Monthly Archives: August 2020
“In other words, no matter who will reside in the White House, the current macroeconomic conditions should remain generally favorably for the precious metals. We mean here the environment of the soaring fiscal deficits (according to the CBO, the federal budget deficit was $2.7 trillion in the first nine months of fiscal year 2020, $2.0 trillion more than the deficit recorded during the same period last year!) and federal debt (according to the IMF, general government debt is expected to rise to 160 percent of GDP by 2030 even without further rounds of fiscal stimulus!), as well as negative real interest rates, and the fastest pace of growth in the money supply in the modern history …”
USAGOLD note: Sieron traverses territory on a good many investors’ minds …… He concludes by saying “Maybe we should vote for gold.”
USAGOLD note: ETF Trends interviews Van Eck’s Joe Foster who “recently updated his gold price target to $3,400 per ounce as gold surpassed his prior target of $2,000 per ounce earlier than expected. Factors supporting gold prices remain in place including negative real interest rates, ballooning government and corporate debt piles, and investor demand. He’s noted that the crisis we’ve lived through, like the Great Financial Crisis of 2008/09 is a deflationary event that is supportive for gold prices.”
Repost from 8-26-2020
“When extreme inequity is this obvious and this widely applicable, we’ve reached the point where the arm and the leg of the K are more like alligator jaws, primed to snap closed. Talk about the perfect accompaniment to an extraordinary financial market peak. Even inequity has been taken to extreme excess.” – Peter Atwater, Financial Insyghts (the originator of the K-shaped market reference)
USAGOLD note: On Monday, we cited the FANG stocks 68.5% gains versus the minus 2.18% loss in the Dow Jones Industrial Average as possibly indicative of a stock market rally built on a weak foundation. Authers reprises the K-shaped stock market recovery in detail at the link above.
Chart courtesy of TradingView.com
Repost from 8-25-2020
“Anyone armed with this knowledge would not have been surprised that the collapse in economic confidence and the surge in deflation fear that occurred during February-March of this year was accompanied by a veritable moon-shot in the gold/silver ratio*. Nor would they have been surprised that the subsequent rebounds in economic confidence and inflation expectations have been accompanied by strength in silver relative to gold, leading to a pullback in the gold/silver ratio.”
USAGOLD note: Once again, nothing new to people who frequent this page, but if you are new to gold and silver and interested to know the circumstances under which the gold-silver ratio moves in one direction or the other, this short article offers some solid background.
Repost from 7-20-2020
US dollar at risk of sudden collapse? Ex-IMF official warns ‘blow-up event’ could sink currency as debt mounts
“With the United States expected to double down on its fiscal stimulus measures to mitigate the economic fallout from the coronavirus pandemic, and the US Federal Reserve continuing its aggressive monetary policy easing, there is a rising risk of a sudden loss of confidence in the US dollar, according to a former senior executive with the International Monetary Fund (IMF). Zhu Min, who was deputy managing director of the IMF from 2011 to 2016, said the US dollar’s position as the dominant global currency was at risk of being eroded because of mounting US government debt.”
USAGOLD note: This analysis falls in line with the United States being among the worse hit nation-states and the massive fiscal and monetary stimulus launched in response. Too, the Fed is supplying liquidity to the banking system globally – something other central banks are not burdened with. The currency markets assess value on a relative basis and the strain on the dollar is likely to be greater than that imposed on other major currencies. In what many will see as a preview of things to come, former Treasury Secretary Larry Summers warned recently that the “economy would be in grave danger if stimulus lapses.”
Repost from 7-27-2020
“The ratio has corrected from those record high levels but is still at elevated levels, suggesting more potential upside for silver prices relative to gold. It should be understood that there is no magical number at which this ratio should stand. There are no physical, geologic, chemical, electrical, financial, or other reason why gold and silver should be expected to trade at a given relationship to each other.”
USAGOLD note: At the same time when the ratio is radically askew as it was over the past few years something has to give. Either gold has to come down relative to silver or silver has to go up relative to gold. This time around silver has gone up relative to gold and brought the ratio back in line. What CPM Group is saying in this article is that at the current nearly 73:1 it still might have a ways to go and that, in its opinion, the “upward move could still be quite explosive.”
