Monthly Archives: October 2021

HAPPY HALLOWEEN EVERYONE!

cartoon image of a row of leering jack o lanterns

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Favorite web pages

Graphic of black swan on gold circleBlackSwansYellowGold
How gold performs during periods of deflation,
disinflation, stagflation and hyperinflation

“That men do not learn very much from the lessons of history is
the most important of all the lessons of history.”
–– Aldous Huxley ––

Though Huxley’s observation is readily applied to humanity collectively, it does not apply so easily to individual investors. As justification, we offer the ongoing (and long-term) success of the USAGOLD website as well as the soaring statistics on the growth of private gold ownership over the past decade both in the United States and abroad, inspired directly by the lessons learned from financial market upheaval. The following short essays are dedicated to the safe-haven gold investor who, like noted financial author Nicholas Taleb, believes that it is just as important to prepare for what we cannot foresee as what we can.


BlackSwansYellowGold Series

Gold as a deflation hedge

Gold as a disinflation hedge

Gold as a stagflation hedge

Gold as a hyperinflation hedge

Gold as the portfolio choice for all seasons

A chronology of panics, mania, crashes and collapses
(400 BC to present)

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photo of a row of books as in a libraryA Gold Classics Library Selection

Who owns and controls the Federal Reserve
by Dr. Edward Flaherty

photograph of plaque on the Federal Reserve Bank building in New York City

– From the author’s preface –

“Is the Federal Reserve System secretly owned and covertly controlled by powerful foreign banking interests? If so, how? These claims, made chiefly by authors Eustace Mullins (1983) and Gary Kah (1991) and repeated by many others, are quite serious because the Fed is the United States central bank and controls U.S. monetary policy. By changing the supply of money in circulation, the Fed influences interest rates, affecting the mortgage payments of millions of families, causing the financial markets to boom or collapse, and prompting the economy to expand or to stumble into recession. Such awesome power presumably would be used to benefit the U.S. economy. Mullins and Kah both argued that the Federal Reserve Bank of New York is owned by foreigners. Although the New York Fed is just one of twelve Federal Reserve banks, controlling it, they claimed, is tantamount to control of the entire System. Foreigners use their command of the New York Fed to manipulate U.S. monetary policy for their own and, as Kah asserted, to further their global political goals, namely the establishment of the sinister New World Order.” 

Flaherty’s answers will probably surprise you. 
One of our most popular Gold Classics Library entries.

[LINK]

[Gold Classics Library Index]

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Gold’s inflation-haven appeal means ‘violent’ run-up may be ahead

Bloomberg/James Atwood/10-22-2021

graphic image of a gold bull against blue background with arrows pointing higher“That’s the view of two of the biggest names in Canadian mining — the former chiefs of Goldcorp Inc., David Garofalo and Rob McEwen — who predict investors will catch on soon that global inflationary pressures are less transitory and more intense than central bankers and consumers price indexes suggest.”

USAGOLD note: Bloomberg goes on to say that it isn’t surprised two gold mining executives would be bullish on gold. What did get journalist Atwood’s attention was the two predicting “such a steep gain in so short a time.” Garofalo says gold will hit $3000 in “months not years.”

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China property bust undercuts talk of new commodity ‘super cycle’

Financial Times/Jonathan Wheatley and Michael Pooler/10-20-2021

graphic image of a red dominoe starting a chain reaction“[N]ow a crisis in China’s property sector, as manifest in the financial problems of developers Evergrande and Fantasia, has many worried that China’s near-insatiable demand for raw materials, which long proved a potent engine of growth for emerging economies, has run out of steam.”

USAGOLD note: We have raised the prospect of a slowdown impairing commodity demand in China – a situation that might also cause some to think gold demand might be hampered as well. There is another aspect to China’s property bust though that is likely to encourage gold demand – the global systemic risks and the potential for a contagion. As such, it is not just Chinese investors likely to seek refuge in the yellow metal.

