Monthly Archives: December 2019
Gold turns to upside on list of concerns; Yahoo report citing Goldman says ‘super-rich’ buying physical gold
(USAGOLD – 12/10/2019) – Gold turned to the upside during London trading hours as the financial markets eyed Thursday’s UK election, the Fed meeting that begins today and the China tariff deadline coming up on Sunday. The yellow metal is up $7.50 at $1468.50. Silver is up 10¢ at $16.73. Another factor in today’s pricing might be the Bank for International Settlements report released over the weekend suggesting recent problems in the overnight repo money market are longer-term and structural rather than a temporary glitch. Fed Chairman Jerome Powell is likely to face questions about those rescue operations in tomorrow’s post-FOMC meeting press conference.
“Since the end of 2016,” says Goldman Sachs in an advisory covered by Yahoo Morning Brief today (The world’s super-rich are hoarding gold), “the implied build in non-transparent gold investment has been much larger than the build in visible gold ETFs.” In other words, safe haven investors are hedging with actual coins and bullion over paper gold ETFs. “Finally,” says Goldman, “this build can also reflect hedges by global high net worth individuals against tail economic and political risk scenarios in which they do not want to have any financial entity intermediating their gold positions due to the counter-party credit risk involved.”
Chart of the Day
Chart note: “In 2010,” says HowMuch, “the world’s central banks stopped selling gold and started accumulating it. As gold provides a hedge against economic uncertainty and currency manipulation, the action of these central banks gives us insight as to which countries are most capable of handling an economic storm. . .A common theme in economics is ‘those who own the gold make the rules.’ Recent statistics suggest a large disparity between the top gold holders in the world and those governments holding less of the yellow metal.”
“Investors who purchase gold as a safe haven tend to be patient investors, happy to take short-term price fluctuations in their stride. If they consider the gold price relatively attractive compared to the long-term outlook for the financial system, the economy and the financial markets, they will buy gold. But there are also many investors who want to earn money on the short-term movements of the gold price. They are chiefly responsible for the day-to-day swings in the gold price.”
USAGOLD note: A few well-conceived notions on what today’s gold market is all about that including a profile of the two major divisions in the market – safe-haven investors and speculators – and the role each plays. Her analysis also includes some well-taken cautions for safe-haven investors about the nature of various paper gold instruments
“The world gold standard system worked very well, over a period of centuries prior to its dissolution in 1971, and we don’t seem to have developed any viable alternatives since then. It seems like today’s national leaders are gradually reaching a consensus about how the world’s monetary system should be structured. They are getting ready to return to a gold standard system.”
USAGOLD note: It would take, in our view, a momentous breakdown for global policy-makers to give up on the fiat currency system. On the other hand, recent central bank gold purchases, policies to encourage gold imports (as is the case in China), and repatriations by a group of nation states offer tangible support of Lewis’ argument. Re-establishing a gold standard by necessity will come the result of an international agreement, but we agree with Lewis, “not yet”. In the meantime, it might make some sense to follow the lead of the central banks and accumulate some gold on your own. This article is an interesting read. . . . .
“In September 1929, economist Roger Babson had actually told the National Business Conference in Massachusetts that ‘sooner or later a crash is coming which will take in the leading stocks and cause a decline from 60 to 80 points.’ Yet even that decline would have only amounted to 16-21%. As it happened, the Dow would subsequently lose over 89% of its value, plunging to a low of 41.22 on July 8, 1932.”
USAGOLD note: We have noted a number of calls over the last several months similar to Babson’s in September 1929 but few hear or heed the siren’s call . . .Hussman says that from a valuation perspective the current stock market “now rivals 1929 and 2000.” The mistake, he says, is to believe in “a permanently high plateau.”
“First it was Japan. Then Europe. Now investors are scanning the world for the next outbreak of stagnant inflation and tumbling yields.”
