Monthly Archives: March 2020
“The economy is a tricky thing, and it’s vulnerable to all sorts of external threats, as the recent decline of the U.S. Stock Market has proven with the outbreak of COVID-19. Looking back through history, we can prepare and survive so long as we learn the lessons of the past.”
USAGOLD note: A lot of this “to-do list” amounts to common sense, but it doesn’t hurt to be reminded about what really matters in times like these. Don’t forget to add some precious metals to your storage stockpile – the peace of mind inclusion.
“Call it Helicopter Credit. … ‘The Fed has effectively shifted from lender of last resort for banks to a commercial banker of last resort for the broader economy,’ said JPMorgan Chase & Co. chief U.S. economist Michael Feroli.”
USAGOLD note: For most Americans, the Fed’s extraordinary policies seem just what the doctor ordered – some much-needed medicine for a dangerously ill economy. Not much though has been advanced on the longer term consequences of this massive economic bailout. When we consider the Fed as ‘commercial bank of last resort,’ we must keep in mind that the central bank still remains the ‘lender of last resort’ as well.
“Investors are snapping up gold bars and coins, seeking the security offered by the precious metal as the coronavirus pandemic trashes economies and forces central banks to print trillions of dollars in new money. But with major gold refineries across Europe shut because of government-ordered lockdowns, online shops out of stock and many of the passenger planes that move bullion grounded, physical gold is becoming harder to track down.”
Important USGOLD client note: Due to our long-standing relationships with key market-makers and our own inventory planning, we are still working from a strong inventory position and are able to deliver most of the standard gold and silver bullion items – American Eagles, Canadian Maple Leafs and Krugerrands. Even our sources though are strained under the circumstances and our inventory, of course, is finite. We do not know, as a result, how long the supply will hold up. All deliveries are running on schedule with occasional minor delays due to the order and shipping volume, and we think you will find our pricing as advantageous when compared to most sources. The one thing we have no control over is rising premiums which, unfortunately, we have no choice but to pass along. Please contact us to discuss prices and availability. 1-800-869-5115 x 100
“’What we are seeing now is fast and violent,’ unlike the gradual sell-off in the 2007 and 2008 crisis, said Phil Brendel, a senior distressed credit analyst at Bloomberg Intelligence. If the virus isn’t suppressed, even more distress is possible, according to Brendel. ‘The worst is yet to come,’ he said.”
USAGOLD note: You get the sense that something is brewing under the surface that when it bubbles up it is going be another black swan (or even flock of black swans) on top of the black swan that’s already landed on the financial pond. Yesterday, Financial Times reported the Dutch bank ABN Amro taking a $200 million loss the equivalent of 10% of its annual profits from one trader going bust and leaving the bank holding the bag.
“In short, the shock from the COVID-19 spread will blow a fiscal hole through Washington, D.C., that could take years if not decades to patch.”
USAGOLD note: Though the virus might fade, the mega-deficits – we take no pleasure in saying – are probably here to stay. In this article, Cox theorizes that we might see a federal deficit yet this year in excess of $1.5 trillion. That would push the aggregate national debt over $25 trillion. The U.S. government has added $17 trillion to the national debt since the turn of the century.
Repost from 3-24-2020
“The new downswing results from more than the 2010 financial crisis. There has been a wave of Chinese and Asian working-class resistance to exploitation, which has eroded profits. In the West, paradoxically, the historic defeat of the unions has flatlined wages. As a result, goods can be sold (and profits maintained) only by bolstering consumption through easy personal debt. That makes the Western capitalist model unsustainable and prone to endemic bank failure. The banks and their tame accounting firms are busy covering up this chronic instability via wholesale fraud. As a result, we are nowhere near the bottom of this K-wave.”
