Monthly Archives: September 2021

Gold tracks lower on the prospect of Fed tightening
Meanwhile, physical demand continues to run strong in Asia, Europe, and the United States

(USAGOLD – 9/28/2021) – Gold tracked lower in today’s early going responding to the prospect of Fed tightening, a weakening bond market, and a firmer dollar. It is down $15 at $1736.50. Silver is down 23¢ at $22.46. Though selling in the paper gold market dominates the price discovery mechanism, physical demand for coins and bullion among private investors continues to run strong globally, according to recent press reports. Investment demand in China is up 33% over last year among investors worried about the fallout from the Evergrande meltdown. Indian demand is also up as prices decline ahead of its festival season. German investors are buying on inflation concerns and recent election results. Demand in the United States is also strong, with the World Gold Council reporting record gold coin and bar demand in the first half of 2021.

“Money continues to pour into precious metals, fine art, real estate, and other hard assets,” writes Equity Management Academy in a report posted at Seeking Alpha, “Price and monetary inflation are not temporary. They are here for a while. That is why money is pouring into hard assets in an attempt to avoid losing value in relation to inflation… [G]old and silver have a long history of maintaining their value, especially in times of crisis and change, like we are experiencing today. We recommend taking advantage of pullbacks in gold and silver to add to your long-term position in precious metals.”

Chart of the Day

overlay line chart showing gold, silver and stocks since 2007
Chart courtesy of TradingView.com • • •  Click to enlarge

Chart  note: This chart shows the performance of gold, silver, and stocks from 2007 to present, a period that encompasses the QE 1, 2, 3, and 4 stimulus programs. Gold is up 188% over the period, silver 85.5%, and the Dow Jones Industrial Average 180.7%.

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Posted in Daily Market Report, dailyquotes, Today's top gold news and opinion |

Why is gold not rising?

Gold Switzerland/Matthew Piepenburg/9-24-2021

photo of gold bars and $100 bills“But we track the movement of physical gold every day, and can say with blunt clarity that the paper trade in gold has zero to do with those otherwise ‘barbarous’ forces of the actual supply and demand of this precious metal. Zero. In short, the paper price of gold has become a fiction accepted as reality, which is not surprising in a financial landscape (i.e., historically over-valued stocks, negative yielding bonds and central bankers allergic to transparency) which defies every measure of honest price discovery or basic capitalism.”

USAGOLD note: Piepenberg asks the question on the minds of most gold investors and market commentators and concludes that “today’s gold price is not nearly as relevant an issue as gold’s role in protecting far-sighted investors from what’s ahead.” In short, Piepenburg believes gold to be more a form of financial insurance than speculation for short-term gains. We at USAGOLD can attest to the strong demand instigated by rangebound pricing – in both gold and silver.

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Posted in Gold-silver price predictions, Today's top gold news and opinion |

The European energy crisis is about to go global

OilPrice.com/Irina Slav/9-22-2021

photograph of an oil tanker being loaded at Iraqi oil installation

“It was only a matter of time, really. In a globalized world, energy crunches can hardly remain regionally contained for very long, especially in a context of damaged supply chains and a rush to cut investment in fossil fuels. The energy crunch that began in Europe earlier this month may now be on its way to America.”

USAGOLD note: Shades of the 1970s……The thing about this inflation that differs from others is its universality. All countries are experiencing surging inflation – all at the same time. If an energy crunch is in our collective future, as Irina Slav predicts, the price of everything will go up. Energy is a component in the pricing of just about all goods and services.

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Global connectivity to boost silver demand for electronics

The Silver Institute/9-23-2021

image of silver bars with rising chart trend line in background

“The world is becoming more connected through the billions of physical devices that connect to the internet. Silver is playing an important part in providing increased access to information, global markets, and communication, and, as a result, boosting productivity, reducing waste and inefficiencies, strengthening supply chains, allowing greater automation, and spurring economic activity.  This is especially notable today as the Covid-19 pandemic has caused a dramatic uptick in the number of employees working and students learning remotely.”

USAGOLD note: We tend to concentrate on silver’s appeal as a monetary asset here at USAGOLD, but the white metal also has wide application for industrial purposes, particularly in electronic usage and what TSI calls “global connectivity.” This report covers those uses in some detail and predicts a 10% increase in electronic usage by 2025.