USAGOLD note: We have been beating this drum about the Japanification of the global economy – including the United States – for a long time on this page. More and more, the evidence mounts that we are in a structural rut from which there may be no escape. Japan has certainly had a rough time with it and now the government is poised to launch another round of infrastructure projects.
“Safe-haven demand will also likely serve to bolster gold’s long-term bull market going forward, but the primary catalyst for gold demand will likely revolve factors other than just global trade. A weakening dollar will only serve to increase the demand for gold as an inflation hedge, which is what typically drives the metal’s strongest rallies. Therefore, investors should expect that as the U.S. currency is pushed downward through policy intervention in 2020, gold’s bullish prospects will increase.”
USAGOLD note: Droke makes a well-reasoned case for gold next year. . . . .We referenced this column in this morning’s DMR and repost it here for those who might have missed it.
“It took the whirring sound of the helicopter blades on Marine One to reinvigorate Europe’s determination to no longer be subservient to the US dollar.”
USAGOLD note: This article delivers a somewhat confusing message. Judging from the headline, you would think that Europe has a plan. It doesn’t. In fact, unless we entirely missed the point, the gist of the article is that it will be a good many years before the euro becomes a factor – if it does at all. The most interesting observation in the article comes from Berkeley’s Barry Eichengreen who warns that “currency hegemony can shift quickly if something goes wrong.”
“Benchmark 10-year Treasuries will probably rally as the Federal Reserve cuts interest rates by a full percentage point in the first half of 2020 to spur inflation, strategists including Subadra Rajappa wrote in a note.”
USAGOLD note: SocGen sticks with the recession scenario for 2020 and yields trending toward zero even as resistance to negative rates and recession chances builds in financial circles. . . . .
Repost from 12-4-2019
USAGOLD note: Cashin offers his view on the Fed’s new liquidity operations at the link above.
Repost from 10-17-2019
“Influential bond investor Jeffrey Gundlach, the CEO of $150 billion DoubleLine Capital, sees a scenario where U.S. stocks get crushed in the next recession — and likely won’t recover for quite some time to come. Even with Wall Street benchmarks just days removed from new record highs, the bearish investor declared that ‘the pattern of the United States outperforming the rest the world has already come to an end.’”
USAGOLD note: Gundlach says once the crush comes the S&P 500 will not recover during the course of his career.
Repost from 12-4-2019
Successful investors have a philosophy, usually carefully cultivated, that they rely upon in their investment decisions no matter what happens in the markets in the short-run. Successful investors are rarely shaken by short-term events and, rarer still, guilty of short-term thinking. USAGOLD has always nurtured the belief that gold should not be purchased principally as a speculative investment, but more as an asset accumulated for long-term asset preservation in the form of coins and bullion. That, in fact, is a viewpoint it shares with the bulk of its clientele.
In A Layman’s Guide to Golden Guidelines for Wise Money Management [Link], R.E McMaster the long-time commodity market analyst and editor of the famed newsletter, The Reaper, offers this advice on “The Law of Long-Term Time Preference”:
“Those who plan, invest and execute long-term win. Win-win decisions, looking to the long term with short-term work and sacrifice, are historically the tickets to success in all areas of life – short-term sacrifice for long-term benefits, deferred gratification rather than instant gratification. This is the difference between wealth and poverty, between class and trash. Those who make primarily fear-based, ego-based, selfish, win-lose, lose-lose, emotional and/or short-term decisions as their primary mode of operation in life nearly always end up miserable, often as losers in a comprehensive sense in life. Such people are walking tornadoes to be avoided.”
“While some analysts are getting a bit negative in their outlook for gold, the physical market is getting stronger and that’s very good news for investors. . . There’s a beautiful double bottom pattern in play on this short-term gold chart.”
USAGOLD note: The latest gold market opinion from Stewart Thomson: “Good times are here. Great times are near.” A good, quick read at the link.
