Monthly Archives: October 2021

The Roman Empire reminds us that confidence in the currency is crucial

Real Clear Markets/Rob Smith and George Maher

Repost from 10-21-2021

“If someone is worried that the $1,000 they have stashed away in an account for a rainy day will not be worth as much as in three months, they will go out and spend that money. Increased spending will drive prices up further making existing savings worth less. Just as in the Weimar Republic or Venezuela today – despite the latter’s efforts to improve the situation by introducing official cryptocurrencies – money will become worthless.”

USAGOLD note: When citizen-investors lose faith in money, we will add, they often turn to gold. They did so in ancient Rome during the centuries-long debasement of the silver denarius, and they are doing it now to hedge the debasement of paper currencies.


Related please see
NEWS & VIEWS SPECIAL REPORT
March 2020

Hedging the decline and fall of a currency

The baseline case for gold hasn’t changed much in 1700 years

“We sometimes forget that inflation is a process rather than an event. One of the better-known examples of that axiom is the nearly two centuries-long debasement of Rome’s silver denarius – an inflationary episode Jack Whyte, a writer of historical fiction, skillfully addresses in his latest novel, The Burning Stone.” [MORE]

graphic image showing decline of the denarius over 200 y ears

Graphic illustration courtesy of VisualCapitalist.com • • • Click to enlarge

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Inconceivable? Yields are defying all expectations

Bloomberg/John Authers

Repost from 10-20-2021

“In the case of 10-year TIPS yields for the U.S., they have managed to fall once again below the once-inconceivable minus-1% level. Yields like that are not supposed to happen, and certainly not when the economy is growing and people are worried about inflation.”

USAGOLD note: Authers ties together presidential politics, bond yields, and inflation. He concludes with a question: “Can I summarize this neatly?” And answers: “No not really.” But between thesis and final conclusion, he offers much to consider including a return to a theme he first advanced months ago: How do we go about dealing with the consequences of a paradigm change from low inflation and interest rates to the polar opposite? There are a couple of time-tested options we might suggest along those lines and both now seem to be priced favorably.

 

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Gold drifts marginally higher in quiet trading
Greenspan warns that ‘inflation is likely to be a threat on a more sustained basis’

(USAGOLD – 10/27/2021) – Gold drifted marginally higher this morning in quiet trading near the $1800 mark. It is up $2 at $1797. Silver is down 4¢ at $24.19. We note that both gold and silver have quietly posted gains over the past thirty days of 3.4% and 11.25% respectively, indicating that the transitory inflation narrative might be beginning to lose its luster. That narrative was dented last week when both Treasury Secretary Yellen and Fed Chairman Powell unexpectedly warned that high inflation could extend into late 2022. Too, former Fed chairman Alan Greenspan warned yesterday in a client note posted at the Advisors Capital Management website that “inflation is likely to be a threat on a more sustained basis.”

“[W]hen ‘investors catch on,” says Sprott’s Craig Hemke of the changing inflation psychology, “the move upward in COMEX gold is very likely to be gradual and then sudden. [Canadian mining executive] Rob McEwen suggests a price as high as $3000/ounce, but that’s not a likely first target. Instead, look for COMEX gold to eventually overshoot its most recent all-time high by 10% or so—just as it did in August 2020 when it peaked at $2080 versus the September 2011 high of $1920. … So, continue to prepare for what’s to come. You’ve been granted some time here in 2021 to add physical metal to your stack at some surprisingly low prices. But this period of consolidation and faulty expectations is ending. Patient investors will soon be rewarded…gradually, and then all at once.”

Chart of the Day

bar chart showing central bank gold sales and purchases 2002 to present

Chart note: The Reserve Bank of India purchased a record 29 tonnes of gold in June and almost 150 tonnes over the past year. The Central Bank of Brazil purchased 62.3 tonnes between May and July. Poland’s central bank recently announced it would add 100 tonnes to its reserves. The World Gold Council reports central banks as a group buying 333 metric tonnes of gold in the first half of 2021. “Central banks,” it says, “are likely to continue buying gold on a net basis in 2021 at a similar or higher rate than in 2020, driven by a continued focus on diversification and risk management.”

