Monthly Archives: May 2021
Repost from 5-23-2021
“My argument — not at all unusual — is that extreme changes in bitcoin’s value make it very hard to use as a currency. Who would want to denominate a large transaction in a currency that might dip or rise by more than a third in a matter of hours?”
USAGOLD note: John Authers fires a cannon shot at critics of his less than embracing stance on cryptocurrency. In particular, he rejects claims that it will someday replace fiat currencies. He says it is increasingly seen not as a currency but as a “growth asset which behaves in line with growth stocks.” He quotes Financial Times’ Rob Armstrong: “Bitcoin is best thought of as equity in a company whose only asset is a promising but unproven technology — this is not strictly true, but it is the right metaphor.” Auther’s detailed assessment is recommended reading at the link.
Repost from 3-8-2021
“I suspect my readers are more retirement-ready than most, but I still hear horror stories: people who worked hard, did their homework, made good decisions, only to see it all collapse. If you think you’re prepared, or already retired and think yourself secure, I suggest you reexamine your assumptions. Retirement is broken and your dreams could become nightmares.”
USAGOLD note: Mauldin runs through a series of things broken, starting with credit and working his way through retirement, stocks, data, and unemployment. He ends with a warning we often see these days: “This will not end well.”
Repost from 11-20-2020
“It was a long-term national and economic policy strategy decision to increase the size of our gold holdings. The decision was driven by stability objectives; there were no investment considerations behind holding gold reserves. In normal circumstances, gold has a confidence-building feature, so it may play a stabilizing role and act as a major line of defense under extreme market conditions, in times of structural changes in the international financial system, or during deep geopolitical crises. The central bank also decided to repatriate overseas gold holdings. Holding precious metals within the country is consistent with international trends, enhances financial stability, and may strengthen market confidence in the Hungarian economy.”
USAGOLD note: Central banks, in short, hold gold for the very same reasons that private individuals do. Rekasi says central banks do not buy gold through ETFs but via over-the-counter transactions or through purchases from domestic producers. In other words, they buy the metal itself (not paper representations) for strategic safe-haven purposes and are not making a price bet. In this interview, Rekasi skillfully outlines the rationale for gold ownership in the context of the contemporary financial environment for individuals, funds and institutions alike.
Repost from 5-24-2021
“[China’s National Development and Reform Commission] vowed that regulatory authorities will track commodity prices and beef up supervision of the related futures and the spot market (a public financial market where commodities are traded for immediate delivery). It promised ‘zero tolerance’ for illegal activities, such as ‘reaching agreements to implement monopoly, spreading false information, driving up prices’ and hoarding.”
USAGOLD note: One is required to ask how much of the run-up in commodity prices has to do with speculators operating within China’s borders? Further, how much influence is the Commission’s dictate going to have beyond China’s borders – in countries where the raw materials are produced? And those two questions are just for starters……Oanda’s Jeffrey Halley is quoted in the article as saying that there is a limit to what China can achieve on this score in the medium to the long run.
Repost from 5-22-2021
“I have been making the investment case for gold since 2005. That was the point that the first physical gold ETF was listed, and I bought some. Then I bought some more, then I bought some more, and now I have it coming out of my ears. You could skip this note and just read Alan Greenspan’s 1966 essay Gold and Economic Freedom, but his is a little more dense and ideological.
USAGOLD note: Jared Dillian, who writes about gold frequently and whose columns appear at a number of financial websites regularly, has 30% of his portfolio committed to gold – the top end of the 10% to 30% we recommend to our clientele (where you fit within that range depends on your level of concern). He thinks gold will challenge its old highs at $2070 per ounce in due course.
USAGOLD note: Reuters reports a 3.1% annualized gain in the Personal Consumption Expenditures price index well above 2% Fed target and the 1.9% gain reported for March. Prior to the PCE release, gold had gotten as low as $1882. It is now back over the $1900 mark at $1901.
Gold backs off $1900 mark ahead of the Memorial Day break
Unusual, somewhat mysterious bullion demand surfaces at the Bank of England
(USAGOLD – 5/28/2021) – Gold is backing off its attempt to breach the $1900 mark as we enter the last day of trading before the Memorial Day break. It is down $6 at $1892.50. Silver is down 25¢ at $27.69. The price weakness though overlooks a couple of interesting gold market developments worth noting this morning.
