Monthly Archives: April 2021
Repost from 4-25-2021
“The Federal Reserve is expected to begin trimming its $120 billion in monthly asset purchases before the end of the year as the U.S. economy recovers strongly from Covid-19, according to economists surveyed by Bloomberg.”
USAGOLD note: Does this not depend on Treasury needs and whether or not there is a market for its securities domestically and internationally? Too, we should all remember what happened in the bond market the last time the Fed attempted to taper in 2013.
Repost from 4-24-2021
“Americans are growing more concerned about rising costs and are consistently boosting their inflation expectations, new data show. A new survey from CivicScience shows 87% of those surveyed in a representative sample of U.S. adults say they are at least “somewhat concerned” about the increasing cost of household expenses (all numbers are rounded to the nearest percentage point).”
USAGOLD note: That 87% is split between 46% “very concerned” about inflation and 41% “somewhat concerned”. We haven’t gotten to the point yet where consumers en masses are buying now in order to keep from having to pay more later, but that could happen overnight, especially with all the pent-up savings rattling around the monetary system.
Precious metals drift lower to close less than inspiring week
By way of perspective, gold is still up 5.25% on the month and silver 8.5%
(USAGOLD – 4/30/2021) – Gold drifted lower in early trading as it looks to close out a less than inspiring week. It is down $2.50 at $1771. Silver is down 13¢ at $26.04. With the metals rangebound, we return to a Crescat Capital overview from about a month ago that still resonates and offers some perspective. When it was first published, gold was trading at about $1685 and silver at just under $24. We should keep in mind that over the past month, despite their ups and downs, gold is still up a little over 5.25% and silver about 8.5%. From March of 2020, mentioned below as the start of a new bull market in precious metals, gold is up almost 11.5% and silver, 56%(!). (Both performances are shown in our Chart[s] of the Day below.)
“Gold sentiment became extremely negative recently,” says Crescat Capital in that late March market research letter, “pulling gold prices down with it, a contrarian buy signal early in a new long-term inflation cycle. The precious metals bull market only began a year ago according to silver and junior miners. If it were after a 10-year run up already, a shift to negative sentiment would be a different story. Bull markets climb a wall of worry. We see it as a great opportunity to buy the pullback … The setup today for precious metals is outstanding given supply constraints, rising inflation expectations, asset bubbles in traditional financial assets, record debt to GDP, double barreled fiscal and monetary stimulus, negative and declining real interest rates. The new bull market only started in March of 2020 after a ten-year bear.”
Chart[s] of the Day
Gold and silver price performance
(percent gains March 30, 2020 to April 30, 2021)
Gold and silver price performance
(One month, percent gains)
Charts courtesy of TradingView.com • • • Click to enlarge
Chart note: We should keep in mind that gold is still up a little over 5.25% and silver about 8.5% over the past month despite the choppy, rangebound trading of the past two weeks. From March 2020, identified by Crescat Capital above as the start of a new bull market, gold is up almost 11.5% and silver, 56%(!).
“The good news: this bull market will run for months and months. The bad news: stock gains will be lean. The lion has already taken his bites. This is the studied conclusion of crack financial journalist Mark Hulbert. He has ransacked market history and interrogated the data.”
USAGOLD note: Over the past few months, record new highs in the stock market have been the stuff of headlines on almost a daily basis. The fact of the matter is that daily moves higher have been minimal. Over the past 12 months, on the other hand, the Dow Jones Industrial Average is up, but is up 18% – a respectable gain but not one commensurate with the awe-inspiring headlines. Gold, by contrast, is up 13% without the benefit of maximum press coverage. Silver, which has received little to no attention from the mainstream media, is up 46%. For those who have had a stray thought or two along the same lines, Maher’s article based on Hulbert’s views will sharpen that perception. The bull is at best resting and at worst could be in for a very long Rip Van Winkle-like sleep.
Repost from 4-24-2021
“Switzerland in March recorded its biggest monthly gold exports in ten months as shipments to India leaped to their highest since 2013, underlining a revival in Asian bullion demand, Swiss customs data showed on Thursday. Switzerland is the world’s biggest gold refining centre and transit hub. Its numbers provide an insight into market trends.”
USAGOLD note 1: We’ve noted the revival of the West to East gold pipeline in recent weeks. A weak rupiah, India’s currency, is adding to investor demand.
USAGOLD note 2 (4-29-2021): Things are likely to change again with the pandemic unfortunately running nearly out of control in India.
Repost from 3-18-2021
“Inflation is the number one risk for the market, according to a monthly survey of global asset managers commissioned by Bank of America, displacing COVID-19 for the first time since February 2020. Both inflation (37% of respondents) and the risk of a market taper tantrum (35%) beat out the pandemic as the top risk for investors.”
USAGOLD note: It is likely a very long time ago that inflation topped the list of concerns among top money managers, even though massive quantitative easing did not ignite it in the aftermath of the Great Financial Crisis (2007-2008). Maybe it really is different this time. The so-called taper tantrum, though, is the market fearing its own shadow. The Fed has not suggested anything near selling off its balance sheet assets as was the case during the taper tantrum in 2013. What the market really fears is that the Fed will not raise its monthly quantitative easing quota to meet the massive bond issuance upcoming from the federal government.