 

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Peter Thiel thinks a blow up is coming. He’s OK with that.

Bloomberg/Max Chafkin/10-22-2021

photgaph of billionaiire investor Peter Thiel“’It’s [bitcoin] the canary in the coal mine. It’s the most honest market we have in the country, and it’s telling us that this decrepit… regime is just about to blow up.”

USAGOLD note: Thiel says he is “underinvested in bitcoin.” It would be hard to believe that he felt ready for a “blow-up” if he weren’t properly hedged given his acumen when it comes to financial matters. Years ago, we recall, Thiel was mentioned as being among a group of billionaires with bugout residences established in New Zealand.

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Powell, Yellen deliver obviously orchestrated inflation mantra

photo of Powell and Yellen shaking hands


Powell says inflation risks rising, but Fed can be ‘patient’/Christopher

Yahoo!News/Christopher Rubager/10-22-2021

“Federal Reserve Chair Jerome Powell said Friday that the tangled supply chains and shortages that have bedeviled the U.S. economy since this summer have gotten worse and will likely keep inflation elevated well into next year.”

Yellen says U.S. is not losing control of inflation
Reuters/Doina Chiacu and Michael Martina/10-24-2021

“U.S. Treasury Secretary Janet Yellen said on Sunday that the United States was not losing control of inflation, and that she expected inflation levels to return to normal by the second half of next year.”

\USAGOLD note: Although Powell and Yellen admit that inflation might be more of a problem than they’ve been letting on, they still think it will dissipate before the end of next year. As such they are likely to allow yields to remain in negative territory for some time to come – a policy Mohamed El-Erain calls the biggest monetary policy blunder in forty years. (Please see “Mystical hold of transitory tempts huge Fed error” below.) We will add that the Fed and Treasury Department have underestimated inflation from the start of this paradigm change – a position that undermines their contention now that inflation will be back to normal levels before the end of 2022. The obviously orchestrated mantra on inflation will also call to question the Fed’s supposed independence from direct political influence.

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Fed staff says Wall Street is getting inflation all wrong

Bloomberg/Steve Matthews

Repost from 10-20-2021

photograph of Federal Reserve monetary report booklets“The Federal Reserve’s army of more than 400 Ph.D. economists has a message on inflation for policy makers and the American public: Chill out.”

USAGOLD note: Presented as a public service announcement …… Out of the army of economists at the Fed, how many predicted a year ago that the inflation rate would go from 0.5% to over 4.25%? Not many, we would venture. So why should we believe Fed economists when they tell us inflation will be under 2% in 2022?

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El-Erian says investors should prepare for bigger market swings

Bloomberg/Tony Czuczka

Repost from 10-19-2021

cartoon showing a boat riding the rising tide“If I were an investor, I would recognize that I’m riding a huge liquidity wave thanks to the Fed, but I would remember that waves tend to break at some point, so I would be very attentive.” – Mohammed El-Erian, Queens College Cambridge

USAGOLD note: Quite a few heavyweight investors and analysts have weighed in of late on the danger of a cresting wave in the stock market. El-Erian is one of the more vocal in the group. He warns that inflation is likely to remain elevated for at least another year.

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The political history of silver in America

American Institute for Economic Research/Joakim Book

Repost from 9-10-2021

Gold is the primary store of value for those who mistrust the government, but silver remains the refuge of choice for most people because it is cheaper and more accessible.”

USAGOLD note: One for history buffs in general and history buffs who own silver in particular. Oxford University’s Joakim Bok takes us on a detailed and entertaining excursion into the history of silver centered around William Silber’s book, The Story of Silver: How the White Metal Shaped America and the Modern World. 

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Kiyosaki hoarding bitcoin, gold, and silver – plans to scoop up bargains once the market crashes

MarketsInsider/Theron Mohamed

Repost from 9-9-2021

graphic image of a golden bear“‘Rich Dad Poor Dad’ author Robert Kiyosaki is hoarding gold, silver, and bitcoin in anticipation of a brutal market downturn – and preaching patience to investors as he expects a bargain bonanza after the crash.”

