Monthly Archives: September 2019
(USAGOLD – 9/26/2019) – Gold continued to rattle around the $1500 mark in a continuation of the price weakness begun yesterday. Though a number of factors are working on the price at this juncture, the ebb and flow of trade negotiations between the United States and China have become the dominant influence – at least for now. Gold is level on the day at $1507. Silver, the more volatile of the two primary precious metals, is down another 13¢ at $17.85. Over the past two days, the dollar has been the chief beneficiary of renewed optimism on the trade front. Thus far, $1500 is holding firm.
UBS, the Swiss-based investment banker, says seasonal factors are about to kick in for gold which will lend support to the metal through the remainder of the year. “With gold prices holding well, the fear-of-missing-out is likely rising,” says Joni Teves, a strategist at UBS’s global research team. “This is encouraging and implies that any downward pressure coming from macro factors over the remainder of the year is likely to be absorbed by fundamental demand. . . The continuation of gold’s uptrend should eventually attract more investment interest as well as momentum buyers.” US-based funds, says the bank, were responsible for two-thirds of the inflows into gold ETFs so far this year. (as reported at MiningNews.net) Most of that demand, we would add in turn, has come from funds and institutions hedging a lengthy list of market uncertainties.
Quote of the Day
“Most of these people [living in emerging nations] don’t really understand what is happening outside their boundaries, so they have no option but to buy gold, silver, and currencies of Western countries. And that is why I think support for precious metals will continue to increase going forward. I don’t know what influence it will have in pricing, but really, if I had to suggest to someone on how to preserve his wealth, my suggestion would primarily be focused on gold and silver.” – Jayant Bhandari (StreetWise Interview with Maurice Jackson)
Chart of the Day
Chart courtesy of HowMuch.net
USAGOLD note: This chart will come as a surprise even to those who monitor the global economy and financial markets on a regular basis. Gold is by far the largest form of money in circulation – over five times larger than the dollar’s circulation. The euro is a distant third, and silver surprisingly ranks fourth.
“The politically attractive, if not the only possible, solution to the debt problem will be to inflate the real debt obligations away, making them easier to pay off in a depreciated currency – but if the governments choose this path, we would see high inflation, which would make gold to shine.”
USAGOLD note: Mr. Powell, would you reach over and flip the switch on that printing press over there?
(USAGOLD – 9/25/2019) – Gold tumbled today after President Trump told reporters that a trade deal with China could come “sooner than you think.” Jim Chanos, a oft-quoted bear on the stock market, called the resulting upside in stocks “a gullible response.” “And..3…2…1…,” Chanos tweeted, “the stock market falls for the ‘China Trade Deal’ line again, I have been reliably told that AI-driven trading programs are ‘constantly learning and adapting.’ Lol, ok.” (As reported by CNBC.)
Gold has given up $27 on the day to stand at $1505. Silver is down 71¢ at $17.98. If you are among those thinking that gold volatility has increased, it is not your imagination. (Please see below.) We will soon find out if Asia is going to buy the dip or pile on the sell side. . . . . . .Thus far $1500 is holding firm.
“A splintering West and increasingly interconnected East is creating a newly powerful mega-region, according to Parag Khanna, author of ‘The Future is Asian.’ He swung by the Breakingviews office in Hong Kong to break down the economic and geopolitical rationales behind his idea.”
USAGOLD note: Deep background and insights for those who seek it. . . . . . Keep in mind, as you listen to this interview, Asia’s ancient attachment to precious metals. “The world is very multi-polar,” says Khanna. “Asia is just taking its rightful place alongside the others.”
Repost from 9-19-2019
“But it’s on the financial side where consequences and repercussions have been fatefully neglected. It’s in the financial world where a decade of QE, zero rates and central bank market backstops imparted momentous structural change: the colossal ETF complex, the passive ‘investing’ craze, quantitative strategies, algorithmic and high-frequency trading, a proliferation of derivative trading, leveraging and trend-following speculation on a global basis – to list only the most obvious. Along the way, aggressive monetary stimulus had much greater inflationary effects on risk markets than upon real economies. This ensured a continuation of aggressive stimulus – and only deeper market Bubble maladjustment.”
