Monthly Archives: February 2020
“With stocks in freefall, investors usually turn to gold as a haven of last resort. On Friday, things got so bad that they had to cash in on the metal to cover losses in other markets, spurring its biggest drop since 2013. Gold has now joined the global asset sell-off as investors unload the metal to cover margin calls.”
USAGOLD note: The selloff in stocks is related to fears of a global virus contagion and an oncoming recession. The selloff in gold is related to speculators greening up to meet margin calls in the stock market. Of the two, which seems to be a temporary phenomenon and which the more permanent? Logic and common sense will ultimately prevail – particularly if the developing sentiment about the economy sticks and central banks move to blunt the first stages of a recession. As it stands on the year thus far, gold is still up 1.2%. Stocks are down 13.1% and silver is down 8.2%. (All three as of 1:31 MST, 2-28-2020)
“The old saw used to be that when the U.S. sneezes, the rest of the world catches a cold. Now, a more apropos adage for market bears may be that when an outbreak of coronavirus grinds the world’s second-largest economy to a halt, the rest of the world catches a recession.”
USAGOLD note: This article explores the developments in China generating recession concerns on Wall Street. Last week, the yield curve again dropped below the zero line, a circumstance that in the past has been a harbinger of a recession – and as we pointed out in the February edition of News & Views potentially a harbinger of higher gold prices as well.
Source: Federal Reserve Bank of St. Louis
Repost from 2-23-2020
The New York Sun/James Grant speech . . . . . Also see Grant’s Interest Rate Observer
“The trouble is that the costs of radical monetary policy are dark and prospective; the gifts they bestow are bright and immediate. Those gifts are likewise transitory. Over-encumbered businesses finally fail, inflated asset prices ultimately revert to lower, more reasonable levels. The dividends and the yields that income-needy people have stretched sadly prove illusory. New federal regulations follow hard on the Congressional hearings called to ventilate society’s rage at the bankers — not the central bankers, mind you — who brought down the chaos.
What’s to be done?
An overhaul of the Ph.D. standard, for starters. The 700 doctors of economics on the Fed’s payroll seem not to understand the limitations of economic modeling or the relevance of the financial past. Send them to NASA, which is where they wanted to work in the first place. Replace them with a half dozen historians, a couple of philosophers and a physician. The historians would study the recurring patterns of economic and financial affairs, the philosophers would contemplate the true nature of money and the physician would repeat at intervals, ‘First do no harm.’”
USAGOLD note: James Grant, the editor of Grant’s Interest Rate Observer, delivered this speech in acceptance of the 2019 Bradley Prize in Washington, D.C. He was honored along with two other recipients – The New Criterion‘s Roger Kimball and Judge Janice Rogers Brown. The Bradley Prizes honor scholars and practitioners whose accomplishments reflect The Lynde and Harry Bradley Foundation’s mission to restore, strengthen and protect the principles and institutions of American exceptionalism.
Repost from 5-22-2019
“The coronavirus is front and center as the cause of Monday’s dramatic stock market selloff, but investors have more on their minds. One issue that may not be getting enough credit for the uneasiness on Wall Street is the troubling slide in bond market yields.”
USAGOLD note: If it sinks in that we might be headed for a recession, the selling of stock market positions could intensify and so could the rush for safe havens.
Repost from 2-24-2020
(USAGOLD – 2/28/2020) – Gold sold off sharply in overnight markets as stocks tanked in Asia and Europe and Dow Jones futures indicated another 400-point drop when trading opens later this morning. As we reported on Wednesday, some analysts attribute the sell-off to traders covering margin calls on stocks by taking profits in gold. Gold is down $23 at $1624 in erratic trading. Silver is down 64¢ at $17.16.
“With the stock market plummeting,” says widely-followed analyst James Ricards in a recent Daily Reckoning article, “hedge funds and other institutional investors have had to suddenly raise cash to meet margin calls on their positions in the equity markets. And they had to get the cash from somewhere. Gold is a very liquid asset that can quickly be traded for cash. They can either sell the actual gold bullion they own or they can unload their positions in gold ETFs (like GLD).”
