Monthly Archives: July 2021
Repost from 7-26-2021
“So, has the Fed now adopted a hawkish stance? Should markets be spooked? At WisdomTree, we don’t think so. What the central bank has done amounts to forward guidance, a mechanism for managing market expectations. This was extremely important for the Fed to do to maintain its focus on stabilising prices and maximizing employment without risking becoming the cause for major market volatility. Monetary accommodation from the central bank remains at crisis levels – something that is no longer required for an economy that is starting to find its footing.”
USAGOLD note: Gold rallies often come suddenly, sometimes seemingly without cause, and quite often when sentiment has ebbed to its lowest. As we often say, the best time to buy precious metals is when everything is quiet, i.e., time like now. “Gold’s price decline following the central bank’s latest meeting,” says Wisdom Tree, “may seem like an overreaction in hindsight.”
Repost from 7-26-2021
“UBS found 57% of U.S. investors believe inflation will accelerate over the next 12 months — a higher percentage than any other region. The Swiss bank probed 2,999 investors with at least $1 million of investible assets, conducting its survey globally from June 23 to July 12, according to its statement Wednesday.”
USAGOLD note: UBS cited precious metals as one of the alternatives likely to benefit from investor inflation concerns.
Repost from 6-11-2021
“Everyone had an inflation scare marked in their diaries for about now. Few can have reckoned on the scare dissipating in markets just as the inflation numbers came through on cue and higher than expected. Headline inflation has reached 5% for only the second time in 30 years. It had only been higher during the oil spike of 2008.”
USAGOLD note: Authers says that the market reaction to inflation is alarming given the real rate of return has collapsed to a negative 3.7% – the worst since the 1970s. Are the declining yields the work of investors or the Fed? If it is the Fed, the sovereign debt is being monetized – a prescription for even more inflation down the road.……”Pay no attention to that man behind the curtain.”
Repost from 6-14-2021
“We ended yesterday’s Diary with a question: Who will tame inflation this time? You already know the answer, don’t you, Dear Reader? No one. It’s too late for that. Too many businesses… households… and the government itself depend on “printing press money.” Too many economists, investors, politicians, and policymakers have forgotten how inflation works. They think it stimulates the economy. And today, the costs of tapering off the Federal Reserve’s crackpot policies are far too high.”
USAGOLD note: Bonner says we aren’t going to see any Reagans or Volckers, but we will see Connallys “aplenty.” That is just another way of saying we have a long way to go on the inflation track without much in the way of a deterrent. As Secretary of the Treasury under Richard Nixon, John B. Connally presided over the devaluation of the dollar, severing the link between the dollar and gold thus launching the fiat money system, and price controls as a means to fighting inflation. He famously told European finance ministers in 1971 that the dollar is “our currency, but your problem.”
When paper money dies, precious metals prevail.
The lessons learned from the nightmare German hyperinflation of 1923
“They’ll print money until they run out of trees.”
Jim Rogers, investor and financial commentator
Not many investors are seriously concerned about hyperinflation in the United States at this juncture. At USAGOLD, we, too, see it as an outlier – something that could happen but not a probability. But that’s the thing about hyperinflations. Rarely does the handwriting appear unmistakably on the wall. Not many were worried about hyperinflation in Germany in 1923 when it struck out of the clear blue. When disaster did strike, however, it came with a vengeance. Prices shot up in 1921. Then just as quickly – within the space of a year – they ran out of control. By 1923, an individual’s life savings could not purchase a cup of coffee. We ran into the following charts researching another matter at the GoldChartsRUs website. The one unsettling aspect they all have in common is their verticality – an indication of how quickly and conclusively the inflationary catastrophe swept through the German economy.
The first and second charts reflect the severe debasement of the German mark at the time. The third and fourth show how gold and silver performed as a hedge. In effect, what could have been purchased with an ounce of gold or silver before the debacle, could have been purchased at any time as it worsened and finally when it ended a few years later. Few, as stated above, predict an inflationary disaster on the level of the Weimar Republic. Still, it is good to know that by preparing for the lesser version of inflation, one prepares for the nastier versions as well.
Charts courtesy of GoldChartsRUs • • • Click to enlarge
Image (top): Paper German marks converted to notepad, 1920s Weimar Republic. Attribution/ Bundesarchiv, Bild 102-00193 / CC-BY-SA 3.0, CC BY-SA 3.0 DE <https://creativecommons.org/licenses/by-sa/3.0/de/deed.en>, via Wikimedia Commons
No DMR today 8/2/2021
Gold takes a breather after yesterday’s solid gains
Hecht says silver could be setting up for a repeat of 2020’s explosive rally
(USAGOLD – 7/30/2021) – Gold looks to be taking a breather after yesterday’s solid gains. It is down $2 at $1827.50. Silver is down 4¢ at $25.55. The yellow metal is up 4% on the month and 1.75% on the week. Silver is down 1.3% for the month of July, but up 1.3% on the week. Silver’s snapback performance yesterday after its unexpected steep decline Wednesday is a reminder of the metal’s volatility. Commodity analyst Andrew Hecht, whose experience in the silver market stretches back to the 1970s as a trader with Salomon Brothers, is well aware of the metal’s long history of radical ups and downs.
