Monthly Archives: June 2021
Repost from 5-15-2021
Cartoon courtesy of MichaelPRamirez.com
“If we’re going to monetize our debt and we’re going to enable more and more of this spending, that’s why I’m worried now for the first time that within 15 years we lose reserve currency status and of course all the unbelievable benefits that have accrued with it.” – Stanley Druckenmiller
USAGOLD note: Druckenmiller offers a reminder of what’s at stake in the monetary regime structured by Biden-Powell-Yellen – the three amigos of easy money. The Ramirez cartoon is an effective representation of what is happening in Washington these days.
Repost from 5-16-2021
“The Dutch pension fund for specialty chemicals firm DSM has made a 5% investment in physical gold because of its diversification benefits, it claimed. The investment in the precious metal, which started October 2020, was the result of a reduction in the fund’s exposure to government bonds by 10 percentage points because of a negative expected return on the asset class. It has invested half of the proceeds in gold, and the remainer in equities, real estate and infrastructure, the fund announced.”
USAGOLD note: Things have been relatively quiet on the pension front of late with respect to gold, but then again not everything that occurs reaches headline status. DSM’s gold investment amounts to €386 million, or slightly more than 257,000 troy ounces (eight metric tonnes). The purchase points up once again the purchasing power pension funds can bring to the table when they decide to invest in gold. To put DSM’s purchase into perspective India recently purchased 18 tonnes of gold in the first quarter 2021. Hungary’s much-ballyhooed central bank purchase in March amounted to 63 metric tonnes. DSM, by contrast, is just one pension fund among thousands with similar capabilities.
Repost from 5-17-2021
“A year ago, as the pandemic ravaged country after country and economies shuddered, consumers were the ones panic-buying. Today, on the rebound, it’s companies furiously trying to stock up.”
USAGOLD note: Somebody called it the perfect storm. Demand accelerates. Supply decelerates. Inflation proliferates.
Repost from 6-25-2021
“Central banks have intensified their criticism of cryptocurrencies as battle over the monetary system escalates, arguing that digital tokens such as bitcoin have few redeeming features and ‘work against the public good.'”
USAGOLD note: A gale-force headwind for crypto orchestrated by the Bank for International Settlements and one the central banks have the capability to fully deploy as representations of the national currency ……
Repost from 6/24/2021
“Dalio, speaking in a conversation with economist and former Treasury Secretary Lawrence Summers at the Qatar Economic Forum, warned that it will be difficult to avoid an overheating of ‘monetary inflation’ due to a flood of bond issuance.”
USAGOLD note: The Fed is between the proverbial rock and hard place with more jawboning probably its best option. For its part, the Biden administration looks to have situated itself to the left of the Carter administration when it comes to fiscal policy. To say the Washington mix is volatile might be to understate the situation. The chart below shows in the aggregate the amount of federal debt monetized by the Federal Reserve. It stands at a little over $5 trillion and a level not even remotely associated with anything assumed previously. Capital, Dalio suggests, might flow in the direction of China and other markets.
Sources: St. Louis Federal Reserve [FRED], Board of Governors of the Federal Reserve System
Gold marginally lower in quiet pre-holiday trading
Rickards sees disinflation, even deflation, on the horizon – gold at ‘great entry price’
(USAGOLD – 6/30/2021) – Gold pushed marginally lower in quiet pre-holiday trading. It is down $2 at $1761. Silver is up 12¢ at $25.94. The dollar and bond yields are steady ahead of Friday’s non-farm payrolls report. While the bulk of analysts have queued up to predict inflation – even runaway inflation – James Rickards has stubbornly stuck to his forecast that more disinflation, even deflation, is in the cards.
“The bond market is signaling that the inflation narrative is wrong,” he says in an analysis published at the Daily Reckoning website. “Gold is saying the same thing … Again, gold is signaling that the narrative is wrong, growth is slowing, and rates are coming down. That makes gold more attractive to asset allocators because gold competes with notes for investor dollars. Stocks are forward-looking in theory, but they do an awful job of getting the forecast right in practice. Stocks missed the coming crashes of 2000, 2007 and 2020. They’ll miss the next crash too (until it’s too late to get out whole). Bonds and gold are much better indicators of where the economy is going. The signals are clear. The economy is slowing, labor markets are weak, disinflation and even deflation are on the horizon, rates are going down, and gold prices are at a great entry price.”
