Monthly Archives: January 2021
No DMR today (1/28/2021)
Gold pushes lower in advance of today’s Fed meeting
(USAGOLD – 1/27/2021) – Gold pushed lower in advance of today’s Fed meeting wrap-up and press conference. It is down $11 at $1842. Silver is down 32¢ at $26.23. Wall Street generally anticipates the Fed will remain steadfastly dovish. Anything less could easily unleash primal market forces it would rather keep in check. Investors are already on a knife’s edge if physical precious metals demand is an indicator. “Nobody doubts that the gold rush is a side effect of an unprecedented healthcare crisis, forcing governments to throw the financial manual away,” reports Alex Katsomitros in World Finance magazine. “Gold is the world’s oldest safe asset, always thriving in times of uncertainty. Historically, investors have reverted to it as a hedge against political and economic tumult, with its price jumping during wars, contested elections, and economic crises. During the Great Recession, gold’s price trebled from early 2007 to 2011. The same scenario is now repeating itself.”
Chart of the Day
Chart note: We have had quite a few new visitors over the past several weeks looking into gold for the first time. This chart, more than any other, we feel, is central to understanding why gold continues to make sense as a long-term portfolio holding. When the United States abandoned the gold standard in 1971 and freed currencies to float against the dollar, the fiat money era began. We are still in that era today. This chart shows gold’s performance from the early 1900s to 1971 when gold backed the dollar and the era from 1971 to present when it did not. Gold has had its ups and downs since 1971, but clearly, over the long run, in the absence of an official gold standard, individual investors have been well-served by putting themselves on a private gold standard.
USAGOLD note: Bloomberg’s Eric Schatzker interviews Grantham following his recent warnings of an “epic bubble” in stocks. Among a number of topics covered, Grantham offers his views on gold.
“Specifically we see ongoing US dollar weakness, deeper negative real rates in the treasury markets and a significant rise in unproductive debt as the Democrats open the spigots with fiscal stimulus as supporting factors. With the economy still contracting in Q1, we expect a bounce in H2 as the vaccine frees up the economy. With the recovery comes demand-pull as well as cost-push inflation further fuelled by the higher velocity of money, leading to expectations of much higher inflation, notwithstanding the weak labour markets.”
USAGOLD note: Ross Norman has finished high or won the annual LBMA price forecasting contest (including last year’s) so often, that one is forced to pay attention. For 2021, he sees $2025 as the average price, $1810 as the low, and $2285 as the high. Norman says physical demand for silver coins and bars will show “impressive gains,” reflecting ‘strong demand for safe havens in these troubled times.” For good measure, he sees $36 as the high for gold’s running partner – silver.
Repost from 1-21-2021
“This may be where silver (and to a great extent its big brother gold) fits comfortably into a well-diversified group of holdings or even as an insurance policy for what you have already amassed. There is no longer an excuse not to.”
USAGOLD note: Long goes on to chronicle why silver makes sense based on past performance and because it, along with gold, are “the antithesis of stocks and bonds.” By the end of 2020, if silver stays on track, it will post its biggest annual percentage gain since 2010 (at present it is up 35.7%, according to the table published as part of this study). In early 2011, it rose to almost $50 per ounce.
Repost from 12-7-2020
“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
“Over Christmas sales of gold bars surged as Brits fed up with terrible savings rates opted to put their money into something shiny instead ……”
USAGOLD note: Whodathunk?……
Repost from 1-19-2021
“However, there was a fundamental difference between what happened during the financial crisis and what is happening now. The money created by the Fed during the last financial crisis found its way into excess reserves in the banking system. Little of it was lent out to the private sector.”
USAGOLD note: The thing that interested me about Siegel’s heads-up on inflation is identifying the bond market as its chief victim. He also explains why inflation did not develop during the money printing binge to address the 2008 crisis and why it could develop now. Siegel says this time around money printed, as the chart below shows, is finding its way into the money supply. Last year’s surge in the money supply “was the largest in 150 years.”
Sources: St. Louis Federal Reserve [FRED], Board of Governors of the Federal Reserve System
Repost from 1-19-2021
Gold tracks sideways in advance of Fed; Paul Singer worries that current policy is the ‘road to perdition’
(USAGOLD – 1/26/2021) – Gold tracked sideways in advance of the upcoming FOMC meeting even as investors registered growing concern about stock market stability and price inflation moved back to the front-burner. It is up $3 in early trading at $1861.50. Silver is up 20¢ at $25.63. Elliott Management’s Paul Singer – an investor with considerable influence on Wall Street – is one of those investors worried about inflation. In a recent interview with Grant Williams (of Things That Make You Go Hmmm fame) and Bill Fleckenstein, he offered a pointed reminder of its unpredictable behavior in the past.