Chart courtesy of TradingView.com • • • Click to enlarge
Repost from 8-26-2020
“One of the most alarming facts about this crisis is the pace at which bankruptcies are rising. Despite an $11 trillion liquidity injection and government aid in 2020, stocks and bonds at all-time highs and sovereign as well as corporate yields at all-time lows, companies are going bust at the fastest pace since the Great Depression. Why? Because a solvency crisis cannot be disguised by liquidity.”
USAGOLD note: Lacalle offers insight and opinion on a developing situation Wall Street ignores and most of the rest of us would rather not have to think about. “Bailing out zombie companies,” he says, “will only make things worse.”
Repost from 8-26-2020
(USAGOLD – 8/31/2020) – Gold looks to be settling down some this morning after last week’s hectic, back and forth trading. Silver, though, continues to lead the way higher – up 42¢ this morning at $28 even. Gold is trading at $1968 up $2 on the day. The biggest news over the weekend was the Ohio Police and Fire Pension Fund’s decision to allocate 5% of its nearly $16 billion in assets to gold [LINK]. Negative real yields, inflation-deflation concerns, and extraordinary monetary and fiscal stimulus top a growing list of concerns among money managers and private investors who, in turn, have stepped-up precious metals allocations for asset preservation purposes. “The bottom line,” says Brien Lundin in the latest edition of Gold Newsletter, “is that there have never been so many powerful factors arguing for much higher gold and silver prices, and for so many years into the future.”
Chart[s] of the Day
Gold, silver and the DJIA – Year to Date
Chart courtesy of TradingView.com • • • Click to enlarge.
Gold, silver and the DJIA – One Year
Chart courtesy of TradingView.com • • • Click to enlarge.
Chart note: As of last Friday (8/28/2020), gold is up 27.6% over the past 12 months. Silver now outperforming gold on a 12-month basis is up 49.88% and the Dow Jones Industrial Average is up 10.05%. Year to date, gold is up 28.49%. Silver is up 52.68% and the DJIA is down .74%.
“OP&F and Wilshire [Assets] believe that the addition of gold will give the portfolio a strong diversifier to its growth oriented investments as well as provide an effective hedge against inflation.”
USAGOLD note: Perhaps the first of many such announcements …… Wilshire Assets is the fund’s general investment consultant. The fund’s portfolio is valued at $15.65 billion, according to a recent investment note. A 5% allocation to gold, if achieved, would amount to roughly $800 million at $2000 per ounce – about 400,000 ounces or 12.5 tonnes – and the Ohio Police and Fire Pension Fund is just a small slice of the $22.4 trillion pension fund universe (in the United States alone).
Pension fund total assets
(United States, 2002-2018)
Chart courtesy of Statista.com • • • Click to enlarge
“Powell’s ‘speech did not threaten the bullish narrative for gold and silver,’ [Saxo Bank’s Ole] Hansen said. ‘Low interest rates for longer, a weaker dollar, massive amounts of stimulus and the increased demand for inflation hedges are likely to continue to drive demand for both metals.’ The biggest risk to gold remains the discovery of a vaccine and a sharp correction in stocks, which would spark a drive to raise cash, he said.”
USAGOLD note: Some background on gold’s initial reaction to the Fed policy change ……
“The ‘threat’ is best seen through the emergence of exchange-traded funds (ETFs), which allow investors to get a proxy physical gold exposure through an investment via their stockbroker. In truth, these products are, in many cases, more expensive than trading and storing physical gold (especially for larger investors with a long-term investment time frame), have less trading flexibility, and are less secure than owning real physical gold.”
Financial Times/ Adam Samson and Colby Smith/8-28-2020
“The dollar retreated and a key portion of the US government bond market flashed inflation warning signs on Friday amid concern that the Federal Reserve’s new policy framework could erode the appeal of US assets. … Jan Hatzius, chief US economist at Goldman Sachs, described the Fed’s new framework as ‘a significant dovish long-term shift.'”
USAGOLD note: As we predicted here last week, we are going to get a lot of feedback on all facets of this issue over the coming weeks. We will post links to what we consider to be relevant analysis and reporting without regard to the possible outcomes – inflation, deflation and all the hybrids in between. Gold, we emphasize, has a history of protecting against any and all (and no matter in which order they arrive). To wit, the article linked immediately below takes the opposite tack. It tells of a financial marketplace skeptical of the Fed’s ability to creat inflation.