Chart of the Day
Chart note: If Rickards is right that we are headed for another round of disinflation, rather than the burst of inflation many predict, history shows gold to still be an effective hedge. During disinflationary periods, investor concerns migrate from the value of the money to the stability of the financial system, as was the case from 2008 to 2011 when the gold price went up 2.5 times.
“The current combination of monetary debasement, populism and social unrest is neither a new phenomenon nor a coincidence. The late Roman empire shaved silver coins as it disintegrated; Henry VIII replaced silver coins with copper to pay for wars against France and Scotland; the British empire allowed double-digit inflation to erode bondholders’ wealth following the War of Independence; the Weimar Republic precipitated an inflation spiral. Comparing these examples to QE may sound extreme. Yet the biggest debasement in history may be the one we are experiencing now under the form of a $20tn central bank experiment, which is de facto depreciating money by boosting the price of all assets it can buy.”
Short and Sweet
Worry about the return ‘of’ your money,
not just the return ‘on’ it
There is an old saying among veteran investors to worry not just about the return on your money, but the return of your money. In the wealth game, emphasize defense when you need to, offense when it makes sense. At all times, remain diversified. And by that, we mean real diversification in the form of physical gold and silver coins and/or bullion outside the current fiat money system – not just an assortment of stocks and bonds denominated in the domestic currency. Keep in mind – if the currency erodes in value, the underlying value of those assets erodes along with it. A proper, genuine diversification addresses that problem now and in the future.
Repost from 6-24-2021
“From $35 per barrel to $130 per barrel—this is the range for oil prices in the next few years that we could see, according to a commodity trading group. And it will all depend on what peaks first: demand or investment in new production. ‘You could see spikes to even higher than $100 a barrel, even $130, and you could also see it go down to $35 a barrel for periods of time going forward,’ William Reed II, chief executive of Castleton Commodities International, said at the FT Global Commodities Summit this week, as quoted by Reuters. ‘The question is what happens first. Peak demand or peak investment?'”
USAGOLD note: Over the last several months, silver – for green reasons – was identified as “the new oil.” Then copper with its strong price performance became “the new oil.” What if it turns out, after all is said and done, that oil is “the new oil?” Its price performance of late has been one of the big surprises in investment markets.
Repost from 5-8-2021
“‘They have no intrinsic value,’ Bailey said at a press conference. ‘That doesn’t mean to say people don’t put value on them, because they can have extrinsic value. But they have no intrinsic value…I’m going to say this very bluntly again. Buy them only if you’re prepared to lose all your money. I’m afraid currency and crypto are two words that don’t go together for me.’”
USAGOLD note: From what we gather in conversations with our clientele, not many have much of an interest in cryptocurrencies beyond their speculative allure. Nevertheless, we pass along Bailey’s remarks as a matter of interest.
Repost from 5-13-2021
“A growing deflationary hurricane is churning off the coast. At the same time, a massive inflationary warm front is surging toward us, threatening inflation like we have not seen in forty years. As if forecasting future economic conditions was not tricky enough, both systems are being fueled in unknown ways by the convergence of historical amounts of monetary and fiscal stimulus. The two ominous and encroaching weather systems make economic and market forecasting extremely difficult.”
USAGOLD note: Lebowitz does not mention gold in this analysis. We observe, though, that the greater the difficulty in predicting an economic outcome, the more important gold and silver become.
Repost from 6-23-2021
“So, odds are great gold will soon bounce sharply higher as speculators’ kneejerk gold-futures purging quickly exhausts itself. Like Powell himself often warns, the dot plot has proven notoriously inaccurate at forecasting future federal-funds-rate levels. 2023 is still years away, and the FOMC lacks the courage to hike rates anyway if that drives major stock-market selloffs. That’s a serious risk with today’s bubble valuations!
