Monthly Archives: January 2020
“Investors around the world are hurrying back to bullion.”
USAGOLD note: Bank of China’s Xiao Fu, in this article, offers a baseline observation that goes to the heart of why gold is under accumulation among professional money managers and big investors. “Gold,” she concludes “becomes a necessity rather than an optimal allocation.” We suggest a visit to the link for the rest of the story.
“If it weren’t the coronavirus, in other words, something else would have been the straw breaking the camel’s back.”
USAGOLD note: Could we say the same for the strength in the gold market? Interesting contrarian view at the link. . . . . . .
Repost from 1-27-2020
“In modern times, since the 1970s, the average level of the relationship between the two precious metals has been around fifty-five ounces of silver value in each ounce of gold value. When the ratio between the metals is below the 55:1 level, silver is historically expensive compared to gold. At levels above 55:1, silver becomes historically cheap. . .Silver could be a sleeping bull at the $18 per ounce level.
USAGOLD note: At present, the gold-silver ratio is near 87:1. Quite a few among our regular clientele who normally concentrate capital in gold have taken the step to fill their ‘silver gap’ at the current price ratio. Within that group, a good many opt to store the metal at a depository facility by which you can buy or sell with a phone call and it is fully insured. Cost-wise, it is competitive with an ETF and offers the additional advantage of a delivery option in case you would rather have your silver nearby at some point in the future. We invite you to contact us for details.
Repost from 1-28-2020
USAGOLD note: Reuters points out that the rapid rise in stocks and other assets is not happening by accident and “potentially a problem.” Wanting to dispense with QE Lite is one thing. Actually doing it might be another given the adverse market reaction to previous attempts at unwinding the Fed’s more than $4 trillion balance sheet.
Repost from 1-27-2020
PriceValuePartners/Tim Price/January 2020
“3) Own portfolio insurance offering the uncorrelated potential for strong absolute returns (in our world, this means owning some of the best systematic trend-following funds). 4) Own real assets offering some degree of inflation protection or at least damage limitation. On this last point, two further questions naturally arise. 1) Got gold? 2) If you do ‘got gold’, do you really have enough ?”
USAGOLD note 1: This well-considered analysis is something of an anomaly in the current environment when so many think deflation is the wolf at the door – not inflation. Price quotes fund manager Harris Kupperman: “No one is ready for inflation, but I believe it’s coming. Maybe not today or next week, but there is a powder keg of monetary supply just waiting to be unleashed by governments who think that inflation can never happen again. At first, markets will cheer a bit of inflation—then they’ll panic. The markets often do whatever the fewest people are positioned for. Who’s positioned for inflation?”
USAGOLD note 2: One of the rock-solid tenets of gold ownership is that it cares not which villain appears on the financial stage, i.e., inflation, deflation, stagflation, disinflation, hyperinflation. It protects against any and all and cares not in which order they appear.
Image courtesy of VisualCapitalist
Repost from 1-27-2020
(USAGOLD – 1-31-2020) – Gold pushed quietly higher this morning tacking another $7 on the price to trade at $1582. Silver is up 5¢ on the day at $17.92. The spreading coronavirus and the Fed’s dovish tilt from Wednesday still dominate financial markets’ attention. On the week, the yellow metal is up about $10 while silver is down about 25¢. The best we can say about the week just passed is that precious metals emerged relatively unscathed when things could have gone either way. In the end, we agree with the forming consensus that though the virus rightly has markets on edge, the Fed’s positioning on future stimulus may prove to be the week’s more enduring event. Financial Times’ Gillian Tett passes along a quote from a hedge fund luminary in her column this morning that summarizes Wall Street’s mood: “The music is playing so everyone is dancing, but the risks are piling up.” So they are . . . . .
Here are a couple of quick notes to close out the week –
First, while few are watching, the yield differential between the 10-year and 3-month Treasury yield has again pinched to zero – a condition in the past that has been a reliable indicator of an impending recession. Please see our Chart of the Day immediately below. The gray bars indicate recessions.
Second, GFMS is out with its annual assessment of gold market fundamentals and price outlook. “While demand from key Asian markets will likely to remain weak this year,” it advises, “ongoing central bank purchases and renewed investor interest will lend support for higher gold prices. We therefore expect gold to average $1,558/oz in 2020, with a possibility to test and move beyond $1,700/oz later in the year.” (See GFMS Research/Review and Outlook/January 2020)
Chart of the Day
Source: St. Louis Federal Reserve [FRED]
“Federal Reserve Chairman Jerome Powell signaled that the central bank would pull out the stops to combat a global disinflationary downdraft, foreshadowing a potential shift toward an easier monetary policy over time.”
