Monthly Archives: October 2020
“No central bank wants to admit that it’s out of firepower. Unfortunately, the U.S. Federal Reserve is very near that point. This means America’s future prosperity depends more than ever on the government’s spending plans — something the president and Congress must recognize.”
USAGOLD note: One component in the problem now festering in financial markets is the virus itself. A second is the Fed’s apparent inability to do much more than it already has. As we have said repeatedly throughout this latest chapter in the crisis, the Fed can set the stage for individuals and businesses to borrow money, but it cannot force them to take advantage. That brings us to the third, and perhaps most important component – a concern in the markets that the gridlock in Washington will extend into post-election political environment. In short, nothing gets done. This grouping of circumstances is probably why markets are reacting as they are at present, including gold – with a sense of fatigue and perhaps even lost hope. In our view, for better or worse, gold’s safe-haven allure will return to the forefront as the combination of potential realities settles in.
“Money printing and the monetization of debt, expanding wealth gaps and the rise of a great power to challenge the existing world order all have historical parallels that provide insight into the present. Dalio notes the effects on society, markets, politics and the economy eventually reach a critical point. He suggests we may be nearing that juncture …”
USAGOLD note: Dailo offers some history on the dollar and gold, returns to his favorite subject, i.e., the value of money. He ends by advising the reader that “gold is an effective diversifier” and that “in structuring a portfolio – it’s important to have a piece into gold.” He goes on to recommend “it doesn’t have to be big … 10% to 15% or something.”
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.
“Try to avoid the day to day and even the week to week oscillations in the silver market as this is no more than a distraction from the emerging bull market in the precious metals space. Concentrate on the big picture, the impending recession and the non-stop printing of money for these are two of the main drivers behind the realization that hard assets are the place to be. Prosperity is blood, sweat and tears and the ‘money from thin air story’ will end in sorry for many of us. If this is a new sector of the market for you, then read as widely as possible in order to gain a broad but thorough understanding of why you need to own some silver and some gold if your budget will stretch that far.”
USAGOLD note: We concur …… And that is why we populate this page each day with the top gold and silver news and opinion from a variety of sources. We encourage your visit. We encourage your bookmark.
Repost from 10-21-2020
“Ultimately, the speculation drives prices high enough, relative to likely future cash flows, to virtually ensure zero or negative long-term returns on even those assets. But here’s the irony: everybody is happy. All anybody cares about is the ink on a piece of paper, or the pixels on a screen, that tell them that they own something of worth. Never mind that if they hold those assets over the long-term, they will earn nothing more. Never mind that in order to sell those assets, they will require someone else to step up to hold the bag. Never mind that if enough people attempt to sell without those greater fools absorbing the supply at nearby prices, a great deal of that paper wealth will vanish into thin air.”
USAGOLD note: And the repercussions, history teaches us, befall people of all classes – rich, poor and in between – as the damage escapes Wall Street to the greater economy. Hussman warns that the S&P 500 will go to the 1200 level – one-third its current level. Though Hussman never mentions gold in this very long essay, he offers some very good reasons starting with the one sketched above.
Repost from 10-22-2020
“I find quite strong parallels between what John Law attempted exactly 300 years ago in Paris by severing the connection between money and gold by printing a lot of money through the central bank and using that money to purchase shares in the Mississippi Company.”
USAGOLD note: We referenced this interview in yesterday’s DMR and revisit it today for those who may have missed that report. Chancellor is a highly respected investment strategist formerly with GMO and the author of Devil Take the Hindmost, a warning on financial speculation published just before the stock market crash in 1999. He mentions gold in this interview then reveals he has made a heavy commitment to “real assets” – 80% of his wealth.
Repost from 9-14-2020
“Two centuries on, Peter Peterson, in his book Gray Dawn, warns that we might pose a different question: What happens to the wealth of nations when the populations get old and begin to shrink? In this chapter, we look at the effects of demographic shift… not because it is the only trend in place, but because it is one easily missed.”
USAGOLD note: Alan Greenspan warned many months ago that inescapable demographic trends were working against the U.S. economy and that it was destined for a stagflationary outcome. He reiterated those concerns recently. Wiggins worries we have headed the way of Japan – a disinflationary economy verging on deflation. Which will it be? Or will be it be some other outcome entirely? Gold owners, as we have posted here often are prepared for any and all the various potential outcomes and no matter in which order they arrive. To prepare for the future, it gets down to a matter of the proper portfolio balance.
