Monthly Archives: August 2020
“Global silver investment jumped 12 percent to 186.1 million ounces (Moz), making it the largest annual growth since 2015. Notable gains in Europe (+25 percent), the US (+9 percent) and India (+5 percent) led to the increase. Institutional investment fared even better than retail demand. Last year, exchange-traded product (ETP) holdings stood at 728.9 Moz at year-end, up by 13%, achieving the largest annual rise since 2010.”
USAGOLD note: Is silver angling for a major turnaround? The Silver Institute offers some hopeful signs as indicated in the snippet above. The link above takes you to the full 86-page report.
Repost from 4-22-2020
“The dollar has been overvalued for a long time, and this might finally be a catalyst for a multi-year downtrend. As we’ve seen before when valuations have been stretched, a policy or economic shock can quickly change the currency’s trajectory and that’s what seems to be happening thanks to the Fed’s swelling balance sheet, a surge in debt, and the way we handled the pandemic. – Jack McIntyre, Brandywine Global Investment Management
USAGOLD note: This article includes a dollar index chart similar to the one immediately below interestingly annotated, “Last bull cycle runs out of steam.” Lower highs and lower lows over time give the impression of a long term loss of momentum. Notably, the gold chart over the same period shows precisely the opposite, and that perhaps is one of the reasons why gold has done well since the dollar index topped out back in March.
Chart courtesy of TradingEconomics.com
Repost from 8-21-2020
“The key thing to understand about Modern Monetary Theory is there is nothing new about it. It’s been tried before. It’s a fact of history that many of the great economists, bankers and investors are Scottish. Adam Smith is just one in a great line of Scots economic thinkers. … Of course, there are a couple of exceptions to Scotland’s exceptional record of economic productivity – one of whom is John Law. He was a genius, but flawed. Still, he wasn’t all bad; he managed to effectively bankrupt France… which should mean he’s better commemorated with at least a statue somewhere like Waterloo Station.”
USAGOLD note: A reminder of a historical incident to which we alluded early in the discussion on MMT – John Law’s origination of the same in the French economy almost exactly three hundred years ago (and with disastrous results). An entertaining weekend read on the subject from Mr. Blain ……
USAGOLD note 2: In the end, Law’s theories (to his surprise if we are to believe the historical account) bankrupted the French people and the government, reduced the economy to ashes, and created such a distaste for paper scrip among the citizenry that it took 80 years for France to reintroduce paper money as a circulating medium.
“The shrewder speculators* became alarmed. They began to sell their shares of stock, and hoard in gold the enormous wealth they had acquired. This resulted in a demand on the government for metal in exchange for its paper, and soon the government had no metal to give. Then the crash came. Those who had the government paper could buy nothing with it. Those who held the Mississippi stock could scarce give it away. It was worthless. The government itself refused to accept its own paper for taxes. A few lucky speculators had made vast fortunes; but thousands of families, especially among the wealthier classes, were ruined.” – Edward S. Ellis and Charles F. Home, The Story of the Greatest Nations (1900)
Please see this link for a summary of Law’s Mississippi Company land scheme.
Repost from 8-23-2020
Gold settles back after yesterday’s sharp reversal, ‘relentlessly’ retains luster over past 50 years says Sprott’s Grosskopf
(USAGOLD – 8/27/2020) – Gold settled back in overnight trading after yesterday’s sharp upside reversal following a Bloomberg report that the Fed would keep interest rates fixed near zero percent over the next five years. Perhaps gold’s price direction will become clearer once Fed chairman Powell delivers his much-anticipated speech on future Fed policy this morning. The yellow metal is down $15 at $1942. Silver is down 29¢ at $27.29.
Sprott’s Peter Grosskopf, who recently called gold “the story of the year in financial markets,” is out with a new analysis on the merits of gold as portfolio insurance in the modern era. In it, he argues that “it has been established as a baseline that a diversified asset portfolio must include an allocation to gold. We believe this statement is justified by the fact that gold is now the only monetary asset that is priced by a liquid-free market and not directly correlated and partially controlled by central bank (i.e., government) policies and market interventions.…Gold’s superior track record as a currency has been demonstrated over 100-, 50-, 20-, 5- and 1-year timeframes. Almost 50 years since de-coupling with the U.S. dollar (USD) and throughout the advances of electronically transmittable fiat currencies, gold has relentlessly retained its luster.”
