Monthly Archives: May 2020
Image courtesy of TradingEconomics.com
“Over the last decade, the Federal Reserve, and Central Banks globally, have engaged in never-ending ‘emergency measures’ to support asset markets. While the stated goal was that such actions were to foster full employment and price stability, there has been little evidence of success … What monetary policy did not do was lead to ‘general fluctuations in price levels.’ Despite the annual call by the Fed of higher rates of inflation and economic growth, the realization of those goals remains elusive.”
USAGOLD note: Roberts argues that deflation is the longer-term threat, but inflation potentially looms in the short term. That, he explains, will present the Fed with a whole new and different set of problems.
Repost from 5-24-2020
“Two French kids reportedly stumbled upon more than $100,000 worth of gold while they were in coronavirus lockdown. According to local media, the children — both around 10 years old — made the discovery when their family went to stay with an older relative in the French town of Vendome after lockdown measures were enforced in March.”
USAGOLD note: May your lockdown be equally productive.
Repost from 5-24-2020
“Those who have lived through currency crises know that they are swift, brutal, and irreversible. The lucky who have income or saving in a non-local currency see a sudden, dramatic increase in their purchasing power. Most see their living standards collapse. When the dollar fails, so will nearly all of the other global currencies, since most central banks use dollars as their core reserve asset. Gold will prove to be the only non-local currency.”
USAGOLD note: Oliver offers three end-game scenarios emanating from the current crisis, one of which, he predicts, could take gold to the $10,000 per ounce level. It involves a helicopter drop of money that causes a global currency crisis.
Repost from 4-19-2020
“As I had the opportunity to directly question Taleb on gold, he told me truly despises gold. He hates gold. He couldn’t care less about the gold market. Yet Taleb does invest a large share of his ‘safe assets’ in physical gold. Gold is the robust investment par excellence. In case the global economy is on the verge of collapse, gold will keep afloat and survive. Or things might go great, but even then an investment in gold will not result in enormous, unrecoverable losses and ruin. Or as some gold investors rightly remark: for a more or less regular gold coin you could buy hundreds of liters of wine centuries ago and for the value of a similar coin in present times that probably still holds true. Taleb calls this the Lindy effect: gold has been a store of value for, according to some accounts, 4,000 years. We can reasonably expect gold, therefore, to continue to be a store of value for the next 4,000 years.”
USAGOLD note: Nicholas Taleb has always held a place of honor in my reference list of economists and market commentators even before I learned of his love-hate attachment to gold through Olav Dirkmaat’s excellent profile linked above. Taleb’s latest book is Skin in the Game.
Repost from 4-27-2018
“US Congress has authorized several trillion dollars in Covid-fighting stimulus programs. So what’s holding the dollar up? I remain amused by all the calls of hyperinflation and high inflation given the Fed has turned on the printing presses. However, currencies cannot be viewed in isolation. To those expecting a total US dollar collapse, here’s my word of advice. Stop being so US-centric.”
USAGOLD note: When the printing press is running at full speed for all currencies, gold is the clear winner and that is why it is at all-time highs in many of the world’s currencies. The exception is the dollar, but that might be temporary. Mish asks a second question (the first is in the headline): “Got gold?”
Repost from 5-25-2020
The naughty boy who blurts out unpleasant truths
“In the first place, the ‘classic’ writers, without neglecting other cases, reasoned primarily in terms of an unfettered international gold standard. There were several reasons for this but one of them merits our attention in particular. An unfettered international gold standard will keep (normally) foreign-exchange rates within specie points and impose an ‘automatic’ link between national price levels and interest rates. The modern mind dislikes this automatism, as much for political as for economic reasons: it dislikes the fetters this automatism clasps on government management of the economic process – dislikes gold, the naughty boy who blurts out unpleasant truths. But most of the economists of the period under survey liked it for precisely the same reasons. Though they compromised in practice as in theory and though they admitted central-bank management, the automatism – a phrase beloved by Lord Overstone [Samuel Jones Loyd, 1st Baron Overstone] – was for them, who are neither nationalists nor etatistes, a moral as well as an economic ideal.” –– Joseph Schumpeter, History of Economic Analysis (1954) Published posthumously
Dr. MoneyWise says. . . .And to Dr. Schumpeter’s well-considered discourse on the practical merits of the gold standard, I will add a simple thought of my own: Absent the gold standard, the prudent investor who stores gold benefits in concert with the blurting of those unpleasant truths.