First, gold ETFs report stockpile growth this month the strongest since January – an indication of a revival in interest from funds and institutions. Second, Bloomberg reports somewhat mysterious, unusually strong bullion demand surfacing at the Bank of England. The report cites the Bank for International Settlements, the central bank of central banks, as the source of that demand – a circumstance that raises the prospect of central bank buying from one or more sources. (A possible connection to the upcoming implementation of Basel 3 accords also comes to mind. Please see the USAGOLD Special Report: Will Basel 3 boost gold and silver prices?)
Yesterday Austria’s Incrementum released its annual full report on the state of the gold market, In Gold We Trust – this year under the subhead, “Monetary Climate Change.” In it, authors Ronald Stoeferle and Mark Valek offer this assessment for the long run:
“After hibernating for years, commodity prices have now awakened. It is quite possible that the 2010s will turn out to be the 1960s and the 2020s the 1970s. In our view, at any rate, the indications are clearly intensifying that the entire area of inflation-sensitive assets could be at the beginning of a pronounced bull market. As uncomfortable as the dynamics are in general, the conditions for gold could not be better: massively over-indebted economies that will resort to devaluing their currencies as a last resort to reduce their debts. We believe that real interest rates will remain in negative territory for the next decade. In such a market environment, tangible assets, especially commodities, selected equities in the right sector, and obviously precious metals should form the solid basis of the portfolio.”
Chart of the Day
Gold and the Purchasing Power of the U.S. Dollar
Sources: St. Louis Federal Reserve, Bureau of Labor Statistics, ICE Benchmark Administration • • • Click to enlarge
Chart note 1: This week, we are featuring classic gold charts for our newcomers – many of whom have never seen the rationale for gold ownership in chart form. Five in all, they answer the questions: “Why gold? Why now?” In this final chart in the series, we show the long-term relationship between the purchasing power of the dollar and the price of gold – one of the most enduring correlations in the world of high finance. One look at the chart tells you why long-time market veterans value it as the most effective portfolio diversifier.
Chart note 2: In a recent interview with The Margin’s Michael Epolito, Grant Williams (of Things That Make You Go Hmmm fame) said: “The last thing I care about is the price. I know that no matter where the gold price is trading over time relative to other assets, it’s going to preserve my purchasing power, and that’s really all I care about. I just don’t want my money being worth less because of inflation, because of governments, because of all the things that they are required to do to keep the system together. You know, when a government tells you they are going to target 2% inflation, they are telling you our aim is to reduce your purchasing power by 2% a year, and that compounds very, very quickly. … I never think about the price level where I would sell my gold, I think about a point in time where I might decide that the gold I have in that safe deposit box, I would prefer to own that piece of land with it.”
Repost from 5-24-2021
“The Fed bought on net $243 billion of Treasury securities in Q1 and $2.44 trillion since it began the bailouts of the financial markets in March 2020. Over this period through March 31, it has more than doubled its holdings of Treasuries to $4.94 trillion (blue line, left scale). It now holds a record of 17.6% of the Incredibly Spiking US National Debt.”
USAGOLD note: In this report, Richter provides statistical confirmation of what you may have already suspected. The Fed purchased about one-half of the government debt issued over the past roughly one year. Richter’s numbers and correlations, available at the link, go through March 2021. The chart below shows the additions to the federal debt through the end of 2020.
Sources: St. Louis Federal Reserve [FRED], U.S. Department of Treasury, Fiscal Service
Repost from 3-2-2021
“When I talked about the inflation picture slowly turning before the pandemic, the major reason was that I thought we were moving more towards a helicopter money / MMT world and away from fiscal austerity. The pandemic has accelerated this and a Blue Wave has picked up the baton in its crest.” – Jim Reid, chief credit strategist, Deutsche Bank
USAGOLD note: Reid, in short, does believe that we are more at the beginning than the end of the money creation process. He says that central banks (not just the Fed) will “lean quite hard” against rising rates. All of which gives one the impression that the Fed might be nearing some kind of an announcement. One more event like last week’s bond market scare might be enough to prompt it.