USAGOLD note: A strategy not too distant from the one being deployed by many among our clientele sans the bitcoin positions (in most instances). Bitcoin’s volatility, as Mark Mobius reminds in another MarketsInsider article, undermines its store of value potential.

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2022 is shaping up to be a bad year for the stock market as investors grapple with these 3 ‘shocks,’ BofA says

MarketsInsider/Matthew Fox

Repost from 10-20-2021

graphic image of a seated bear gazing quietly back at the viewer“‘Bear case is pandemic ending and so is $30 trillion of emergency policy stimulus,’ BofA said, referencing the liquidity provided by global central banks since the pandemic began.”

USAGOLD note: We’re pivoting from pro-growth to anti-inflation, says BofA and that will send shocks rippling through financial markets in the coming year. More at the link ……

 

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Silver to the stratosphere

Singapore Bullion Market Association/Emil Kalinowsky/Fall 2021

Repost from 10-20-2021

graphic representation of an angry silver bull“I’m ‘crazy’ about silver’s bullish outlook for the rest of this decade, and I explain why in this article (i.e., green energy, inflation). I could have styled this article in a matter-of-fact way, but I’ve been reading too much science fiction while pining for international travel to resume once again. And so I wondered, What would it be like sitting next to someone? And what if they wouldn’t stop talking? On an interstellar trip? What would I say? Hopefully the content is educational and entertaining. See you at the spaceport.”

USAGOLD note: An entertaining review of silver’s longer-term fundamentals for those looking to check that box on their investment To-Do List.

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

Gold retreats but holds above all-important $1800 level
Twitter founder Dorsey warns ‘hyperinflation is going to change everything’

(USAGOLD – 10/26/2021) – Gold retreated in early trading this morning but continued to hold ground gained above the all-important $1800 level. It is down $4 at $1805. Silver is down 18¢ at $24.47. Inflation has become a top concern at the corner of Wall Street and Main over the past several weeks, and the shift in sentiment has helped pushed the precious metals higher. John Greenwood and Steven Hanke offered a numbers-driven account of inflation’s prospects in a recent Wall Street Journal article.

“Out of the total $10.6 trillion in new money,” they wrote, “real GDP growth will drain roughly $1.4 trillion. Another $1 trillion will flow down the money demand drain. Since the amount of money flowing into the bathtub far exceeds the two outflows, the excess money in the tub—around $8.2 trillion—will hit the inflation overflow drain. The huge monetary expansion—$5.5 trillion already in the bathtub—is starting to reach the overflow. Persistent, not transitory, inflation will be with us for the next two to three years.”

Twitter founder Jack Dorsey was even more emphatic about inflation’s prospects. “Hyperinflation is going to change everything,” CNBC recently quoted him as saying. “It’s happening. … It will happen in the US soon, and so the world.”

Chart of the Day

United States Consumer Inflation Rate
(Bureau of Labor Statistics, September 2021)

bar chart showing the consumer inflation rate for the US through September 2021
Chart and commentary (below) courtesy of TradingEconomics.com

Chart note: It is difficult to ignore the swift gains in inflation posted over the past year. The rate has more than tripled since the summer of 2020. 

 

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White House decisions on Fed leadership complicated by trading furor

FoxBusiness-Wall Street Journal

Repost from 10-19-2021

photo showing Jerome Powell and Lael Brainard during Fed Board of Governors meeting“Mr. Powell, a Republican, has been the front-runner to keep the job when his term expires early next year. But questionable trading activities by two Fed bank presidents, first reported last month by The Wall Street Journal, cast a cloud over his prospects by giving a vocal minority of Democrats who already opposed his nomination new grounds to call for his replacement.”

USAGOLD note: Interestingly, a former Fed economist says if Powell is implicated in the trading scandals, it involves Lael Brainard, the oft-mentioned alternative, as well. This is a solid update on the critical changes unfolding at the Fed.

