Monthly Archives: September 2020
“Less than half the gold processed by major refiners in 2018 came from large industrial mines, the London Bullion Market Association said on Tuesday, publishing data revealing for the first time the origin of bullion moving through its system.”
USAGOLD note: More than half came from recycled gold – jewelry, bars and coins. Of course, not all the gold changing hands in the marketplace runs through refiners.
Repost from 9-24-2020
“The mistake of ignoring the economic impact of lockdowns creates a social crisis that may last many years. If the European economy was ill-prepared for a series of lockdowns in February, it is even weaker now. What created a recession of unexpected proportions may generate a depression that will likely last for a few years.
USAGOLD note: Lacalle speaks to the issue as the United Kingdom regrettably goes into heightened restrictions that could be in place for up to six months.
Repost from 9-23-2020
Gold joins rest of financial markets in negative initial reaction to last night’s debate, billionaire investor Kaplan calls gold ‘the generational trade’
(USAGOLD –10/2/2020) – Gold and silver joined the rest of the financial markets in posting a negative reaction to last night’s rather bizarre presidential debate. The much-anticipated event came off to this observer as a singular reflection of the times – a metaphor for the chaos and confusion that inhabits everyday life for the bulk of Americans. The yellow metal is down $15 at $1886 as we start the day. Silver is down 50¢ at $23.76. It could turn out to be an interesting day as investors globally digest the ramifications of last night’s gloves-off, political brawl.
Stansbury Research recently posted a powerful Daniella Carbone interview of investor Thomas Kaplan. Though Kaplan made his fortune in the mining business, he is also an Oxford-trained historian who puts gold’s bull market in the context of a longer-term cycle that has yet to reach maturity. He reiterates his prediction made some time ago that gold will reach $3000 to $5000 in the years ahead. “The difference is this,” says Kaplan. “The market is now ready for the next leg of the gold bull market. The first leg was the one that took us up 12 consecutive years in a row regardless of whether there were inflation fears, deflation fears, whether there was a glut of oil or a shortage of oil, political stability or political instability, dollar weakness, dollar strength. It didn’t matter. Every year for 12 years gold went up … The next move is going to be a third wave, a long wave that lasts for a decade or fifteen years, maybe more … I think that you really are looking at a complete paradigm shift that will make gold the generational trade.”
Chart of the Day
Chart note: As we have mentioned in previous post notes, the problem with monetary stimulus – the kind of help the Fed is capable of delivering – is that it requires takers, i.e., people and businesses willing to borrow and spend. Private borrowers, though, are not as prolific and/or aggressive as the Fed or federal government would like. The federal government, on the other hand, is a ready borrower and a big one. The Manhattan Institute’s Brien Riedl recently pointed out in a National Review article, the Fed has already financed roughly half of government spending to combat the economic hit from COVID-19. How does all of this translate to a tailwind for gold? The chart above tells the story at a glance.
“What will be the long-term consequences of the pandemic? Few if any answers are clear. In the financial realm, markets have automatic checks, balances and stabilizers. Tracing the impact of the last few months into the future soon becomes like plotting out an attack in chess.”
USAGOLD note: Authers goes on to offer a brief look at how the life insurance industry was impacted by the Spanish flu, but significant detail on the political and financial outcomes of the Irish potato blight.
Cartoon courtesy of MichaelPRamirez.com
“We are focused on the next tweet. We are not focused on long term policy making. I think that this is part of the system failure that we have seen in Washington in recent years – that there is no long-termism. And that is clearly evidenced by its lack of focus on a fiscal package that would help us emerge from this crisis.”
USAGOLD note: A well-reasoned look at where we are headed on the fiscal side. Boltanky’s views will come as a disappointment for those who see a fiscal rescue package as a means to an end, i.e., a way to push money into an otherwise moribund credit market and boost recovery on Main Street. He sees the upcoming fight over a Supreme Court nominee as taking precedence over the economic crisis in the weeks ahead. Assuming Boltansky is correct, how all of this will play in financial markets is anyone’s guess at this juncture.
Repost from 9-24-2020
“U.S. President Donald Trump on Monday said he was rebuffed when he asked officials to adjust the exchange rate of the dollar to counteract what he described as repeated currency manipulation by China of its yuan.”
USAGOLD note: From the start, there has been no doubt where this president stands on the strong dollar policy.
Repost from 9-22-2020
Small businesses are dying by the thousands and no one is tracking the carnage
“Big companies are going bankrupt at a record pace, but that’s only part of the carnage. By some accounts, small businesses are disappearing by the thousands amid the Covid-19 pandemic, and the drag on the economy from these failures could be huge. This wave of silent failures goes uncounted in part because real-time data on small business is notoriously scarce, and because owners of small firms often have no debt, and thus no need for bankruptcy court.”
USAGOLD note: It will show up ultimately in the unemployment numbers and in the number of shuttered businesses you see driving any of the main business thoroughfares in America’s major cities …… Many of these business folk are among gold’s most loyal adherents.
Repost from 8-12-2020
“Forced to think outside the box by the 2008 financial crisis and then again this year by the coronavirus pandemic, the Federal Reserve, European Central Bank and most of their international counterparts have become more aggressive and innovative than ever in defending their economies from recession and the threat of deflation.”
USAGOLD note: Walking on air. The new abnormal is coming to a central bank near you.
Repost from 9-15-2020
“[H]e predicts, life in the U.S. could become more difficult: mountainous debt that stunts economic growth; fewer opportunities for ordinary citizens to get ahead financially; and a worldwide lack of trust in the U.S. dollar that diminishes Americans’ purchasing power and could lower their standard of living.”
USAGOLD note: This is a lengthy interview with much deep-thinking on where we are and where we are going as an economy and society. Dalio worries ultimately that if we do not re-engineer the economic system “we will risk losing the reserve currency status of the dollar.” He then reiterates his standard advice over the past few years to “diversify well and worry about the value of cash.” Dalio, as most of you already know, advocates owing gold.
Repost from 9-21-2020
(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%.
“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.
“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
Two thousand years of monetary history and what it tells us about fiat currencies
“Chancellors of the past would be turning in their graves – envious of Rishi Sunak’s ability to conjure money from thin air. In the past, there were three ways to increase money supply: Trade for precious metals, capture the wealth in battle and mine the metals. Over two millennia, the people of Britain have done all three. Rishi Sunak doesn’t have to do any of that – so much easier to wave a magic wand like Harry Potter.”
USAGOLD note: So true, but the process can lead to an unhealthy conclusion. Political conjuring of this sort points up the need to own gold and silver as part of one’s personal defenses. This point is well made in the ultra-long term chart reproduced below. Note the stability in the consumer price index for more than 700 years until Britain went off the gold standard launching a fiat money economy.
Sources: Bank of England, ICE Benchmark Administration Limited, St. Louis Federal Reserve [FRED]
Repost from 9-28-2020
“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
“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.