Monthly Archives: June 2020
Part 5 of 5 . . . . .
What makes this gold market rally
different from all others
Yields in economically important parts of the world
are negative, not positive
Negative interest rates are a reality in both the European Union and Japan, and Alan Greenspan said recently that it is “only a matter of time” before they spread to the United States. One of the arguments against gold over the years has been that it costs money to own it. Now it costs money to own euros and yen, and before too long it might cost money to own the dollar as well. The advent of negative rates is perhaps one of the more profound differences between this gold rally and rallies of the past. It might also prove to be the most enduring. “One of the reasons,” Greenspan added in that same CNBC interview, “the gold price is rising as fast as it is – you know, at $1500 a troy ounce . . . What that is telling us is that people are looking for resources they know are going to have a value 20 years from now, or 30 years from now, as they age and they want to make sure they have the resources to keep themselves in place.”
Chart courtesy of the World Gold Council
“Since the COVID-19 crisis hit, the Federal Reserve has returned to bond-buying with a vengeance. After cutting interest rates to (effectively) zero and initially saying it would buy US$700bn in bonds, on 23 March it removed the brakes stating it will ‘purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy’. With the total US monetary base now at US$5.1tn (and given the close historical correlation between the two), the gold price could very reasonably be expected to rise to US$1,892/oz and potentially as high as US$3,000/oz.”
USAGOLD note: At $1892 to $3000 per ounce a “golden” future indeed …… The chart below shows the correlation between gold and the monetary base Gibson mentions in the snip above.
Sources: ICE Benchmark Administration, St. Louis Federal Reserve [FRED]
Repost from 6-25-2020
“Excitement about reopening aside, that third and most miserable course is the one we appear to be on. The country will rebound, as things reopen. The bounce will seem remarkable, given how big the drop was: Retail sales rose 18 percent in May, and the economy added 2.5 million jobs. But absent dramatic policy action, a pandemic depression is possible: the Congressional Budget Office anticipates that the American economy will generate $8 trillion less in economic activity over the next decade than it projected just a few months ago, and that a full recovery might not take hold until the 2030s.”
USAGOLD note: 2030s? Apparently the CBO is not in the V-shaped recovery camp.
Repost from 6-24-2020
“Printing money was always going to be easier than withdrawing it later. In effect, central banks are boxed into a situation where they can’t normalize policy and must maintain low rates and abundant liquidity, lest they destabilize fragile asset markets and spur low growth and disinflation. This state of “infinite QE” risks miscalculations and major policy errors. If central banks are, as is now fashionable to state, the only game in town, then the game is lost.”
USAGOLD note: Well said. . .and a Bloomberg Opinion piece worth visiting. Historically, replacing real productivity and natural market cycles with the monetary printing press ultimately reduces, as Das puts it so well, to “a recipe for disaster.”
Repost from 2-27-2019
“Whether it’s a bearish portent of a sell-off to come or prudent hedging after a fierce stock rebound, traders are bolstering their defenses against an end to this vertiginous rally. Gold and longer-maturity bonds are getting outsized inflows. Protective equity options are outdrawing speculative contracts, while volatility markets are positioning for fresh disruptions.”
USAGOLD note: There are as many strategies on hedging a market mania as there are creative money men looking for an edge, but there is only one sure way and that is to put money outside of it – in gold and silver, two assets that do not simultaneously represent someone else’s liability.
Repost from 6-23-2020
The decline of the U.S. dollar could happen at ‘warp speed’ in the era of coronavirus, warns prominent economist Stephen Roach
“Stephen Roach, a Yale University senior fellow and former Morgan Stanley Asia chairman, tells MarketWatch that his forecast for a sharp deterioration of the U.S. dollar could be a very near-term phenomenon, not an event that looms off in the distance. ‘I do think it’s something that happens sooner rather than later,’ the economist told MarketWatch during a Monday-afternoon interview.”
USAGOLD note: Sentiment on the dollar’s future is weakening, led by analysts like Stephen Roach, and probably one of the quiet motivations for gold going past the $1750 mark.
Repost from 6-23-2020
(USAGOLD – 6/30/2020) – Gold tracked lower in quiet seasonal trading this morning despite a warning from Fed chairman Powell that “the path forward for the economy is extraordinarily uncertain” and a Bureau of Labor Statistics report showing that nearly half of the U.S. population is out of a job. The yellow metal is down $3 on the day at $1771. Silver is up 1¢ at $17.93.
