Monthly Archives: March 2020
“Given Gold has found a bottom at $1450, its investor story has emerged even stronger —> positioning is clearly a lot cleaner, max macro fear has dialed back from extreme levels, risk appetite in US equities has returned, US$ remains somewhat capped (Feds unlimited QE and US taking top virus case spot) and funding pressures have alleviated somewhat.Gold has simply found its post crisis floor (like it did in 2008/9 post Lehman) and should be closer to $1700, as it begins to react to massive inflationary monetary and fiscal stimulus and a new regime in which Big Gov has emerged as the only solution needed to fight the virus.”
USAGOLD note: How gold fits into the structure outlined in Jim Bianco’s analysis posted immediately below.
“To put it bluntly, the Fed isn’t allowed to do any of this. The central bank is only allowed to purchase or lend against securities that have government guarantee. This includes Treasury securities, agency mortgage-backed securities and the debt issued by Fannie Mae and Freddie Mac. An argument can be made that can also include municipal securities, but nothing in the laundry list above.”
USAGOLD note: Bianco goes on to make the astonishing claim that Donald Trump, through this bailout, has made himself chairman of a new kind of Federal Reserve that did not exist a couple of weeks ago – one the result of a merger between the Fed and the Treasury Department. Keep in mind that this analysis does not appear at some conspiracy-minded website but Yahoo and Bloomberg.
“Gold hasn’t been a cross-cultural monetary standard for millennia just because it is pretty to look at. It has a job – one that it is exceedingly qualified for – and that is to be accepted as money when other financial instruments that were thought to be money are revealed to be credit. That is when gold is sold. Sacrificed.… If this general economic deterioration crosses over into an outright, interbanking liquidity panic, it should not surprise anyone that gold will be sold.”
USAGOLD note: The gold sold, as we are finding out, is paper gold, and there is a fundamental difference between gold represented on paper and gold as represented by itself. One is eminently more preferrable than the other and as we get deeper into the present crisis it is not difficult to know which is which. As Alan Greenspan famously put it: “Gold does not require any form of endorsement.”
Repost from 3-26-2020
“JN: How can people best prepare for the coming financial turmoil?
TM: Hold physical cash and physical gold. All through history, gold has been the best crisis hedge.
JN: What do you see the gold price doing going forward?
TM: We did an analysis of the historical prices of different asset classes, and it seems that gold first—when the crisis starts—goes down like the rest of the assets, but then it starts to rise very fast.”
USAGOLD note: Malinen paints a very bleak picture for the European economy saying that he at first viewed the coronavirus as a trigger and now he sees it as a driving force of its own. In one captivating section, he talks about the possibility of central banks failing – a subject few economists have addressed, although we do recall, James Grant recently raising the prospect.
Repost from 3-26-2020
Every once in a while we rummage around USAGOLD’s creaky old attic and dust-off a golden vignette from our storied past. Here is a short vignette on software-driven trading in financial markets that originally appeared in the May 2012 edition of NEWS & VIEWS. It speaks to the issue in a way you might not have anticipated. I hope you enjoy reading it as much as I enjoyed writing it. – MK
Computer software gone mad
“With respect to the growing dominance of machines on Wall Street, I recall the old Star Trek episode that involves a visit to a planet where the inhabitants seem to be living in a state of perfect bliss. Captain Kirk knows that this cannot be right. There is no such thing as perfect happiness. As it turns out, the population is controlled not by a loathsome dictator who has drugged the population into compliance, but by a computer that has evolved sufficiently to somehow gain control of their minds. Something must be done, concludes Kirk, to break its hold. Spock comes up with the solution by instructing the computer ‘to resolve the value of pi’ – an impossibility because its resolution, as we all remember from high school math class, is infinite. The computer spends all of its time and devotes all of its resources trying to achieve the impossible and the dictatorial hold it has on the population is released – a trick we might want to keep in mind for the day computers complete their mastery of Wall Street.”
In the February, 2017 issue of NEWS & VIEWS, we reposted that piece with the following added note:
“Similarly, in early 2017 Financial Times told the story of the textbook, The Making of a Fly: The Genetics of Animal Design. It started out selling for $113 per copy at Amazon – that is until the governing algorithm misfired between two third-party sellers. The price then skyrocketed to $23 million before someone took note and fixed the problem. We forget that computer software, and this applies to Wall Street’s trading apparatus as readily as it does the Amazon pricing platform, is only as reliable and intelligent as the code by which it is instructed to operate. The practical equivalent to Mr. Spock’s solution in the financial realm is to store significant capital in the form of gold and silver coins detached from potentially rebellious electronic circuitry.”