“In the past few months, the threat of a potential deflationary depression caused by the global supply and demand shock due to COVID-19 forced governments and central banks to massively and constantly intervene in the market. As a result, one of the most important charts in the current environment has been the annual growth in central banks’ assets, which reversed from -1.5tr USD in March 2019 to nearly 5tr USD in July 2020 and generated a tremendous rally in gold. Figure 1 (below) shows that the annual change in assets in the major 5 central banks (Fed, ECB, BoJ, PBoC, BoE) has co-moved significantly with the change in gold prices. With gold up over 25 percent year-to-date, investors have been questioning if the recent consolidation was announcing a temporary pause.”
Sources: Eikon Reuters, RR calculations
Courtesy of Seeking Alpha/Rothco Research
“To conclude, our main three scenarios (combining a total probability of 95 percent) shows a positive outlook for gold prices. Gold is not only a hedge against inflation but is also considered a zero-beta asset that usually rises in periods of equity drawdowns (figure 3) and a hedge against political risk. There is a high chance that the COVID-19 shock and the persistence of social distancing rules will ‘force’ central banks to continue their monetary debasement to prevent any deflationary pressures from happening.”
USAGOLD note: Bottom-line analysis from Rothko Research at the link above ……
Repost from 8-24-2020
“The greenback had benefited as investors flew to safety amid the pandemic, which drove it to a three-and-a-half year high in March. But now strategists say the country’s economic recovery is in question, given its weak coronavirus response. The dollar had also reacted to the country’s surging deficit and the prospect of U.S. interest rates remaining lower for longer.”
USAGOLD note: The more important trends among currencies as far as gold is concerned is their depreciation against goods and services and the drift to ever lower real rates of return. As long as those trends are in motion demand for gold as a fall-back portfolio position will remain intact. At this juncture, whether or not the dollar remains the primary reserve currency is a secondary issue. In reality, as this article points out, there is really nothing to replace it.
Repost from 8-25-2020
“I have found throughout my long investment career that an investor needs to make very few investment decisions in their lifetime. The key is to identify a long-term trend as it begins to emerge, invest in that trend, ride it until it ends and another trend replaces it. As an example, U.S. stocks in the 50s and 60s, commodities in the 70s, Japanese stocks in the 80s, tech stocks in the 90s, commodities in 2000s, and tech and paper assets in the 2010s. The next trend that is emerging will favor things or hard assets. This is what the gold markets are telegraphing now. This trend will be inflationary driven by resource shortages and a tsunami of money printing.”
USAGOLD note: A very well thought out piece from Jim Puplava – well worth the visit at the link above. Everything cycles and he believes we are moving into a part of the investment cycle that will favor “things” over “paper”.
Repost from 7-5-2020
“In seeking to achieve inflation that averages 2 percent over time, we are not tying ourselves to a particular mathematical formula that defines the average. Thus, our approach could be viewed as a flexible form of average inflation targeting. Our decisions about appropriate monetary policy will continue to reflect a broad array of considerations and will not be dictated by any formula. Of course, if excessive inflationary pressures were to build or inflation expectations were to ratchet above levels consistent with our goal, we would not hesitate to act … In conducting monetary policy, we will remain highly focused on fostering as strong a labor market as possible for the benefit of all Americans. And we will steadfastly seek to achieve a 2 percent inflation rate over time.”
USAGOLD note 1: It appears to us that this is the section of the speech (above) to which the gold market reacted this morning with its swift and sharp decline – now down almost $35 at $1922.50 (after trading as high as $1970 earlier this morning). The fact that the Fed will not “hesitate to act” if inflation expectations were to rise; and, that it will “steadfastly” deploy policy to keep the average inflation rate at 2% over time will be read in some circles as the equivalent of keeping the door both halfway open and halfway closed on future stimulus policies.
USAGOLD note 2: That and the lack of any announcement on specific policy changes might inspire a good many to shrug their shoulders and think this isn’t really much of a change after all. Hence, gold’s sell-off …… At least that’s our initial interpretation. The tepid reactions in other financial markets – stocks, bonds and the dollar – lends support to that thesis.
