Monthly Archives: September 2020
(USAGOLD –9/29/2020) – Gold drifted marginally higher after a quiet night overseas and a strong reversal yesterday in the downtrend that prevailed over the past few trading sessions. At one point in overnight trading, gold was up nearly $40 from the lows registered yesterday. Gold is up $3 this morning at $1886. Silver is up 14¢ at $23.89. Commerzbank thinks gold’s correction may have run its course. “The significant losses were triggered by the rising U.S. dollar, which apparently prompted speculative financial investors to cover net long positions they had previously entered,” writes the firm’s commodity analyst Carsten Fritsch in a report reviewed by Kitco News’ Anna Golubova. “Now that speculators have withdrawn from the market for the most part,” writes Fritsch, “prices should recover again – after all, the environment for precious metals remains positive.”
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: Even after gold’s correction which began back in early August, the precious metals have posted some hefty percentage gains year to date and over the past 12 months. As of yesterday (9/28/2020), gold is up 27.86% over the past 12 months even with the recent correction taken into account. Silver – now consistently outperforming gold on a 12-month basis – is up 39.33% and the Dow Jones Industrial Average is up 2.48%. Year to date, gold is up 23.07%. Silver is up 31.42% and the DJIA is down 4.45%.
“Gold was questioned as a safe haven asset in 2008, as it initially declined with other commodities (though closing the year higher). The dramatic continuing decline in interest rates and the advent of negative nominal rates across much of the bond space has made gold more competitive. Major financial institutions, like Bridgewater, have focused extensively on how gold works within a diversified portfolio. Gold is no longer viewed simply as an Armageddon asset class, but rather as one that can provide significant diversification benefits.”
USAGOLD note: McGuire is the Portfolio Manager of Emerging Markets and Gold Fund for the Teacher Retirement System of Texas.
“To be sure, Stephanie Kelton never killed a man. Nor is Kelton a historical figure; rather, she is a professor at SUNY. Her book, ‘The Deficit Myth’, is a NYT bestseller, her book tour is packed, she has the ear of Congress and she has 100k Twitter followers. By contrast, John Law did kill a man. (They say this happened in a duel, but it sounded more like a bar fight to us.) The Scotsman was born in 1671 and died 58 years later. Like Kelton, the guy was everywhere that mattered in early 18th century Europe, in no small part because he was on the run for having killed a man. And, like Kelton, Law also spent his waking hours spreading the good word of monetary innovation. If Twitter had been around, there is no doubt Law would have had a massive following too.”
USAGOLD note: Politt makes the point that there is nothing new or different about Modern Monetary Theory. The temptations of free and easy money are just as alluring and palatable today as they were to French society in 1720. Chris Powell makes the point in his introduction to this piece at the GATA website that “Kelton may not quite realize it, but the policy she advocates has been in force in the United States since long before she began writing about it.” Kelton is simply suggesting that the United States tromp down hard and long on the accelerator, and American society, as Pollitt points out in the paragraph above, appears ready for the ride – wild as it might be.
Image: the two books reviewed in Pollitt’s study.
“Well, my recommendation is, since we came off the gold standard in ’71, put yourself on the gold standard. So, I’m a very simple man. I save gold and silver coins. I have no ETFs. I don’t have savings. I keep my money out of the banking system. So, I’m on the gold standard. I operate outside the banking system. And I’m accountable. I am responsible for my own life. Trump’s my friend. I don’t expect him to take care of me, my God. All these people, Social Security we know is going bust. It’s got no money. I think 78 cents of every dollar collected in taxes now goes to entitlement programs or the debt. We can’t keep functioning like this.”
Rich Dad Poor Dad
“A fourth explanation is an excessive increase in the quantity of money, which leads to a loss of confidence in money to store savings. This can be the quantity of money in the United States (in dollars) or in the OECD as a whole. Rapid money supply growth may explain the rise in the gold price from 2009 to 2012 and in 2019-2020. … The rise in the gold price in the recent period (since March 2020) can be attributed to dollar depreciation, falling share prices and monetary expansion.”
USAGOLD note: Some interesting perspective on what be driving interest in gold investments in 2020 – old concerns have become new concerns.
“Recent speculation is that the Fed may not print money and cut rates with quite the gay abandon that had been assumed. This may or may not be good news for the U.S. economy, but it raises real yields and for investors in gold and in risk assets, who might benefit from currency debasement, it is definitely bad news.”
USAGOLD note: It also may or may not be true. Given the Fed’s well-established penchant for securing the stock and bond markets and gearing monetary policy to that end, it is difficult to believe that, when push comes to shove, it is going to act any differently in the future than it has in the past. More than anything, the Fed does not want to send the wrong signal and upset the precarious balance it has already achieved. From that perspective, one could go so far as to say that a falling gold price might signal precisely the sorts of things the Fed is trying to avoid.