Repost from 5-21-2021
USAGOLD note: The latest from Mark Mobius. He believes we should get physical.
Repost from 4-21-2021
“The BOE claims that there is no connection between monetary and fiscal policy, and that its asset purchases are aimed only at meeting its mandated 2% inflation target. The fact that the amount of the bank’s asset purchases since March 2020 just so happens to match the government’s deficit over the same period is no more than a coincidence. To claim otherwise – that the BOE is engaging in clandestine monetary financing of the deficit – smacks of conspiracy theory.”
USAGOLD note: The Bank of England is not alone in developing an overly cozy relationship with its national government. The Federal Reserve Bank finds itself in a similar situation – though the scale is much larger, the circumstances are virtually the same. As a result, Skidelsky’s criticism reaches far beyond its intended target, i.e, the Bank of England. Skidelsky is a member of the British House of Lords and an economics professor at Warwick University.
Gold stalls just below the $1900 level
Guggenheim’s Minerd says $5,000 to $10,000 gold possible in future ‘exponential phase’
(USAGOLD – 5/27/2021) – Gold stalled just below the $1900 level in a muted response to this morning’s less than inspiring jobs report. It is level at $1898. Silver is up 1¢ at $27.78. That said, gold and silver are both up almost 7.5% thus far in the month of May. Guggenheim Partner’s Scott Minerd, a widely followed market analyst and long-time advocate of gold and silver ownership, has gone from bullish to very bullish on the metals. “As money leaves crypto,” he said in a CNBC interview yesterday, “and people are looking for inflation hedges, gold and silver will be much better places to go. It will take a while to build momentum in gold because the size of the market is so much bigger.” He sees the yellow metal possibly moving to an “exponential phase” during which $5,000 to $10,000 per ounce could be “ultimately in the cards.” As for silver, he sees it as a “high-beta version of gold,” predicting it will outperform its kindred precious metal.
Chart of the Day
Gold and the U.S. national debt
(1971 to Q1-2021)
Sources: St. Louis Federal Reserve [FRED], U.S Department of the Treasury, ICE Benchmark Administration
Chart note: This week, we are featuring classic gold charts for our newcomers – a quick look, basic rationale for gold ownership. Five in all, they answer the questions: “Why gold? Why now?” In this fourth chart in the series, we show how since the early 1970s, the logic for gold ownership has been inextricably bound to the cash flow problems of the federal government. As the national debt increased, so did the well-documented damage associated with it – to the dollar, financial markets, and the economy in general. Simultaneously, gold’s role as an inversely correlated portfolio hedge grew, as you can see from the chart above. Few correlations in the financial markets ring truer and more consistently than the one between the federal debt and gold. As for the future, we should keep in mind that the very same conditions which created the long-term secular trend for both the national debt and gold are still in place today.
“Steve Hanke, professor of applied economics at Johns Hopkins University, created, in collaboration with his colleagues, a sentiment index for gold. The index works by using a computer algorithm scan media articles online and screen ‘bullish’ or ‘bearish’ keywords. Bullish words include ‘inflation’, and ‘quantitative easing’ while gold bearish terms could include ‘strengthening dollar.’
USAGOLD note: Hanke introduces a new survey to the gold tools mix – a sentiment index that now scores very high on the bullish side of the dashboard. Hanke says It works as a forward indicator. Sentiment as measured in media reports, he says, is a very important indicator of price performance. He “loves gold” because we are going to have “a lot more inflation in the future.”
“We believe 2020 marked the secular low point for inflation and interest rates. The 40-year bull market in bonds is over.’”
Bank of America
Repost from 5-19-2021
“Markets are full of noise about everything from inflation, risk, leverage and politics, but the reality is we are approaching ‘Peak Speculation’. It doesn’t mean a crash is imminent, but that investment strategies and approaches are going to have to factor in a new reality, and be far more suspicious, questioning and smart as a new reality takes hold. The consequences of QE and other factors that fuelled the speculative age could be with us for decades.”