Former hedge fund manager Hugh Hendry (who says he is “long gold”) is out with an elaborate and somewhat unconventional analysis of the present economic situation. “… [W]ith overseas nations printing central-bank reserves to buy dollar assets,” he warns in The Dawn of Chaos, “and with banks and credit markets now uncomfortable with owning Treasuries, and what with a podcast star running the Fed, I can see US stock and gold prices rising considerably higher and volatility exploding to the upside … I can see the dawn of CHAOS, people, and it’s going to change the course of history once and for all!” [Emphasis added.] Hendry believes a massive devaluation of the dollar is required saying “[i]f The Fed doesn’t change then the world’s going to snap.”
Chart of the Day
Chart note: As you can see, gold and the dollar index moved higher in tandem from late 2019. Since the dollar’s mid-March peak, they have moved in opposite directions with the dollar going lower and gold higher indicating that the long-established inverse correlation might be coming back into play.
“If you are looking to predict the shape of the US economic recovery — be it V, W, L or even K — don’t look at the markets. Look instead at the small- and medium-sized businesses that represent 50 percent of employment in the country. They are the best economic indicator in America right now. They are also in trouble.”
USAGOLD note: A large segment of our clientele are medical practitioners and small business owners. We thought this article taking note of the situation might be of interest ………
“Since the last survey in March, the managers have shifted their view of who will win the White House. Former Vice President Joe Biden is now expected to win with 62% expecting it, a sharp reversal from December when 70% expected President Donald Trump to win. Views on who would win were split evenly in March.”
USAGOLD note: Some would say that a 20% correction is on the light side given the kind of economic numbers being generated these days.
“For we have reached a critical point. In a sense, it is true that the mists are lifting. We can, at least, see clearly the gulf to which our present path is leading. Few of us doubt that we must, without much more delay, find an effective means to raise world prices; or we must expect the progressive breakdown of the existing structure of contract and instruments of indebtedness, accompanied by the utter discredit of orthodox leadership in finance and government, with what outcome we cannot predict.”
John Maynard Keynes
The Means to Prosperity (1933)
“‘One thing we’ve done is to start looking at gold,’ says Geraldine Sundstrom, portfolio manager, asset allocation at Pacific Investment Management Company, as she explains how the firm is preparing its portfolio in the current market. She speaks with Bloomberg’s Francine Lacqua on ‘Bloomberg Surveillance.’”
USAGOLD note: Pimco joins the list of major financial firms incorporating gold in their portfolio mix.
“Our research and trading team has been advising friends and followers to stay very cautious of the current markets (excluding Gold, Miners, and certain other protective sectors). We don’t believe this rally warrants any exposure greater than 15 to 20% given the current global economic environment and the hyper-parabolic nature of the current price move. We believe the opportunity presented by the upside advances does not negate the potential risks of a massive collapse event taking place in the near future. In other words, we’re more cautious of how ugly and aggressive the end of this parabolic move will be than willing to try to find some opportunities in an already hyper-extended parabolic upside price trend.”
USAGOLD note: Vermeulen issues a clear warning of the “no fear rally” currently in progress in the stock market. “Why,” he asks, “do you think Gold has rallied to levels near $1800 over the past 4+ years?
“In 2020, the virus has led to unprecedented fiscal and monetary stimulus. It remains unclear how much more stimulus will be deployed by DM governments, how the resulting deficits will translate into higher taxes down the road, and how long monetary policy will remain ultra-loose. Finally, it is unclear whether the crisis leads to second round shocks, such as social unrest, political volatility, or rising international tensions. In such an environment, demand for defensive assets (gold in particular) will continue to expand, in our view.”
USAGOLD note: We referenced this Goldman study on Monday. Zero Hedge quotes from the report in detail at the link above. In short Goldman upgraded its twelve month forecast on gold to $2000 and $22 on silver.
Repost from 6-23-2020
- Gold prices posted their biggest weekly gain since 2008 amid the coronavirus market crash.
- Bitcoin, believed by some to be a substitute for gold, has not risen in price among the market panic.
- Supply chain disruptions have led to unprecedented disruptions in the gold market.
- Industry experts believe that gold reserves are now being mined faster than they are replaced.
The Largest Sources of Annual Global Gold Demand
1. Jewelry: 2,107t (48.37% of demand)
2. Investment (total bar & coin): 870.6t (19.99% of demand)
3. Central banks & other institutions: 650.3t (14.93% of demand)
4. Investment (ETFs & similar): 401.1t (9.21% of demand)
5. Technology: 326.6t (7.5% of demand)
Visualization courtesy of HowMuch.net
Repost from 4-17-2020
“In bear or bull markets, billionaires are constantly worried about one thing: protecting their wealth. This video shows how some billionaires protect themselves from downturns – including turning to uncorrelated assets such as gold.”
