Monthly Archives: October 2021
HAPPY HALLOWEEN EVERYONE!
A Gold Classics Library Selection
Who owns and controls the Federal Reserve
by Dr. Edward Flaherty
– 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.
“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.”
“[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.
“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
“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.
“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.
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.”
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.”
“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.
“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.”
Sources: St. Louis Federal Reserve, Board of Governors of the Federal Reserve System (U.S.)
“’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.”
“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.”
“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.
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
Chart courtesy of TradingEconomics.com
Chart note: It took 10 Argentina pesos to buy a dollar in 2015. It now takes almost 100.
“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.”
Keeping At It: The Quest for Sound Money and Good Government
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.
Carl Icahn says the market over the long run will certainly ‘hit the wall’ because of money printing
Repost from 10-21-2021
“Longtime activist investor Carl Icahn said Monday that the U.S. markets could see major challenges over the long term in the face of excessive money supply and rising inflation.”
USAGOLD note: Not the prognosis Wall Street wants to hear from one of its most respected practitioners …… Icahn shied away from making a call on the timing.
Repost from 10-20-2021
“As John Authers puts it on Bloomberg, ‘there’s no longer any sensible way to dismiss this inflation episode as merely transitory.’ Even if you get rid of ‘volatile’ stuff like energy, food, housing and used vehicles (yes, I imagine you too may be wondering by this point what’s left), inflation is still above 3%, which is its highest level in 28 years, says Authers.”
USAGOLD note: Stepek offers a comprehensive overview of the inflation situation and what it might portend that makes its way eventually to endorsing gold as a hedge. “[T]he reason that gold tends to do well in inflationary times,” he says, “is not because of inflation as such, it’s because when inflation goes up, ‘real’ interest rates (that is, interest rates adjusted for inflation) go down. Gold historically does well when real interest rates are falling.”
Chart courtesy of Merk Investments • • • Click to enlarge
Repost from 9-13-2021
Bear Market Probability Model
– SPX – Bear Market Probability Model
“Even as the major equity indexes vacillate near record highs, macro conditions are deteriorating and the probability of trouble is rising. Economic reports have been coming in below economists’ expectations, both domestically and globally. As another reflection of those weak reports, our Macro Index Model has been deteriorating.”
USAGOLD note: Bloomberg reports that six major Wall Street banks recently issued ‘red alerts’ on a possible stock market correction – Morgan Stanley, Bank of America, Deutsche Bank, Credit Suisse and Goldman Sachs. (Please scroll to post immediately below for details.)
Repost from 9-15-2021
“US stocks are priced for perfection following a robust year of post-pandemic earnings growth, but high valuations suggest a sharp market sell-off could be imminent, according to a Thursday note from Deutsche Bank.”
USAGOLD note: This article is a follow-up to our post on Monday that five major banks, including Deutsche Bank, have issued warnings of “a storm brewing” in the U.S. stock market. The other four are Goldman, Morgan Stanley, Citigroup, and Bank of America.