Bloomberg this morning also reports traders selling gold positions to meet high liquidity needs elsewhere. Ricards advises investors to look beyond the day to day volatility. “If you haven’t bought gold yet,” he says, “this is an ideal opportunity to scoop up gold at a bargain-basement price. Or, if you already own gold, to stock up on more.”
Calls for interest rate relief have accelerated on Wall Street over the past two days with former Fed governor Kevin Warsh predicting central banks will coordinate soon to combat COVID-19’s ill effects. Fed funds futures pricing now indicates a 72% chance the Federal Reserve will cut rates next month, according to a Wall Street Journal report yesterday.
Charts of the Day
Gold is trading at all-time highs in six major currencies
Brazil real, India rupee, euro, Canada dollar, Australia dollar and British pound
Chart note: How long before it is trading at an all-time in the U.S. dollar?
Charts courtesy of BullionStar.com
“US and European stocks slumped into correction territory on Thursday as pressure grew on the Federal Reserve and other central banks to cut rates in response to the economic disruption created by the spread of the coronavirus.”
USAGOLD note: You can add Asian stocks to FT’s list as well. The chart below shows the Dow, Germany’s DAX, Britain’s FTSE and Japan’s Nikkei year-to-date – all showing notable losses in percentage terms. We threw in the gold trend line for comparison purposes. As you can see, gold is running contrary to stocks overall so far this year as money flows from risk assets into safe havens.
Chart courtesy of Trading View
“Gold is not supposed to rally so sharply when the Dollar also rallies so sharply….unless people are scared, and investors are confused or uncertain. Which, of course, is the name of the cosmic game when Mercury turns retrograde in Pisces (confusion and uncertainty), and even more so when you have three of the five outermost planets (Jupiter, Pluto, and Saturn) in Capricorn (fear), a rare phenomenon known as the ‘Capricorn Stellium.’ This stellium will be in effect for much of 2020, finally ending around the winter solstice of December 21, 2020 when both Saturn and Jupiter ingress into Aquarius. I am sure you will be hearing a lot of talk about ‘The Age of Aquarius’ finally beginning then.”
USAGOLD note: In our ongoing effort to bring a wide and diverse assortment of opinion on the gold market, we should not neglect the astrological. . . . .So, the current trend, astrologically speaking, will extend until the winter solstice 2020. As for the Age of Aquarius, I thought it dawned a long time ago, yet here we are talking about it again – this time scheduled for the end of December 2020. Somehow I find it difficult to believe that ‘harmony and understanding’ are likely to prevail anytime soon. Anyway, you won’t find the ‘Capricorn Stellium’ mentioned in many gold market reports, except here where when it comes to gold, we cover it all.
Repost from 2-24-2020
“If you are looking for the next big trade, then pay very close attention to silver prices. In a few years, we could be looking back at silver at $18.00 per ounce and saying, ‘That was a dirt cheap price.’ Understand this: at the moment, silver could be one of the most overlooked assets out there. Ignoring it could lead to missing out on immense gains.”
USAGOLD note: The Lombardi Letter goes on to show three charts to make the point – the gold-silver ratio, the correlation between silver and the S&P 500, and the growing contract volume on the COMEX.
Repost from 2-24-2020
He warned the Fed might lose control over a $2 trillion interest-rate market — Now he says it might happen again
“Mark Cabana was warning of the emerging strains in short-term U.S. money markets as early as last year, well before daily funding markets seized up last month and forced the Federal Reserve to dust off tools it hadn’t used since the 2008 financial crisis.”
USAGOLD note: Prior to moving to the Bank of America/Merrill Lynch, Cabana worked in the markets group at the New York Fed.