“If you look at the inflation of the 1960s and 70s,” he remarked, “inflation came in the mid to late 1960s, from basically very low levels, they didn’t see it coming. They, meaning the policymakers, the central bankers, and when it came, they thought it was temporary and one-off, and one thing leads to another. So we know about the oil embargo of 1973, which took oil prices up three or four times. So wages, prices, guns and butter, the Great Society, the Vietnam War, and increases in the money supply, all combined. But once inflation lifted off, it just kept on going.”
Singer worries that current central bank policies are “the road to perdition.” Destruction would follow, he says, “if inflation really lit up.” Though he only mentions gold passingly – and then in comparison to bitcoin (an instrument he sees existentially as “nothing”) – the scenario Singer envisions has been one under which gold has proven to be a useful holding in the past. We highly recommend the full interview for a down to earth assessment of where we stand and where we might be headed.
Chart of the Day
Chart courtesy of Seeking Alpha and Macrotrends.net • • • Click to enlarge
Chart note: In a post at Seeking Alpha, analyst Peter Krauth offers a useful reminder of silver’s undervaluation when compared to gold, as shown above. “In my view,” he says, “as far as investment assets go, silver still remains amongst the most undervalued. But that’s unlikely to last. Let’s look at it from a few perspectives.…Notice that in both 1980 and 2011, silver’s percentage gains were markedly higher than gold’s, easily outpacing the yellow metal. And if you peer over to the right end of the chart, we can see that silver still has clearly a lot of catching up to do. On an inflation-adjusted basis, silver also looks dirt cheap.”
“The ‘secular bull market’ of the 1920s is probably the best example of the cycle we are likely ending, not beginning. In 1920, banks were lending money to individuals to invest in the securities they were bringing to market. Interest rates were falling, economic growth was rising, and valuations grew faster than underlying earnings and profits. There was no perceived danger in the markets and little concern of financial risk as ‘stocks had reached a permanently high plateau.”’ It all ended rather abruptly.”
USAGOLD note: And conclusively, we might add, in a matter of a few months. Lance Roberts shoots Ed Yardeni’s bullish views full of holes: “While the idea of a ‘roaring 20s market’ is undoubtedly optimistic, it is also a dangerous concept for investors to ‘buy’ into.”
Repost from 12-9-2020
“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 for owning it starting with the one sketched above.
Repost from 10-22-2020
Investment Research Dynamics/Dave Kranzler
“The appointment of Janet Yellen as Treasury Secretary fully removes the ‘Chinese Wall’ that is supposed to separate the Fed and the Government. I believe her appointment signals a decision to transition monetary policy into the unfettered implementation of ‘Modern Monetary Theory.'”
USAGOLD note: An interesting read on the new Biden government’s economic policy, Kranzler sees the “merger” as working to “fund a late portion of “the coming bond issuance or risk a rapid escalation in interest rates, especially at the longer end of the curve.” This, he says, is “MMT in a nutshell” and “exceedingly bullish for the precious metals sector.” It will not be long until gold investors – especially the old guard – begin to think about this sort of thing. Judging from the strong run of business at USAGOLD since the election, it seems the process has already begun.
Repost from 12-4-2020
“President-elect Joe Biden’s $1.9 trillion stimulus proposal has economists and bullish market analysts revising their U.S. growth expectations higher, predicting a reflation of the economy in 2021 and possibly more booming returns for risk assets. Yes, but: Others are warning that what’s expected to be reflation could actually show up as inflation, a much less welcome phenomenon.”
USAGOLD note: Former Fed economist DiMartino Booth is quoted as saying that the Fed might be careful saying it wants inflation. “Once the genie gets let out of the bottle,” she says, “the Fed’s not going to have a say in where inflation goes and I don’t think policymakers understand that.”
Repost from 1-21-2021
“Janet Yellen is expected to affirm the U.S.’s commitment to market-determined dollar value and give assurances that the U.S. won’t seek a weaker dollar for competitive trade advantage, the Wall Street Journal reported, citing Biden transition officials familiar with her preparation for her confirmation hearing.”
