Monthly Archives: May 2021
Gold pushes convincingly past the $1900 mark
Clarida remarks, inflation concerns spur gold and silver buyers
(USAGOLD – 5/26/2021) – Gold pushed convincingly past the $1900 mark in early trading even as the dollar strengthened and yields held steady. Inflation concerns continue to dominate investor thinking. The yellow metal is up $14 at $1914. Silver is up 25¢ at $28.30. Helping matters, influential Fed Vice Chairman Richard Clarida was quoted in a Bloomberg article yesterday as saying that the central bank’s bond-buying binge should not be scaled back soon. Too, though “surprised” by the recent consumer price data, he restated the Fed’s consensus view that inflation will prove to be “transitory.” ED&F’s Edward Meir told Reuters yesterday that “markets are getting a sense that inflation is more deeply embedded than what the Fed is currently expecting…This is leading to money going into inflation hedges like gold…Gold has a good chance of getting to $2,000 during the second half of this year.”
Chart of the Day
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?” This third chart in the series, 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.
“But there’s another event which has so far snuck under the radar of most analysts and investors – the pending changes to Basel III rules surrounding gold stockpiles held by global banks. The rule change will stipulate that banks can only count physical gold when calculating their Tier One asset ratios to meet financial stability regulations.”
USAGOLD note 1: On Friday, we posted an opinion piece from Numismatic News that noted the potential for major repercussions in the gold and silver markets from the upcoming implementation of Basel 3 beginning toward the end of June. This Stockhead article suggests that the jury is still out on Basel 3 based on one analyst’s discussions with gold mining companies and derivatives traders.
USAGOLD note 2: Though we would like to think that the new accord would force bullion banks to cover their positions, causing a jump in gold and silver prices, we recognize that the implementation of this agreement is a complicated matter, and it is impossible to know how the parties will react and/or the options available to them. The LBMA itself, the organization whose members will be most directly affected by Basel 3, warns of potential chaos in the gold and silver lending markets once implemented – a message worth noting. That warning, we should add, is contained in its appeal to the Prudential Regulation Authority to curtail implementing the precious metals provisions. Thus far, the PRA has not responded, but as we said in the note to Friday’s post, one would think that by now, its net effects on the banking industry would be well understood and factored into the equation.
Repost from 5-17-2021
“The war of words unleashed on Wall Street and in Washington by Wednesday’s announcement of an unexpectedly high rate of consumer price inflation is escalating by the day. Legendary hedge fund manager Stanley Druckenmiller had warned on Tuesday in the Wall Street Journal that the Fed was enabling fiscal and market excesses by not standing up to the political whims of Congress; he stated on CNBC that the Fed’s overly accommodative monetary policies posed a risk to the status of the United States dollar as a global reserve currency.”
USAGOLD note: Shelton argues effectively that a rules-based monetary system “delivers better economic results,” and takes the Federal Reserve to task for “its willingness to comply with a progressive agenda.”
Repost from 5-20-2021
“Central bankers who manage foreign currency reserves have been turning to new – and riskier – investments to compensate for the global collapse in bond yields ushered in by the pandemic, according to a new survey.”
USAGOLD note: One of the “riskier assets” to which central banks are turning, according to this report, is gold. We note with some irony that a good many of the most important central banks include gold in their holdings precisely because it presents zero counter-party risk. In fact, one of the reasons so many hold so much gold is because of its stability when weighed against national currencies. In fact, it could be argued that central banks light gold are the ones most at risk.
Bloomberg/Katia Porzecanski and Nishant Kumar
Repost from 3-1-2021
Image courtesy of VisiualCapitalist.com
“Offering a curmudgeonly riposte to today’s raucous financial markets, the 76-year-old billionaire said in a letter to clients of his $42 billion Elliott Management Corp. that a ‘flamboyant line-up’ of excesses will come back to haunt investors. To Singer, who has long warned of an ugly end to the Federal Reserve’s easy-money policies, it’s all just a bit too much.”
USAGOLD note: Singer has long been a proponent of gold ownership. This article reports that Elliott (Singer’s investment fund) made money thanks to “a combination of portfolio-protection trades related to interest rates and gold, together with our core activities.” Given the billionaire’s mindset, we highly doubt he has given up on gold in this latest downtrend.