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Growth expectations vs positioning: mind the gap

World Gold Council/Louise Street

Repost from 9-21-2021

cartoon showing a boat riding the rising tide“Yet, according to the survey, fewer portfolio managers are hedging their equity exposure against such a correction than at any time since January 2018. They may be prudent to use gold to help mitigate the potential risks of this approach. Thanks to its historical track record of negatively correlating to equities during sharp equity pullbacks, an allocation to gold has historically helped portfolios to weather such episodes.”

USAGOLD note: Though Street’s advice is meant for portfolio managers, it also applies to private investors. More than one survey has indicated that investors are well aware of the risks associated with overvalued stock markets. Too many though, believe they will have time to exit when they might not. Leon Cooperman, the famed seasoned asset manager, recently warned that when the market turns, “it’ll go down so quickly, your head’s gonna spin.” The better, more prudent approach is to diversify before the tide turns.

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Does another decade of inflation loom ahead?

Washington Examiner/Burton Abrams and James Butkiewicz

Repost from 9-21-2021

graphic image of 1970s reducs coming soon to an economy near you“We’ve heard these excuses before. Both Nixon’s economists and those running the show in Washington today assured their bosses that the inflation surge would be temporary and thereafter settle down. Powell, like Nixon, does not attribute his inflation to excessively easy monetary policies.”

USAGOLD note: Far from transitory say these economists from the University of Delaware. This article compares the 1970s to the 2020s, i.e., what Richard Nixon, Arthur Burns, Jerome Powell and Joe Biden have in common.

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Summers says delta spread elevates inflation concerns

Bloomberg/Simon Kennedy

Repost from 8-9-2021

graphic image of walking a tightrope between night and day

“Former U.S. Treasury Secretary Lawrence Summers said the emergence of the delta variant poses another inflation threat in a U.S. economy that already appears to be overheating.”

USAGOLD note:  The whole transitory argument rests to a large degree on a return to normalcy, and the delta strain, according to Summers, is about to put a crimp in that scenario. He suggests a very difficult path for the Fed to follow – particularly when the top brass are all coming up for reappointment. If the Biden administration is going to replace the current Fed team, one doubts it will be with a more hawkish line-up. Summers, for his part, believes that failing to control inflation now will have “very serious political and economic consequences.” The Fed, it seems, is destined to continue its high wire act – appearing ready to move on inflation without actually doing so.

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Gold as an inflation hedge: What the past 50 years teaches us

Wall Street Journal/Mark Hulbert

Repost from 8-9-2021

graphic image showing inflation, gold, commodity upticks

USAGOLD note: Whenever inflation looms on the horizon, research inevitably surfaces arguing that gold is not a reliable inflation hedge. This Wall Street Journal article published over the weekend is another example. It draws on the research of Duke University professor Campbell Harvey and Claude Erb, a former commodities portfolio manager at TCW Group. “They found that it’s only when measured over very long periods – a century or more,” writes columnist Mark Hulbert, “that gold has done a relatively good job maintaining its purchasing power. Over shorter periods its real, or inflation-adjusted, the price fluctuates no less than that of any other asset.” Though that might be the case, It is difficult, in fact, impossible, to argue against gold’s performance as an inflation hedge during the 1970s – the last time we had a close encounter with runaway inflation. Certainly, investors holding gold at the time did not question its reputation as a hedge while inflation was raging through the economy. Quite the opposite, they were happy they had the foresight to buy it before it became a major issue.

If you blend the data, though, over a longer period to include disinflationary economies (like the 1980s when the dollar provided a real rate of return), its performance levels out, and that is what Harvey and Erb’s do in their study. Inflation continued in the period between 1980 and 2000, but it was greatly subdued, and the Federal Reserve went to great lengths to secure a real rate of return on Treasury paper. That policy effectively boosted the dollar and brought down the gold price. Now, we have a different story. In fact, a good many believe that what Paul Volcker was to inflation in the 1980s, Jerome Powell is to disinflation in the 2020s. The inflation rate has migrated well above the rate of return on the 10-year Treasury note, and though gold has yet to respond, we are early in the game. A good many still buy into the Fed’s argument that the current inflation rate is transitory.