USAGOLD note: A watered-down version of Rubin’s strong dollar policy that suits the times and perhaps the reality in which we find ourselves ……That said, the strong dollar policy was never much of a policy but more an attempt to jawbone the market from selling off the greenback. Since Rubin, uttered that famous refrain in 1995, the dollar has declined in purchasing power 41% and the price of gold has gone from $375 to $1840 and a recent visit over the $2000 mark.
Repost from 1-19-2021
Graphic illustration courtesy of HowMuch.net • • • Click to Enlarge
“In particular, the paper highlights the EU’s difficulties in asserting its independence in the face of sanctions against Iran imposed by Mr Trump, citing them as proof of the need to ‘shield’ the bloc from ‘the effects of unlawful extraterritorial application’ of such measures.”
USAGOLD note: The obvious question is what will the European Union rely upon instead? One would think that such concerns would enliven the gold repatriation movement, even prompt nation-states within the EU and perhaps the EU itself to boost their gold reserves. The pie chart above shows the breakdown for currency holdings within national reserves – as it stands now.
Repost from 1-19-2021
(USAGOLD – 1/25/2021) – Gold began the week on a positive note as Congress got down to the nuts and bolts of the Biden administration’s $1.9 trillion stimulus package and investors braced for the Fed’s all-important policy meeting and press conference at midweek. It is up $12 at $1870 in early U.S. trading. Silver is up 22¢ at $25.81. On the week ending Friday, gold looked like it might have turned a corner posting a nearly 2% gain. Silver posted a more than 3% gain after all was said and done. TF Metals Report’s Craig Hemke has some interesting things to say about the Fed’s upcoming meeting and what it might mean for the price of gold in the weeks ahead.
“[Y]ou and I know that all of the bullet points are extraordinarily bullish for precious metal ownership,” he writes in a report published at Seeking Alpha over the weekend. “However, The Machines that determine price have no concept of this. So, what we’ll await in 2021 is the moment when The Machine ‘fundamentals’ switch again to our favor. And what will be the driving factor? When The Fed begins to implement Yield Curve Control. This change in Fed policy, however, will come in stages. The first will be a mention of buying longer-term maturities within their existing QE program. If that doesn’t work, they’ll next actually start buying those 7-, 10-, 20-, and 30-year maturities. And if that doesn’t serve to cap rates below a certain level, they’ll codify this desire into a formal written policy change.”
Chart of the Day
Chart courtesy of TradingView.com • • • Click to enlarge
Chart note: Since the beginning of gold’s secular bull market in the early 2000s, we have recommended an unambiguous course of action: Own the physical metal – fully paid for and stored nearby – then sit back and watch the show. Those two courses of action have paid handsome dividends over the years, both in terms of peace of mind and a healthier balance sheet. In fact, for some, that prescription has created significant wealth. Since the turn of the century, gold is up 562%; silver, for its part, is right at 402%. By way of comparison, the Dow Jones Industrial Average is up a meager 178% over the 20-year period.
“In the waning days of Donald Trump’s presidency, Jeremy Grantham warned that U.S. stocks were in an epic bubble. He now predicts Joe Biden’s economic-recovery plan will propel them to perilous new heights, followed by an inevitable crash.”
USAGOLD note: Grantham steps up his recent warnings in this Bloomberg interview – a collapse he believes will rival the crash of 1929.
Chart courtesy of Macrotrends.net • • • Click to enlarge
“The population of the world is increasing at the rate of five thousand four hundred every hour. A small percentage of these people will become gold hoarders, people who are frightened of currencies, who like to bury some sovereigns in the garden or under the bed. Another percentage needs gold fillings for their teeth. Others need gold-rimmed spectacles, jewelry, engagement rings. All these new people will be taking tons of gold off the market every year. New industries need gold wire, gold plating, amalgams of gold. It is brilliant, malleable, ductile, almost unalterable and more dense than any of the common metals except platinum. There’s no end to its uses. But it has two defects. It isn’t hard enough. It wears out quickly, leaving itself on the linings of our pockets, and in the sweat of our skin. Every year, the world’s stock is invisibly reduced by friction. I said that gold has two defects…The other, and by far the major defect, is that it is the talisman of fear. Fear, Mr Bond, takes gold out of circulation and hoards it against the evil day. In a period of history when every tomorrow may be the evil day, it is fair enough to say that a fat proportion of the gold that is taken out of one corner of the Earth is at once buried again in another corner.”
“America’s economy is operating under the influence of performance-enhancing steroids thanks to unprecedented monetary intervention.”
USAGOLD note: Round and round we go, where it ends nobody knows …… This is a good synopsis of where we are at this point in time.
Repost from 1-18-2021