Repost from 3-12-2021
USAGOLD note : In this fundamentally sound analysis, Judy Shelton, the shunned Trump nominee for the Federal Reserve Board, demonstrates convincingly why Congressional Republicans never should have rejected her for a position on the central bank’s Board of Governors. She puts her finger on one of the key reasons why the economy remains stubbornly on hold despite the Fed’s massive money creation over the past year. “[T]he implications for productive economic growth,” writes Shelton, “should give pause to Fed officials, who might ask themselves why banks have chosen to retain reserve balances in their Federal Reserve depository accounts at sky-high levels, $3.15 trillion at present, despite the Fed’s elimination of all reserve requirements in March 2020.”
Repost from 4-24-2021
“The percentage of investors with $1 million or more in brokerage accounts they self-manage that sold out of market positions and went to cash in the second quarter more than doubled, from 7% to 16%, according to a new survey of wealthy investors from Morgan Stanley’s E-Trade Financial shared with CNBC. Overall bullishness declined as well, with millionaire investors who say they are now bearish increasing by 6 percentage points, from 36% to 42%.”
USAGOLD note: We cited this report in Friday’s DMR and repost it here for those who may have missed it. Those who go to cash will be looking around for a place to park their money awaiting what they see as inevitable. “Nothing beats a little cash in a bear market, of course,” Interest Rate Observer’s James Grant once said, “and the oldest form of cash is gold.”
Repost from 4-22-2021
Visualization courtesy of VisualCapitalist.com • • • Click to enlarge
“Gold has long been an important hedge in times of uncertainty, and unlike foreign currencies, equities, or debt securities, its value is not dependent on any company or nation’s solvency. This has made gold an essential part of many national central bank reserves, especially as the monetary supply of many nations continues to expand and central banks are exploring digital currencies which could be reserve or gold backed. With gold still making up a large part of many nations’ reserves, how have central banks been managing the precious metal?”
Gold down marginally in Fed meeting aftermath
World Gold Council’s reports ‘exceptional strength’ in US retail gold demand during first quarter
(USAGOLD – 4/29/2021) – Gold is down marginally this morning as yields continued to plod higher and the dollar weakened. In other words, market conditions after the Fed meeting looked pretty much like they did before. Gold is down $2.50 at $1781 in the early going. Silver is up 20¢ at $26.48. It might take a day or two for the markets to sort out the net effect of the Fed’s clearly stated intentions to keep interest rates down and the bond market well-supported for the foreseeable future. The World Gold Council is out with its quarterly assessment of the gold market and here is what it had to say on U.S. investment demand:
“We have reported on the recent exceptional strength of US retail investment interest with demand fuelled by persistent near-zero interest rates, fears of inflation – particularly given massive government stimulus – continued uncertainty as to the long-term impact of the pandemic, and restricted opportunities to splurge on travel and other discretionary expenditure. Reports suggest a blinkered mindset among US investors during the quarter, with investment activity almost solely focused on buying and very little on selling-back or profit-taking. Conversations with market contacts revealed relatively long delivery lead times for gold investment products, indicative of tight market conditions in part due to the strength of demand. Activity somewhat decelerated in March and latest figures for April show a continued slowdown, but this is likely to be due largely to slowing production of bullion coins as the Mint shifts production towards newly-designed coins, due to be released mid-year.”
Chart of the Day
Chart courtesy of the World Gold Council • • • Click to enlarge
Chart note: The U.S. Mint recorded the best quarterly sales for gold American Eagles since 2009 and that came amidst reports that it was unable to keep up with strong investor demand.
“There is tremendous potential for gold to grow further, particularly among institutional investors. There are many that are not invested in gold, and the World Gold Council is doing a lot to promote its benefits.” – John Reade, chief market strategist, World Gold Council
USAGOLD note: Reade also pointed out that gold will find a market among those looking to hedge risk and that it is not losing market share to cryptocurrencies as is so often claimed.
Repost from 1-27-2021
“The continued massive printing of money is going to lead to an economic crisis that Washington insiders are dangerously ignoring, according to publisher and former presidential candidate Steve Forbes on Newsmax TV.”
USAGOLD note: Steve Forbes joins the chorus of prominent Wall Streeters warning of the dire consequences that result from running the money printing presses at full tilt.
Repost from 3-12-2021
“But as yet the equity market seems totally unaffected with volatile and risky stocks still making the running. Although the brontosaurus has been bitten on the tail, the message has not yet reached its tiny brain, but is proceeding up the long backbone, one vertebra at a time.” – Jeremy Grantham, 2007 (just before the financial crisis)
USAGOLD note: Authers explains that what is going on in the stock market at the moment is a rotation – not a sell off. Investors are selling high tech stocks and buying old school companies. In keeping with the brontosaurus analogy, though, there may be another message that has yet to migrate beyond the tail. When the margin calls come to the highly leveraged crowd investing in tech stocks, it could precipitate a wider selloff as investors scramble to raise capital. If so, it would not be the first time excessive margin positions have provoked panic selling – 1929 and 2008 come to mind.
