Gold tracks higher as market dangers made evident last week remain

(USAGOLD – 3/1/2021) – Gold is tracking marginally higher in early Monday trading as bond yields stayed stubbornly high and the dollar firmed in overseas markets. It is up $2.50 at $1739. Silver is up 24¢ at $26.99. At the moment, the confusion and volatility of last week have cooled a bit, but the underlying dangers made evident remain. Gold Newsletter‘s Brien Lundin offers a candid assessment of what we might expect from precious metals under the volatile circumstances at work in financial markets – particularly the bond market:

“I’ve pounded the table over recent years with my view that, because of the overwhelming size of the federal debt, the Fed couldn’t raise rates. Not only that, they couldn’t allow rates to rise. The costs of servicing the debt at higher rates would drown the federal budget in red ink. And as a corollary to all of this, the size of the debt also demanded a very significant devaluation of the dollar. And this scenario was extraordinarily bullish for gold and silver. While I have addressed it, however, I haven’t spent enough time talking about the alternative scenario: That the Fed would actually lose control of interest rates.…

Right now, gold is suffering through a transition phase as inflation data and expectations are lagging the bond market responses. Eventually, gold will benefit as sentiment begins to regard the metal as not only an inflation hedge, but also a bulwark against risks to the financial system. This phase could end tomorrow or it could last months. There’s really no telling. In the meantime, we’ll have to suffer through times when the market, which doesn’t yet appreciate the true role of gold, will reflexively sell it when yields surge.” [Emphasis added.]

And, we will add, speculators will reflexively buy it back at some point in order to capture profits. Long-term investors, who see precious metals as a store of value and own them outright, often greet these bouts of downside reflexivity as buying opportunities. Since the early 2000s, that strategy has consistently paid dividends for the patient investor while protecting and building wealth.

Chart[s] of the Day

line chart showing Shadow Stats rendition of the inflation rate

line chart showing Shadow Stats rendition of the unemployment versus official statistics

Charts courtesy of • • • Click to enlarge

Chart note:  ShadowStats tracks alternative data series to official statistics. Above are its renditions of the inflation and unemployment rates. With respect to the inflation rate, Shadow Stats uses the same methodology used by the Bureau of Labor Statistics in 1980. As for the unemployment rate, it includes so-called “discouraged workers” who were “defined out of existence in 1994.” As you can see, in both instances, the picture painted for the American public would be much different on these key statistics had the BLS stuck to its earlier formulations. The inflation rate would be running near double digits and the unemployment rate would be over 25%

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