“Change may be afoot. The ‘anything it takes’ economic policy of central banks and governments around the world is shaking things up across the spectrum of investment types. Since March 23, 2020 silver has been one of the top-performing major commodities, outperforming gold by a significant margin.”
USAGOLD note: Silver is playing catch-up with gold. It is up 15.2% over the past 30 days. Gold is up 2.9% over the same period.
Repost from 5-24-2020
(USAGOLD – 5/29/2020) – Gold climbed higher in overnight markets tacking $13 onto the price to stand at $1736. Silver is up an impressive 36¢ at $17.82. The metals began their latest uptrend with renewed support at the $1700 and $17 levels respectively earlier in the week then gained momentum on mounting tensions in Hong Kong and lingering concerns about the longer-term results from global stimulus programs. Those who fear policymakers’ efforts will fall short worry about an outcome like the 1930s Great Depression. Those who think the money printing will revive moribund economies worry it will also create a runaway inflation. Both camps have turned to precious metals for safe-haven purposes and, over the past few months, prices have pushed steadily to the upside as a result. On the week, gold is level while silver has gained about 3.5%.
Incrementum is out with its widely-anticipated In Gold We Trust annual report. It offers the prospect of a bright future for gold in the coming decade: “Our forecast, or rather our conclusion from last year, that gold was in a new bull market, has come true. The strength of the trend was accentuated even further last year, which is why we assume that new all-time highs will soon be reached in US dollar terms. For us it is obvious that the gold price – against any currency – is about to enter a golden decade, i.e. the purchasing power of EUR, USD, etc. measured in gold will continue to fall. … Last year we took a clear position and concluded that we were in the early stages of a new gold bull market. This thesis was confirmed with the breakout above the resistance zone at $1,360-1,380 and the subsequent start of the rally. However, this significant price rise should be taken with a grain of salt. To reach the inflation-adjusted all-time high of 1980, gold would still have to rise to $2,215.” Ultimately, Incrementum sees gold reaching between $4,800 and $8,900 by 2030.
Chart of the Day
Sources: ICE Benchmark Administration Limited (IBA), St. Louis Federal Reserve [FRED]
Chart note: This long-term chart on the annual average price of gold since 1970 dispels the notion that gold is somehow volatile or unpredictable and as a result unreliable as a long-term portfolio safe haven. To the contrary, it shows gold living up to its reputation as a reliable portfolio safe haven during times of rapidly changing economic circumstances. The strong showing for 2019 is worth noting with the average price at $1392 per ounce. At this morning’s $1732 price, gold is now trading almost 25% higher than 2019’s average price.
“This time around, the coronavirus is causing interruption on an unprecedented scale, including the supply of physical gold. Three of Europe’s biggest gold refineries are based in the Swiss canton of Ticino. On March 24, cantonal authorities ordered all three refineries to close. Although they’ve been allowed to reopen since April 5, they’re still only operating at around 50% of their normal capacity, meaning there’s a squeeze on the supply of physical gold.”
USAGOLD note: With all the analysis published on gold ownership, we sometimes lose sight of simple availability of the metal as a fundamental factor driving market sentiment. We saw what happened in late April when a delivery squeeze developed relative to the effects of the coronavirus. End of May another delivery squeeze could develop when the heavy-volume June contract comes up for delivery.
Image courtesy of Visual Capitalist
Repost from 5-26-2020
“It is also sobering for western investors who fear Covid-19 may herald a Japanese-style future for the US and European economies. That would imply continual dependence on fiscal and monetary pump priming to fight endemic deflation, at the cost of ever bigger government debt: Japanification, in a word.”
USAGOLD note: Plender makes the same point advanced recently by Reinhardt and Rogoff: This time around, it is different … With the dangers of unemployment and zombified companies looming large, central banks, he says, will find it extremely difficult to retreat from monetary largesse. This time around, the result is likely to be a return of inflation – not Japanification.