Original publication date: May 2012; February 2017
“Of course, sometimes a negative outlook is justified, which is why it may be wise to diversify with defensive assets, including cash investments (such as certificates of deposit and money market funds), U.S. Treasuries and even precious metals. Such investments may not appreciate as rapidly as stocks during a bull market, but they have historically outperformed during a bear market.”
USAGOLD note: Who’d a’ thunk?. . . . . .With thanks to John Rubino (Dollar Collapse) for the heads up. Worth visiting the link for the rest of this short advisory that quotes an interesting statistic of which we were unaware. . . . . .
Repost from 5-29-2020
Financial Times/Clive Cookson
“If the results are confirmed, they imply that fewer than one in a thousand of those infected with Covid-19 become ill enough to need hospital treatment, said Sunetra Gupta, professor of theoretical epidemiology, who led the study. The vast majority develop very mild symptoms or none at all.”
USAGOLD note: The headline is dire to say the least. Once you dig in, though, you find the article actually offers a hopeful view on the coronavirus. If Sunetra Gupta is correct, an awful lot of people are going feel awfully foolish. Her modeling offers a much different scenario than the “ominous” one painted by Imperial College London, whose study reportedly had a strong influence on the Trump and Johnson governments. “I am surprised,” she says, “that there has been such unqualified acceptance of the Imperial model.”
Cartoon courtesy of MichaelPRamirez.com
Repost from 3-26-2020
“The United States monetary system is mutating and gyrating very fast, and the reported $4 trillion Federal Reserve credit bonanza has not even been implemented yet, let alone felt yet in the economy. The Federal Reserve’s balance sheet has exploded by $356.462 billion in one week to $4.716 trillion, a new all-time record high and the largest absolute single-week increase ever, by far. For some reason, the graph at FRED is not being updated. The runner-up was the week of October 1, 2008, which logged an absolute increase of $292.164 billion. This week blows that record out of the water by over 22%. And there is almost certainly more to come.”
USAGOLD note: The bar to the far right on the chart below shows the nominal growth in the Fed’s balance sheet for the month of March (through the 18th). The bullion banks, he says, face the real danger of a short squeeze. “If you have no physical gold or silver in your possession,” he says, “now is the time to get some.”
Repost from 3-26-2020
(USAGOLD –3/31/2020) – Gold tracked back to the $1600 level in overnight trading then recovered somewhat at the New York open as markets generally took a breather from the chaotic trading of the last several days. It is now priced at $1608 – down $8 on the day. Silver is up 4¢ on the day at $14.06. Russia announced it would curtail purchases of gold from domestic producers – a move that, in turn, would allow production to be released in the international market. Russia is the third-largest gold producer globally mining about 300 tonnes per year – about 10% of the global total. Though Russia’s release of the metal will be welcome in this bullion-starved environment, the price effect is likely to be minimal. According to the London Bullion Market Association, gold market turnover is roughly $37 billion, or over 900 tonnes, per day.
“The gold market may take a short break and consolidate in the near term,” says HSBC gold market analysts in a report relayed by FXStreet, “with the US fiscal package finally passed, and no fresh stimulus imminent from the EU. We think any sense that the US economy could be hit more than other countries could undermine the USD ‘safe-haven’ status. This would likely benefit gold as ‘safe-haven’ demand may be channeled into bullion instead of the USD. Massive fiscal spending on a global level, combined with monetary accommodation and near-zero interest rates in many countries, all contribute to a bullish outlook for gold. These factors will likely support gold longer-term.”
Chart of the Day
Chart note: Here is an update on a chart we have been monitoring over the past few months. We have not focused on the relationship between gold and money supply growth for years and the mainstream financial media has not given it much attention. As you can see, though, gold’s upward trajectory since May of last year has coincided with stepped-up additions to the money supply. Please note too the acceleration in MZM’s growth curve beginning in early March. Will gold follow along?
Reuters/Lawrence Delevingne and Howard Schneider/3-30-2020
Treasury Secretary Steven Mnuchin told Fox News on Sunday he believed the additional funds could help the Fed and Treasury provide about $4 trillion in loans. But investors and economists said even this additional money may be insufficient, and Congress will likely need to pony up trillions of dollars more.”
USAGOLD note: So …… What, pray tell, will be enough?
“The demand is accentuated by state-run mints largely shut down during the pandemic. Experts predict the coin manufacturers won’t start up production again before the end of May.”
USAGOLD note: Our sources tell us that whenever one of the major mints does make production of gold and/or silver bullion coins available, dealers buy them quickly for replacement inventory. As a result, availability comes and goes at a moment’s notice.
“Satellite imagery combined with other photographic evidence and alternative data sources give a stark look at the U.S. situation: Airplanes are parked on unused runways, the busiest highways are empty during rush hour times, resorts have become ghost towns, ports are seeing sharp drops in shipping activity and more.”
