Monthly Archives: August 2021
“Sales of gold bracelets, pendants, earrings and necklaces that draw on dragons, phoenixes, peonies and other traditional Chinese patterns and symbols are flying among consumers, especially those in their 20s and 30s …”
USAGOLD note: Gold jewelry in Asia has always been tied to security and wealth preservation. China traditionally has a cultural affinity for gold, as well. The two are tied together in the Chinese mindset. The World Gold Council’s Roland Wang is quoted in this article as saying: “They [China’s millennials] want to have more traditional Chinese culture in their daily life, which can be represented through what they wear or how they decorate their home … Heritage gold can deliver this.”
Repost from 8-26-2021
“Well, slower economic growth and higher inflation due to the spread of the Delta variant are good news for gold. It brings us closer to a stagflationary environment, which should be welcomed by the yellow metal. Although gold doesn’t always protect against inflation, it served as a good inflation hedge during the 1970s, so we could reasonably expect similar performance during the potential 2020s stagflation.”
USAGOLD note: Sieron offers the same historical analogy we have since burgeoning stagflation became a general concern over the past several weeks: Gold performed well during the last stagflation in the 1970s. Stocks, we will add, were a non-starter finishing the decade about where they started.
Gold, silver, and stocks
(1970s, in percent)
Chart courtesy of TradingView.com • • • Click to enlarge
Repost from 7-14-2021
“He’s right in thinking that for gold to soar into the stratosphere, it will take a catalyst that implies a major worldwide change. Where we disagree is that I believe such a catalyst isn’t far off. The one I’ve focused on is a new reserve currency based on gold.”
USAGOLD note: Leeb goes on from there to tell why he believes a new reserve currency is inevitable – one backed by gold. The clear message, he concludes in a lengthy analysis, is to “buy as much gold as you can.”
Repost from 7-15-2021
“Silver tends to do well when there is a favorable environment for gold. Considering that the white metal has a historical volatility roughly double that of gold, and given that it is directionally synchronised, it should outperform gold into 2022. Indeed, this is exactly what has happened in a dramatic way since June 2020, as the gold-to-silver ratio fell by roughly half from the bad days of March 2020 to just 68 currently. Given our robust gold outlook and considering silver’s supply-demand fundamentals over the next few years, history tells us that silver still has plenty of relative value to recapture. TD Securities expects investors to favor silver for the same reasons as they do gold, but also desire it for its industrial bonafides.”
USAGOLD note: Malek goes on to say that “the investment community and traditional buyers of silver” bought 531 million ounces of silver in 2020 and will buy another 885 million ounces by the end of 2023. In other words, the torrid pace of investor interest in silver has not abated. It will be interesting to see how bar and coin premiums respond globally. Premiums zoomed higher beginning in 2020 and have not weakened in 2021. Premiums on the new American Silver Eagle are currently running at $10 to $12 over the melt value.
Repost from 8-25-2021
“The central banks are all plugging this ‘transitory’ inflation story – but I don’t think they particularly believe it. Producer and Consumer prices are all expected to edge higher. What are they trying to hide….? Inflation is also a long-term consequence. It has been very much present since 2010. It’s been hidden in financial assets – where the bulk of monetary creation has been hiding – till now. Now it is spreading into the real world.”
USAGOLD note: I like Blain’s use of the term “consequence” in the context of inflation. Cause and effect …… The serious steward of the well-balanced portfolio generally understands the true nature of cause and effect, particularly as it relates to the economy and financial markets, and does not always accept the standard, boiler-plate interpretation. That is why reading people like the sometimes irreverent Mr. Blain is important. He covers considerable territory in the here and now at the link above.
Short and Sweet
Novice precious metals owners must decide
where they stand on this important issue
“Precious metals are and always have been the ultimate insurance,” says Pro Aurum’s Robert Hartman in an interview with Claudio Grass. “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.”