And since that March 2020 stock panic, the Fed has frantically printed trillions of dollars of new money to stave off a depression-triggering serious stock bear. In only 15.0 months since the Fed’s balance sheet has mushroomed a staggering 84.4% or $3,640b! This profligate Fed has nearly doubled the US-dollar supply, which is why price inflation is soaring everywhere. That is really bullish for gold prices going forward.”
USAGOLD note: Last week’s downside reaction in the gold market was “ridiculous,” says Hamilton, while the monetary excesses of the Fed is “gold-rocket-fuel.” The article is lengthy but well worth the time spent – at the link above.
Gold in the Attic
Every once in a while we rummage around USAGOLD’s creaky old attic and dust-off a golden vignette from our storied past. Most first appeared in our monthly client letter, but this one comes from the first chapter of The ABCs of Gold Investing – How To Protect and Build Your Wealth With Gold by USAGOLD’s founder Michael J. Kosares. First published in 1996, it is a timeless story about gold’s ultimate value ……
Why Americans need gold
“The possession of gold has ruined fewer men than the lack of it.”
Thomas Bailey Aldrich
The incident is one of the most memorable of my career. Never before or since has the value of gold in preserving assets been made so abundantly clear to me. It was the mid-1970s. The United States was finally extricating itself from the conflict in South Vietnam. Thousands of South Vietnamese had fled their embattled homeland rather than face the vengeance of the rapidly advancing Communist forces.
A couple from South Vietnam who had been part of that exodus sat across from me in my Denver office. They had come to sell their gold. In broken English, the man told me the story of how he and his wife had escaped the fall of Saigon and certain reprisal by North Vietnamese troops. They got out with nothing more than a few personal belongings and the small cache of gold he now spread before me on my desk. His eyes widened as he explained why they were lucky to have survived those last fearful days of the South Vietnamese Republic. They had scrambled onto a fishing boat and had sailed into the South China Sea, where the U.S. Navy rescued them. These were Vietnamese “boat people,” survivors of the final chapter in the tragedy of Indochina. Now they were about to redeem their life savings in gold so that they could start a new business in the United States.
Their gold wrapped in rice paper was a type called Kim Thanh. These are the commonly traded units in Hong Kong and throughout the Far East. Kim Thanh weigh about 1.2 troy ounces, or a tael, as it is called in the Orient. They look like thick gold leaf rectangles 3 to 4 inches long, 11⁄2 to 2 inches wide, and a few millimeters deep. Kim Thanh are embossed with Oriental characters describing weight and purity. As a gesture to the Occident, they are stamped in the center with the words OR PUR, “pure gold.”
It wasn’t much gold—about 30 ounces—but it might as well have been a ton. The couple considered themselves very fortunate to have escaped with this small hoard of gold. They thanked me profusely for buying it. As we talked about Vietnam and their future in the United States, I couldn’t help but become caught up in their enthusiasm for the future. These resilient, hardworking, thrifty people now had a new lease on life. When they left my office that day, there was little doubt in my mind that they would be successful in their new life. It was rewarding to know that gold could do this for them. It was satisfying to know that I had helped them in this small way.
I kept those golden Kim Thanh for many years. They became something of a symbol for me—a reminder of the power and importance of gold. Today, when economic and financial problems have begun to signal deeper, more fundamental concerns for the United States, I still remember that Vietnamese couple and how important gold can be to a family’s future. Had the couple escaped with South Vietnamese paper money instead of gold, I could have done nothing for them. There was no exchange rate for the South Vietnamese currency because there was no longer a South Vietnam! Wisely, they had converted their savings to gold long before the helicopters lifted U.S. diplomats off the roof of the American Embassy in 1975.
Over the years, I have come to understand and appreciate the many important uses of gold—artistic, cultural, economic, and industrial. Gold is unsurpassed for jewelry and as a high-tech conductor of electricity. Gold has medical applications in dentistry and in treating diseases from arthritis to cancer. Gold plating is used in computers and in many other information-age technologies. In nanotechnology, it is used in a variety of cutting-edge medical diagnostic devices. As for its engineering uses, gold can be found in automobile anti-pollution devices, in jet engines, in architectural glass, and in a number of space applications. All of these pale, though, when compared to gold’s ancient function as money, as an asset of last resort and an unequaled store of value.