Repost from 4-15-2021
“The COVID-19 pandemic has disrupted life worldwide, with far-reaching effects that extend well beyond global health to the economic, political, and security spheres. We expect COVID-19 to remain a threat to populations worldwide until vaccines and therapeutics are widely distributed. The economic and political implications of the pandemic will ripple through the world for years.…The economic fallout from the pandemic is likely to create or worsen instability in at least a few—and perhaps many—countries, as people grow more desperate in the face of interlocking pressures that include sustained economic downturns, job losses, and disrupted supply chains. Some hard-hit developing countries are experiencing financial and humanitarian crises, increasing the risk of surges in migration, collapsed governments, or internal conflict.”
USAGOLD note: An ominous assessment of the economic and political future, this study also reviews the threats from China, Russia, Iran, and North Korea. In the whirl surrounding economics and the financial markets, we sometimes push aside the geopolitical situation. As we have reported here occasionally, though, rivalries have sharpened over the past year and could become even more contentious as the net economic effect of the pandemic takes its toll.
Repost from 5-17-2021
“Among the strongest elements of the belief system propping up record valuations and trading debt is the notion that central bank liquidity has the capacity to support elevated valuations indefinitely. Years of intervention have cast central banks as tools of self-reinforcing speculation. Mere phrases such as ‘Fed support’ now suffice as complete investment strategies.”
USAGOLD note: Hussman calls to question markets that are driven almost exclusively by the Federal Reserve money printing process. He references Benjamin Grahm and David Todd’s “Security Analysis” – the 1934 classic which conjures the crash of 1929. “It was only necessary to buy ‘good’ stocks,’ they said, “regardless of price, and then to let nature take her upward course. The results of such a doctrine could not fail to be tragic.”
Gold inches higher in listless trading
Saxo Bank sees “newfound momentum” from renewed fund ETF buying
(USAGOLD – 5/25/2021) – Gold inched higher this morning in listless trading with little in the way of fresh news to inspire anything more definitive. Yields and the dollar are both down marginally after market-soothing speeches from three Fed governors yesterday aimed at downplaying inflationary concerns. The yellow metal is up $2 at $1884.50. Silver is down 11¢ at $27.73. Saxo Bank’s Ole Hansen reports JPMorgan saying recently that big investors have started switching out of bitcoin and going back to “traditional gold investments as inflation heats up” – a trend that has begun to show up in rising ETF inventories.
Chart courtesy of GoldChartsRUs.com
“Gold’s newfound momentum helped drive a third consecutive week of fund buying,” he says in an overview posted yesterday, “which resulted in the net long rising 12% to 107k lots, a 16-week high. Gold has not managed to put together a three-week buying spree of this magnitude since last June, and it highlights the continued improvement in the technical outlook during a period of stable Treasury yields, a weaker dollar, and not least heightened volatility across cryptocurrencies. The improvement in the technical outlook was further confirmed this past week by the move above the 200-day moving average, last at $1845, and the breaching of the downtrend from the $2075 record high last August.”
Chart of the Day
Sources: St. Louis Federal Reserve [FRED], ICE Benchmark Administration • • • Click to enlarge
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 second chart in the series, we show the annual average price of gold since 1970. It dispels the notion that gold is somehow volatile or unpredictable and, as a result, unreliable as a long-term portfolio safe haven. On the contrary, it shows gold living up to its reputation as a reliable portfolio safe haven during times of rapidly changing economic circumstances. At the 2020 average price of $1770, gold closed the year 27% higher than 2019’s average price and its highest average annual price on record.
Repost from 9-30-2020
“It’s been feeling autumnal all month – this morning I was woken by lashing rain, followed by a clear blue sky at 7.00 am. As I finish the Porridge, its blowing half-pelicans out there! Even blowing the young olives off the trees on the balcony in front of me. It’s an equinoxal gale – with more rain and wind to come. I know that because I watched the weather forecast. Markets in these uncertain times feel much the same, hope followed by despair… Up and down… However, financial forecasting of markets is not a science – it remains a dark art. Markets are all about behaviours – which are notoriously difficult to predict.”
USAGOLD note: The unknown. Gold’s ever-present advocate. “The trick,” says Blain, “is surviving and staying afloat: to avoid being caught on the lee shores of default …”
Repost from 4-7-2021
“’It is highly likely that we are going to have another situation like that,’ Minerd said Monday in a Bloomberg Television interview. Major losses, such as those incurred by Archegos, ‘tend to continue to cascade until the market corrects and flushes the risk out of the system,’ he said.”
USAAGOLD note: This article appeared at Bloomberg about the time that Credit Suisse, the Swiss bank, announced that its loss in the Archegos meltdown was $4.7 billion, not the $2 billion originally announced,
Repost from 5-16-2021
“After updating my macro-market outlook report for subscribers, I realized something about Gold. On a historical basis, it remains incredibly cheap. It may seem expensive on the surface, trading near $2,000/oz, but the reality is contrary to the perception. Gold is trading around the same level as 10 years ago.”