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Posted in Gold-silver price predictions, Today's top gold news and opinion |

The looming economic bubble

The Epoch Times/Conrad Black

Repost from 9-21-2021

antique image of Mackay Bubble Card South Seas scheme

“While the United States, and to a lesser extent the West generally, is being subjected to a variety of threats and disappointments, and there is a natural aversion to highlighting additional negative developments that could be looming, it would be comforting if we heard anything from the secretary of the Treasury or the chairman of the Federal Reserve about the current apparition of a gigantic financial bubble over the United States.”

USAGOLD note: Maximum bubble status has always correlated historically with maximum belief that nothing bad can happen – that somehow this time is different. In this in-depth analysis, Black reminds us of J.P. Morgan’s famous dictum: “Like a tree, the market cannot grow to the sky.”

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Posted in Today's top gold news and opinion |

‘Take those profits’: Strategist says extreme market moves are on the horizon

CNBC/Sam Meredith

Repost from 9-21-2021

cartoon of lemming going over a cliff, one has a gold parachute“His comments come as market participants remain cautious given a flurry of risks on the horizon. These include fears of rising inflation, persistent concerns about the economic outlook amid the ongoing coronavirus pandemic, supply shortages and valuation concerns.”

USAGOLD note: Most will ignore this advice until the hammer actually comes crashing down – at which point chaos is likely to ensue. Best to get ahead of it.

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Gold marginally lower in quiet trading
Investors sorting out a mix of influences, including a nebulous Fed message on tapering

(USAGOLD –9/27/2021) – Gold is marginally lower in quiet trading to start the week as yields continued to rise and the dollar dipped. It is down $1 at $1750.50. Silver is up 17¢ at $22.66. Financial markets seem to be still uncertain how to read a broadening mix of influences ranging from a possible government shutdown, a stubborn pandemic, increased inflation, a burgeoning credit crisis in China, and a nebulous Fed message on tapering. Market researcher Adam Hamilton believes the Fed’s soft promise to taper will force markets to reconsider the net effect on the price of gold.

“So I’d argue this year’s US-dollar upside on Fed tightening has likely already mostly run its course,” says Hamilton in an analysis posted at Seeking Alpha. “The Fed’s balance sheet will continue surging into mid-2022, and that’s if the FOMC actually carries through on fully tapering QE4. The Fed isn’t even tightening at least until the end of next year, it is just slowing the pace of easing. This remains very dollar-bearish fundamentally, which of course is great news for gold. The gold-futures speculators fleeing in response to sharp USDX rallies on perceived Fed tightening has probably already largely exhausted their selling potential. They need to normalize their excessively bearish bets, which means big buying that will catapult gold much higher. … The bottom line is the Fed tapering QE4 isn’t bearish for gold at all. Slowing extreme money printing is a far cry from actual Fed tightening. The FOMC isn’t even considering unwinding QE monetary excesses through QT or launching a new rate-hike cycle. Even if the Fed carries through on QE tapering, money-supply growth will remain fast into the middle of next year. And the FOMC’s tapering plans could be derailed.”

Chart of the Day

line chart showing the surge in M1 money supply
Sources: St. Louis Federal Reserve [FRED], Board of Governors Federal Reserve System

Chart note: As you can see in the chart, the liquidity created in the aftermath of the 2008 credit crisis did not make it into the money supply. Hence, inflation was restrained. This time around, it has made it into the money supply, and inflation has become a reality. “The Fed bought Treasuries, created money [in the aftermath of the 2008 crisis],” says hedge fund impresario John Paulson, “which wound up in the banks and then was redeposited at the Fed. And the money never really entered the money supply. So it wasn’t inflationary. However, this time it has entered the money supply. … So I think we have inflation coming well in excess of what the current expectations are.” Paulson stated in a recent Bloomberg interview that he believes gold to be a good investment.

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Is Evergrande a symptom of deeper malaise?

Morning Porridge/Bill Blain/9-21-2021

graphic image of Cold stamped over Trade War.cn“The market view on the coming Evergrande ‘event’ is mixed. Some analysts are dismissing it as an internal “China event”, others reckon there may be some systemic risk but one Government can easily address. There is some speculation about “lessons” to be learnt… There are even China supporters who reckon its proof of robust China capitalism – the right to fail is a positive! I’ve got a darker perspective.”

graphic image of a book and reading glasses A Good Weekend ReadUSAGOLD note: Blain goes on to outline some of his deepest concerns on Evergrande at one point saying China’s “illusion of a strong economy is unraveling.” Meanwhile, Wall Street is not at all concerned about a global contagion effect from the Evergrande meltdown, according to this Bloomberg report.