“In real terms though, there will almost certainly be no decline in the price of sound money. Meaning versus production-weighted real assets, the GSCI Commodity Index, gold will likely skyrocket again as it did during the deflationary panics of 2008 and March 2020, because gold tends to fall much less in dollar terms than other commodities during these periods. Meanwhile, the dollar price will inevitably catch up as it always does after the money supply skyrockets once again. For all these reasons, this ongoing correction in gold could be the final opportunity to buy below $2,000. Once we cross that threshold a second time, we will likely never see anything below $2,000 gold again, and it will be off to the races.”
USAGOLD note: An interesting read at the link …… His three immediate reasons why we may never see gold under $2000 again are a bit off the beaten track but certainly well worth your consideration.
“The US government bond market is akin to the investment world’s bomb shelter, a safe space where everyone can seek refuge when the rest of the financial system is exploding. In March, the bomb shelter itself started to rumble ominously.”
USAGOLD note: Wigglesworth quotes the head of one big hedge fund as saying “the moral hazard is massive … The brittleness [basis trades] create is a massive problem.” Basis trades, according to Wigglesworth, utilize high speed electronic trading to exploit tiny price differences between T-bonds and Treasury futures and require “massive dollops of leverage to turn small discrepancies into healthy, consistent profits.” And massive leverage, as we all know, raises the prospect of systemic risks that fall upon the central bank to mitigate when things go massively wrong. Wigglesworth raises questions and offers considerable detail at the link above.
Repost from 9-23-2020
“Whatever; the fact is that gold tends to sustain its value over time. National currencies, eroded by inflation and political manipulation, do not. …… As I say, a rising gold price reflects, above all other things, a loss of trust in the value of fiat currencies, for which there is good reason right now.” – Jeremy Warner, The Telegraph
“The sale [of a large portion of the UK’s gold holdings] was a personal decision by Gordon Brown on the advice of the Treasury mandarins who thought it would make him look “modern” and of course it all came unstuck. It would plague him for the rest of his career and remains one of the great blots on his reputation.” – Robert Pringle, Central Banking
USAGOLD note: We recall that the British government’s argument at the time was that the gold could be swapped for currencies that drew an interest rate. How shortsighted it all seems today. At a time when major currencies are being debased aggressively and Britain is suffering the economic pain of Brexit, how comforting would it be to have that gold sitting in the national vault gathering dust at nearly $2000 per ounce? (Gold, by the way, it sold at under $300 per ounce in 1999.) Robert Pringle is formerly head of public policy for the World Gold Council and founder of the Central Banking Journal.
Related note: If you have an interest in the 1999 UK gold sales, you might find “Britain’s gold sales ‘a reckless act” an engaging read. It includes the complete text of an important speech delivered in the House of Commons at the time by Sir Peter Tapsell – a speech by the way that still rings with clarity today as one of the most eloquent public appeals ever made on the merits of gold ownership for both nation-states and individuals. Reprinted with the permission of the United Kingdom Parliamentary Archives, it also includes comments from other members of Parliament and those of Patricia Hewitt, Economic Secretary to the Treasury.
Repost from 9-22-2020
“Had America stuck with real, gold-backed money… and/or had the Fed not supported Wall Street with ultra-low interest rates and $4 trillion of new money… the situation would be much different. There would be no trade deficit with China. There would be no $250 trillion in debt. An F-150 would probably cost less than it did in 1971, not more. The working class would have nothing to grumble about… And Donald Trump would not be president. The Fed would not be ‘normalizing,’ because it never would have un-normalized. The rich would not be so rich. The Dow would not be over 25,000. The government would not have $22 trillion of debt itself. And we wouldn’t be up at 6 a.m. writing this Diary.”
USAGOLD note: Another stellar piece of writing/thinking from Bill Bonner. . . .His third bold prediction, I should add, might surprise you. It did me.
Repost from 3-4-2019
USAGOLD note: Yes, the date of the interview as posted above is correct. It still has enduring value, though, and speaks directly to the situation in financial markets today. Jean-Marie Eveillard offers insightful observations on the European Union and gold. On the latter, he suspected in 2016 we were in the first stages of a new bull market and he was correct. At the time, gold was trading in the vicinity of $1320 per ounce and it had risen in the previous six month period from a low at $1050. “Gold,” he said, “represents an attempt to protect one’s self against extreme outcomes.” We invite you to listen carefully to the voice of reason . . . .
Repost from 2-14-2020
“In a wealth-accumulating economy there is always demand for an ultimate store of value for wealth preservation. In finance terms, there is always a demand for some asset for which an investor takes no default risk, nor inflation risk, and can be obtained and sold on liquid markets. For decades, U.S. Treasury debt took over from gold as the market’s preferred store of value.”
USAGOLD note: Eight years ago University of Texas economist and former White House economic advisor Lew Spellman predicted financial institutions that previously shunned gold would become one of its biggest markets. We found this article while researching another topic and thought it worth passing along in light of recent events as reported in the September edition of News & Views. Coincidentally, Spellman’s article begins with a mention of Warren Buffett’s former aversion to the yellow metal.