USAGOLD note: I keep coming back to Keynes’ observation: “For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs — a pastime in which he is victor who says Snap neither too soon nor too late, who passed the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops. These games can be played with zest and enjoyment, though all the players know that it is the Old Maid which is circulating, or that when the music stops some of the players will find themselves unseated.” – John Maynard Keynes
Repost from 2-10-2019
“I’ve been saying for years that central banks can never step away from this. They can threaten to. And they can bluff, and they can do some probing bets like they did last year, and the market may fall for that, or call that bluff in the short term. But yes I think we’re in a position now where central banks can never back away, which sort of begs the question how can this ever end. Can asset markets get inflated forever?”
USAGOLD note: The day of reckoning can be postponed, but, for the prudent investor, it cannot be taken out of the investment equation. That is why so many professional investors are hedging their bets.
Image courtesy of Visual Capitalist
Repost from 9-22-2019
“Intensifying trade conflicts have sent global growth momentum tumbling toward lows last seen during the financial crisis, and governments are not doing enough to prevent long-term damage, the OECD said in its latest outlook.”
USAGOLD note: We cited this OECD report in yesterday’s DMR. Sounds very much like the mindset during the 1930s and Roosevelt’s New Deal. The OECD’s call on governments to do more is expressed often in top analytical circles where the view prevails that central banks have pretty much run out of ammunition.
Repost from 9-19-2019
“Apoplithorismosphobia (ay-pope-lit-horris-mos-foe-be-ah) is the fear of deflation. Or, more correctly, the fear that an economy would ‘suffer’ from falling prices, or a general decline in the prices of goods and services. It is a fear that has gripped some economists, journalists, and policymakers with a blinding strength as powerful as faith. Evidence seems to suggest that the phobia develops from the inability to understand the causes of the Great Depression and a more general failure to distinguish between what Bastiat called “the seen” (e.g., deflation) from ‘the unseen’ (e.g., the causes of contraction and unemployment). Under the influence of this phobia, victims develop an unfounded faith in the ability of monetary and fiscal policy. In extreme cases it leads to the support of powerful policy ‘weapons’ to combat deflation—the equivalent of using economic weapons of mass destruction. As shown in the case of Japan, this behavior is counterproductive and should be considered a danger to society. The purpose of this paper is to describe and diagnose this phobia and to present a treatment to counteract its effects.” – Dr. Mark Thornton, Senior Fellow, Mises Institute
Dr. MoneyWise says. . . . . . .Deflation, believe it or not, can have its positive effects, according to Dr. Thorton, an Austrian economist and a clever writer. He argues to let-the-economy-be-the-economy. Unfortunately, as history amply illustrates, deflation (or even severe disinflation) brings with it a whole of host of systemic risks – dangers that elevate the role of precious metals as a safe-haven.
“‘I think the economic data has gotten a little bit better, yet I still think, when we put it all together … it seems that there is an increasing probability of a recession before the 2020 election,’ Gundlach said in an interview with CNBC’s Scott Wapner.”
USAGOLD note: Professional investors, including Gundlach, often cite recession concerns as one of the prime motivations for gold ownership – the ultimate asset of last resort.
Repost from 9-18-2019
(USAGOLD – 9/25/2019) – Gold tracked lower this morning taking a wait-and-see approach to the stack of issues piling up in Washington and on Wall Street – many of which remain up in the air. The yellow metal is down $3 at $1529. Silver is down 12¢ at $18.53. The gold market has been see-sawing around the $1500 mark since early September – a situation Matt Weller addresses in this technical forecast/opinion published at CityIndex: “Technically speaking, gold has not yet set a meaningful ‘lower low’ keeping the recent uptrend intact. Instead, prices have spent the last six weeks consolidating between support at $1485 and resistance at $1555. This sideways price action, coming after a strong bullish rally, creates a ‘high base’ formation which shows that the bullish euphoria is correcting through time rather than through price. Generally, these types of patterns result in a topside breakout and a continuation of the established uptrend.”