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]
“Having rushed to engineer a massive policy response to the initial virus shock which briefly threatened to unleash a financial crisis, the world’s leading central banks face the next economic phase of the pandemic with a dwindling arsenal of monetary weapons and rising frustration that some key drivers of the recovery — both health and fiscal — are beyond their control.”
USAGOLD note: A solid overview leading up to this week’s Jackson Hole central bank conclave and Fed Chairman Powell’s much-anticipated speech on Thursday. This year the conference will be held virtually for the first time because of the pandemic.
“In the first two weeks of August, activity declined in countries with renewed outbreaks, such as Italy, France and Spain and the recovery remained sluggish in Germany, Sweden and Norway. The U.K., U.S. and Canada are still very far below their “normal” levels of activity, but recently have been catching up to the European countries leading the recovery.”
USAGOLD note: This Bloomberg alert puts its fingers on the pulse deciphering where we are now with respect to the economic effects of the virus in Europe and North America.
Repost from 8-20-2020
“The optimal portfolio, since 1929, included risk weighted combinations of Domestic Equity (24%), Fixed Income (18%), Active Long Volatility (21%), Trend Following Commodities (18%), and Physical Gold (19%). This allocation is highly unorthodox compared to a Traditional Pension Portfolio dominated by equity Linked Assets (73%) and Fixed Income (21%).”
USAGOLD note: “On a long enough timeline every strategy sucks,” quips RCM Alternatives on Artemis’ approach to the 100-year portfolio. That explains the 19% portfolio commitment to physical gold, the portfolio inclusion for all seasons.
Repost from 2-24-2020
“Even though silver prices already have risen sharply so far this year, there is more potential for upside in the short to medium term. There are several key resistance levels to be crossed but a run to silver’s past record should not be entirely surprising.”
USAGOLD note: That past record is in the vicinity of $50 per ounce. For those new to investing in silver, we would add our own caution to the caveat above (i.e. “key resistance levels to be crossed”) that silver often outperforms gold both to the upside and downside. The article linked above is well worth the visit if you are thinking about adding silver to your holdings.
Repost from 8-19-2020
Gold, silver do an about-face
“The Federal Reserve looks likely to keep short-term interest rates near zero for five years or possibly more after it adopts a new strategy for carrying out monetary policy. The new approach, which could be unveiled as soon as next month, is likely to result in policymakers taking a more relaxed view toward inflation, even to the point of welcoming a modest, temporary rise above their 2% target to make up for past shortfalls.”
USAGOLD note: Whether or not the Fed calls it such, a good many will see a five-year hold on rates at zero percent as laying the necessary groundwork for (and a harbinger of) the Modern Monetary Theory. It may be simply a coincidence, but gold and silver did an about-face right after Bloomberg released this article. Gold moved quickly from down roughly $25 to up $2 as this is posted. Silver likewise went from down about 30¢ to up 24¢.
(USAGOLD – 8/26/2020) – Gold continued to track lower in advance of the upcoming Jackson Hole symposium of central bankers and Fed Chairman Powell’s much-anticipated speech on Thursday. The downside is also a continuation of the profit-taking and technical selling that has gained momentum in the background over the past couple of weeks. The metal is down $25 at $1907.50 as U.S. trading opens. Silver is down 33¢ at $26.29. Fittingly on a down day, we quote 25-year market veteran Jaime Carrasco who believes investors should take advantage of gold’s volatility to add to their holdings [from a recent BNN interview]:
“It is said that bull markets are built on fear and volatility and I don’t think this one will be any different, fuelled by rising systemic risk; negative interest rates; rising geopolitical tensions; the 2020 Presidential election; the Covid19 economic shutdown, and now rising inflation. A perfect economic storm! Accordingly, I continue to recommend that investors hold at least 30% of their portfolio in the [gold] sector, to protect from rising systemic risk. In my opinion, forget about the actual price of gold, and concentrate on using the volatile nature of the sector to achieve an adequate asset allocation to make a difference.”
Chart of the Day
Chart courtesy of the St. Louis Federal Reserve [FRED] / Source: ICE Benchmark Administration Limited (IBA)
Chart note: Cause and effect in one simple, straightforward chart – the purchasing power of the dollar and the price of gold since 1971.
