Monthly Archives: July 2020
“Gold broke a new high on 28th July, reaching US$1,940.9/oz on the LBMA Gold Price PM and topping US$1,981.3/oz intra-day. This exceeded the previous record of $1,895.0/oz set by the PM Price on 5th September 2011 and the $1,921.2/oz intra-day high the following day during Asian trading hours. On the heels of this milestone, investors are asking two key questions, which we explore in this report: How does this compare to previous highs? Is the price rally sustainable? Gold’s performance so far in 2020 has been remarkable. As of 28th July, it is up by 27%, significantly outpacing all major assets. This move up has been driven by a combination of: 1) high uncertainty, 2) very low interest rates, and 3) positive price momentum – all of which are supportive of investment demand. But there are reasons to believe that we may still be early in the cycle.”
USAGOLD note: Thorough, well-grounded rationale on where we might be headed in the gold market. Particularly useful for those looking into gold for the first time ……The inflation-adjusted high for gold, by the way, is in the vicinity of $2800 per ounce.
“’There was a point in time when we were wondering if the bond market would really ever function again,’ says Nick Maroutsos, co-head of global bonds at Janus Henderson, an investment group. ‘If it continued for a couple of weeks, we were thinking we were looking at doomsday.’”
USAGOLD note: A retrospective that tells how close we came to a full bond market meltdown this past March. The issue, it seems, was liquidity and the Fed filled the gaps. “I understand why the Fed did this, but they basically bailed them out,” says [former New York Fed chief Bill] Dudley. “There’s definitely a moral hazard here.” The bond market is the black hole at the center of the fiat money universe – the focal point around which all else rotates. Smith and Wigglesworth offer a deep weekend read ……
“The dollar has become the world’s punching bag and it’s likely to stay that way for awhile. … Strategists say the dollar’s slide comes as the U.S. lags most of the world in halting the spread of the coronavirus, and some expect the U.S. economic recovery to lag others, including Europe. The dollar is also reacting to the prospect of mounting U.S. deficits and ultra-low U.S. interest rates well into the future.”
USAGOLD note: Suddenly dollar bears are in abundance …… And they are all wearing masks.
Repost from 7-28-2020
“Why is this happening? This behavior is coming particularly from the group labeled ‘other reportable’ in commitment of traders disclosures, which includes family offices and high-net-worth individuals. Worried about protecting the value of their fortunes, they are opting for the perceived safety of physical gold. This creates a specific problem for swap dealers, which are run by the bullion banks that make a market in gold.”
USAGOLD note: For as long as we can remember, USAGOLD has taken the position that the Achilles heel of the paper gold market is investors opting to take delivery of the metal – deliveries the short side of the market would find difficult to meet simply because of the dearth of availability against the amount of capital committed in the market. Now, according to Authers, that day may be upon us.
Repost from 7-28-2020
“It seems that global stock markets have disconnected from the fundamental reality. They have been rising since the end of March despite the collapsing economies and soaring unemployment. Why? And what does it imply for the gold prices?”
USAGOLD note: We’ve had the Great Recession. We’ve explored the Great Reset. Now we have the Great Disconnect. The best recourse? How about the Great Refuge?
Image courtesy of Visual Capitalist
Repost from 6-18-2020
“Dalio said that we are in an ‘ideological civil war’ with the Chinese and that when you combine that with ‘an economic downturn in which there is the printing of money and the creation of money out of thin air,’ it creates larger issues for the U.S. economy. The biggest issue Dalio is worried about is ‘the soundness of our money. ‘You can’t continue to run deficits, sell debt or print money rather than be productive and sustain that over a period of time,’ Dalio said.”
USAGOLD note: This is precisely why some analysts are keeping a very close eye on the deteriorating relations between the U.S. and China. The situation not only carries implications for financial markets in general but for gold, the dollar and the yuan in particular. Dalio has consistently recommended gold ownership over the past few years as a hedge against a breakdown in the relationship.
Repost from 7-27-2020
“Mobius says that investors find themselves in a curious spot where buying stocks and gold are both viewed as ways to preserve capital and avoid erosion from inflation. ‘We’re in a very interesting situation where people are looking at stocks to preserve their capital because stocks will adjust to inflation and also gold. Their sort of hedging their bets.’”
USAGOLD note: Mobius has been a vocal advocate of gold on the interview circuit for over a year now. He points out in this article that mine ouput “should be declining” as a result of COVID-19.