Repost from 10-29-2019
“As we mark the 10th anniversary of the bull market, it is worth considering whether the efforts of the US Federal Reserve, under Mr Bernanke’s leadership, to avoid 1930s-style debt deflation ended up spawning a new generation of socialists, such as the freshman Congresswoman Ms Ocasio-Cortez, in the home of global capitalism.”
USAGOLD note: At the end of this very interesting editorial, McWilliams asks a compelling question: “What if a policy designed to protect the balance sheets of the wealthy has unleashed forces that may lead to the mass appropriation of those assets in the years ahead?” Long before a 70% tax rate is promulgated, though, we could face the prospect of asset appropriation in forms more subtle than asset appropriation – deflation, runaway inflation or any one of the maladies that fall in between. . . . .
Repost from 3-3-2019
“This feels like London Gold Pool II (collapsing) in 1968 when the central banks finally threw in the towel and let the gold price run free. I think we are very, very close to a repeat of that moment some time this year and maybe in the not-too-distant future. The shortages of physical metal are showing up both for gold and for silver and that is starting to reflect itself in the price movements. We are at a historic moment, Eric, and I think years from now we are going to look back at 2020 and say, ‘That was the year when the metals really started moving back toward their fair value,’ which is significantly higher than current prices.” – James Turk, GoldMoney
USAGOLD note: Turk at his best. The full interview including price near-term targets for silver is recommended at the link above. “Our patience,” he says, “is being rewarded and it is going to continue to be rewarded as the precious metals move higher in the weeks and months ahead.”
Repost from 2-24-2020
The ‘Don’t call it QE’ Elephant in the Room
Some call it ‘stealth QE.’ Others call it ‘QE Lite.’ The Fed itself will not admit to a new form of quantitative easing, but the numbers speak for themselves. Since September, according to a Bianco Research study, the Fed has injected nearly $324 billion into the monetary system in the form of overnight repo liquidity. In addition, it is injecting another $60 billion per month in outright purchases of Treasury paper from commercial banks. Those purchases are scheduled to continue at least into the second quarter of 2020. As for the national debt, it pushed over the $23 trillion mark in November with budget experts warning that we may be entering an extended period of deficits exceeding $1 trillion annually. All of which brings us back to the elephant in the room, the central bank policies required to deal with it and their potential repercussions in financial markets.
Chart courtesy of Bianco Research
Gold pushes back over $1650 mark in early trading on virus containment concerns, sharp declines in global stock markets
(USAGOLD – 2/27/2020) – Gold pushed back over the $1650 mark in early trading as concern about containing the coronavirus grew and global stock markets, including the DJIA futures market, responded with further sharp declines. The yellow metal is up $8 at $1652. Silver is up 13¢ and back over the $18 mark at $18.05.
Goldman Sachs adjusted its forecast for gold over the next three months $200 higher at $1850 citing as key influences COVID-19, negative real yields on dollar-based instruments and developing concerns about the upcoming election. The Dow is down 340 points as we post this report and has lost about 9% since peaking in early February. Gold is up about 5% over the same period as capital has begun to flow at an increased pace from risk assets to safe havens. ETF stockpiles are at record levels after registering gains for 25 straight days, according to a recent Bloomberg report – an indication of strong fund and institutional support for the precious metal.
Chart of the Days
Chart courtesy of GoldChartsRUs
“A second reason why gold may have underperformed over the past 24 hours is after this week’s sharp fall in equities, some funds are likely to have suffered losses on their equity books. As such, they may have moved to take profit on their winning trades e.g. long gold and silver to pay for their losses elsewhere. . . .This can lead to the type of de-risking or position wash that occurred in gold over the past 24 hours and for the patient trader, an opportunity to buy gold at better levels.
USAGOLD note: We referenced this analysis in yesterday’s Afternoon Update and repost it here today for those who may have missed it.