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How the dollar got its name

Glint/Dominic Frisby/6-1-2021

photgraph of a 1525 Joachimsthaler

“Schlick started minting coins with his newly mined silver, similar in size and weight to the Guldengroschen (shortened to Guldener), which were just gaining popularity at the time – each 1⁄8th of a Cologne Mark of silver. Schlick called his coins, which weighed roughly an ounce and were an inch and a half (4cm) across ‘Joachimsthalers’. German speakers to the north and west shortened this to ‘thaler’, while Czech and Slavic speakers to the south and east called them ‘tolars.'”

USAGOLD note: Now you know how the dollar got its name – historically associated with an ounce of silver. Nineteenth and Twentieth century American silver dollars contain .77345 ounces of pure silver.


Attribution: Classical Numismatic Group, Inc. http://www.cngcoins.com, CC BY-SA 3.0 <http://creativecommons.org/licenses/by-sa/3.0/>, via Wikimedia Commons

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The only way is up: corporate chiefs warn on prices

Yahoo!Finance/Siddharth Cavale and Anthony Deutsch – Reuters/10-21-2021

graphic image of a red flag waving“Shortages of workers, fuel, cargo ships, semiconductors and building materials as the global economy bounces back after pandemic lockdowns have companies from electric car makers to chocolatiers scrambling to keep a lid on costs.”

USAGOLD note: Long before inflation began showing up in the Consumer Price Index, business leaders and purchasing managers were waving a red flag on price increases. Eventually the increases they predicted were to passed along to consumers by necessity. It is for that reason, that we should probably give special consideration to reports like the one linked above.

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Short and Sweet

Economic insecurity is becoming the new hallmark of old age

In the United States,” writes Katherine S. Newman and Rebecca Hayes Jacobs for The Nation, “economic security in old age was seen, for a long time, as both a social issue and a national obligation. From the birth of Social Security to the end of the 20th century, the common assumption has been that we have a shared responsibility to secure a decent retirement for our citizens. Yet that notion is weakening rapidly. Instead, we have started to hear echoes of the mantra of self-reliance that characterized welfare ‘reform’ in the 1990s: You alone are in charge of your retirement; if you wind up in poverty in your old age, you have only your own inability to plan, save, and invest to blame.”

line chart showing the stock market's performance 1925-1955

Chart courtesy of MacroTrends.net • • • Click to enlarge

Some compare today’s stock market psychology to the period just before 2008. Others compare it to the 1920s when everything was hunky-dory until suddenly it wasn’t – perhaps a more apt comparison. Too many are “all-in” with respect to stocks in their Individual Retirement Accounts hoping to accumulate as much capital as possible without regard to the potential downside. As the chart above amply illustrates, the stock market did not recover from the losses accumulated between 1929 and 1933 until the mid-1950s, almost 25-years later – a fragment of stock market history lost to time.

Some will rely on the fact that stocks recovered nicely once the Fed launched the 2009 bailout. We should keep in mind though that many prominent Wall Street analysts have warned that the Fed no longer has the firepower it did then. The financial markets and economy are much more vulnerable as a result – all of which brings us back to the notions of self-reliance and taking personal responsibility for our retirement plans. If you find yourself among the group that thinks hedging a stock market downturn to be in your best interest, we can help you effectively structure a gold and silver diversification as part of your retirement plan to hedge that possibility.


Are you ready to hedge a Wall Street meltdown in your retirement plan?
DISCOVER THE USAGOLD DIFFERENCE
ORDER DESK:1-800-869-5115 x100/orderdesk@usagold.com

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What the global supply chain chaos means for gold

Gold Avenue/Staff/10-19-2021

photo image of stacks of gold and silver coins“With the direction of our current economic situation still unclear, investors might be right to protect their investment portfolio with a safe-haven asset against persistent global supply chain issues.”