“History will remember Paul Volcker and Jerome Powell as standing on the opposite ends of the inflation canyon, with the former taking desperate actions to try to tamp it down and the latter expected this week to announce an unprecedented effort to crank it back up.”
USAGOLD note: Different times. Different objectives. Different policies. Whereas Volcker’s mission was to kill inflation, Powell’s is to ignite it. Volcker’s policies were not particularly gold friendly. Thus far, Powell’s agenda has made it highly desirable.
“Investors are worried about deflation. That might sound odd, given that the opposite fear — of rising consumer prices — has grabbed attention and fired up assets such as gold.”
USAGOLD note: “Deflation and inflation,” says FT, “are both on fund managers’ worry lists.” In both instances, the net effect is to erode the safety of assets via the presence of counter-party risk. Inflation undermines yields and the ultimate purchasing power of assets. Deflation undermines financial system stability and a counter-party’s ability to pay. Because gold is an asset that does not rely on a counterparty for value, it protects against either malady – inflation or deflation, and all the hybrids in between. That, in the end – and not the myriad of other reasons cited in the mainstream media – is the reason why so many fund managers are turning to gold under the current circumstances.
“The Covid-19 crisis has presented a real threat to the U.S. position of global dominance. As political tensions heat up between the world’s two largest economies, the balance of power that will result is still unclear, but becoming of increasingly greater concern by the day.” – Alan Greenspan
USAGOLD note: The former Fed chairman made these comments (at the link above) in his role as economic advisor to Advisors Capital Management.
Repost from 8-20-2020
“The Federal Reserve may hold interest rates near zero for three or more years, and its balance sheet will soar above $10 trillion as policymakers seek to revive the U.S. economy from recession, economists said in a Bloomberg survey. … The Fed is also soon to launch a number of credit facilities — with the ability to lend trillions more – aimed at directly and indirectly aiding companies, states and cities.”
USAGOLD note: The mother of all bailouts ……
Repost from 6-2-2020
“Others argue that ‘you can’t replace something with nothing’. By this they mean that even though China, Russia and other emerging market countries (as well as some rich nations such as Germany) would love to move away from dollar dominance, they have no real alternatives.”
USAGOLD note: If we are indeed headed for a “post-dollar world” no one can know what form it might take. All we know is that things could shape up substantially different from what we have now monetarily. Foroohar makes reference to gold as an alternative to the dollar in this context saying “[t]he gold market is far too tight, as evidenced by the fact that it is now virtually impossible to buy the physical metal.” Though nation-states might not be able to ready order gold to sate their appetites, private investors as of this posting can still acquire the most popular coins and bullion items at USAGOLD. We invite your inquiry – 1-800-869-5115 x100 or email@example.com.
Repost from 6-3-2020
(USAGOLD –8/25/2020) – Gold is up marginally at the open with little in the way of news to push the price one way or the other. The markets essentially are on hold in anticipation of Fed Chairman Powell’s speech on Thursday in which he is expected to lay out policy ramifications headlined as “profoundly consequential” in a CNBC article yesterday. The gist of the article is that whereas Fed Chairman Paul Volcker forty years ago introduced policies to tame inflation, the current chairman will profess a commitment to igniting it – not that a massive pile of tinder hasn’t been built under the inflation rate already. The metals, despite the previews, are taking a wait and see approach. Gold is up $1 at $1932.50. Silver is 2¢ at $26.71.
Standard Chartered’s Suki Cooper cites the second strongest inflows to gold ETFs ever in the second quarter of the year as one of the prime reasons for gold’s strong performance thus far this year. “The largest purchasers [of gold ETFs] included those allocating to gold for the first time as well as established buyers,” she wrote in a report cited by Kitco News yesterday. “The top 15 holders of GLD, the largest ETP,” she points out, “represented 22% of total shares outstanding, whereas during the previous peak in 2012, the top 15 made up 45%, suggesting scope for growth. In our view, ETP holdings remain a key indicator. Not only does the flow show how strong strategic inflows are, but also offers clues to how resilient current metal held in trust is. … The balance of risks is to the upside. Gold prices are no longer technically overbought. Given that the longer-term picture remains constructive for gold, we still view price corrections as buying opportunities.”
