Monthly Archives: January 2020
Bloomberg/Liz McCormick and Alex Harris/5-21-2019
“As soon as next year, analysts say the Fed will resume large-scale buying of debt securities — this time just U.S. Treasuries — in amounts that may ultimately exceed its crisis-era purchases. According to an estimate by Wells Fargo & Co., the central bank’s balance sheet will rise past its historic peak as it adds over $2 trillion to its Treasury debt holdings in the next decade.”
USAGOLD note: We used to call this kind of government debt buying by the Federal Reserve monetization, which was a fancy name for printing money. Now, it is repackaged with a nice big bow and passed off to the public as a means to “keeping ample reserves in the banking system.” Nowhere in this article is it even mentioned that the buying might have to do with the large needs of the federal government at a time when foreign lenders are in retreat.
Repost from 5-21-2019
“‘Russia may become the world’s second-biggest gold miner globally, beating Australia in three to five years, assuming that there is no force majeure,’ [Sergey Kashuba, head of the Union of Gold Producers of Russia] added. Russian growth will partly come as Polyus PJSC, its biggest miner, develops Siberia’s Sukhoi Log, one of the world’s largest untapped gold fields, with a potential annual output of as much as 1.7 million ounces.”
USAGOLD note: Russian gold production is channeled into national reserves and not sold in international markets as part of Putin’s program to break away from the U.S. dollar. The Sukhoi Log’s 1.7 million ounces of annual production translates to about 50 tonnes. Russian mines produced about 300 tonnes of gold last year. China and Australia were the number one and two producers. We recently updated our World Gold Production by Country page to include the 2018 statistics released by the U.S. Geological Survey.
Chart courtesy of TradingEconomics.com
Repost from 10-28-2019
“It seems the Japanese yen has lost its position of the safe-haven asset. It is more likely the only recovery of the carry trade factor will be able to support the Japanese yen. However, the easing monetary policy of the central banks is among the major negative factors that may affect the carry trade.”
USAGOLD note: We often referenced the Japanese yen and gold as traveling partners at this site. According to this article, that association is now a thing of the past.
Repost from 1-23-2020
(USAGOLD –1/29/2020) – Gold inched higher in early U.S. trading as markets awaited the outcome of this week’s Federal Open Market Committee meeting and continued to sort out the effects of the coronavirus outbreak in China. It is up $1 on the day at $1570 after dipping to $1564 in overseas trading. Silver is down 1¢ at $17.49. In Monday’s DMR we referenced a Reuters report that the coronavirus had “subdued” demand for gold inside China itself, then added: “one wonders how long that will last.”
This morning we got an inkling on that score from a report in the South China Morning Post. “The Hong Kong gold market,” it reads, “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 goes on, at the same time, to identify volatile stock markets as another prime incentive for gold demand and, as the Chinese Gold and Silver Exchange Society’s Haywood Cheung put it, “a lot of political uncertainties worldwide.”
John Authers, the long-time market analyst at Financial Times who now plies his trade at Bloomberg, says this morning “that perhaps it is best to say that the virus provided an excuse to sell stocks, rather than a reason.” The same, we would add, might be said about buying gold. Authers’ column goes on to explore the overvaluation of stocks as the more compelling reason for paring holdings.
Chart of the Day
Chart note: We have been monitoring this chart over the past several weeks because the message it conveys is so compelling at this point in time. It shows the developing correlation between gold and money supply growth as represented by MZM. We have not focused on this relationship in years. The upward trajectory in MZM, a broad money supply measure, began in May and has been relentless ever since. To what we owe this unexpected phenomenon remains to be determined, but our guess is that it has to do with both declining rates and commercial banks’ deployment of excess reserves. Whether or not it will result in price inflation down the road (the Fed’s fervent wish) remains an open question, but, at the very least, we can say that money supply growth is showing some signs of life.
“Friedman’s pronouncement that inflation is caused by excessive money printing is still true. The problem in today’s economics profession is that ‘inflation’ is too narrowly defined; limited to the prices of goods and services, while asset price inflation is excluded. If inflation is defined to include asset prices, then it would be well recognized that, today, we have plenty of it.”