Quote of the Day
“Ironically, the beggar-thy-neighbor implications of competitive devaluations will almost certainly incite a response from countries who may not originally even have needed to resort to currency debasement in the first place, raising the potential for full blown currency war. How should one position for such an endgame? As is probably evident, any nominal instrument will be devalued in real terms, so the solution is to hold an asset that maintains its real value – an asset that cannot be printed.” – Rick Rieder, BlackRock Funds
Chart of the Day
(the percentage difference between the last price and the price 6 months ago).
“Gold stock investors who are nervous about a liquidity event like 2008 should buy put options and buy them now. For everyone else, the ongoing theme is sharp but minor reactions that are excellent buying opportunities. My recommended plan of action: Lighten up on the stock market. Be bold and increase holdings of gold!”
USAGOLD note: The latest gold market opinion from Stewart Thompson. . . . .
Economic insecurity is becoming
the new hallmark of old age
“In the United States,” writes Katherine S. Newman and Rebecca Hayes Jacobs for The Nation, “economic security in old age was seen, for a long time, as both a social issue and a national obligation. From the birth of Social Security to the end of the 20th century, the common assumption has been that we have a shared responsibility to secure a decent retirement for our citizens. Yet that notion is weakening rapidly. Instead, we have started to hear echoes of the mantra of self-reliance that characterized welfare ‘reform’ in the 1990s: You alone are in charge of your retirement; if you wind up in poverty in your old age, you have only your own inability to plan, save, and invest to blame.”
Some compare today’s stock market psychology to the period just before 2008. Others compare it to the 1920s when everything was hunky-dory until suddenly it wasn’t – perhaps a more apt comparison. Too many are “all-in” with respect to stocks in their Individual Retirement Accounts hoping to accumulate as much capital as possible without regard to the potential downside. The stock market did not recover from the losses accumulated between 1929 and 1933 until the mid-1950s, almost 25-years later – a fragment of stock market history lost to time.
Some will rely on the fact that stocks recovered nicely once the Fed launched the 2009 bailout. We should keep in mind though that many prominent Wall Street analysts have warned that the Fed no longer has the firepower it did then. The financial markets and economy are much more vulnerable as a result – all of which brings us back to the notions of self-reliance and taking personal responsibility for our retirement plans. If you find yourself among the group that thinks hedging a stock market downturn to be in your best interest, we can help you effectively structure a gold and silver diversification as part of your retirement plan to hedge that possibility.
Important! – Gold’s Century: While stocks dominated headlines, gold quietly performed
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USAGOLD note: Bart Chilton comes out in favor of investors buying gold. That should resonate in certain circles given his intimate knowledge of the gold futures markets.
Repost from 1-2-2019 [Mr. Chilton passed away less than five months after this interview.]
“Bloomberg terminals, the financial software system used by countless analysts and traders around the world, has a problem: its system cannot price callable bonds using negative interest rates. Programmers never considered such a scenario, and thus failed to code the system accordingly. So users get an error message when they attempt to force negative bond yields into their machines.”
USAGOLD note: A fascinating look at the real meaning of and wider implications for negative interest rates. “Under what scenario,” Deist asks, “would anyone lend $1,000 to receive $900 in return at some point in the future?” His answer is an eye-opener.
Repost from 9-18-2019
“‘While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy,’ Powell said Wednesday in prepared remarks at a press conference in Washington, after the Fed cut interest rates for a second straight meeting.”
USAGOLD note: Move along. Nothing to see here. . . . .
Repost from 9-18-2019
“Troubled oil meets calming waters.”