“Silver volatility,” he writes in a recent Seeking Alpha article, “can be explosive. Meanwhile, the price action can also be coma-like, lulling market participants into a false sense of security for long periods. Silver’s history is full of false technical breakouts and breakdowns…Silver is a unique metal as it is part industrial, part investment asset. It experiences long periods of coma-like price action, but when it moves, as the price did not 2020, few commodities compare to the precious metal when it comes to percentage moves.” Hecht reminds readers of silver’s performance in 2020 when “bearish price action gave way to an explosive rally.” (Silver went from the $12 level in March to $29 by early August.) He goes on to say that “[t]he recent price dynamics could be setting up for a repeat performance given the rising level of inflation across all markets.”
Chart of the Day
Silver Volatility Index
Sources: St. Louis Federal Reserve [FRED], Chicago Board Options Exchange
Chart note: Please see today’s Daily Market Report for long-time silver trader Andrew Hecht’s comments on the metal’s volatility.
“The term shrinkflation, is credited to British economist Pippa Malmgren, and refers to the shrinking weight of the products while the price for the package remains the same. This is in effect another form of inflation, since the per unit price of goods increases when products shrink. However, shrinkflation is trickier, since most consumers do not notice it (see here for a few examples of shrinkflation). Shrinkflation is an ongoing process, but we are seeing more of it in the past year, and especially the first half of 2021, as businesses scramble to catch up with increasing costs of production.”
USAGOLD note: Not all the forms of inflation are obvious. Bregu says business is only doing what it must in shrinking content and puts the blame for inflation on the government and the central bank for simply printing too much money. It all reduces to the currency losing its purchasing power, no matter how that reduction is expressed in the marketplace.
“A ‘hands-off’ policy is a short-term friend to finance until it isn’t, whereas a ‘hands-on’ is a long-term friend as it attempts to limit the scale of the inflation cycle. Greenspan’s “hands-on” policy worked, and early results indicate Powell’s “hands-off” isn’t. How long will it take before investors realize Powell will eventually need to follow Greenspan’s plan?”
USAGOLD note: Such thinking will figure largely within the Biden administration as it contemplates who will chair the Fed come February of next year. The White House will be heavily in favor of the “hands off” approach and will worry about Powell, a Republican, changing course if/when he is reappointed. Lael Brainard, often touted as the most likely alternative, favors the progressive agenda embraced by the Biden White House.
Repost from 7-23-2021
“Grantham said he received a lot of hate from market bulls following the publication of his investor letter in January, which called bubbles in a number of financial sectors. His opinion has only grown stronger since, however.”
USAGOLD note: Grantham goes on to say that bubbles are “easy to see” but forecasting when the bust will come is “trickier.” Another tricky aspect of a bubble scenario is figuring out the best place to park capital in the event of a bust. In an inflationary environment, cash and bonds do not make a lot of sense. There is one candidate, though, that has not reached bubble proportions, a sitting bull, if you will, i.e., the precious metals.
Repost from 6-10-2021
“Move over Larry Summers. Former Bank of England Governor Mark Carney indicated Monday he is in the camp of economists worried about an outbreak of higher inflation.”
USAGOLD note: With the warnings coming almost daily from analysts, like Carney, with lofty credentials, it’s a wonder the price of gold and silver are where they are – and not significantly higher.
Repost from 6-8-2021
“There is an old saying that investors shouldn’t fight the Fed. It is equally true that the Fed shouldn’t fight economic reality.
USAGOLD note: David Kelly, chief global strategist at J.P. Morgan, says the Fed needs to rein it in – that its “super-easy money policy is just asking for trouble.” If it doesn’t, it risks a boom-bust scenario when the Fed is forced to tighten “triggering an asset price crash and a recession.”
The gift of gold, in short, is ……
Dr. Moneywise says: Gold has a past. I suspect it has a future. We live in a time when currencies and financial markets have become political enterprises – creations of the world’s governments and central banks. Since we have never seen times like these, when so much depends on the monetary largesse of the policy-makers, no one really knows where the future might lead us. Uncertainty reigns and, when that is the case, history teaches us that gold demand rises proportionally and at times impressively so.
Playwright and philosopher George Bernard Shaw once wrote, “You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”
Whether or not gold is the best basis for money may be a debatable point. On the other hand, whether or not private investors should own it because the money is not gold-backed remains a vital question. The gift of gold – the one passed from generation to generation and from ancient times to present – is the protection it affords against profligate governments, an unpredictable economy, unstable financial markets, and a myriad of additional threats to private wealth. The gift of gold, in short, is peace of mind.
Repost from 7-23-2021
“Analysts at Goldman Sachs expect commodities to “rebound sharply” following their recent sell-offs while targeting gold to reach $2000 over the coming months… Do not expect widespread lockdowns.”
USAGOLD note: Goldman sees gold rising in a general commodities rally.