USAGOLD note: The problem with all of this is that no one knows where it ends. Some see the process as the Weimarization of the global economy. Others see it as the necessary remedy to demographically determined Japanese-style stagnation. Some, including a good many hedge fund managers, say common sense dictates hedging one’s bets, i.e., that it cannot possibly end well. This article defines the problem in a straightforward manner and ends with the observation that the notion of ‘trickle down’ is a “harebrained idea.”
“Investors are seeking more clarity from the US Federal Reserve this week on how much it may expand its balance sheet following the central bank’s efforts to restore order to short-term funding markets.”
USAGOLD note: Looks like the Fed chairman could face some tough questions at his news conference on Wednesday.
“Gold sellers in Hong Kong and Mainland China are expecting a surge in demand for the precious metal this year. The boost reportedly happens quite regularly during the Year of the Rat as it is often considered by traditional Chinese people as the best time to get married and have babies.”
USAGOLD note: As we posted last week via Bullion Vault, China’s gold consumption was down in 2019 on the basis of weight but near an all-time high the basis of yuan expended. The top year was 2013 and 2019 second.
“In essence, the Fed has become the lender of first resort when it should be the lender of last resort and offer repo at a penalty rate. The Fed should be willing to help a dealer in need, but it should come at a price.”
USAGOLD note: Bianco offers a solid critique of the Fed’s new repo and reserves program and ends with a caution. “The repo market’s problem,” he says, “is far from over.” Bianco was early in calling Fed policy a version of quantitative easing.
Repost from 1-23-2020
“I ran into Jim Mellon at a party at the weekend, and we soon got talking about markets. One of his comments – stated with surety and simplicity – has stuck in my mind. ‘Investing in 2020 is going to be easy,’ he said. ‘All you need to do is own gold and silver.’ He said it like it was a no-brainer.”
USAGOLD note: Dominic Frisby makes an interesting revelation in this piece having to do with gold’s 144-day moving average. He also passes along Ross Norman’s gold and silver predictions for 2020. That carries some relevance because Norman is “the LBMA’s number one forecaster over the last 22 years.”
Repost from 1-28-2020
Head of U.S.’ largest bank says central banks are fueling a sovereign debt bubble, negative-rates won’t ‘end well’
USAGOLD note: Candid, unexpected remarks from JP Morgan’s Jamie Dimon at the link . . . .
Repost from 1-23-2020
(USAGOLD – 1/28/2020) – Gold gave back about half of yesterday’s gains overnight as financial markets took a breather from the virus-driven angst of the past several days. The yellow metal is priced at $1575 – down $6 in early U.S. trading. Silver plunged 31¢ to trade at $17.75. With attention focused on the economic consequences of the epidemic, tomorrow’s Fed meeting has been all but overlooked. Though next to no one expects anything dramatic to come out of the meeting, the markets could still be affected by the tone and tenor of the policy statement and ensuing press conference.
State Street’s George Milling Stanley says in a Wealth Professional interview this morning that gold could be set for a repeat of 2019, when it gained 18%, the result of “unprecedented uncertainty.” He goes on to say that State Street has found that “[t]he biggest reduction in risk, and the biggest increase in returns over the past 15 years or so, has been at that 10% allocation level [to gold] and, increasingly, investors that I’m talking to, both institutions and individuals, are moving towards that 10% level. Some of them are even going beyond that on the basis we are in extraordinary circumstances.”
Chart of the Day
Chart note: Since the year 2000 gold and the U.S. dollar have had an inverse correlation. Since May, and the rise of geopolitical tensions in a number of places, the two have risen together showing that they might have something in common after all – a reputation as a safe-haven and store of value in troubled times geopolitically.
“Oh yes, a potentially big (BIG) breakout is coming. Remember, the rule of 3 is applicable on this chart as well: after 3 tests we may see a breakout. What this really means is that gold may be rising faster relative to interest rate changes. In doing so it would confirm the continuation of its bull market.”
USAGOLD note: Tsaklanos puts a great deal of faith in this bullish chart indicator. For details, please visit the link.
Visualization courtesy of HowMuch.net
“Perception often takes precedence over reality when it comes to investment markets, and those who own precious metals can attest to this. Despite clear signs of a rebound in the global economy, gold investors have shown no interest in unloading their holdings of the precious metal since November. It was at that time when the global trade outlook started improving and U.S. equities launched a vigorous rally. Gold bulls, for the most part, were nonplussed and held their long positions as a safety hedge against another potential outbreak of global market volatility in the coming months.”
