, in modern economies the U.S. dollar acts as the global reserve currency and the dollar is the benchmark pricing mechanism for gold. This creates a special relationship between the previous metal and the currency.”
USAGOLD note: What’s driving gold “not going away anytime soon. . . .”
Repost from 9-8-2019
(USAGOLD – 9/13/2019) – Gold continued to see-saw around the $1500 mark this morning following yesterday’s volatile performance. It is now up $3 on the day at $1501. Silver is level at $18.07. As was the case yesterday, gold gained ground during European trading hours. It then gave up some of those gains early in the U.S. trading session. Gold demand in Europe has been strong in the wake of the ECB’s decision to lower rates and relaunch its sovereign debt-buying program.
Competitive devaluations, along with trade and ‘de-dollarization’ concerns, continue to fuel institutional investor thinking and encourage physical gold demand. “Another element lending support to the gold price this time around,” says Sharps Pixley‘s Lawrie Williams, “is that some big names in the institutional sector, like Ray Dalio, have been singing gold’s praises which should mean there is good institutional support this time around. Indeed the recent downwards moves in precious metals prices look very much like overdue corrections, from which prices will likely recover and go on to new highs.” Funds, institutions and central banks are three players largely absent in previous bull market rallies going all the way back to the early 1970s – a circumstance that introduces a new and important dynamic to present-day gold market analysis.
Quote of the Day
“My time horizon is that I usually measure moves like these in terms of decades. So let’s look at it like this: The first move, the first leg, in gold took it from $250 per ounce to $1900. . .We’ve now been in a correction that has taken gold from $1900 back to where we are today. You could easily see gold fall a couple of hundred dollars before you see it go up a couple of thousand dollars, but each move has been a decade or more which means that when gold embarks upon its next move, I believe that you will see that long wave will take gold relatively quickly to the $3000 to $5000 target that I believe is fundamentally justified based on the facts we have today.” – Thomas Kaplan, The Electrum Group (Bloomberg interview, 5/29/2019 – Gold was trading just below $1300 per ounce at the time.)
Chart of the Day
Published with permission of Pew Research Center
“The U.S. government’s red ink for fiscal 2019 swelled past the $1 trillion mark in August, the first time that level has been eclipsed in seven years, the Treasury Department reported Thursday. The total shortfall rose to nearly $1.07 trillion, thanks to a difference between revenue and expenses of more than $214.1 billion in August.”
USAGOLD note: Another year another trillion or so of national red ink. . . .
“At a presentation in London, Gundlach said President Trump is the ‘irresistible force’ but that China has every incentive to attempt to wait out his presidency.”
USAGOLD note: As is often the case, Gundlach’s opinion is not the one Wall Street wants to hear. The widely-followed bond market expert has endorsed gold ownership in the recent past.