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 precious metals as investment products, i.e., buy now and sell later when the time is right. The second sees gold and silver, like Hartmann, as insurance products 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. The novice precious metals owner must decide where he or she stands in this regard because it determines, in turn, which products to include in the portfolio and to what degree.
Gold inches higher on Powell carry-over from last week
Hedge fund impresario Paulson says ‘gold primed for its moment’
(USAGOLD – 8/31/2021) – Gold inched higher this morning as the positive effect from the Fed chairman’s dovish comments last Thursday carried over to the new week. A slightly weaker dollar is adding to the firmer tone. Gold is up $4 at $1815. Silver is up 8¢ at $24.14. As we close out August, gold looks to finish the month pretty much where it started, recovering the sharp losses from the flash crash earlier in the month. Silver, the more volatile of the monetary metals, is on course to settle the month down 5.3%.
John Paulson, the highly regarded hedge fund impresario, believes that because of rising inflation, gold “is primed for its moment.” In an interview with Bloomberg’s David Rubinstein, he pointed out that “gold does very well in times of inflation. The last time gold went parabolic was in the 1970s, when we had two years of double-digit inflation. The reason why gold goes parabolic is that basically there’s a very limited amount of investable gold. It’s on the order of several trillion dollars, while the total amount of financial assets is closer to $200 trillion. So as inflation picks up, people try and get out of fixed income. They try and get out of cash. And the logical place to go is gold.”
Chart of the Day
(1970 to June 2021)
Chart courtesy of Macrotrends.net • • • Click to enlarge
Chart note: The gold-silver ratio is on the rise and has gone from 65 to 1 in February to 75.24 to 1 now. Investors have been moving into physical silver consistently over the past several months, and that is why premiums on silver bullion coins have remained high. In a recent Casey Research publication, analyst Kris Sayce says, “The gold/silver ratio is a popular indicator among gold and silver investors…According to Medieval Monetary Problems: Bimetallism and Bullionism, published in 1983, the historical ratio (pre-20th century) varied between 9:1 and 14:1. That means one ounce of gold would be worth anywhere between nine and 14 ounces of silver.” At 75.24 to 1, there is considerable distance between the current ratio and the long-term historical norm.
“The shrewder speculators* became alarmed. They began to sell their shares of stock, and hoard in gold the enormous wealth they had acquired. This resulted in a demand on the government for metal in exchange for its paper, and soon the government had no metal to give. Then the crash came. Those who had the government paper could buy nothing with it. Those who held the Mississippi stock could scarce give it away. It was worthless. The government itself refused to accept its own paper for taxes. A few lucky speculators had made vast fortunes; but thousands of families, especially among the wealthier classes, were ruined.”
Edward S. Ellis and Charles F. Home
The Story of the Greatest Nations (1900)
* Please see this link for a summary of Law’s Mississippi Company land scheme.
Repost from 7-12-2021
“Much of the argument for higher imminent inflation, albeit not all of it, rests on the huge amounts of money that are currently burning a hole in the pockets of many Americans. The hope, which seems reasonable, is that they will rush to spend it once they have the chance. But that won’t necessarily happen.”
USAGOLD note 1: One of the major differences between the current pandemic and those of the past is the instantaneous flow of news and opinion via the internet. There has been an equally instantaneous ebb and flow in the market reaction to the pandemic’s economic implications – not all of it is based on rational thinking. Today’s reaction, though it is taken in some circles as the be-all, end-all, might not be the ultimate reaction. In short, in our view, the markets are still sorting things out. We will add that, during just the past week, it has begun to settle in that the economic ramifications of the pandemic (and its aftermath, if there is one) are still up in the air.
USAGOLD note 2: At a time, when no one really knows where this all ends, i.e., inflation, deflation, stagflation, disinflation, hyperinflation, does it not make sense to insulate one’s portfolio with an asset that protects against any of those ultimate scenarios? That said, for the more deeply curious, Authers lays out some interesting historical background at the link above.