USAGOLD note: Roy-Byrne goes on to quote three criteria by which the yellow metal is undervalued – when compared to growth in the monetary base, the current lows in its ratio with the S&P 500, and its historical low point as a percentage of global financial assets. Details at the link……
Repost from 5-12-2021
“Valuations in risk assets continue to climb, which only strengthens the argument for rotating capital into defensive assets, such as gold, ahead of a potential market correction, said economist Nouriel Roubini, CEO of Roubini Macro Associate and professor at the NYU Stern School of Business.”
USAGOLD note: Roubini has skirted the issue of gold consistently over the years while citing at the same time very good reasons for owning it. In this interview, he finally advocates, for the first time to our knowledge, private ownership of gold. It is also interesting to note that Roubini sees bitcoin as more an adjunct to the stock market and a speculation rather than a digital alternative to gold and a true store of value. His evidence of that notion is that cryptocurrency tends to lose value faster than the general stock market during risk-off episodes. With recent stock market weakness due to inflation concerns, it will be interesting to see how cryptocurrencies respond if the situation evolves to full risk-off.
Gold off to a quiet start this morning
Continues its spring rally – up eighth straight day and 13 of the last 14 trading sessions
(USAGOLD – 5/24/2021) – Gold is off to a quiet start this morning as both yields and the dollar weakened marginally. It is up $2 at $1884. Silver is up 14¢ at $27.77. Inflation expectations continue to be the key driving force behind gold’s springtime offensive – now up for its eighth straight day and in 13 of the last 14 trading sessions. In an article posted recently at Real Clear Markets, economist John Tamny says that while “inflation is all the rage at the moment” among financial pundits, few understand its true nature.
“With inflation,” he writes, “a shrinkage of the unit of money raises the amount of money required to exchange for goods and services. Which is the why behind gold as the historical standard for money. Per John Stuart Mill, gold has long been the commodity “least influenced by any of the causes which produce fluctuations of value.” In other words, gold’s value doesn’t move as much as the value of the currencies in which it’s historically been priced move. Gold is a great definer of money, and has been used for thousands of years as a definer, precisely because gold is yet again the commodity “least influenced by any of the causes which produce fluctuations of value.”
Chart of the Day
Percent increase or decrease over prior year
Data sources: St. Louis Federal Reserve [FRED], ICE Benchmark Association
Chart by USAGOLD.com • • • Click to enlarge
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?” This first chart in the series shows the annual percentage gains and losses for gold since the year 2000. As you can see, gold has posted gains in sixteen of the last twenty years – a formidable record.. For the full year 2020, gold turned in its best year since 2010, rising 24.6% and ending the year at the $1900 mark. Thus far, in 2021, gold is down just over 3%. It is up about 7.5% over the past twelve months.
NEWS & VIEWS
Will Basel 3 boost gold and silver prices?
Coming changes could have an ‘enormous impact on precious metals markets
by Patrick Heller
Guest opinion reprinted with the kind permission of Numismatic News
“Right now, the COMEX currently has about $24 billion in short sales of gold futures contracts and another $1.6 billion in short sales of silver futures. There will almost certainly be pressures for short sellers to cover these COMEX contracts as continental European banks scramble to cover their short positions. However this eventually turns out, the ultimate result is almost certain that gold and silver prices will climb far higher, perhaps multiples of current levels, within the next six months to two years.”
Editor’s note: Several clients have contacted us with questions on the new Basel 3 accords implementation. This analysis from Patrick Heller, published originally at Numismatic News, is a compelling and very readable interpretation of Basel 3’s potential impact on the precious metals market – in fact, the most clearly written we have seen thus far on this complicated subject matter. It is difficult to know if the Basel Committee on Banking Supervision will implement the accord, particularly when one considers, as Heller points out, the negative impact it is likely to have on some large and influential international financial institutions. At the same time, one would think that by now, its net effects on the banking industry would be well understood and factored into the equation. We are still a month away from implementation, we caution, and anything could happen. Heller, as you are about to read, believes that its implementation would have a significant impact on gold and silver prices. We recall the signing of the Central Bank Agreement in 1999 and the subsequent impact it had on the market. Many analysts credit the signing of that agreement, which limited central banks’ sales and leasing of gold, with laying the groundwork for its secular bull market beginning a few years later. Whether or not Basel 3 will have the same impact remains to be seen, but the implications, as Heller describes them, are intriguing.