USAGOLD note: Chairman Powell’s rather forceful statement that the Fed is “determined” to avoid a disinflationary outcome in the United States is a clear statement of the central bank’s intentions. The question hanging over the markets is whether or not its policies will deliver the intended result. At the same time, it seems the Fed is not only reluctant to back down from the dovish course of action already in place, but it could also be intent, as Bloomberg suggests, in upping the ante.
“The Wall Street Journal editorial board has encouraged Trump to think of Shelton as a chair-in-waiting. But Bloomberg News reports that Shelton ‘would,’ if confirmed [as a governor], represent a potential chair-in-waiting. One administration official familiar with the matter told Bloomberg in July that’s an option once Powell’s term expires, or even before.”
USAGOLD note: This article mentions Nobel laureate Robert Mundell (Columbia University) – often referred to as the ” intellectual godfather of the euro” – as her mentor. Mundell to my recollection never advocated the gold standard per se, but instead, the use of gold as a reserve asset marked to market on central bank balance sheets. There is a distinct difference between the two approaches. The mark-to-market regime allows the central bank to use gold as a hedge against currency depreciation, but does not obligate it to stay within the confines of a fixed gold standard. The gold standard, on the other hand, values the currency as a specified, fixed weight of gold and this seems to be what Judy Shelton has advocated in the past. It would be interesting to ask her about this distinction and see where she stands now. Up until I read this article, I was not aware that she viewed Mundell as her mentor.
“The conspicuous lag in gold’s performance versus equities conceals a more salient observation, however. While gold hasn’t kept pace with the stock market, it has nonetheless held its value in spite of the near-collapse in safe-haven demand last fall. The stability in the gold price was partly because of the corresponding drop in the U.S. dollar index, which allowed gold to remain firm due to its strengthened currency component. Nonetheless, the fact that gold held up so well in the face of declining risk aversion is a real testament to the strength of its bull market which began in 2018.”
USAGOLD note: So-called bond king Jeffrey Gundlach says the next credit crisis will be worse than 2008 and it will originate in the corporate debt market. “You never have the same crisis twice,” he says. If bonds are likely to be at the epicenter of that crisis, gold could become the safe-haven asset of last resort among money managers.
Repost from 1-26-2020
“A key interest rate is moving to levels last seen in the fall when markets were worried about the trade war, and that falling yield may be a warning signal.”
USAGOLD note: A theme seems to be emerging as we begin the week. . . .
Repost from 1-26-2020
“Today, there are no conservative monetary policymakers at the Fed. Since Volcker, the Fed has been run by self-described liberals and conservatives preaching easy money from the same pulpit. Their extraordinary policies of the last 20 years are based almost entirely on creating more debt to support the debt of yesteryear as well as economic and market activity today.”
USAGOLD note: The authors go on to explain how gold differs from debt-based money ending with the observation that there is “no intermediary between it and value.”
Repost from 10-17-2019
Financial Times/Robin Harding
“Policymakers around the world fear getting trapped in a Japan-like situation of permanently low inflation and interest rates, leaving them with no space to stimulate the economy when times are bad.”
USAGOLD note: “Japanification” is econospeak for disinflation with a touch of deflation – or “secular stagnation,” as former Treasury Secretary Larry Summers calls it.
Repost from 10-25-2019
“In cash terms, however – and judging each calendar quarter’s figures against average Chinese Yuan prices – consumers actually raised their spending on gold in 2019, up 4.4% to the largest-ever total in Yuan terms outside of 2013’s all-time high, when gold’s steepest price drop in three decades unleashed record demand.”
USAGOLD note: Statistical allure is in the eye of the interpreter and we prefer Ash’s interpretation of the China data to some of the other report we have seen on this subject.
Image = Chinese symbol for prosperity
Repost from 1-23-2020
(USAGOLD – 1/30/2020) – Gold reversed course yesterday afternoon after Fed Chairman Powell indicated that the central bank would meet disinflationary pressures in the U.S. economy head-on. In a strongly-worded statement, Powell said: “We have seen this dynamic play out in other economies around the world, and we are determined to avoid it here in the U.S.” Gold responded to the dovish tilt with a quick move to the upside trading as high as $1585 per ounce – a $16 reversal from yesterday’s lows. In today’s early going, it has tracked back a bit to $1579 but still up about $2 on the day. Silver’s reaction has been a bit more vigorous – up 25¢ at $17.80.