– Michael J. Kosares
We may post an update later today.
“Carrasco is in the camp that sees many people underestimate the impact of Basel III on the gold market. ‘Basel III will affect the gold price more than many people believe. The spot price will definitely go up,’ Carrasco told Kitco News.”
USAGOLD note 1: Opinion runs the gamut on Basel 3’s impact on gold – from non-event to significant price run-up. Carrasco makes a detailed case for a robust positive price response at the link above. It isn’t easy to know what the outcome will be for gold and silver from our perspective. On the one hand, there is the question why the central bank of central banks (the Bank for International Settlements) would do anything to destabilize the banking system, an unintended result Basel 3 is capable of delivering. On the other hand, the whole intent of Basel 3 is to eliminate leveraged risk in the banking system before it presents a problem.
USAGOLD note 2: Perhaps the authorities believe the downside is manageable, but that is not to say the gold price would stay in check as bullion banks reconcile unallocated gold accounts. In fact, it could encourage the response Carrasco envisions – a significant increase in the demand for physical bullion. That, in turn, is a strong argument for safe-haven gold investors to concentrate on owning the metal in physical form, that is, gold coins and bullion rather than the non-deliverable alternatives.
“Sometimes I wonder if the world as we knew it really did end in December 2012 as so many mystics, psychics and psychonauts predicted. Not in a nuclear holocaust or giant meteor obviously, but in the beginning of an unravelling of the glue that holds human behavior patterns in place. There certainly hasn’t been a normal US presidential election since that date, and there doesn’t seem to be one on the horizon in the foreseeable future. Things have been getting stranger and stranger ever since, and this trend appears to be accelerating rather than slowing down. Things are weird, and they’re only going to keep getting weirder. Buckle up, buttercup.”
Repost from 6-22-2021
“The selloff was ‘bewildering’ and a downright overreaction given the long runway until the first potential rate hike in 2023 and the unreliability of dot plots as a predictor, said Jack Janasiewicz, portfolio manager and strategist at Natixis, which has more than $1 trillion under management.”
USAGOLD note: The long runway allusion is appropriate and much can happen before the jumbo jet American economy actually does become airborne. The Fed is a juggler with a lot of pins in the air. Some could drop. it could end up with more. That, in a nutshell, is why the Fed chairman is playing his cards close to his vest.
Repost from 6-26-2021
“Was a ton of vanished Union gold stolen by a secret group of Confederate sympathizers and hidden in a rural Pennsylvania cave at the height of the Civil War?”
USAGOLD note: Fascinating story to start the week ……
Repost from 6-23-2021
“According to Oliver, since mid-2018, gold has gone from $1160 to $2000 and has done so without the help of weak stock markets. Now the dollar is turning downwards while markets are at highs. Big investors seem to be moving assets into different sectors, and soon we may see a violent rebalancing. He discusses how silver broke one of their momentum oscillators last year, afterward, moved rapidly to near $30. This next move could easily be eightfold. As such silver is now poised to outperform gold.”
USAGOLD note: Longtime visitors to this page know we greatly value Oliver’s analysis. This interview is worth a listen. He says gold and silver will outperform the rest of the commodities complex and that silver will continue to outperform gold. He says he wouldn’t be surprised if silver went to $200 per ounce.
Repost from 4-2-2021
“The mighty US dollar continues to reign supreme in global markets. But the greenback’s dominance may well be more fragile than it appears, because expected future changes in China’s exchange-rate regime are likely to trigger a significant shift in the international monetary order.”
USAGOLD note: Rogoff sees the dollar’s exorbitant privilege unravelling and finally ending. Concurrently, he sees the yuan gaining ground, particularly in Asia, as a rival reserve currency. “Modernization of China’s exchange-rate arrangements,” he says, “could deal the dollar’s status a painful blow.” One would think that gold is likely to play a strong role in any Asian currency regime given the cultural attachment throughout Asia, China’s huge gold reserve in addition to its place as the world’s top gold producer, and the lack of any clear alternative as the ultimate store of value.