USAGOLD note: Game theory favors no further U.S. military involvement in the Middle East, according to Authers latest. “The problem: game theory can be wrong” – the predictability of unpredictability. Very much worth a visit for the rest of the story. . . . . .
Repost from 9-17-2019
(USAGOLD – 9/24/2019) – Gold plowed ahead this morning although with less enthusiasm than in previous sessions. Silver, after yesterday’s out-of-the-box 3.7% (67¢) increase, is also a bit more circumspect. The yellow metal is trading at $1523 – up $2 on the day and attempting to encamp itself above the $1500 level. The white is down 12¢ at $18.52. Gold seems to be responding most directly at this point in time to the ebb and flow of trade negotiations between the United States and China. Secondarily, though, the market has in the back of its mind the problems associated with the supply-demand mismatch in the repo market. The chief concern is whether or not that stubborn mismatch is symptomatic of deeper problems or something that can be handled with a few technical adjustments. At the moment that is still unclear despite some of the more alarming reports circulating in the financial media.
Quote of the Day
“Deflation is a threat posed by a critical breakdown of the financial system. Slow growth and recurrent recessions without systemic financial disturbances, even the big recessions of 1975 and 1982, have not posed such a risk. The real danger comes from encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation and risk taking, in effect standing by while bubbles and excesses threaten financial markets. Ironically, the ‘easy money,’ striving for a ‘little inflation’ as a means of forestalling deflation, could, in the end, be what brings it about. That is the basic lesson for monetary policy. It demands emphasis on price stability and prudent oversight of the financial system. Both of those requirements inexorably lead to the responsibilities of a central bank.” – Paul Volcker, Keeping At It: The Quest for Sound Money and Good Government (2018)
Chart note: The surprise here is that neither side of the political spectrum in this poll taken in July expects economic conditions to improve over the course of the next twelve months.
“The new capital raising is further indication that Mr Singer is anticipating a market meltdown. The billionaire investor, who has been vocal about complacency in global financial markets, recently predicted that the economy was headed for a significant downturn with risk at an all-time high.”
USAGOLD note: Singer’s ‘dry powder’ strategy is meant to capitalize on the meltdown he anticipates.
“President Donald Trump’s Twitter attacks on the Federal Reserve are prompting investors to bet the central bank will bow to political pressure and lower interest rates, according to a new study.”
USAGOLD note: Perhaps those presidential tweets are having more of an effect on markets than many think – particularly in an election year.
Related: Threats to central bank independence – high-frequency identification with Twitter / Francesco Bianchi, Howard Kung and Thilo Kind / National Bureau of Economic Research
“The split in the FOMC between hawks and doves is no doubt driven by many factors, but one of the main underlying differences concerns the amount of inflation risk that participants are willing to take in the late stage of the economic cycle.”
USAGOLD note: Inflation, says Davies, is still on the radar screen and should not be casually dismissed. He also makes mention of the Fed chairman as being “an obvious dove by nature.” One wonders if Mr. Powell will appreciate being pigeonholed as such. The current occupant of the White House, for one, would certainly disagree with that characterization.
“TS Kalyanaraman, chairman and managing director, Kalyan Jewellers said that rise in gold prices has had an impact the consumer sentiments and gold buying trends. ‘But we believe that these sentiments are short-term and we are expecting the demand to pick up soon,’ he added.”
USAGOLD note: Year to date, gold is up 19.65% in rupee terms. Simultaneously, the rupee is down about 4% against the dollar. If investors believe that the rupee is headed still lower, it stands to reason that gold demand might remain steady through the festive season even if prices are rising.
Repost from 9-20-2019
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“’We need more pipeline, especially in gold production,’ Jerry Xie, executive vice president, said in an interview on the sidelines of the Denver Gold Forum on Monday. ‘We’re currently looking for acquisition opportunities quite aggressively. We’re doing this on behalf of our parent company, not just for ourselves.’”
