Gold seesaws higher amidst post-Fed quandary; Ricards on Buffett and Banquo’s ghost

(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

a bar chart showing how various investments including gold perform under various economic worst case scenariosChart 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.

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