USAGOLD note: Most billionaires do not take delivery of their gold because of the storage problem. That is not the case for the small private investor. A quarter of a million dollars or less in gold coins stores neatly in a modest-sized safe deposit box. Of course, if you would rather store your gold and/or silver at a depository, we can help with the arrangements. Safe storage includes insurance and the costs are not prohibitive. In fact the annual fees on storing are roughly comparable to what most ETFs charge with the added benefit of a delivery option on the coins or bullion stored. To learn more, we invite you to contact our Order Desk directly.
“The truth, yet unspoken from on high is that radical monetary policy begets more radical monetary policy.”
Grant’s Interest Rate Observer
Gold could go to $1800 to $2200 in the long run
A number of technical analysts have reverted to a more bearish forecast over the past few weeks with the $1250 area once again being touted as the downside support area. Many of those same technical analysts, though, have a significantly more positive outlook for the longer term. Among that group is Gary Wagner of the Wagner Financial Group who sees $1267 or even $1247 as possibilities in the short run, but also forecasts the possibility of $1800 to $2200 in the longer run. “Our research,” he explains in an article published recently at the Singapore Bullion Market Association website, “suggests that gold is in the final phase of a major long-term impulse cycle. This model also provides a look back at the final major bullish wave that could be traced back to end of 2015, following a correction to $1,040. This corrective fourth wave developed from the all-time high at $1,900 in 2011. The model suggests that gold could re-test the record highs that, if taken out, could see an extensive surge to between $1800 and $2200 per troy ounce.”
Caveat: At USAGOLD, it bears repeating, we have always advocated the ownership of both gold and silver coins and bullion for long-term asset preservation purposes rather than speculative gain. Though we pass along various projections, we do so with the caveat that anything can happen. The analyst who forecasts downside today can quickly change his or her outlook to the upside tomorrow – or vice versa. The long term charts for gold and silver, though, reveal a consistent upward trend that has served investors well in the period since 1971 when the global monetary system departed the gold standard and entered the fiat money era.
Repost from April 2019
(Update 5/15/2020) – So far so good on Gary Wagner’s forecast. We decided to leave the post as is so that you could see how much the outlook can change over the course of a single year. One wonders, too, what Wagner would forecast now given recent events and their impact technically on the gold chart.
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“Even more notable has been the unanimity among macroeconomists that massive fiscal and monetary stimulus is the appropriate response to a ‘wartime’ economic emergency. Almost no one seriously disputes that policy should be doing ‘whatever it takes’ to overcome the shock from the virus.”
USAGOLD note: The short answer, according to Davies, is “Yes and no depending on your politics.” The rubber meets the road, as we have mentioned here on occasion, when the time comes to reconcile over-extended central bank balance sheets – with the Federal Reserve (because of its strategic positioning globally) topping the list.
Cartoon courtesy of MichaelPRamirez.com
Repost from 6-22-2020
(USAGOLD – 6/29/2020) – Gold is level in quiet trading to start the week seemingly unaffected by the surge in coronavirus cases across the southern tier of states and further weakness in the dollar. It is down $1.50 on the day at $1771. Silver is down 2¢ at $17.82. Speculators upped their long positions in gold, according to the Commitment of Traders report released on Friday – a change in the dominant trend that began earlier this year.
“Gold speculators,” says COT analyst Zach Storella at Investing.com, “boosted their bullish bets higher for a second straight week and this week’s total (+27,609 contracts) marked the highest one-week gain of the past eighteen weeks. The speculative position had been very much on a downtrend since late February with declines in twelve out of sixteen weeks through June 9th with an overall drop of -145,036 contracts from the bullish position. However, the last two weeks have provided a rebound for the speculative position with a total rise of +43,344 contracts over that time-frame.”
We should keep in mind that a good many contract holders stood for delivery in the recent past putting heavy pressure on bullion supplies. Record U.S. bullion imports from Swiss refiners in April – nearly 112 tonnes – was a reflection of that demand. If the Comex market is moving from subdued to more aggressive long positioning, it could presage higher delivery volumes as we move into the seasonally active second half of the year.
Chart of the Day
Gold and silver – One Year
Chart note: Over the past twelve months, gold is up 26.85%, silver is up 18.68% as of this past Friday. Year to date, gold is up 15.76%, silver is up .99% as of this past Friday.
“’I know what is going on in the developing world from an investor standpoint. I made my bones there,’ Kaplan said in a conference call on Thursday, but stated that times had changed. ‘The key is not just being able to acquire category-killer assets that give the greatest leverage to the underlying investment thesis – which was my mantra for 15-plus years – but in jurisdictions that will allow one to keep the fruits of that leverage.’”
USAGOLD note: The hidden message in this piece centering around the current thinking of Thomas Kaplan is that capital available for gold mining ventures will not go into nation-states where mining companies can be run out of the country or nationalized as occurred with the Barrick/Zijin venture in Papua New Guinea. Kaplan’s thinking is likely to influence a good many others.