USAGOLD note: Should they find it, is there any doubt where it will end up? Not, we venture a guess, to satisfy global demand outside of China.
Repost from 9-18-2019
“Gold has little or no correlation with many other assets, including commodities. during times of stress. Crucially, however, the correlation is dynamic, changing across economic cycles to the benefit of investors. Like other commodities, gold is positively correlated to stocks during periods of economic growth when equity markets tend to rise. However, gold is negatively correlated with other assets during risk-off periods, protecting investors against tail risks (Chart 3, below) and other events that can have a significant negative impact on capital or wealth – a protection not always present in other commodities.”
USAGOLD note: A detailed study presented mostly for the benefit of investment professionals that differentiates gold from the rest of the commodities complex especially when volatility rises.
Chart 3: Gold, unlike commodities, tends
have a positive performance when volatility increases
Performance of stocks, gold, commodities and VIX during periods of systemic risk
Repost from 9-17-2019
USAGOLD note: Stoferle, along with Mark J. Valek, publish the widely circulated and referenced In Gold We Trust annual report. In this interview, Stoferle says “It is crystal clear. We are in a gold bull market again.” The most important opinion expressed is that the start of something different, perhaps very special, occurred in the gold market over the past 30-days or so. Stoferle and his hosts at MacroVoices delve into just what that “something” might be. If you are looking for fundamental insights as to why gold suddenly surged over the $1500 level, this interview will get you where you want to be.
Re-post from 8-11-2019
“Private investors have begun to shift their holdings of gold from Hong Kong, months into the financial centre’s worst political crisis since the handover from British to Chinese sovereignty in 1997. Gold is moving to Singapore and Switzerland . . .”
USAGOLD note: The safe haven seeks safe haven. . . . . .
Repost from 9-17-2019
“‘I don’t see a lot of technical barriers above it, but I do believe that there’s people buying in to where we are today,’ Paul Rollinson told Reuters at the Denver Gold Forum.”
USAGOLD note: The Denver Gold Forum is underway and it usually generates quite a bit of interesting news and commentary. We will post updates if/as they become available.
Repost from 9-19-2019
(USAGOLD – 9/23/2019) – Gold continued to gather momentum above the $1500 level this morning, but it is silver that is capturing the attention of investors – up 43¢ at $18.40 compared to just a $2 gain in gold at $1519.50. (For more on the silver situation, please see our Live Daily Newsletter – Silver continues to gain in tight market) Though geopolitical concerns, including the ongoing US-China trade war, have softened a bit over the past few days, the uncertainties surrounding credit markets continue to cast a heavy shadow over international markets.
“In the past 12 months,” writes Michelle McGagh in a CityWire Funds Insider article, “gold has awakened from a three-year slumber as a combination of volatile stock markets and ultra-low – if not negative – interest rates around the world have burnished the attractions of the traditional ‘safe haven’. Gold currently trades just below $1,500 an ounce after a 19% rally in the past year but has almost doubled since the end of 2015. At this rate it could soon be within reach of its $1,888 peak during the eurozone debt crisis of 2011.”
Quote of the Day
“Again, it’s insanity. It’s part of this Rube Goldberg world we’re in where you’ve got these strange interconnectedness between different markets and they start lacking meaning. So I can’t even answer that question because there isn’t any meaning to it any more. But I hear what you’re saying. Rates are higher here than elsewhere throughout the world, is it a bad tactical play to think that bonds could even edge higher, rates are going to go lower, and I do think there’s going to be endless accommodation by central banks and by the Fed specifically.” – Mark Spitznagel, Universa Investments (Bloomberg interview)
Chart of the Day
Posted with permission of the London Bullion Market Association and ICE Benchmark Administration Limited (IBA)
Chart note: As the interest rate on dollar-based savings declines, the return on gold has been going up as illustrated in our interactive chart shown above. Click on the bars to see the annualized daily rate of return.