Repost from 4-22-2021
“Wrong, Wrong, Wrong. Banks did not “pile into cash”. Nor did they “suck in” deposits. Rather, the Fed crammed money down the throats of commercial banks via QE policy although the banks have little demand for loans.”
USAGOLD note: Shedlock tacks against the rising tide of inflationism with this analysis that argues disinflation, even deflation, might be the more likely future scenario. The Fed is pumping money into the commercial banks, but as was the case during the quantitative easing experiment following the 2008 financial crisis, very little is making its way to Main Street America.
Gold off marginally on FOMC concerns, sharp sell-off in the bond market
Goldman says oil demand will jump like never before; copper will hit new records
(USAGOLD – 4/28/2021) – Gold dropped marginally in trading on concerns about today’s wind-up of the FOMC meeting. The sharp drop in yields that began on Monday serves as a reminder of just how precarious conditions are in the bond market and precisely why the Fed is likely to tread very carefully when it presents the results of its meeting this afternoon. Gold is down $2 at $1776. Silver is down 25¢ at $26.08. Both are recovering from lows hit earlier in the session. According to a Bloomberg report this morning, Goldman Sachs believes “commodities will stay hot…after a rally that’s been a standout of global markets. The firm sees oil demand jumping like never before and copper hitting new records in the next six months. Raw materials will advance 13.5%, with Brent set to hit $80 a barrel. UBS agrees, expecting a further 10% rally driven by energy and materials.” Silver is likely to be a more direct beneficiary than gold if the rally continues given its industrial uses, including in Biden-favored green technologies. However, gold could get a boost if investors see it as lagging the commodity complex and due for a rally.
Chart of the Day
The Goldman Sachs Commodity Index and Gold
(Percent gain or loss year to date, 2021)
Chart courtesy of TradingView.com • • • Click to enlarge
Chart note: When you consider that Goldman’s commodities index is up almost 22% since the beginning of the year, it gives cause to think that gold might be lagging and due for a rally. It is down almost 7% on the year. (Chart date: 4/21/2021)
Sources: St. Louis Federal Reserve, Federal Reserve Board of Governors, ICE Benchmark Administration
Click to enlarge
“A broader metric than CPI may be more adequate to measure true inflation. [I]f we use a broader measure than CP the evidence suggests a stronger and more consistent relationship [between gold and inflation]. This has two important implications: gold is a global asset and a hedge against not just the price of goods and services but also the erosion of purchasing power in general – be that against property, collectibles, or financial assets that are excluded from CPI indices. It is also a hedge against the debasement of a currency should the value of that currency be slowly eaten away as supply is increased…Money supply is closely linked to nominal GPD growth and may reflect this important consumption dynamic as well as the inflation dynamic.”
USAGOLD note: We cited this report in yesterday’s DMR and repost it here for those who may have missed it. All in all, we see this approach as rather ingenious. With inflationary concerns moving to the forefront, a handful of analysts have made strained attempts to show that gold is not truly an inflation hedge – an endeavor that generally requires the manipulation of timelines and statistics to make the point. The World Gold Council takes an approach in this study that uniquely circumvents the issue by acknowledging the post-2008 era of quantitative easing. The chart above illustrates the point the World Gold Council makes in the snippet above. It is drawn to log scale and, as a result, provides a truer representation of monetary growth and its relationship to the gold price.
Repost from 12-11-2020
‘Gold is an excellent hedge against adversity. Its price tends to rise when operators perceive the level of risk to be high, for instance during military escalation or, more often, financial crisis, when financial instruments, especially high risk ones like shares, plummet in value but gold tends to rise in price. Incorporating gold into a financial portfolio is a way of hedging against high-risk scenarios, however unlikely.”
USAGOLD note: Why do central banks hold gold? By and large, they hold it for the same reasons you and I do. Bank of Italy’s clearly stated rationale is worth a full review at the link ……
Repost from 3-11-2021
“One of the primary rules of investing is don’t get carried away by the madness of crowds. Still, markets are signaling that many investors are ignoring that rule.”
USAGOLD note: Shilling, who wrote the book, “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation,” sees disappointment ahead – that the anticipated growth simply will not materialize, a mirage, as he says. Toward the end of this analysis, he says that the bulk of stimulus money will be used to pay off debts and go to savings – not the sort of behavior that translates to a robust economic rebound. “Inflation fears,” he says, “are unwarranted.” In short, the reign of King Disinflation, in his view, will continue.
Repost from 4-21-2021
“We have, without really noticing, severed the connection between share price and liquidity. This matters in ways I think we may not fully understand. Combine it with game-like mobile apps that let people buy and sell in individually tiny amounts that add up to the big numbers once reserved for giant institutions. And without any kind of institutional decision-making process to constrain rash moves..…Where all this leads is uncertain but I suspect it won’t be good.”
USAGOLD note: Another on the long list of casually swept aside warnings from heavyweights about the wildly overvalued, overplayed stock market……