In recent weeks, there have been reports that pension funds, sovereign wealth funds, and private capital have become buyers of the metals adding depth to a market already benefiting from the steady flow of capital from hedge funds, financial institutions, and central banks.
Chart[s] of the Day
Sources: Bureau of Labor Statistics, ICE Benchmark Administration, Board of Governors Federal Reserve, St. Louis Federal Reserve [FRED]
Chart note: Analysts often cite the real rate of return on yield instruments as one of the inducements for gold ownership. Gold has provided a real rate of return in 13 of the past 20 years. The dollar, using the rate of return on one-year Treasuries as a benchmark, has provided a real rate of return in only six of the past 20 years. With the Fed promising to hold rates near zero until 2023, gold prospects have been significantly elevated among money managers and private investors alike.
Warren Buffett’s silver purchase helped make Thomas Kaplan a billionaire. His gold bet is an even bigger boon.
“The legendary investor’s tacit endorsement, coupled with a recent op-ed by top economist Mohamed El-Erian’s about the rise of gold, will be seen as a ‘huge ‘detoxifier’ for gold,’ Kaplan said. ‘People can now find it safe to go into the water again … and not be shown to be swimming naked when the tide rolls out,’ he continued, referencing a famous Buffett quote.”
USAGOLD note: Those of you who are regular readers here are already familiar with Thomas Kaplan’s views on gold and its investment future. “‘I’m no insect,” he joked recently. “Gold is a great way to make a lot of money.” Turns out, according to this article, he was more right on that score than he originally thought. We agree with his assessment on the impact of Buffett’s foray into the gold market. As we posted on this page a couple of days ago, though he did not purchase the real thing, it is the psychological aspect of the position for the rest of the financial community that carries the most importance. At the risk of stating the obvious, even stock ownership sends a signal that Berkshire anticipates accelerated demand for the metals. Perhaps, like a good many of us, Berkshire sees a long term future for gold the result of widespread interest from the financial sector and central banks.
“With Sino-U.S. tensions escalating over security and economic issues, fears are mounting in financial markets that China may massively sell the U.S. government debt it holds as a weapon to choke the world’s biggest economy. If Beijing, which owns more than $1 trillion (¥106 trillion) worth of U.S. Treasury bonds, were to take such action, it would push down debt prices and drive up interest rates in the United States, stifling investment and consumer spending at home.”
USAGOLD note: Not to mention the havoc it might create in financial markets. An old worry gets new press time in a leading English-language Japanese newspaper ……
“Something feels… very unreal about current market levels. … Therefore, I’d stick with an investment strategy that plays both to the promises of Central Bank “whatever it takes” market support, alongside building a clear Risk-Off base. (Basically – the strategy is to arbitrage Central Banks juicing markets while preparing your bunker for the market equivalent of nuclear winter…) “
USAGOLD note: Blain echoes what many are thinking these days – dance with the stars but be sure to hedge your bets. It’s all about maintaining the proper balance. He ends with some thoughts on the upcoming election saying “It’s noise – but its important noise as its likely to dominate the next 78 days.”
Repost from 8-18-2020
“Gold’s bull market is being driven by currency considerations right now, and the recent bounce in the U.S. dollar accounts for gold’s latest pullback. Here we’ll discuss the factors behind the dollar’s recent strength and gold’s decline. I’ll also make the case that while the ‘correction’ for gold was needed, the metal will eventually resume its climb as prevailing political and fundamental factors favor continued dollar weakness ahead.
In my previous gold commentary, I argued that currency weakness, not fear, was the primary impetus behind gold’s rising trend since March. My reason for stating this was simple: investors are clearly becoming more risk tolerant, as evidenced by the continued climb of equity prices. At the same time, other traditional areas of safety (such as utility stocks) are stuck in neutral while U.S. Treasuries (another traditional safe haven) have lately experienced a sharp price decline. The combined evidence suggests a lack of panic-level fear among participants, which was prevalent earlier this year.”
USAGOLD note: The latest from Clif Droke. He hasn’t written about gold for a while. Of course, we hasten to point out that the risk-tolerant psychology he identifies could be undermined just as quickly and unexpectedly as it was established.
Repost from 8-17-2020