Repost from 7-12-2021
“Finance has always been a crucial feature in the development of human civilizations, and it has been guided by freedom. It has spurred people, merchants and households, to borrow from the future to pay for something today. The first financial interactions were driven by the free will of people to develop financial contracts to liberate themselves from the slavery of time and the arbitrariness of rulers.”
USAGOLD note: Malinen offers an interesting and little known history of finance going all the way back to its very beginnings in third millennia BC Sumeria. “A likely first-ever personal loan was made in the mid-twenty-fourth century BCE in Ancient Mesopotamia,” he writes, “between Puzur-Eshtar and Ur-Garima for “40 grams of silver and 900 liters of barley”. The most intriguing point he makes, though, is that financial markets may have been the most important innovation of all time making possible all other innovations. It is interesting to note that silver constituted the first loan on record – a reminder of its 5000-year history as money and a final means of payment.
Image: Black and white photograph of a cuneiform tablet ca. 20-19th century B.C. documenting a loan of silver curated at the Metropolitan Museum of Art
Repost from 8-25-2021
“Nixon’s 1971 decision resulted in a widening wealth gap around the world, irresponsible government spending and asset prices that have gone stratospheric. Hong Kong’s economy remains threatened as long as our currency is pegged to the crumbling US dollar and there are no plans in place in case of a currency reset.”
USAGOLD note: Hong Kong’s government is called to task in this editorial for over-reliance on the U.S. dollar. “Eventually,” says Singh in this opinion piece, ” this house of cards will come down and be replaced by a new monetary system. Central banks and world leaders appear to be preparing for this inevitability.”
New smart money queues up in the gold market
First institutions and funds came over to gold’s corner, then central banks. Now, one of the more important stories in the gold investment arena as we begin 2021 is the developing interest among a whole new grouping of professional investors – pension funds, private wealth management, insurance companies, and sovereign wealth funds. “It’s a bit like what happened to big tech,” says highly respected economist Mohammed El-Erian. “People like [gold] because it’s defensive. People like it because it’s a reflation trade. People like it because it’s inflation protection. What we are starting to see with the narrative about gold is starting to be like the narrative about big tech. It gives you everything.” These groups bring considerable purchasing power and market savvy to the table. One immediate result might be more buying interest on price dips. Another might be a better blend of investment psychology and objectives that could have a settling effect on the market overall.
Gold starts the week on a subdued note after Friday’s sharp advance
Mobius says 10% of assets should be in gold, stresses physical ownership
(USAGOLD – 8/30/2021) – Gold began the week on a subdued note after Friday’s sharp advance. It is level this morning at $1818. Silver is up 13¢ at $24.22. Press reports attributed Friday’s nearly $25 gain to a confluence of geopolitical, public health, and economic concerns – most notably the Afghanistan fallout, the surging Delta variant, and rising inflation. Mark Mobius, the veteran market analyst, told Bloomberg this morning that investors should put 10% of their assets in gold. “Currency devaluation globally is going to be quite significant next year given the incredible amount of money supply that has been printed.” In this interview, Mobius once again stressed personal ownership of the physical metal as the best course of action for private investors.
Chart of the Day
Chart note: This chart 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 this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives. Speaking as an old student and historian of markets, it is intellectually exciting and terrifying at the same time. It is a privilege to ride through a market like this one more time.”
–– Gold Classics Library ––
Britain’s Gold Sales ‘a Reckless Act’
(Sir Peter Tapsell’s speech before the House of Commons, June 16, 1999, on the partial sale of United Kingdom’s gold reserves)
We do not update our Gold Classics Library often, but when we do we try to choose items that have a timeless quality. This latest selection certainly meets that standard. It comes to us unexpectedly as a by-product of research for the recently published article, The Power of Gold Diversification, and with the kind permission of the United Kingdom Parliamentary Archives.