Repost from 12-5-2019
“We reproduce here the speech which Rachel delivered on 12 September, 2019 at the reception to commemorate the centenary of the London gold price. Fittingly it was held at the fourth New Court, the offices of Rothschild & Co in the heart of the city, built on the site of the second New Court where the gold auction took place for much of the last 100 years.”
USAGOLD note: An interesting history of the London gold market’s centerpiece – the AM and PM fixes now celebrating their 100th anniversary.
Repost from 12-3-2019
(USAGOLD – 12/9/2019) – Gold is attempting to gain some traction in this morning’s trading after Friday’s drop to just below the $1460 level. It is up $5 on the day at $1465. Silver is up 9¢ at $16.64. Gold has been stuck in a range between $1455 and $1475 since early November with the four primary factors that drove it higher in the past now seemingly in abeyance – the US-China trade war, the threat of recession, plummeting yields, and stock market instability. All of that could change in a heartbeat, but for now those threats have gone to the back burner and gold has gone on hold.
Analyst Clif Droke, though, brings an old market nemesis forward as the year comes to a close – and one that he thinks could propel gold in 2020. In a Seeking Alpha article, he says “Safe-haven demand will also likely serve to bolster gold’s long-term bull market going forward, but the primary catalyst for gold demand will likely revolve factors other than just global trade. A weakening dollar will only serve to increase the demand for gold as an inflation hedge, which is what typically drives the metal’s strongest rallies. Therefore, investors should expect that as the U.S. currency is pushed downward through policy intervention in 2020, gold’s bullish prospects will increase.”
The coming week could be an important one for markets with the Fed and ECB both holding meetings, the British election on Thursday and the all-important decision on more stringent tariffs due on Sunday. Sandwiched in between are a number of government reports including consumer prices, producer prices and jobless claims. Any one of these is capable of delivering a surprise with the tariff issue, needless to say, the most tenuous at the moment.
Chart of the Day
Chart courtesy of the World Gold Council
Chart note: Central bank gold purchases are running at the highest level since 1971, the year the United States suspended dollar convertibility into gold at fixed rates. Up until 2011, central banks were net sellers from their reserves. Since then, they have become net buyers as shown in the chart with 2019 the strongest year for net purchases on record.
“Today, over 95% of New York Stock Exchange trades are generated by robots using algorithms to decide when to buy and sell. These are not matching systems (which have been around since the 1990s). These are trading robots that decide what to do without human intervention.”
USAGOLD note: Ricards says the time has come to move out of stocks and reallocate in bonds, cash and gold, but the memorable takeaway in this article is his view on what he calls ‘trading robots’ that ‘buy or sell based on headlines and keywords.” We highly recommend Ricard’s latest at the link. . . . . . .
“What’s happened is that the Federal government has borrowed money and ultimately that loan is held by the central bank which increases the central bank’s balance sheet size and thereby in there for the monetary base. So it’s the equivalent of debt monetization. When you question whether it’s quantitative easing, whether the current Fed chairman says it’s something different from that, whether it’s money printing, it’s really all the same things because all it is, it’s the Fed increasing the size of its balance sheet by buying Treasuries in one form or another.”
USAGOLD note: David Einhorn, who heads up Greenlight Capital, is one of the many hedge fund proprietors who advocates gold ownership. Einhorn learned about gold from his grandfather – lessons he has never forgotten.
Here is the link to the original Anchor interview (audio). ZeroHedge posts a transcript at the link above.
“Lending would get expensive. Food, energy, and even medical services could all shoot up in price. Not good if you’re Chairman Powell and want to give the impression that the Fed has control of U.S. monetary policy. But the most alarming part of this is ‘real’ inflation may already be over 5%.
“Inflows into gold ETFs have moderated — a positive signal . . . “
USAGOLD note: This article explores the thinking on gold from Jeff DeGraaf (Renaissance Macro Research) – one of Wall Street’s ‘most widely followed chart watchers’ and a contrarian.