USAGOLD note: The link above takes you to an excellent overview of the various stages of the Kondratieff Wave when applied to recent history and includes the author’s opinion as to where we are now. . . . . . The chart above provides a simplified template of the Kondratieff Wave since 1800. We allow you to draw your own conclusions and only mention that gold is not just an historically proven inflation hedge, it has performed equally as well in modern times under disinflationary, stagflationary and deflationary circumstances.
Image: Kondratieff_Wave.gif: Internaszonalderivative work: Agmen [Copyrighted free use]
Repost from 4-9-2019
“By way of confession and truth to podcast – let’s see, I confessed I was born in 1946 and that makes me, like, 37? Okay, I was born in 1946 and I was bullish on gold in 1945. I hope that puts my view on this into context. I’m chronically, sometimes profitably, but certainly very nearly continuously, well-disposed to the legacy monetary asset. I think that so many arrows point to it in the present day. I think it will become the beneficiary of – I’m talking about gold now – gold will become the beneficiary of so many trends. From the tinkering and the unprecedented experimentation of our central bankers’ fiscal profligacy – I’m starting to sound moralistic – I think that paper money is in a secular bear market and that the institution of managed currency will be seen to be a species of pretense, if not outright intellectual fraud. And I use that word advisedly. And I think that come the dropping of the scales from the eyes of the money holders of the world, gold will do better against almost every currency.” – James Grant/Interest Rate Observer
USAGOLD note: The interview linked above is well-worth your time if you want to better understand the bond market and what might lie ahead for investors. “[S]omething to bear in mind,” says Grant, “is that nobody issues a press release at the start of an inflationary cycle.”
Repost from 3-13-2020
New note: Grant was certainly prescient in this interview. Gold has not only done better against “almost every currency,” it has achieved all-time highs versus a number of them over the past six months.
“Yet while the yellow metal has done far better than other assets, it has slipped 2% over the last month. The Goldman analysts, with a 12-month price target of $1800 an ounce, said that is about to change, thanks to the Federal Reserve’s aggressive bond purchase plan unveiled on Monday, in which the U.S. central bank said it would buy as many Treasurys and mortgage-backed securities as needed to keep financial markets running smoothly.”
USAGOLD note: Yesterday’s developments in the gold market certainly buttress Goldman’s outlook. The Wall Street firm sees the announcement of unlimited quantitative easing as a turning point.
Repost from 3-24-2020
“Three of the world’s largest gold refineries said on Monday they had suspended production in Switzerland for at least a week after local authorities ordered the closure of non-essential industry to curtail the spread of the coronavirus.”
USAGOLD note 1: We first warned that the coronavirus could translate to a supply problem in the gold market in last month’s newsletter. “At the moment,” we wrote, “the supply lines in the precious metals business are still functioning smoothly. There could come a time, though, when they are not – a possibility, by the way, that has received scant attention in the context of the coronavirus contagion”.
USAGOLD note 2: The lead article in that edition of our monthly newsletter, by the way, titled “Hedging the decline and fall of a currency – The baseline case for gold hasn’t changed much in 1700 years” carries special relevance in light of recent events. It reviews Jack Whyte’s latest novel “The Burning Stone” – a prequel to his series on the Arthurian legend. Whyte skillfully tells the story of Rome’s silver denarius debasement and how one Roman patrician guarded, and in fact enhanced, his wealth through ownership of gold coins.
Repost from 3-24-2020
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“Gold suppliers are in talks to use chartered or cargo flights to transport the precious metal, which usually moves around the world in commercial planes and has been left stranded as global travel grinds to a halt.”
USAGOLD note: Brilliant idea! “Let’s call Brinks and see if they can move some metal for us …”
(USAGOLD – 3/27/2020) – Gold is taking a breather this morning after its extraordinary performance of the week now coming to a close. It is down $2 on the day at $1623, but up $122 on the week (+ 8%). Silver is down 10¢ on the day at $14.25, but up $1.74 on the week (+13.8%). “Normalizing liquidity conditions, negative real rates, low cost of carry and concerns surrounding fiat currency debasement,” says TD Securities’ in a recent report summarized at FXStreet, “likely means price could move toward $1,800/oz in the not too distant future. … A move toward $2,000/oz is also a distinct possibility into 2021, as the global economy normalizes, monetary conditions remain loose while fiscal deficits surge. … Any selloff in the near-term should be considered as temporary and will likely serve as an additional catalyst moving the price toward $1,800 before the yellow metal reaches escape velocity toward a $2-handle.”