The red-hot commodity market is being underappreciated in the long term by investors still obsessed with stocks, JPMorgan says
Repost from 5-17-2021
“Commodity prices have been surging in recent months as pent-up demand from consumers amid a reopened economy, combined with supply chain imbalances, created a perfect storm. With inflation on the rise, investors should look to increase their commodity exposure as a hedge, according to a Wednesday note from JPMorgan.”
USAGOLD note: Though commodities have done well over the past year, they are still quite a distance from trading ranges a decade ago – an indicator of the potential upside still remaining. Of the primary precious metals, silver stands the best chance of joining the commodities’ party due to its many industrial uses, particularly green applications favored by the Biden administration. The chart below is illustrative in that regard.
Chart courtesy of TradingEconomics.com
Repost from 4-6-2021
“Two diverging schools of macro thoughts are prevalent today. One calls for a ‘Roaring 20s’ redux while the other believes in a forthcoming liquidity crisis. Both narratives have valid points and flaws. To be clear, we find ourselves right in between the two.”
USAGOLD note: Smith and Costa take a deep dive into the inflation-deflation debate. We referenced this report in yesterday’s DMR and repost it here for those who may have missed it. Smith and Costa advocate outright precious metals ownership and selected gold stocks.
Repost from 5-13-2021
“The shortfall so far this year is 30.3% higher than the $1.48 trillion deficit run up over the same period a year ago, the Treasury Department said Wednesday in its monthly budget report.”
USAGOLD note: The Biden Administration would have us believe that this is not a problem. In 2020 (calendar year), the government spent a little over $6 trillion with revenue of just over $2 trillion. The difference was borrowed.
Sources: St. Louis Federal Reserve [FRED], U.S. Bureau of Economic Analysis
Gold continues impressive spring offensive
U.S. businesses brace for forecasted ‘summer of Inflation’
(USAGOLD – 5/17/2021) – Gold continued its impressive spring offensive this morning, signaling that there is something more to the rising numbers than rallies of the recent past. Notably, that something – with the yellow metal posting a gain for its seventh straight day – is increased inflation expectations. Financial Times made note this morning of the potential for a “summer of inflation” in the United States pushed by labor shortages, consumer spending, supply chain bottlenecks, and growing concern in corporate America about keeping a lid on costs. Gold is up another $10 this morning at $1889. Silver is up 22¢ at $28.07. As we close out the week, gold is up 6% over the past thirty days. Silver, continuing to outperform gold, is up 8% over the same period.
Commodity analyst Andrew Hecht who once structured one of the largest silver bullion positions on record while at Wall Street’s Salomon Brothers, characterizes silver’s price action since the beginning of the year as a rubber band stretched to its limit. “When it snaps,” he says, “watch out, the move could be extraordinary.” In an analysis posted at Seeking Alpha, he says, “[It] has a lot more going for it in 2021 at over $25 per ounce than it did in 1995 at the $5 level…Silver’s consolidation period and tightening price ranges could be the prelude to a new record high above the 1980 $50.36 peak in the COMEX futures market.”
Chart of the Day
The inflation-adjusted price of silver
(Based on the Bureau of Labor Consumer Price Index, 1970 to present)
Chart courtesy of Macrotrends.net
Chart note: “If we account for inflation,” writes analyst Peter Krauth in a piece posted recently at the FXEmpire website, “and that’s massively understated ‘official inflation,’ then silver prices peaked at $120 in 1980 and around $57 in 2011. Today’s price near $24 is still well below those levels, suggesting a lot of upside remains ahead. In fact, at $24 today versus the inflation-adjusted $120 in 1980, silver is currently about 80% below that peak.” He believes “$100 silver is well within reach.”
“Summers said monetary and fiscal policymakers had ‘underestimated the risks, very substantially, both to financial stability as well as to conventional inflation of protracted extremely low interest rates.'”
USAGOLD note: As we remarked about a week ago, Summers is off the Democrat reservation on economic policy. With these criticisms, he ups the ante and becomes the Biden administration’s biggest critic. Leaving aside his Democrat credentials, his strident warnings are something to consider given his prior service as an economic advisor to presidents and a former Secretary of the Treasury. He foresees real damage to financial stability once the Fed is forced to abandon its current easy money policies.
“In inflation, as in many other areas of economic life, perceptions can form reality, and that is certainly true of inflation. That is why the Federal Reserve wants to see expectations ‘well-anchored.'”
USAGOLD note: The Fed will make every attempt to control the narrative on inflation, but it cannot control what people think and how they react financially and economically to their perceptions – and that includes money managers as well as consumers. The price of gold was jolted back to life along about the time inflation psychology suffered the same fate.