Repost from 5-24-2020
“Negative rates turn the principles of finance on their head by forcing commercial banks to pay to store money at the central bank rather than earn interest on it. At the same time, some countries and companies have been paid to borrow.”
USAGOLD note: This Financial Times editorial attempts to flesh out the longer-term implications of below zero interest rates – the winners and the losers; risks and rewards. Will we see negative rates in the United States? Some say it will never happen. Others say it is only matter of time (and another financial crisis).
Repost from 2-20-2020
(USAGOLD – 5/28/2020) – Gold surged during Asian trading hours on the political situation in Hong Kong and, in the greater scheme of things, escalating tension between the U.S. and China. It was also helped along technically by price support tapped once again at the $1700 level. The yellow metal is trading at $1727 this morning – up $13 on the day. Silver is up 6¢ at $17.42. Beyond the immediacy of the Hong Kong situation, the list of overarching concerns driving gold remains the same – inflation, deflation, the success (or lack of success) of aggressive central bank policies, etc.
Gold ETF stockpiles continue to grow at a record pace pushed by ongoing fund and institutional demand (See our Chart of the Day). Last month’s strong demand for gold and silver coins and bullion among USAGOLD clientele has cooled marginally in the second half of May but still remains strong. We are still able to book and deliver orders of high-demand items on schedule with a few minor delays due to high depository volumes.
“The growing consensus,” says Deutsche Bank in an analysis posted at the FXStreet website, “that the pandemic will be largely deflationary with weaker consumption outweighing lower productivity, suggests policymakers will not have to choose between supporting growth and controlling inflation. If policymakers indeed face no such difficult choices, then the prominence of central bank support for asset markets reduces the probability of a repeated ‘March-madness’ sell-off, in the event of subsequent waves of infection depressing growth. With prolonged downward pressure on growth, asset purchase programs are more likely to be extended to provide a counterweight to lost income, higher propensity to save, and a weak investment climate into 2021. We believe this also extends gold upside potential.” [Emphasis added.]
Chart of the Day
Chart courtesy of GoldChartsRUs
Chart note: Please take special note of the spike in stockpiles in 2020 coinciding with the pandemic economic onslaught. Aggregate holdings now stand at 138.6 million troy ounces – just over 4,300 metric tonnes (the second largest hoard in the world after the United States’ 8,133 metric tonnes).
“Even as the U.S.’s share of worldwide gross domestic product steadily shrinks, the dollar’s share of global transactions has only grown. This mismatch proves dangerous when, in the process of fulfilling its domestic mandate, the Federal Reserve makes moves that have huge ripple effects around the world.”
USAGOLD note: Wiesenthal sees regional currencies replacing the dollar as nation-states take measures to stabilize their own economies and become less dependent on the dollar. If he is right, the trend among nation-states to bolster gold reserves as an alternative reserve asset might continue to gain ground. It was just a few days ago that the World Gold Council reported 20% of central banks intending to increase gold purchases over the next year, up from 8% a year earlier.
Graphic image courtesy of the World Gold Council
Repost from 5-20-2020
“As serious an evil as inflation is, it is not considered the most serious. If it is a choice of protecting the homeland from enemies, feeding the starving and keeping the country from destruction, then let the currency go to rack and ruin.” – Ludwig von Mises, January 1923
USAGOLD note: The date of that quote happens to coincide with the beginning stages of the nightmare German hyperinflation. Von Mises, the famed economist of the Austrian School, lived in Vienna at the time and served as an economic advisor to Austria’s government. Many who survived the German debacle did so by purchasing gold early in the process. Polleit says price inflation under the current circumstances might be acceptable “collateral damage” in the effort to save the financial and economic system.
Repost from 5-2020
“The path through the solar system is a rocky road. Asteroids, comets, planets and moons and all kinds of small bodies of rock, metals, minerals and ice are continually moving as they orbit the sun. In contrast to the simple diagrams we’re used to seeing, our solar system is a surprisingly crowded place.”