USAGOLD note: Beyond the inflationary effects of supply chain issues, the gold supply is just as vulnerable to disruption as anything else. Oddly, this article overlooks that possibility. Of course, in gold’s case, a great deal of global production does not leave the country of origin. (China and Russia come to mind – the number one and three producers, respectively.) We caution buyers that if we do get disruptions in the flow of physical precious metals, it will be reflected directly in the premiums on coins and bullion, if not the price itself.

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Gold tracks lower in subdued, pre-Fed meeting trading
World Gold presents overall solid demand picture for gold in third quarter

(USAGOLD – 10/29/2021) – Gold tracked lower in subdued trading ahead of next week’s Fed meeting as the dollar and bond yields firmed. It is down $11 at $1789.50 and still struggling to breach the $1800 mark. Silver is down 16¢ at $23.97 and struggling to remain above the $24 level. As we close out October, gold is up 3.1% on the month while silver is up 6.3%.

The World Gold Council is out this morning with its Gold Demand Trends report for the third quarter. Among a wealth of statistics, it shows significant overall global growth in bar and coin demand featuring record year-to-date growth in the United States (+31%) and Germany. ETF demand lagged the rest of the market, but, the Council points out, the weak showing needs to be considered in “the context of recent history.” ETFs added more than 1200 tonnes to their holdings in 2019 and 2020 while reporting only a minor reduction in aggregate stockpiles in 2021. In short, the operative mindset in the global gold market is “buy and hold.”

bar chart showing coin and bar demand for third quarter 2021
Chart of the Day courtesy of the World Gold Council • • • Click to enlarge

“Bar and coin demand,” says WGC, “should continue to be supported by the macro environment of high inflation prints and economic concerns. One surprising area of strength is the US, where the year-to-date total is the highest in our dataset. This was all the more notable given the weakness in both gold ETFs and COMEX futures. … Although the pace of investment slowed from the first half of the year, investment remains very elevated when compared with historical norms: the five-year quarterly average is 13 tonnes. Year-to-date investment reached a record of 91 tonnes. Q4 has apparently started well, potentially putting the full-year record from 2009 (114 tonnes) within reach.”

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Notable Quotable

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“Ironically, the beggar-thy-neighbor implications of competitive devaluations will almost certainly incite a response from countries who may not originally even have needed to resort to currency debasement in the first place, raising the potential for full blown currency war. How should one position for such an endgame? As is probably evident, any nominal instrument will be devalued in real terms, so the solution is to hold an asset that maintains its real value – an asset that cannot be printed.”

Rick Rieder
BlackRock Funds

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Q3 GDP disappoints ahead of Fed

Trading Economics/Staff/10-28-2021

bar chart showing GDP data releasae for Q3 2021

“The American economy expanded an annualized 2% on quarter in Q3 2021, well below market forecasts of 2.7% and slowing sharply from 6.7% in Q2. It is the weakest growth of pandemic recovery as an infusion of government stimulus continued to fade and a surge in COVID-19 cases and global supply constraints weighted on consumption and production. Personal consumption eased sharply (1.6% vs 12% in Q2) as spending on goods decreased (led by motor vehicles and parts) and services decelerated (led by food services and accommodations). Also, nonresidential investment rose much less (1.8% vs 9.2%) and residential one continued to shrink (- 7.7% vs -11.7%). Meanwhile, net exports subtracted 1.14 percentage points from the growth as exports declined 2.5% (vs +7.6%) and imports surged 6.1% (vs 7.1%). Private inventories however added 2.07 percentage points to the growth.”

USAGOLD note: This GDP read might force the Fed to tread lightly on tapering next week.

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Venezuelans break off flakes of gold to pay for meals, haircuts

Bloomberg/Alex Vasquez and Ezra Fieser/10-20-2021

“There, in the barbershops and restaurants and hotels that constitute the main strip of one dusty little outpost after another, you’ll find prices displayed in grams of gold.”