USAGOLD note: Buckle up. We might be in for a rough ride if we have truly come to the end of the age of speculation. More than one investor has stumbled upon diversification on the road to portfolio wisdom.
Repost from 5-21-2021
“Silver demand for printed and flexible electronics is forecast to increase 54 percent, from 48 million ounces (Moz) in 2021 to 74 Moz in 2030, consuming 615 million ounces for these applications during the 10-year timeframe, as this market continues to mature and expand. Printed and flexible electronics are vital to the evolution of electronic technologies as they are mainstays in a wide range of products, including sensors for temperature, pressure, motion, lighting, moisture/relative humidity, radar, heart rate, and carbon monoxide.”
USAGOLD note: Silver enjoys a twofold benefit not present in other precious metals, even gold – significant demand in green technologies along with a growing reputation as a long-term store of value.
Repost from 4-8-2021
“Hungary tripled its gold reserves in one of the biggest purchases by a central bank in decades — the latest sign of governments turning to the precious metal as a safeguard of value.”
USAGOLD note: Hungary is one nation-state among many implementing gold acquisition programs. At this juncture, one would think that competition will be intense for any gold offering of size.
Gold Eagle/Claudio Grass interview of Pro Aurum’s Robert Hartmann
Repost from 4-13-2021
“Precious metals are and always have been the ultimate insurance. They provide protection both against state failures and against mistakes in the monetary policy of the central banks. Every investor who looks into the history books sees that both have happened over and over again in the past centuries. From that perspective, investing in physical gold and silver is a common-sense precaution and a necessary part of any wealth preservation plan. Investors and ordinary savers ignore this at their peril and the failure to include precious metals in one’s portfolio is pure negligence.”
USAGOLD note: There are essentially two broad schools of thought alive and well in the gold market. The first holds that crisis is around the corner and, as a result, precious metals should be owned to profit from the event. The second holds that crisis is a permanent fixture in the market dynamic and that the portfolio should always include precious metals as the ultimate safe haven. The first buyer sees gold as an investment product, i.e., buy it now and sell it later when the time is right. The second sees gold, like Hartmann, as an insurance product to be held for the long run. Some combine the two, allocating one part of their precious metals portfolio for trading purposes and another as a permanent, or semi-permanent, store of value. It is important for the novice gold owner to determine where he or she stands on this distinction because it dictates, in turn, which products to include in the portfolio and to what degree – strategies with which we have helped a good many investors over the years. We invite you to call our Order Desk for further information.
Repost from 4-14-2021
“It could manifest itself in a period of euphoric boom and optimism that leads to unsustainable bubbles, or it could all work out well. But, it doesn’t seem to me that the preponderant probability is that it will work out well. So I’m concerned that what is being done is substantially excessive.” – Larry Summers
USAGOLD note: We should keep in mind that Summers is probably the leading light in Democrat circles when it comes to economic policy. He is the former Secretary of the Treasury under Bill Clinton, so his going off the reservation is an event in and of itself. The excessive policy will likely yield excessive results. It is difficult to read through this interview without concluding that a portfolio hedge at this juncture makes a great deal of sense. The Biden administration has already struck out on a path from which there is no return. Summers likens the Biden administration’s policies to the era of Lyndon Johnson and an economic experiment that did not work out well for the Democratic Party. “I think there is significant risk,: he says that something of the same kind will happen today.” Following the Johnson years, the U.S. devalued the dollar, launched the fiat money system, and ignited the runaway inflation of the 1970s.
Repost from 5-21-2021
Source: St. Louis Federal Reserve [FRED], Board of Governors of the Federal Reserve System
“The Fed will have a big hand in fixed-income markets for as far as the eye can see.” – Matt Nest, State Street Global Advisors.
USAGOLD note: In the present policy mix, tapering is the equivalent of taking away the punch bowl. As a number of analysts have pointed out in the recent past, should the Fed withdraw from the Treasuries markets, interest rates would skyrocket, the bond market could collapse, and Federal government interest payments, in turn, would skyrocket. We should all keep in mind the chaotic reaction the last time the Fed attempted to taper. The trend evident in the chart above appears well entrenched – its economic and policy underpinnings solidly intact.