USAGOLD note: Off subject but an interesting diversion from perhaps weightier matters. . . . .
Repost from 3-6-2020
Part 3 of 5 . . . . .
What makes this gold market rally
different from all others
Central banks are buyers of physical gold, not sellers.
In 2011 something unusual happened in the gold market. Central banks flipped from being net sellers of the precious metal to net buyers reversing a 40-year trend. Since then, the official sector has added 4,563 metric tonnes to their coffers (through the first half of 2019) – a 15% gain in stockpiles to 34,407 metric tonnes. The gold that central banks take off the market, though, is only part of the story. The rest has to do with how domestic production in two key producing countries – China and Russia (the world’s number one and three producers) – is treated. Both countries channel their mined metal into national reserves rather than selling it in the global marketplace. Many analysts see this new and evolving approach to gold reserves as the key difference between the present gold rally and rallies of the past.
“Risk assets have moved rapidly out of favour in recent weeks. As the Covid-19 pandemic has prompted a widespread reassessment of global economic prospects, investors have rotated into safe-haven assets, including gold. Some haven assets have delivered better returns than others, however. And gold has been one of the best performing safe-haven assets this year. Between 1 January and 20 April 2020, gold outperformed US treasury bonds and bills, USD-denominated investment grade US agency and corporate debt, and Eurozone sovereign bonds.”
USAGOLD note: Though aimed at central bankers, the tenets reviewed applied to the well-run private investment portfolio as well. “Central bank reserves,” says the Council, “are typically constructed according to three guiding principles: safety, liquidity and return. The Covid-19 pandemic has reinforced the significance of these principles and, by extension, the importance of smart and sustainable reserve management.” Sounds about right ……
Chart courtesy of the World Gold Council
Repost from 5-19-2020
Gold retreats toward the $1700 level once again, ‘deflation not inflation is the motor behind gold’s rise’
(USAGOLD – 5/27/2020) – Gold retreated toward the $1700 level this morning in a continuation of yesterday’s sell-off. It is trading at $1703 – down $11 on the day. Silver is down 16¢ at $17.06. The list of concerns dominating investor thinking and driving gold demand remains the same – inflation, deflation, the success (or lack of success) of aggressive central bank policies, etc. The price of gold has remained firmly in a range above $1700 over the past few weeks despite the ebb and flow of sentiment and resistance encountered consistently at the $1750 level. It looks, however, like gold’s resolve at the $1700 support level is about to be tested yet again.
Many think gold demand has been driven of late by concerns about inflation resurfacing. In a Bloomberg Business Week editorial published yesterday, Peter Coy takes a different tack. “In short, gold isn’t going up because of inflation,” he says. “It’s going up because the Fed and other central banks are slashing interest rates to fight the opposite risk – deflation caused by the deep Covid-19 recession. Of course, gold would also do well if inflation surged and the Fed went easy on raising rates as the economy regained steam. The fear of that scenario is probably behind some investors’ gold-buying. But to argue that the rising price of gold is a symptom of hidden inflation is getting the causality backward. Deflation, not inflation, is the motor behind gold’s rise.” All of which serves as a perfect introduction to our Chart of the Day ………
Chart of the Day
Chart note: The chart above provides a simplified template of the Kondratieff Wave cycle since 1800. We allow you to draw your own conclusions and only mention that gold is not just a historically proven inflation hedge, it has performed equally as well in modern times under inflationary, disinflationary, stagflationary, and deflationary circumstances.
Image: Kondratieff_Wave.gif: Internaszonalderivative work: Agmen [Copyrighted free use]
“The real reason the gold/silver ratio has tended to fluctuate within a broad but well-defined range is that humans have a vivid visual imagination. Here’s how it works: Early in a precious metals bull market, people are skeptical of the need for safe-haven assets, so the money that flows into the sector goes mostly to the big-name, super-safe choice, which is gold. Gold goes up relative to silver, and the gold/silver ratio expands.”
USAGOLD note: Rubino goes on from there to offer a cogent defense of using the ratio as an indicator ultimately offering the opinion we should “expect investor imaginations to work in silver’s favor for years to come.”