The chart below showing yesterday’s jobless claims number is a bit of a stunner ……
Chart of the Day
Annotated Gold Chart
2008-2009 – The first years of the financial crisis
Chart courtesy of the St. Louis Federal Reserve [FRED]
Source: ICE Benchmark Administration (IBA)
Annotations by USAGOLD
“Perhaps scarred by their experience, or perhaps due to the distressing human tragedy that is currently unfolding, they (i.e., analysts concerned about inflation) have been notably quiet this time around. That is unfortunate because, as the saying goes, policymakers always solve for the last crisis. We are worried that the real pain trade for markets – and the economy – is the long awaited return of inflation. A good hedge would be to buy gold, as well as inflation linked bonds in the US and Euro Area, which are currently trading at all time lows.” – Oliver Harvey, DeutscheBank
USAGOLD note: Gold would have to trade at more than $2200 per ounce to match the early 1980s high when adjusted for inflation. That figure does not take into account any future inflation. We should keep in mind too that fewer analysts worry about inflation these days than disinflation or deflation. The beauty of gold as a portfolio item is that history has shown it to protect against either or both no matter in which order they arrive.
Adjusted for Inflation (1970- present)
“Confidence has been shattered. Faith that central banks have everything well under control has been broken. Myriad fallacies have been exposed. Central banks can’t guarantee liquid markets, especially in a Bubble-induced highly levered speculative environment. The entire derivatives universe has been operating on the specious assumption of liquid and continuous markets. History is unambiguous: markets experience bouts of illiquidity, dislocation and panicked crashes. The fantasy that contemporary central bank monetary management abrogates illiquidity and market discontinuity risks is being debunked. The mania in finance has, finally, run its course.”
USAGOLD note: Noland goes on to describe a great unraveling not unlike what Strauss and Howe warned about in The Fourth Turning (and Howe continued to warn about after its publication). “Covid-19,” says Noland, “has let the genie out of the bottle.”
Repost from 3-22-2020
“He might have to replace the Fed chairman in the process. Judy Shelton and Christopher Waller (decidedly a soft money advocate) are both chairperson material. My guess is that it would be Richard Clarida who has the resume for it and also has been very malleable to Trumponomics. This goes back to what I wrote about two weeks ago: Trump is an unstoppable force that is going to change the face of macroeconomics for decades.”
USAGOLD note: This article is mostly a critique of Judy Shelton’s simultaneously endorsing zero per cent interest rates and the gold standard. Some see it as hypocritical, but as long as gold standard advocates are asked to function in a Keynesian system when they don their administrative hat, they will have an opinion as to what should be done with that system in this time and place. Alan Greenspan, another gold standard advocate, was one example of that dichotomy in action. Perhaps Judy Shelton will be another. “People should spend less time thinking about whether the U.S. women’s team is invited to the White House,” says Dillian, “and more time thinking about why Judy Shelton is a ZIRP NIRP gold bug.”
“The world’s supply chains are facing a root-to-branch shutdown unlike any seen in modern peacetime as efforts to contain the coronavirus outbreak hit everything from copper mines in Peru to ball bearing makers in Germany’s industrial heartland.”
USAGOLD note: In sorting out the reams of conjecture on the economic effects of the coronavirus, the one analysis that makes enduring sense is that no one knows how all of this going to shake out. Peru, by the way, is the world’s second-largest producer of silver and the sixth-largest producer of gold.
