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 Trustthis 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
(Since 1970)

overlay area chart showing gold and the purchasing power of the dollar 1971-April2021

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.”

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