“There are other consumers whose incomes have not budged much. They have jobs but are living paycheck to paycheck, and not because they’re splurging but because, at their level of the economy, prices of basic goods and services have run away from them.” – Wolf Richter, Wolf Street
USAGOLD note: That group, according to this article, has sent credit card delinquency rates at smaller banks to levels not seen since the last credit crisis.
(USAGOLD – 2/26/2020) – Gold is attempting to regain momentum today with the price seesawing in a wide range between $1654 on the high side and $1627 on the low side. At the moment, it is trading in the area of $1640 and level on the day. Silver is down 16¢ at $17.88. Market sources cite the spreading coronavirus, sharp corrections in global stock markets, recession fears, and anticipated central bank easing to mitigate the fallout as pushing the upside. As for the recent correction off eight-year highs, Forex trader Tony Sycamore offers an interesting insight at the CityIndex website. “A second reason why gold may have underperformed over the past 24 hours,” he says, “is after this week’s sharp fall in equities, some funds are likely to have suffered losses on their equity books. As such, they may have moved to take profit on their winning trades e.g. long gold and silver to pay for their losses elsewhere.” For the patient accumulator, he goes on, this type of “de-risking or position wash” presents “an opportunity to buy gold at better levels.”
“No rush to build substantial positions, many are looking to opportunistically add to positions. Helping to keep dips shallow and the market well supported. . . [G]iven lingering macro uncertainty, gold’s appeal as a hedge and diversifier is also in focus, allowing prices to stay resilient despite a strong dollar and equities hovering at all-time highs.”
USAGOLD note: A buy the dip mentality among professional money managers is something buyers of physical coins and bullion should keep in mind. It argues against waiting for a major correction to buy – particularly if you are unhedged. Too, the opportunistic adding to positions could become much more aggressive in the event of a stock market correction. Large pools of capital could suddenly be deployed in the gold market.
Repost from 2-19-2020
“The rapid increase in Fed money printing in just five weeks reflects serious problems developing in the global financial system. Actually, the problem is easy to identify: At every level – government, corporate and household – the level of debt has become unsustainable, with not insignificant portions of that debt in non-performing status (seriously delinquent or in default).”
USAGOLD note: The headline references a quote from former Bank of England governor, Mervyn King, who once said: “I am very struck by the fact that over many many years, central banks, governments and individuals have always, despite the protestations of economists, held some gold in their portfolio. Obviously, there is no high running return, but when unexpected things happen, particularly when governments rise and fall, then gold is a means of payment that everyone is always prepared to accept.” King made the ‘sleepwalking toward a crisis’ comment in a speech at a recent International Monetary Fund conference.
Repost from 11-5-2019
“There is a new dynamic at play in the gold futures and options markets at the COMEX, something that has never been seen before, at least not in recent contemporary commodities markets. It could prove explosive for gold, even in the short to medium term, and a problem for the world’s biggest bullion banks. . .
Just like a run on banks generally leads to a rise in the purchasing power of the currency being withdrawn, a gold run on bullion banks should, in theory, lead to the rise in purchasing power of gold, or in other words a rise in the dollar price of gold. We are not at a point yet where a run on bullion banks is happening, but it looks as if a setup for that potential is building and could happen fairly soon. Of course, I do not know exact timing but I will try to explain what I will be watching for.”
USAGOLD note: The rest of Austrolib’s analysis is worth reading in that the price you see posted every day is determined in the options and futures markets, not the physical market, as popularly believed.
Repost from 2-20-2020
“‘We believe the greater risk is that the impact of the coronavirus on earnings may well be underestimated in current stock prices, suggesting that the risks of a correction are high,’ strategist Peter Oppenheimer wrote in a note.”
USAGOLD note: Will the stock market listen? Thus far, it has thrown all caution to the wind, embraced mania as a virtue, and Fed largesse as its saving grace. It is big,” says Allianz economist Mohamed El-Erian. “It’s going to paralyze China. It’s going to cascade throughout the global economy. We should pay more attention to this. And we should try and resist our inclination to buy the dip. . .”
Repost from 2-21-2020