USAGOLD note: I’ve visited my share of ghost towns in the Rocky Mountains all products of a gold or silver rush gone bust. A ghost country is something else again. We can only hope, as we have said several times in the past, that this all fades to memory in quick fashion.
Image attribution: Dariusz Kowalczyk / CC BY-SA (https://creativecommons.org/licenses/by-sa/3.0) [Cropped]
“In Goethe’s 1831 drama Faust, the devil persuades a bankrupt emperor to print and spend vast quantities of paper money as a short-term fix for his country’s fiscal problems. As a consequence, the empire ultimately unravels and descends into chaos. Today, governments that have relied upon quantitative easing (QE) instead of undertaking necessary structural reforms have arguably entered into the grandest Faustian bargain in financial history.”
USAGOLD note: That quote is taken from a Scott Minerd essay eight years ago. “If there is too little money made available,” he says in the update linked above, “the prices of assets used as collateral backing loans will spiral downward. If there is too much, inflation will spiral out of control.” Minerd is the highly-regarded chief investment officer for Guggenheim Investments.
Repost from 3-31-2020
“Gold dealers in Switzerland are rushing to keep up with a surge in demand as worried investors seek out lower risk investments in precious metals with financial markets roiled by the coronavirus pandemic. Some sellers are seeing a ten-fold increase in sales of gold bars, coins and other pieces as existing buyers increase their holdings and newcomers enter the market.”
USAGOLD note: As mentioned previously, we at USAGOLD are experiencing a similar rush for the yellow metal. We recently sold out of our historic Swiss 20 franc gold coin inventory.
Repost from 3-24-2020
Image: A pile of pre-1933 Swiss 20 franc gold coins (Helvetia)
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.”
“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.
Repost from 12-9-2019
Financial Times/Martin Sandbu
“Some economists now call openly for explicit helicopter money in the sense that central banks should directly fund government deficits. ‘I do think the time is right for monetary finance,’ says Lord [Adair] Turner. [the former head of the UK’s Financial Services Authority]. ‘There would be a clarity of assuring people that there is no limit on the money available.'”
USAGOLD note: Not to throw cold water on the increasingly popular idea of helicopter money, but nowhere in this article are the potential consequences of its implementation addressed. Not even a passing mention …… Funny how crisis always brings out the apologists for running the money printing presses. Helicopter money is quantitative easing on amphetamines.
Repost from 3-23-2020
“Gold continued to push higher on Tuesday as a recent wave of selling dried up and Goldman Sachs told its clients the time had come to buy the “currency of last resort.”
USAGOLD note: This article goes beyond the Goldman prediction of $1800 within the next 12 months to harvest opinion from a number of top analysts in London and New York.
Repost from 3-25-2020
(USAGOLD –3/30/2020) – Gold dropped modestly in the wake of last week’s big $140 runup – its best weekly performance since 2008. It is off $8 at $1618 as we begin a new week. Silver is down 43¢ at $14 – a reminder of investors lingering concerns about deflation. Overall financial markets continue to react skittishly to the advancing coronavirus and the severe economic damage it has wrought. Financial Times reports this morning that the already strong demand for physical gold is likely to remain in place with weakening currencies globally and negative real rates of return continuing to dominate investor thinking.
Credit Suisse summons memories of the 2008-2009 financial crisis (See our Chart of the Day below) in a recent update to its gold forecast. “We remain major long term Gold bulls,” says the Swiss bank in an advisory relayed by FX Street, “with the market encouragingly back above its 200-day average having held above key support at $1452/1446. It’s important to note that Real Yields have stopped rising and we still believe a similar dynamic will play out to 2009 when after a sharp initial correction in 2008, gold eventually went on to make new all-time record highs. Resistances above $1700/05 are eventually seen at $1734, the 78.6% retracement of the 2011/15 down move, then the $1796/1803 corrective highs from 2011/12. We still look for new record highs above $1921.”
Chart of the Day
Chart note: The red line represents an older version of the St. Louis Fed’s Stress Index, the blue line the latest rendition. As you can see, financial stress has not been this high since the 2008 financial crisis. Keep in mind the high reading is without the impetus of any financial institution or fund of consequence reporting as of this morning serious difficulties and/or requesting a bailout. Note the acceleration in the index after the Bear Stearns and Lehman failures in 2008.
Streetwise Reports/Robert Moriarity (321 Gold)/3-27-2020
“The message was clear. Just moments before a bank closes the president of the bank says, ‘Your money is perfectly safe in our bank.’ And then slams the door forever. Banks are going to close. The financial system may well shut down for a period. Lots of investors will go to bed rich and wake up poor.”
USAGOLD note: One thing that has not been addressed directly with everything that’s gone on over the past few weeks is the danger of bank failures. Moriarity’s warning will provide those who read it with a back-to-earth moment ……