Precious metals show signs of emerging from their summertime impasse
Napier says he is ‘very bullish on gold’ as we enter a new era of financial repression
(USAGOLD – 7/29/2021) – Precious metals showed signs of emerging from their summertime impasse this morning. Gold is up $18.50 at $1827. Silver moved aggressively higher gaining 60¢ at $25.62. The upswing began overnight in Asia and gained pace during European trading hours as Investors factored in the Fed’s decision to stay the course on monetary policy and leave tapering at the discussion level. The dollar slid and bond yields firmed. Russell Napier, the financial strategist who presciently warned of inflation’s return about a year ago, believes that we are entering an era of “financial repression” when policymakers will keep interest rates below the inflation rate to relieve the massive global debt burden.
“I’m very bullish on gold,” he says in an interview published at TheMarketNZZ. “The problem for gold in the last year was that interest rates have gone up, because people still believe there will be a link between inflation and interest rates. If people believe there will be inflation at 4%, they will say interest rates will ultimately be at 5 or 6%, hence they don’t want to own gold. It’s only when they begin to realize that that link is broken, that the gold price will lift off.”
Chart of the Day
Gold vs Dow Jones Industrial Average
(1970-1979, in percent)
Chart courtesy of MacroTrends.net • • • Click to enlarge
Chart note: “How did [the late 1960s] end?” asks ZeroHedge’s Tyler Durden in a recent post, “Unhappily, as the value bull of 1968 (comparable to the first half of 2021) was followed by the volatile bear of 1969… which then was followed by the 1970s – the decade when the US almost succumbed to hyperinflation and only 20% interest rates courtesy of Paul Volcker prevented the premature collapse of the American empire.” If the 1970s were the inflationary main event, the late 1960s were the warm-up act – an indication of, and laying the groundwork for, things to come. We sometimes overlook the fact that stocks peaked right about then. Nearly twenty years of sideways to down action followed. As we pointed out in the past, stocks started and ended the 1970s at 1000 while inflation, as Durden points out, raged and gold rose almost 1800%.
“Why own gold? Because it makes sense, within a properly diversified portfolio, to have portfolio insurance. If you own a home, it makes sense to have fire insurance. Your investments are no different. And gold is now back, more relevant than ever. Since the start of the millennium gold, as expressed across a wide variety of currencies, has generated average annualised returns of over 9%.”
Repost from 7-23-2021
“Senate Minority Leader Mitch McConnell is taking a very hard line on the debt ceiling. His message — if Senate Democrats want to raise the debt ceiling, they’re going to have to do it themselves because no Republicans will vote for it in the current ‘environment’ on Capitol Hill.”
USAGOLD note: Though somehow, someway Congress always gets the debt ceiling passed, this time around things could get dicey given the extraordinary level of government spending over the past 18 months. The Republicans appear to be intent on sending a message to the Biden administration. “I can’t imagine a single Republican in this environment that we’re in now,” says McConnell in a strongly worded statement, “– this free-for-all for taxes and spending — to vote to raise the debt limit.” Back in 2011, when the debt ceiling became a major point of contention in Congress, Standard & Poor’s downgraded the U.S. credit rating from AAA to AA+. A similar event could generate an earthquake in the already shaky bond market.
Repost from 7-22-2021
“Gold is an increasingly important asset for European pension funds, with new research showing many funds intend to increase their holdings of the yellow metal in the coming months.”
USAGOLD note: There was a time, not that long ago, when investing in gold would have been unheard of among pension fund managers. Now, 73% say “it offers increasingly attractive diversification benefits.” Pension funds globally, we will add, have considerable assets to hedge – over $50 trillion (2019), according to Statista.
Total assets of pension funds worldwide
(trillions of dollars)
Chart courtesy of Statista.com
Repost from 6-8-2021
“The struggle against gold, which is one of the main concerns of all contemporary governments, must not be looked upon as an isolated phenomenon. It is but one item in the gigantic process of destruction that is the mark of our time. People fight the gold standard because they want to substitute national autarky for free trade, war for peace, totalitarian government omnipotence for liberty.”
USAGOLD note: This article is excerpted from von Mises’ Human Action published in 1949. It is a refutation of John Maynard Keynes’ reference to the gold standard in 1944 as a “barbarous relic” and one of the most concise, realistic and principled available even now over seventy years later. It is unlikely we will ever go back to the gold standard. Such is the stuff of dreams, but if we have learned anything at all during the last fifty years of the fiat money system, it is that gold has proven to be an adequate and reliable hedge against its excesses.
Repost from 6-7-2021
“‘We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,’ she said. ‘We want them to go back to’ a normal environment, ‘and if this helps a little bit to alleviate things then that’s not a bad thing — that’s a good thing.’”
USAGOLD note: The Biden administration and the Fed want a new “new normal” that is an upgrade from the old new normal which was actually secular stagnation. At no time, though, did she mention allowing the real rate of return to go positive or that the Fed would quit printing money being applied to the federal government’s financing needs. With the statement, Yellen identifies the elephant in the room – the Japanification of the United States.