USAGOLD note: We referenced this article in Friday’s DMR and repost it now for those who might have missed it.
Repost from 1-22-2020
“’We are just again in this craziest monetary and fiscal mix in history. It’s so explosive. It defies imagination,’ Jones said . . at the World Economic Forum in Davos, Switzerland. ‘It reminds me a lot of the early ’99. In early ’99 we had 1.6% PCE, 2.3% CPI. We have the exact same metrics today.’”
USAGOLD note: Like Ray Dalio, Paul Tudor Jones advocates a portfolio diversification with gold.
Repost from 1-21-2020
“The ancient Egyptians believed their gods had shimmering skin made from gold. While the Aztec word for gold, teocuitlatl, literally translates as ‘excrement of the gods’. From ancient Rome to the California gold rush, this dense shimmering metal has been immutably connected with divine quality and the sense of opportunity. The reason for this is simple: gold is the most special element of them all.”
USAGOLD note: A cleverly written piece on the origins of gold and how the ancients might have had it right after all. . . . . .
Repost from 6-13-2019
“‘Gold is a place you want to be. I think that it’s partly because it’s inversely correlated with interest rates. But it’s also an insurance policy when things go wrong,’ he said. ‘There’s no such thing as a no-brainer, but this is close.’”
USAGOLD note: David Rosenberg was chief economist at Gluskin Sheff & Associates when he became a well-known market analyst. Now he heads his own advisory firm. In this article, in which he cites the need for gold as a portfolio asset, he also warns about the Fed’s end game, i.e., the “magical money tree.”
Repost from 1-23-2020
“Although tensions between the US and Iran appear to have receded for now, global geopolitical uncertainty remains high. One asset class above all looks set to benefit from this turbulence: gold.”
USAGOLD note: This article concentrates on geopolitical concerns and low yields as the two primary factors likely to drive global gold demand in 2020 and beyond.
Repost from 1-19-2020
(USAGOLD – 1/27/2020) – Gold resumed its climb this morning to start the week as stock markets in Asia and Europe dropped sharply (from 2% to 3%) in response to the spreading coronavirus. The metal is up $12 in early trading at $1584. Silver is up 15¢ at $18.25. The Dow Jones Industrial Average is down 440 in the overnight market as this report is posted. Reuters reports this morning that the virus has “subdued” demand for gold inside China itself, but one wonders how long that will last.
Beyond the virus-related impetus to pricing over the past several days, the notion lingers that gold market sentiment is on a favorable track overall. John Kaiser of Kaiser Research says “there are signs that the market is starting to take the move in gold seriously” – the early stages of a repricing he believes could push the metal to the $2000-$3000 range. “[T]here’s something different going on,” he said in an interview at the Vancouver Resource Investment Conference. I think we are in a period of increased, rising uncertainty similar to the (19)70s about what is America’s ongoing role in the world.”
Chart of the Day
Chart note: We have had quite a few new visitors over the past few weeks who are looking into gold for the first time, and this chart more than any other, we feel, is central to understanding why gold continues to make sense as a long-term portfolio holding. When the United States abandoned the gold standard in 1971 and freed currencies to float against one another, the fiat money era began. We are still in that era today. This chart shows the performance of gold from the early 1900s to 1971 when gold backed the dollar, and the era from 1971 to present when it did not. Gold has had its ups and downs since 1971, but clearly, over the long run, in the absence of an official gold standard, individual investors have been well-served by putting themselves on a private gold standard.
Financial Times/Michael Mackenzie/1-24-2020
“The rally across financial markets reflects a tailwind from central banks and evidence of a rebound in global economic activity. The important question now is whether bullish equity and credit market expectations have outrun economic reality.”
USAGOLD note: Mackenzie methodically reviews recent economic history against the backdrop of Bob Prince’s Davos comments that we have come to the end of the ‘boom-bust cycle.’ He ends with a quote from Guggenheim’s Scott Minerd (also at Davos) who says “ultimately we will reach a tipping point when investors will awaken to the rising tide of defaults and downgrades”. Adds Mackenzie, “Thanks to central bank policies, government bonds provide little protection against either a more inflationary future or a major shock that triggers a sharp decline in the value of risk assets.” That would leave gold as the last safe haven left standing. There is much to consider offered at the link. . . .