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David Rosenberg: What investors need to know about the commodity complex

Financial Post/David Rosenberg and Marius Jonstra

Repost from 9-20-2021

“For precious metals such as gold and silver, despite having positive medium- to longer-term outlooks, the market environment has been tough. The main drivers of momentum, liquidity, and speculation that have taken hold in risk assets has meant that these traditional safe havens have fallen out of favour. Not to mention the cryptocurrency craze, which has made the (false) comparison of bitcoin being the new inflation hedge/safe haven and has diverted fund flows away from precious metals.”

USAGOLD note:  Rosenberg is in the “transitory” camp when it comes to inflation. He sees the “entire resource complex” as having “moved away from inflation to a driver of future disinflation.” In short, Rosenberg sees the post-pandemic era as a repeat of the post-credit crisis era. We recall that gold did quite well under that scenario as investors moved to hedge their portfolios against systemic risks. If we were to reduce his analysis of the precious metals to a phrase, it would be that they have fallen out of favor, but for all the wrong reasons.

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China’s nightmare Evergrande scenario is an uncontrolled crash

Bloomberg/Hong Shen, Enda Curran and Sofia Horta e Costa

Repost from 9-20-2021

cartoon image of a scared skier trying to outrun an avalancheWhile it’s impossible to know for sure what would happen if Beijing allows Evergrande’s downward spiral to continue unabated, China watchers are gaming out worst-case scenarios as they contemplate how much pain the Communist Party is willing to tolerate. Pressure to intervene is growing as signs of financial contagion increase.

USAGOLD note: Whether or not the Evergrande meltdown can be contained is an open question. Consensus, as our snippet indicates, has it that the Xi government will not allow a Chinese Lehman moment, but that might be the optimistic view. China has also been very vocal of late about what it sees as capitalist transgressions within its borders that need to be discouraged. Too, there is no guarantee that a collapse of this scale can be contained within China’s borders.

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Thinking about macro

Oaktree Capital/Howard Marks

Repost from 8-6-2021

blindfolded seeker can't see lighted room

“Regular readers of my memos know that Oaktree and I approach macro forecasts with a high degree of skepticism.  In fact, one of the six tenets of Oaktree’s investment philosophy states flatly that we don’t base our investment decisions on macro forecasts.  Oaktree doesn’t employ any economists, and we rarely invite them to our offices to share their views. The reason for this is simple: to use Buffett’s terminology, we’re convinced the macro future isn’t knowable.”

USAGOLD note: Over the past several weeks, the overwhelming emphasis has been on the inflation scenario. Most top analysts believe that it is the clear and present danger to investment markets. A handful of top-notch analysts, though, are not buying into the inflation consensus, and Howard Marks perhaps heads that list. It might surprise you to know, however, that he does not deny the possibility of inflation. He is simply saying that the future is unknowable, i.e., “there’s no such thing as ‘knowing’ what the outcome will be.” In our view, that, all being said, elevates the importance of gold in the portfolio. It covers more bases, more possibilities, more contingencies – i.e, the unknowable – better than any other asset we can name.

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A disaster

Daily Reckoning/James Rickards

Repost from 8-6-2021

cartoon of cowboy riding snail that reads economic recovery saying yee-haw“Of course, champagne corks were flying at The New York Times and other mainstream media outlets because Q2 output has regained 2019 levels. But the recession was over in April 2020. It’s now August 2021, and they’re celebrating that we’re back to 2019 levels? That’s a pathetic rebound and really nothing to celebrate.”

USAGOLD note: The mainstream media spins the story of an economy staging a bold and robust recovery. Daily Reckoning’s James Rickards sees things much differently. Rickards, you might recall, does not buy into the runaway inflation scenario projecting instead a disinflationary outcome much like what occurred after the 2008 credit crisis. A quick study of the financial markets after that meltdown, though, tells us that gold did quite well under those disinflationary circumstances.