Repost from 7-27-2020
(USAGOLD – 7/31/2020) – Gold regained momentum during Asian trading hours as investors sought refuge from further depreciation in the dollar, a major reduction in U.S. GDP, and accelerating COVID-19 case numbers across the globe. Fed Chairman Powell’s emphasis on fiscal spending during Wednesday’s press conference is also adding to gold’s appeal. There is a direct long-term correlation between growth in the aggregate federal debt and a rising gold price (Please see this morning’s post, “The government put is a tailwind for gold” at our Today’s top gold news and opinion page.) Gold is up $19 on the day – just under 1% – at $1978.
It is silver though that is increasingly catching the attention of traders and market analysts. Now up 76¢ on the day – or 3%, it continues to outpace gold which has posted solid gains in its own right over the past several months. (Please see our Charts of the Day immediately below). Goldman Sachs’ most recent gold forecast has received a great deal of attention over the past few days, but its silver call received only cursory notice. The Jeff Currie-led team of analysts sees the white metal at $30 “on a 3/6/12 month horizon, pulled upward by higher gold prices and better prospects for silver industrial demand.” It suggests the possibility of the gold-silver ratio falling to 77. With its target for gold set at $2300, it “would imply a $30/toz silver price.”
Chart[s] of the Day
Twelve months through July 30, 2020
Year to date through 7/30/2020
Gold-silver ratio through 7/30/2020
Charts courtesy of Trading View.com • • • Click to enlarge
Chart note: The gold-silver ratio has fallen dramatically since the beginning of April but still far above its long-term average indicating there is still some room for improvement. Silver is up 29.03% year to date and 30.36% over the past 12 months. Premiums are rising on silver bullion coins the result of increased demand and curtailed production at world mints. Though silver American Eagle bullion coin premiums have risen significantly over the past few days, silver Canadian Maple Leafs are still available at reasonable premiums. Please call our Trading Desk for details 1-800-869-5115 x #100.
“Gold’s surge to an all-time high is winning over a wider fan base of pension funds, insurance companies and private wealth specialists.”
USAGOLD note: These groups are new to the gold investment arena and bring to the table considerable purchasing power and market savvy – along with an eye to longer-term horizons. One immediate result might be more buying interest on price dips.
Graphic image courtesy of Visual Capitalist
“The Fed wants us to believe that we should believe that there will be no inflation out of all this and to me that is a vast unknown. We have America’s fastest peacetime money-growth coexisting with the all-time 4,000-year record lows in interest rates. It’s a most curious and troubling juxtaposition there. … I think what we have is a monetary moment that is unprecedented and therefore calls for extreme caution and great humility on the parts of all of us.”
USAGOLD note: Interest Rate Oberserver’s Grant goes on to say that he is “confidently bullish on precious metals.”
“Alternatively, with so much uncertainty, risk aversion and deleveraging on the part of corporations, households, and even entire countries could result in a more anemic U-shaped recovery over time. But if the recent surge of COVID-19 cases in the United States and other countries is not controlled, and if a second wave occurs this fall and winter before a safe and effective vaccine is discovered, the economy would likely experience a W-shaped double-dip recession. And with such deep fragilities in the global economy, one cannot rule out an L-shaped Greater Depression by the middle of the decade.”
USAGOLD note: Noriel Roubini is a great black bear watching over a flock of white swans …… of which a few have already landed. “Why,” he asks, “are financial markets blissfully ignoring these risks?”
Repost from 7-29-2020
Coverage of David Einhorn’s (Greenlight Capital) client letter
“The deflationists point to Japan as the obvious counter-example. However, Japan never ran these kinds of annual deficits, never had a large negative public plus private national savings rate, and never grew its money supply this quickly. … It might get tricky a few years from now if inflation accelerates further. The Fed has demonstrated it doesn’t have the stomach to slow the economy by reigning in policy. We believe the implied negative real interest rates are bullish for gold and for unlevered real assets with pricing power (home prices will rise, while leveraged commercial real estate will fall from lack of demand).”
USAGOLD note: Einhorn, a long-time advocate of gold ownership, comes down firmly in the inflation camp. Durden quotes extensively from Einhorn’s letter at the link.
Repost from 5-2-2020
“If the economy was booming with stock prices at reasonable levels, we could take comfort that good times really had returned. But I don’t feel able to trust a recovery that is financed by an overpriced stock market. Overpriced stocks makes us feel that it is safe to spend again. But the financial security pushing spending forward is illusory.”
USAGOLD note: A short, sensible assessment of the relationship between today’s stock market values and the economy at large – potentially an elaborate house of cards.
Repost from 10-29-2019
Image courtesy of Visual Capitalist • • • Click to enlarge
USAGOLD note: A screenshot taken from a much larger presentation at the link above.
Repost from 7-24-2020
“This is just the beginning of what could turn out to be the biggest gold bull market in history. Gold is within a hair of taking out its previous all-time high of around $1,910. Once it does, I expect gold to skyrocket. Gold is the ultimate form of wealth insurance. For thousands of years, it’s preserved wealth through every kind of crisis imaginable. It will preserve wealth during the next crisis, too. Owning some physical gold – and keeping it in your own possession – is step one. It’s something everyone should do.”