USAGOLD note: “There” is Venezuela’s backcountry. We included a note on Venezuela’s hyperinflation just over a week ago (10/14/2021) in our Daily Market Report: “While hyperinflation in the U.S. economy is unlikely, It is a reality in Venezuela,” we wrote. “One of the characteristics of hyperinflation is how quickly it can impose itself on an economy. The chart below shows the rapid depreciation in the value of Venezuela’s bolivar over the past nearly two years. At the end of 2019, it took, as you can see, 45,760 bolivars to buy a dollar. The exchange rate is now 4,133,144 bolivars per dollar. Yesterday, the price of gold in Venezuela was 383,207,885,304,659.50 bolivars per troy ounce, according to Goldrate24 – an indication of its utility as a long-term store of value under even the most extreme circumstances.”

line chart showing the hyperinflation of the Venezuela bolivar
Sources: St. Louis Federal Reserve, Board of Governors of the Federal Reserve System (U.S.)

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Paul Tudor Jones says inflation could be worse than feared, biggest threat to markets and society

CNBC/Yun Li/10-20-2021

“’I think to me the No. 1 issue facing Main Street investors is inflation, and it’s pretty clear to me that inflation is not transitory,’ Jones said Wednesday on CNBC’s “Squawk Box. ‘It’s probably the single biggest threat to certainly financial markets and I think to society just in general.'”

USAGOLD note: Tudor Jones has been one of the most consistent and strongest advocates of gold ownership among top hedge fund managers over the years. Now with inflation hanging like a sword of Damocles over financial markets, he says it’s time to “double down on inflation hedges.” The 60/40 portfolio, he says, is “absolutely dead.”

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Where are we in the market cycle?

TheFelderReport/Jesse Felder/10-15-2021

chart showing cycle of emotions from optimism to euphora to despondence and back eventually to optimism again
Click to enlarge

“Animal spirits have clearly sustained a damaging blow in recent months; whether that blow proves fatal, though, will be revealed in time. The fact that interest in day trading is plummeting stands in direct contrast to the fact that interest in getting help for stock market gambling addiction is soaring.”

USAGOLD note: By associating stock market investing in some quarters with gambling addiction, Felder goes where few in the mainstream media dare tread. He equates the current mania with the 2000 tech bubble and reminds his readers that some of the most highly traded stocks lost 90% of their value. He believes that we are now well past the “‘euphoria’ stage [of the market cycle, see above] into the ‘anxiety’ stage, headed for the ‘denial’ and ‘fear’ stages.”

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Short and Sweet

Copernicus on the debasement of money

Image of 8¢ stamp depicting Copernicus holding representation of heliocentric earth orbit

“Although there are countless scourges which in general debilitate kingdoms, principalities, and republics, the four most important (in my judgment) are dissension, [abnormal] mortality, barren soil, and debasement of the currency. The first three are so obvious that nobody is unaware of their existence. But the fourth, which concerns money, is taken into account by few persons and only the most perspicacious. For it undermines states, not by a single attack all at once, but gradually and in a certain covert manner.” – Copernicus, Essay on the Coinage of Money (1526)

Few know that Copernicus applied his genius to the insidious effects of currency debasement. The ground-breaking essay linked above probably influenced both John Maynard Keynes (See below) and Thomas Gresham of “bad money drives out good” fame. Supply Side Blog’s Ralph Benko says Copernicus’ essay “has been translated into English several times yet those translations remained difficult to obtain for students of the monetary arts and sciences. It has remained mostly the property of elite historians.” Above we link Edward Rousen’s translation that you might keep company with the knowledgeable elite.

It cost 8¢ to mail a one-ounce letter in 1973 as indicated by the commemorative Copernicus stamp shown above. It costs 55¢ today – an illustration of his assertion that currency debasement “undermines states, not by a single attack all at once, but gradually and in a certain covert manner.” The post office increased the cost of mailing a letter by 5¢ – to 55¢ – beginning in 2019.