Repost from 9-14-2020
How to choose a gold firm
A quick guideline for beginning investors
It is surprising how many prospective investors simply dive into gold and silver investing without much in the way of a consumer inquiry. That lack of simple due diligence has ended up costing a good many investors thousands of dollars, and sometimes even hundreds of thousands before the damage is detected.
Here you will find some brief but useful guidelines to help
you choose the right gold and silver company.
Reliably serving physical gold and silver investors since 1973
“With inflation on the up and rates trudging new lows, gold looks to be a safe bet for investors wanting to park their money. As a general rule, gold likes cheap money. It’s a safe port in a storm, so can rally sharply when central banks are pumping out free money and inflation is rising. A full analysis of gold’s investment properties – its role as money through history and its supply and demand dynamics today – is beyond the scope of this report. For now, just know that when it comes to financial repression – low interest rates and high inflation – gold is exactly what you want to own”
USAGOLD note: The shifting dynamics of global economic policy evolving are something to consider in this context. Please see the full run of posts on this page early Monday – October 19th.
Repost from 10-20-2020
(USAGOLD – 10/29/2020) – It’s a day in October, but it’s beginning to look like a day from this past March when the markets got the first inkling of the financial danger that could accompany some deadly new virus originating in China. Gold and stocks sold off together then, and the dollar firmed. Today gold is down $25 at $1885. Silver is down 63¢ at $23.85. Global stock markets are also down sharply. The dollar index is up sharply. With rising case counts headline news in Europe and the United States, the virus is once again the culprit.
The ZeroHedge website posted some interesting observations from Greenlight Capital’s David Einhorn yesterday. “It isn’t difficult,” he says, “to envision this tempest exploding after the election, no matter which side wins. … A poll by Rasmussen Reports found that 34% of likely voters believe a civil war is likely in the next 5 years. While this is probably too pessimistic, it likely reflects a rising tail risk…The only common ground between the two parties seems to be money-printing. Over $3.3 trillion has been printed year-to-date, which represents nearly 22% of all U.S. dollars in existence at the end of 2019. Unsurprisingly, gold is outperforming. Investors who have argued against gold for decades are now buying some.” Einhorn, some of you might recall, was introduced to gold by his grandfather, an ardent advocate of the metal. His grandson built on that legacy and never abandoned the family attachment to the metal.
Charts of the Day
Euro Area Central Bank Balance Sheet
Japan Central Bank Balance Sheet
United States Central Bank Balance Sheet
China Central Bank Balance Sheet
Chart note: For the record, the charts on quantitative easing in various economies from 2000 to present. The most notable feature for Europe, Japan, and the United States is the pandemic-related surge in 2020. China is lagging on a relative basis and that might be one of the reasons why the Chinese yuan has been in an upswing over the past few months.
“Bankruptcy filings are surging due to the economic fallout of Covid-19, and many lenders are coming to the realization that their claims are almost completely worthless. Instead of recouping, say, 40 cents for every dollar owed, as has been the norm for years, unsecured creditors now face the unenviable prospect of walking away with just pennies — if that.”
USAGOLD note: In the book The Fourth Turning, Strauss and Howe make repeated reference to what they call a period of “unraveling”. “An initial spark,” they say, “will trigger a chain reaction of unyielding responses and further emergencies.” As I sift through the daily news, I find more and more evidence of this unraveling – so much that it is easy to lose track. Though each particular instance (like corporate bond defaults) need not be fully parsed and understood, it would be advisable to understand the totality of the Great Unravelling as a phenomenon we need to address in our portfolios. A house of cards, no matter how elaborate, is still a house of cards.
“With hyperinflation looming, silver has to be one of the best investments of these times, especially as it leverages gold’s gains. This Summer saw a spectacular high volume breakout from the giant base pattern that had been forming for years, as we can see on its latest 13-year chart, which is hardly surprising considering the Fed’s white hot money creation. The breakout triggered a sharp runup that resulted in silver becoming heavily overbought in a zone of quite strong resistance, hence the reaction since early August which is setting it up for the next big run.”
USAGOLD note: Last week we posted Clive Maund’s latest gold forecast. Here is what he has to say about silver – minor dip possible before 2nd up leg starts ……
“We’re drifting ever deeper into dangerous territory. The economy sopped up last year’s $3.1 TN federal deficit like water into a dry sponge. The conventional narrative holds that the pre-COVID economy was robust and healthy. It was neither. Instead, years of loose finance cultivated a “Bubble Economy” – a maladjusted structure that evolved into a ferocious Credit Glutton. This has become much more than some theoretical precept from Austrian economics. It’s a pressing reality, with momentous ramifications for politics, the markets and American society more generally.”