Repost from 3-23-2020
(USAGOLD – 3/26/2020) – Gold pushed higher in early New York trading as the government announced weekly unemployment claims rising to 3.28 million – a sobering number that directly reflects the cumulative effect of the coronavirus on the real economy. It is up $20 at $1632 and up $159 (+11%) on the week. Silver is up 10¢ at $14.52 and up $2.10 (+20%) on the week. In stark contrast to today’s numbers, 281,000 new claimants filed for unemployment last week.
The big story in the gold market itself continues to be the shortage of physical metal caused by the virus, its impact on pricing in the futures market, and, in turn, the knock-on impact in pricing gold coins and bullion at the retail investor level. “[T]he larger spot market in London,” explains Bloomberg in a report this morning, “is dominated by 400-ounce bars of gold, but only 100-ounce and kilobars are deliverable on the Comex contract. Late on Tuesday, after New York futures shot to the highest premium to the spot price in four decades, CME Group said it would launch a new futures contract under which 400-ounce bars would also be deliverable, helping ease tightness.”
Important client note: Due to our long-standing relationships with key market-makers and our own inventory planning, we are still working from a strong inventory position and are able to deliver most of the standard gold and silver bullion items – American Eagles, Canadian Maple Leafs and Krugerrands. Even our sources though are strained under the circumstances and our inventory, of course, is finite. We do not know, as a result, how long the supply will hold up. All deliveries are running on schedule with occasional minor delays due to the order and shipping volume, and we think you will find our pricing as advantageous when compared to most sources. The one thing we have no control over is rising premiums which, unfortunately, we have no choice but to pass along. Please contact us to discuss prices and availability. 1-800-869-5115 x 100
Chart of the Day
Chart note: “Gold is a store of value,” says Jan Nieuwenhuijs posting at the VOIMA website. “The media, however, frequently exaggerate short-term swings in the price of gold. This month they first wrote ‘gold lost safe haven status’ when the price declined for a few days, only to report ‘gold gets groove back’ when it was up for half a day. Due to gold’s inherent properties—it’s physical, can’t be printed, has no counterparty risk, etc.—gold has preserved its value like no other currency for thousands of years. Why question its safe-haven status based on short-term volatility? It’s true that from the moment we left the gold standard, gold has become more volatile. Still, in general, its purchasing power has increased ever since.”
“About 1 million to 4 million people may have filed for unemployment benefits last week, the largest number ever in such a short time. The filings figure, which will be released Thursday before U.S. markets open, will be the first indication of how hard the labor force is being hit by the abrupt shutdown of a large part of the U.S. economy by the coronavirus pandemic.”
USAGOLD note: That’s up from 281,000 last week ……
“The strains have rippled through gold trading, with liquidity at some points running thin in a vast market that’s dominated by the world’s biggest banks and watched by millions of mom-and-pop investors.”
USAGOLD note: This article includes a revealing chart showing the futures’ premium level over spot at its highest level since 1980. To address the physical squeeze, Comex told Bloomberg it would launch a new gold futures contract denominated in 400-ounce bars against which investors could take delivery. The question, as we raised yesterday at this page, is whether or not customers holding contracts would be “willing to exchange for the new contract.” That, it appears at first glance, would mean holders rolling their positions forward and not taking delivery on the April contract. The chart below offers a sense of the outstanding long position at the COMEX – not all will want delivery.
Chart courtesy of the World Gold Council
“Gold’s lacklustre performance this week appeared to diminish the metal’s ‘safe haven’ status, as it declined for the second week in a row amid a global stock market sell-off due to coronavirus. But investors are still flocking to the precious metal in the hope of a rebound and protection against an even worse fall in other assets, from stocks to currencies and bonds.”
USAGOLD note: Sanderson reports of a development we are experiencing first-hand at USAGOLD. The fact of the matter is that the very strong physical demand for gold and silver argues for its ‘safe-haven status.’
Repost from 3-22-2020