USAGOLD note 3: The market reaction is likely to take some twists and turns going forward as the policy review’s ramifications and/or shortcomings sink in. Too, we could see this speech pushed quickly to the background and previous, more immediate market concerns reestablish themselves.
Stay tuned. We will keep you posted.
Notes from Thursday afternoon 8/27/2020
“The central bank’s program to buy corporate debt just delays the inevitable collapse and makes it worse, the Bond King contends. … Gundlach, the CEO of DoubleLine Capital, argued that ‘the price of corporate bonds isn’t really real. There’s no price discovery mechanism that’s being pegged. There’s no message; there’s just a target price that the Fed has been doing, and that led to a pop-up in corporate bonds.'”
USAGOLD note: Gundlach’s complaint has become a common one among knowledgeable money men. Ray Dalio recently told Bloomberg that after the 2008 financial crisis, the Fed applied its largesse to a small coterie of banks and financial institutions that it deemed systemically important. “Now,” he says, “the whole economy has become systemically important.” …… To what end no one knows.
Repost from 7-6-2020
“I think, though, that the character of this bull market is about to change to more of a 1970s character. The turning point could have already been reached back in March. I believe we will soon start seeing 2 or more gold flags per month as we did in the 1970s. I say this for three reasons:
- Gold is now just starting to take advantage of a falling dollar index.
- There is preliminary evidence that gold is starting to trade inversely to bonds, or at least has the potential to, meaning gold rising together with bond yields, as it did from 1976 to 1980.
- While gold is still trading together with stocks generally, that may no longer be the case in 2-3 months.
Once all these conditions are met, this is the environment where gold flags can multiply. I believe we are on the cusp of this.”
USAGOLD note: A gold flag, says Austrolib, is “when gold rises on the same day that all other dollar-denominated assets fall. That is, US stocks, bonds, and the US dollar index all fall simultaneously as gold ticks up. That signals not just a shift out of dollar cash, but more significantly, a flight from all dollar exposure generally. It is a flight out of the global reserve currency of the world, which, in my opinion, signals a loss of faith in the monetary system.”
Repost from 8-24-2020
“Christopher Wood, global head (equity strategy) at Jefferies has become even more bullish on gold and now expects the yellow metal to hit $5,500 per ounce (oz) going ahead – a rise of over 180 percent from the current levels, and up 31 percent from his forecast of $4,200/oz made earlier in 2020.”
USAGOLD note: Wood sees his forecast as a “reasonable target at the peak of the current secular bull market” – a number he derives as a percentage of disposable income per capita.
Repost from 8-22-2020
(USAGOLD – 8/28/2020) – Gold’s went on the seesaw before the Fed chairman delivered his speech yesterday, stayed on it most of the day, and is still on it this morning. Prior to the speech, it moved sharply higher to the $1970 level in anticipation, It then broke sharply lower during the speech in disappointment (to the $1920 level). It then moved back to the $1933 level by yesterday afternoon in a quandary over the whole matter. CNBC captured the moment with a headline: Next up for the Federal Reserve: Convincing the markets it can do what it says it will do. This morning, gold is sharply higher again – up $30 at $1963 and back near where it was yesterday before Mr. Powell began speaking. Silver is up 58¢ at $27.68.
Market analyst James Ricards recently posted an intriguing commentary on Warren Buffett’s foray into the gold market at the Daily Reckoning website. “Like Banquo’s ghost in Shakespeare’s Macbeth,” he says, “gold keeps showing up as an uninvited guest at the dinner table to haunt the central bankers. Economists may have abandoned gold, but investors have not. And perhaps the most famous investor of all is now betting on gold.” …… “Banks,” he explains, “create money by making loans and adding the loan proceeds to borrower accounts through a few accounting entries. The banks create paper money. But, gold miners create money by digging up gold, processing it and selling it to refiners. In other words, the gold miners create hard money. Buffett is signaling a loss of confidence in the dollar. He’s getting out of the paper money business* and into the hard money business. Economists call this a ‘liquidity preference.’ I call it a sign of the times. If Buffett is moving into hard money in the form of gold, maybe you should too.”
*When Ricards says Buffett is “getting out of the paper money business” he is referencing Berkshire Hathaway’s sale of bank stocks and simultaneous purchase of Barrick mining stock.
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.