USAGOLD note: This more detailed treatment of the credit bubble fits nicely with the shorter analysis from Thorsten Polleit highlighted and linked below. Noland also throws out some speculation on how a Democrat “clean sweep” might differ from what we have now.
“The cities were still there, the houses not yet bombed and in ruins, but the victims were millions of people. They had lost their fortunes, their savings; they were dazed and inflation-shocked and did not understand how it had happened to them and who the foe was who had defeated them. Yet they had lost their self-assurance, their feeling that they themselves could be the masters of their own lives if only they worked hard enough; and lost, too, were the old values of morals, of ethics, of decency.”
Pearl S. Buck
Who was in Germany during the hyperinflation in 1923
“We have become witnesses of a monetary policy that is about to inflate everything, not only the price of gold. However, if monetary history is any guide, there is good reason to hold gold and silver. For these precious metals have, at least over the medium and long term, outperformed unbacked paper currencies in times of inflation again and again. There is no convincing argument why it should be different in the foreseeable future.”
USAGOLD note: A big picture analysis from Degussa economist Thorsten Polleit and a quick read …… Another way to title this article would be: “The policy of inflating everything including the price of gold.” The one aspect of this scenario worth noting is that gold is probably the least inflated of the major financial assets and therefore quite possibly the one with the most unencumbered upside.
Image courtesy of Degussa Goldhandel
“This is why I call silver ‘the once and future money,’ because silver’s role as money in the future is simply a return to silver’s traditional role as money throughout history. In short, silver is as much a monetary metal as gold, and has just as good a pedigree when it comes to use in coinage. Silver has supported the economies of empires, kingdoms and nation states throughout history. Before the Renaissance, world money existed as precious metal coins or bullion. Caesars and kings hoarded gold and silver, dispensed it to their troops, fought over it, and stole it from each other.”
USAGOLD note: As reported previously, silver sales at USAGOLD have been consistently strong all year. To be sure, investor interest began to heat up even before the pandemic became an urgent matter based on the perception that it was cheap when compared to gold. That interest and perception is still present today. Some investors take delivery of their silver orders. Others – particularly those taking a larger position – open depository storage accounts. If you see the current price lull as an opportunity, we can help you confirm your order quickly over the telephone (1-800-869-5115 x100) or through our Online Order Desk.
‘No one knows the future, but given the general lack of investor confidence amid a pandemic and political polarization, there is a chance that a negative, self-fulfilling prophecy will flourish. This highlights the importance of being well diversified in asset classes — including Treasury securities, which are safe — and not overexposed to U.S. equities now.’ – Robert Shiller
USAGOLD note: Of course, if you are among those who fail to see the merit of owning a long-term bond that promises to lose money in real terms, a diversification in gold might make some sense with respect to Shiller’s straightforward warning. Those are the circumstances, by the way, that have prompted a good many professional money managers to look in gold’s direction.
“’It will take some time to return to the levels of economic activity and employment that prevailed at the business cycle peak in February, and additional support from monetary — and likely fiscal — policy will be needed,’ [Fed Vice-Chairman Richard] Clarida said Monday in a speech to an online event hosted by the American Bankers Association. ‘The economic outlook is unusually uncertain.'”
USAGOLD note: Seems like the monetary establishment globally is putting on the full-court press ……with the United States and Europe front and center.
Repost from 10-21-2020
Ex-Fed Chair Janet Yellen says extraordinary stimulus is needed so long as the pandemic presents an economic threat
“‘There are some limits [to monetary policy] and it’s important for fiscal policy to fill in that gap,’ the former Fed chief said. ‘While the pandemic is still seriously affecting the economy, we need to continue extraordinary fiscal support.'”
USAGOLD note: Former Fed chair Janet Yellen joins the chorus calling for the federal government to step to the plate with massive stimulus programs to jumpstart a moribund economy. Hold on to your gold and watch the show ……
Repost from 10-20-2020
“What followed next was shocking as it came from the mouth of a respected legacy banker and not some tinfoil conspiracy theorist: admitting that he is ‘a gold bug’. Reid says that in his opinion, ‘fiat money will be a passing fad in the long-term history of money’, a shocking admission for most financial professionals who are expected who are expected to tow the Keynesian line and also believe in the primary of fiat and its reserve currency, the US Dollar.”
USAGOLD note: Not the sort of thing, as Durden points out, one would expect from the lead credit strategist at one of the world’s largest banks, but a warning just the same how perilous the situation can become in the current monetary system.
Repost from 7-25-2020