USAGOLD note: Giambruno pulls no punches in this advisory.
Repost from 7-23-2020
(USAGOLD – 7/30/2020) – Gold continued to consolidate, at least for now, around the $1950 level after a muted Fed meeting and press conference that promised more of the same but no new stimulus measures to boost the ailing economy. It is down $9 on the day at $1952. Silver is down $1.17 at $23.33. Expectations of a devastating GDP number a few hours from now are probably already built into the price, but anything greater than the expected 35% decline could send the markets reeling and the Fed chairman in search of his favorite headache remedy.
Many in the gold realm think a significant correction is in order after the dramatic gains of the past few months. Others believe any correction will be short-lived – that the recent past merely sets the stage for something even more substantial down the road (as reflected in the big bank forecasts we featured in yesterday’s DMR).
“In ancient times, heavenly alignments foretold doom,” writes Sharps Pixley’s Ross Norman in a market advisory this morning. “What would the ancients have had to say about the recent extraordinary planet parade when Mercury, Venus, Earth, Mars, Jupiter, Saturn, Uranus, Neptune plus the dwarf planet Pluto – all lined up together? And, at the same time, that most basic and primal of metals, gold, was also shooting up to the stars. When seemingly random and disconnected events align, they seem to exert a powerful force that goes beyond the collective gravitational pull of each component. So it has been for gold which has now risen by 30% this year, and the yellow stuff still has momentum. Gold’s dramatic spike is shining a light on some uncomfortable truths.”
Chart of the Day
Chart courtesy of World Gold Council • • • Click to enlarge
Chart note: “These [multiple] factors,” says the World Gold Council’s Jennifer Johnson Carari, “increase the possibility of a stagflation scenario—an outcome nearly unthinkable only six months ago. As investment committees consider alternative economic scenarios, the greater possibility of stagflation would warrant increased attention to the performance of gold to meet real capital preservation investment objectives.” Former Fed chairman Alan Greenspan warned a couple of years ago that the global economy was headed toward a stagflationary breakdown Few paid attention. It was not too long ago that most in the mainstream media constantly touted gold solely as an inflation hedge despite historical evidence to the contrary – including its performance during stagflations, deflations and disinflations.
“Gold rallied to a record high and gold futures touched $2,000 an ounce as financial markets digested the havoc caused by the coronavirus pandemic. And that breathed new life into the old question of why investors still bother with what’s likely the most primitive form of money in their portfolios. Bullion is best known as a time-honored haven from inflation, but there’s more to its appeal, and plenty of conflicting forces at work that can excite commentators and investors.”
USAGOLD note: Another interesting, top-drawer gold market analysis from Eddie van der Walt and Liz McCormick. Even veteran gold owners and advocates will stop for a moment at the section where gold is referred to as a “Veblen good” – which means that “as its price goes up, it can be even more desired.” A visit to the link is time well spent ……
“The cities were still there, the houses not yet bombed and in ruins, but the victims were millions of people. They had lost their fortunes, their savings; they were dazed and inflation-shocked and did not understand how it had happened to them and who the foe was who had defeated them. Yet they had lost their self-assurance, their feeling that they themselves could be the masters of their own lives if only they worked hard enough; and lost, too, were the old values of morals, of ethics, of decency.”
Pearl S. Buck
Who was in Germany during the hyperinflation in 1923
“The U.S. economy ground to a halt for almost the entirety of April. Now the world is about to find out the depth of that contraction. Data due Thursday are forecast to show U.S. gross domestic product plummeted an annualized 34.8% in the second quarter, the most in records dating back to the 1940s, after the spread of Covid-19 prompted Americans to stay home and states to order widespread lockdown.”
USAGOLD note: The GDP report is scheduled for release at 12:30 pm EDT. One can only hope that any future recovery will be as dramatic as the projected almost 35% fall.
Graphic image courtesy of Visual Capitalist
Table courtesy of World Gold Council • • • Click to enlarge
USAGOLD note: The United States still leads the pack with respect to official gold reserves. The euro-area countries, however, hold 10,772.5 metric tonnes when the reserves of the nineteen member countries are combined – a total that exceeds the United States holding of 8,133.5 metric tonnes. China, as we have pointed out in the past, officially holds 1,948.3 metric tonnes, but many analysts believe its actual holdings are substantially higher. Russia at present is generally considered the most aggressive accumulator of gold for national reserves and now ranks sixth with 2,299.9 metric tonnes in reserves. Overall, central banks in the aggregate have been strong buyers of gold bullion over the past several years.