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Global debt is soaring and we need to talk about it

Financial Times/Gillian Tett

Repost from 9-20-2021

grapic image of towering debt skyscraper reaching for the stars“The only thing more remarkable than the size of this longer term surge is that there is so little public debate about its consequences, largely because voters and investors tend to be distracted by short-term issues happening in their own backyards.”

USAGOLD note: If Gillian Tett is worried, we should all have an ear to the rail. She was among the small group of analysts back in 2007-2008 who saw the debt crisis coming. She points to global debt being leveraged by a factor of three at the end of this editorial, and says it deserves “far more debate” even for those optimistic about the outcome– which she is not.

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‘The end of the gold standard unleashed the most inflationary period ever’ – DB’s Jim Reid

Zero Hedge/Jim Reid

Repost from 9-17-2021

“Sure enough, with the link to gold broken, Reid then goes on to note that ‘over the last half-century, we’ve seen the most inflationary period ever in the data series we have going back to the 13th century. So even though inflation has been tamer over the last decade, don’t be fooled that fiat money is anything other than inflationary through history.'”

USAGOLD note: Reid’s conclusions echo our own arrived at over the years. Our remedy is to put oneself on the gold standard through the ownership of coins and bullion to compensate for the deficiencies of the fiat money standard. The following chart supports Reid’s thesis. For regular readers it is a redundancy,  but for those new to the idea of gold ownership, it might come as a revelation.

overlay area chart showing the value of the dollar and gold since 1971

Chart courtesy of the St. Louis Federal Reserve [FRED], Bureau of Labor Statistics, the ICE Benchmark Administration

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Posted in Gold-silver price predictions, Today's top gold news and opinion |

Gold edges higher on credit crisis in China, possible shutdown of U.S. government
Lundin says ‘QE tapering could be a launchpad for gold’

(USAGOLD – 9/24/2021) – Gold edged higher in overnight trading as investors turned their attention from the results of Wednesday’s Fed meeting to the developing credit crisis in China and a possible shutdown of the U.S. government. It is up $8 at $1752. Silver is up 4¢ at $22.60. Though the prospect of tapering has acted as a drag on the gold price over the past several weeks, Gold Newsletter’s Brien Lundin believes its reality will come as a relief.

“As you know,” he says in a recently issued advisory, “my view is that the actual initiation of QE tapering could be a launching pad for gold, much as the Fed’s initial rate hike in December 2015 ended gold’s long bear market. The actual removal of accommodation seems to also remove selling pressure on gold from speculators betting on that event. If so, then the expected catalyst isn’t long in coming.… How they’re going to buy less Treasurys as Congress and the Biden administration add trillions upon trillions in deficit spending is beyond me, but my expectations have always been that the markets won’t allow Powell & Co. to get very far down the road of policy normalization anyway. That underpins my long-term view that much higher gold and silver prices are ahead.”

Chart of the Day

Fed balance sheet growth and the price of gold
(2005-2021, log scale)

overlay line chart showing the growth in the Fed's balance sheet and the gold price 2005 to present

Sources: St. Louis Federal Reserve [FRED], Board of Governors Federal Reserve System, ICE Benchmark Administration

Chart note: This chart tracks the relationship between Federal Reserve balance sheet growth (quantitative easing) and the price of gold. The first episodes of quantitative easing (QE1-QE3) began in late 2008 with the onslaught of the credit crisis and ended in 2014. The second (QE4) began in 2020 with the beginnings of the covid pandemic. This past Wednesday, the Fed announced it would start reducing its bond purchases later this year, though no firm date or level of reduction was given. Tapering is a slowing, not an end, to Fed bond purchases.

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Europe’s record-high gas and electricity prices foretell more widespread inflation

MarketsInsider/Harry Robertson

Repost from 9-17-2021

“Goldman said it expects the S&P GSCI commodities index to return 11% or more over the next 12 months. The index is dominated by oil, and it includes a heavy weighting of gold and agricultural products such as corn.”

USAGOLD note: Are we experiencing just the tip of the inflationary iceberg? We should keep in mind that Goldman’s Jeffrey Currie foresaw the price escalation in the commodities complex, including gold and silver, many months ago. As the chart below shows, the S&P GSCI is up more than 50% over the past year.

line chart showing the strong percentage gain in the SPGSCI over the past 12 months

Chart courtesy of TradingEconomics.com

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