The Fed’s freshly stated determination to get inflation off the dime feeds nicely into a report released yesterday by Atlantic House Fund Management’s Charlie Morris in which he focuses on the future value of the US dollar. “It seems a tad simplistic,” he says, “but gold bull markets have tended to coincide with dollar bear markets, and one is long overdue. Recall that a strong dollar is not the norm, and it slumped by a third between the 2000 stockmarket bubble and the credit crisis. Dollar strength only came about thereafter, as the US had higher real interest rates than elsewhere. It is all about real rates, which have been falling for two decades, and have boosted asset prices in the process.”
Chart of the Day
Map courtesy of Visual Capitalist
Chart note: This map shows the difference between Mercator’s representation of country sizes and reality. “Mercator’s map,” says Visual Capitalist, “inadvertently also pumps up the sizes of Europe and North America. Visually speaking, Canada and Russia appear to take up approximately 25% of the Earth’s surface, when in reality they occupy a mere 5%.
“A rally has swept through bond markets this month, expanding the global tally of negative-yielding debt to more than $13tn and confounding investors who had bet on higher yields.”
USAGOLD note: There is a correlation developing between gold and the rise of negative-yielding debt as displayed in the World Gold Council chart immediately below.
Chart courtesy of the World Gold Council
“[P]erhaps it is best to say that the coronavirus provided an excuse to sell stocks, rather than a reason. And with valuations looking excessive, particularly in the U.S., selling some stock is appealing. It is never a bad idea to sell something for more than it is worth.”
USAGOLD note: We cited this in-depth piece in yesterday’s DMR. Auther’s observation that the virus is more of the excuse for selling stocks than the reason might be applied to buying gold as well. He goes on to explore the overvaluation of stocks as the more compelling, underlying reason for paring holdings.
“The Hong Kong gold market rose on the first trading day of the Year of the Rat on Wednesday, rising to its best lunar year debut since 2016, as investors flocked to the safe haven asset amid concerns over the Wuhan coronavirus outbreak. ‘It is always the case – whenever the stock market is volatile, it is a good time to buy gold, as investors like to bet on gold as a safe haven,’ said veteran gold trader Jasper Lo.”
USAGOLD note: We referenced this article in yesterday’s DMR and post it here for those who may have missed it. The point made is that the coronavirus is the immediate incentive, but there are other factors incentivizing gold demand.
“’Even if the coronavirus situation improves, there are good reasons to expect continued inflows into gold,’ said Nicholas Frappell, global general manager at Sydney-based ABC Bullion. Other factors remain, including the Fed’s growing balance sheet, low real rates, and a reluctance to ‘normalize’ policy at the Fed, the Bank of Japan and European Central Bank, he said.”
USAGOLD note: In other words “business as usual” for the central banks is good for gold . . .
Chart courtesy of Gold Charts R Us
“’You have to have balance … and I think you have to have a certain amount of gold in your portfolio,’ Dalio said, reiterating his call last year that the precious metal will be a top investment in the years to come.”
USAGOLD note: Dalio says ‘cash is trash’ in this era of negative real rates of return and says gold is the way to go instead. He also rejects bitcoin as an alternative to gold: “There’s two purposes of money, a medium of exchange and a store hold of wealth, and bitcoin is not effective in either of those cases now.”
Repost from 1-21-2020
“Europe might be called the ‘old continent’ and be struggling in various fields such as economic growth, innovation, and demography. Nevertheless, or rather because of this, interest in gold, a crisis proven asset, has increased in recent years, not only among private and institutional investors, but also among central banks. Far from being a ‘barbarous relic’, gold is making a strong comeback on the old continent, which seems to be only in its early stages.”
USAGOLD note: I found Stoferle’s concluding remarks, as posted above, intriguing and in a way comforting. For those of us with our roots in Europe, it may be a reminder of our own heritage. I can remember as a child my grandfather and father referring to Europe, not as the ‘old continent’, but as the ‘old country’ – to distinguish it, one would think, from the ‘new world.’
Repost from 1-16-2020