Many associate Britain’s sales of nearly 60% of its gold reserves in 1999 with the beginnings of gold’s secular bull market. The government’s rationale for the sales, as explained by then Economic Secretary to the Treasury Patricia Hewitt, was to “achieve a better balance” in its reserves by going to foreign currencies. Sir Peter Tapsell took the opposite tack. “The Chancellor [of the Exchequer] may think that he has discovered a new Labour version of the alchemist’s stone,” he argued, “but his dollars, yen and euros will not always glitter in a storm and they will never be mistaken for gold.”
History’s indisputable verdict is that Tapsell was right and the British government wrong. The ensuing more than two decades featured a global financial crisis, a pandemic, low-to-zero-percent interest rates, scrambling central banks, and the consistent depreciation of global currencies against gold. Currencies did not glitter in the storm, and they could not have been mistaken for gold which rose relentlessly from $287 per ounce at the time of his speech to the current price of over $1800 (at one point reaching more than $2000 per ounce). Though Tapsell’s speech before the House of Commons failed to stop the sales, it goes down as one of the most eloquent appeals ever made on the merits of gold ownership for nation-states and individuals alike.
Repost from 8-24-2021
“’Gold is currently in transition,’ said Mobeen Tahir, associate director of research at WisdomTree in Europe, which manages a range of gold exchange traded products.”
USAGOLD note: We missed this article when it was first posted on the FT website on August 10th. Under the radar, inflows into European gold ETFs jumped dramatically in July even as American ETF stockpiles declined. Theoretically, one analyst points out, American investors are buying into the Fed mantra that inflation is transitory. Funds and institutions are the leading buyers of ETF, so perhaps European money managers see inflation and the Delta variant as bigger problems than their American counterparts. In recent years, as shown in the accompanying chart, ETF inflows and outflows have closely coincided with ups and downs in the gold price. So……Is European institutional interest leading the market? Time will tell.
Repost from 8-25-2021
“But what does matter to financial markets is the decision on who will be the next Federal Reserve chair, as Jerome Powell’s term ends next year. Leave it to Tim Duy, the provocative University of Oregon professor and chief U.S. economist at SGH Macro Advisors, to make the connection.”
USAGOLD note: There is some merit to Duy’s argument. He believes that Powell is the steady choice during a time of turmoil caused by events in Afghanistan. According to Bloomberg, Biden will make his choice around Labor Day, even though Powell’s current term doesn’t end until February. If there is going to be a challenge to Powell, it will likely come in the form of strong support for current Board member, Lael Brainard, pictured above with Powell during a Fed Board of Governors meeting.
Repost from 7-12-2021
“At times when inflation has significantly accelerated in the past, such as in the 1960s, markets have lagged rather than anticipated developments.” – Lawrence Summers, former Treasury Secretary
USAGOLD note: In short, don’t look to the markets for a clue as to where we are headed next. At the moment, investors have bought into the transitory theme, but that can change, as well know, in a heartbeat.
Repost from 5-27-2021
“Memories can be tricky. I have long been haunted by the inflation of the 1970s. Fifty years ago, when I had just started my career as a professional economist at the Federal Reserve, I was witness to the birth of the Great Inflation as a Fed insider. That left me with the recurring nightmares of a financial post-traumatic stress disorder. The bad dreams are back. They center on the Fed’s legendary chairman at the time, Arthur F. Burns, who brought a unique perspective to the US central bank as an expert on the business cycle.”
USAGOLD note: Jerome Powell’s Federal Reserve has taken many of the same positions Arthur Burns took as Fed chairman while overseeing the Great Inflation of the 1970s. In particular, as Stephen Roach reminds us in this essay, Burns “poured fuel on the fire” by allowing real rates to go negative – the policy option the current Fed favors. Roach says overall there are “haunting similarities that bear watching.” Burns was chairman of the Fed from 1970 through 1978 under presidents Richard Nixon, Gerald Ford and Jimmy Carter in a time increasingly being compared to our own.
(Burns is seated left in the photo above with then-Treasury Secretary John Connally and President Richard Nixon.)