Repost from 9-21-2020
New smart money queues up in the gold market
First institutions and funds came over to gold’s corner, then central banks. Now, one of the more important stories in the gold investment arena is the developing interest among a whole new grouping of professional investors – pension funds, private wealth management, insurance companies, and sovereign wealth funds. “It’s a bit like what happened to big tech,” says highly respected economist Mohammed El-Erian. “People like [gold] because it’s defensive. People like it because it’s a reflation trade. People like it because it’s inflation protection. What we are starting to see with the narrative about gold is starting to be like the narrative about big tech. It gives you everything.” These groups bring considerable purchasing power and market savvy to the table. One immediate result might be more buying interest on price dips. Another might be a better blend of investment psychology and objectives that could have a settling effect on the market overall.
“Banks are making huge profits from gold as investors flood into a market fractured by the coronavirus crisis.”
USAGOD note: The inside story on the gold market raises a number of questions including the “what if the supply of bullion suddenly dries up again?” As one bank source said: “There is no free lunch. Somebody has to lose money along the way …”
Repost from 9-21-2020
(USAGOLD – 9-28-2020) – Gold rallied to begin the week as the dollar weakened and investors looked nervously toward the start of October – a month not regarded as particularly friendly to financial markets. It is up $11 at $1875. Silver is up 36¢ at $23.34. The markets are keeping a wary eye on Congress to see if it can meet Fed Chairman Powell’s appeal for a fiscal package to augment the central bank’s massive stimulus over the past several months. There has been talk about a prolonged stall on the economy as Washington turns its attention to the nomination of a new Supreme Court justice. Stocks, though, are up this morning – an indication that those concerns may have cooled, at least in the early going today.
Chart of the Day
Chart note: “A ‘perfect storm’ of surging government debt levels, plunging real bond yields, rising coronavirus cases and deteriorating economic forecasts pushed the price of gold to an eight-year high [in late June], and some analysts now project the metal to top its all-time high within the next 12 months,” says analyst Frank Holmes of US Global Investors. Holmes finds himself in the company of a large number of analysts who have predicted the metal would reach all-time highs. He says gold is trading inversely to falling bond yields as shown in the chart.
“Danielle, pick a number. Seriously, pick a number and I wouldn’t disagree with you. I don’t know but its going a lot higher. … People still don’t believe it. Most of the investing public still doesn’t believe it. You have all of these trillions and trillions of dollars sitting in bonds. And a big chunk of what’s in the stock market too. Where is that money going to go when it starts to panic? … It’s going to go to gold and other hard assets – commodities and other hard assets. It’s the 1970s all over again.”
USAGOLD note: Always interesting to touch base with Frank Giustra …… The above is his opening salvo when asked the question: “Where does Frank Giustra see the metal now? Where does it go from here?” Giustra is not the first student of contemporary economic history to summon the stagflationary 1970s as the prototype for today.
“Decades of fiscal profligacy are culminating in an explosion of government debt that is poised to bring simmering monetary debasement to a boiling point. Central bank interventions have aided and abetted reckless government spending that has obfuscated poor underlying organic growth fundamentals. Instead of laying the groundwork for future real economic growth, monetary authorities have fostered a euphoric investment environment with delusional asset valuations. Paradoxically, we are past the point of no return where the stimulative policies that have created this frenzy are the death knell for the economy. The world is suffering from a debt overdose. It now must face the inevitability of collapsing financial asset prices and synchronized fiat currency devaluation.”
USAGOLD note: That tight, well-written paragraph is the best synopsis of the current financial state of affairs and potential knock-on consequences as we have seen. Crescat’s rationale resolves itself in precious metals ownership: “The overarching message from central banks remains consistent; none of them can sustainably afford having a strong currency. The set-up of artificially low rates combined with ballooning fiscal deficits, extreme monetary dilution, and inflated risky assets creates, in our view, a veritable utopia for gold and silver.”
“A political process that cannot accurately ascertain its leader, parties refusing to accept results and potential social disorder, all damage credibility and lower the confidence of investors, especially in light of everything else happening in the background. Challenge to the rule of law would lead to a reassessment of historically ‘safe’ U.S. assets (including U.S. Treasurys and the U.S. dollar) even if only temporary.” – Citibank’s global asset allocation team
USAGOLD note: It makes sense that Citi, as the headline above indicates, would follow such an assessment with advice to add gold to one’s holdings on the dips. It is taking its own advice. According to this Marketwatch report, the bank is “buying the dip in gold with a $2200 target.”
“The ‘seemingly crazed idea’ that the US dollar will collapse against other major currencies in the post-pandemic global economy is not so crazy anymore, the economist Stephen Roach told CNBC’s “Trading Nation” on Wednesday.”
USAGOLD note: Roach also says that there is 50% probability that we will see a double-dip recession in the United States. Some believe that the numbers that came at the end of last week – the jobs and durable goods – indicate a slowdown might have already begun.