“By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” – John Maynard Keynes, The Economic Consequences of Peace (1919)


Are you looking to prevent your savings from being attacked in a covert manner?
DISCOVER THE USAGOLD DIFFERENCE
ORDER DESK:1-800-869-5115 x100/orderdesk@usagold.com

 

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Transitory leads to permanent mistakes

Blain’s Morning Porridge/Bill Blain/10-19-2021

graphic image of a wizard in silouette“Policy mistakes are a massive market risk. Don’t believe Central Banks and Politicians are omnipotent. The issue is defining what would be a policy mistake and what is a POLICY MISTAKE.”

USAGOLD note: Blain believes that central banks have “tripped themselves.” By selling the public on the idea inflation is transitory, they have made it permanent. Perhaps tripping themselves is not the correct description. Better said, they have tricked themselves into believing inflation is transitory, and that, in the end, could undermine the one thing central banks really rely upon to effectively carry out monetary policy – the good faith of the public.

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Gold makes another attempt to breach the $1800 level
Financial markets generally biding their time ahead of next week’s Fed meeting

(USAGOLD – 10/28-2021) – Gold is making another attempt to breach the $1800 level this morning in generally quiet, featureless trading. It is up $6.50 at $1805. Silver is up 4¢ at $24.18. Financial markets, in general, appear to be biding their time ahead of the upcoming FOMC meeting next Tuesday and Wednesday. Equity Management Academy believes that gold put in a seasonal bottom in September and that investors should add “aggressively” to their core holdings on pullbacks.

“The gold market has been completely ignored during the past 12 months,” it says in a recent Seeking Alpha article. “We have gone into a second corrective wave that is about to revert and begin the third leg of a long-term bull market that started in March 2020. The fact that gold is ignored may be one of the most bullish signs from a historic perspective. When gold unleashes its reversion to the mean, it will be a strong move and most people will miss it. The collective sentiment on gold is the most bearish in the face of the most bullish fundamentals ever. The economics of price alone are a screaming buy signal when you compare it to other financial assets, digital or non-digital.”

Chart of the Day

US Dollar/Argentina Peso
line chart showing depreciation in the Argentina peso against the U.S. dollar 2012-2021
Chart courtesy of TradingEconomics.com

Chart note: It took 10 Argentina pesos to buy a dollar in 2015. It now takes almost 100. 

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Notable Quotable

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“Deflation is a threat posed by a critical breakdown of the financial system. Slow growth and recurrent recessions without systemic financial disturbances, even the big recessions of 1975 and 1982, have not posed such a risk.  The real danger comes from encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation and risk taking, in effect standing by while bubbles and excesses threaten financial markets. Ironically, the ‘easy money,’ striving for a ‘little inflation’ as a means of forestalling deflation, could, in the end, be what brings it about.  That is the basic lesson for monetary policy. It demands emphasis on price stability and prudent oversight of the financial system. Both of those requirements inexorably lead to the responsibilities of a central bank.”

Paul Volcker
Keeping At It: The Quest for Sound Money and Good Government
(2018)

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Mystical hold of ‘transitory’ tempts huge Fed error

BloombergOpinion/Mohamed A. El-Erian/10-25-2021

bar chart showing the yield on inflation indexed 10 year security a proxy for real yields
Sources: St. Louis Federal Reserve [FRED], Board of Governors of the Federal Reserve System

“Failure to respond quickly and fully to persistent inflation would constitute the biggest monetary policy mistake in more than 40 years.”

USAGOLD note: “Fully” is the operative word in the sentence above. It is an either-or situation. The Fed either allows or pushes interest rates above the inflation rate, or it doesn’t. Thus far, it has been accommodating. Once tapering begins, however, it is a whole different story. And that is where the prospect of another taper tantrum enters the picture. The chart above shows the net yield on inflation-indexed U.S. Treasuries (10-year) – a proxy for real yields.

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