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South, central American silver production centers puts it at risk of disruptions

Visual Capitalist/Govind Bhutada

Repost from 10-19-2021

graphic image representing silver's supply chain

“Although silver is widely known as a precious metal, its industrial uses accounted for more than 50% of silver demand in 2020. From jewelry to electronics, various industries utilize silver’s high conductivity, aesthetic appeal, and other properties in different ways. With the adoption of electric vehicles, 5G networks, and solar panels, the world is embracing more technologies that rely on silver. But behind all this silver are the companies that mine and refine the precious metal before it reaches other industries. The above infographic from Blackrock Silver outlines silver’s global supply chain and brings the future of silver supply into the spotlight.”

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Investors are ignoring the parallels between stocks today and ‘heady’ years of 1929, 1999 and 2007

MarketWatch/Barbara Kollmeyer

Repost from 9-9-2021

photo image of American Eagle gold and silver bullion coins“He’s not saying we’re going to see a bear market such as what transpired around those years, but thinks an ‘inevitable deep correction,’ is more likely than most of Wall Street expects.”

USAGOLD note: Miller Tabak’s Matt Maley recommends cash as “one of the few hedges that investors will find successful if/when markets correct.” We can think of another alternative that, unlike cash, hedges a financial crash and inflation or stagflation.

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Rising inflation pierces investor complacency

Financial Times/John Plender

Repost from 10-19-2021

logo seal of vigilantes from the early 20th century from the cover of Files and Drums“Something has to give in the unstable equilibrium of markets.”

USAGOLD note: Plender says that central banks that insisted inflation was “purely transitory” now need to recalibrate their thinking. He cites TS Lombard’s Steven Blitz as saying that the bond market vigilantes of old have been replaced by the stock market vigilantes of today. “Few believe,” says Plender, “that the central banks will shortly cut back their asset purchasing programs.”

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Summers slams woke Fed for risking losing control of inflation

Bloomberg/Rich Miller

Repost from 10-18-2021

composite photograph of Paul Vocker and Larry Summers

“Former Treasury Secretary Lawrence Summers castigated monetary policy makers in the U.S. and elsewhere for paying too much attention to social issues and not enough to the biggest risk to inflation since the 1970s.”

USAGOLD note: Echoes of Paul Volcker …… Summers even goes so far as to compare the justifications for current policy to those of Arthur Burns and G. William Miller, back-to-back Fed chairmen during the 1970s who preceded Volcker and presided over the oft-referenced stagflation of that period.

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Gold pushes higher on China woes, the energy crunch, and inflation concerns
Powell, Yellen backtrack on transitory inflation narrative

(USAGOLD – 10/25/2021) – Gold pushed higher this morning on a familiar grouping of concerns – China’s property sector meltdown, the energy crunch (natural gas surged over 6% overnight), and a growing sense that inflation could be more persistent than previously believed. Both Fed Chairman Powell and Treasury Secretary Yellen have back-tracked on the transitory inflation narrative in recent days – a change in perception that will not be lost on market traders. It is up $9 at $1803.50. Silver is up 9¢ at $24.49. Bleakley Advisory Group’s Peter Boockvar sees the current situation in the precious market as a matter of black and white. “The trade with gold and silver is pretty straightforward here,” he tweeted recently, “If you believe [the] Fed will get ahead of the curve or at least in line with it with regards to inflation then sell. If you think Fed will crab walk their tightening, then this selloff is a gift. I believe in the latter.”

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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The Fourth Turning: How bad will it get, how long will it last and what comes next?

Wealthion/Neil Howe interview with Adam Taggart/10-15-2021

graphic representation of waves generated at sea headed for shore

“The whole problem every time you go into a fourth turning is that by the time you’re entering a new fourth turning every generation who has had any adult experience handling a crisis is too old to serve.”

USAGOLD note: It has become our custom to annually post an update of Neil Howe’s thinking in advance of the new year. Howe, as many of you already know, is the co-author (along with William Strauss, now deceased) of The Fourth Turning – the prescient analysis of long-term, generational cycles that first hit the bookstores in 1997. In this interview posted at the Wealthion website, he tells Adam Taggart that “the weight of history strongly suggests we are headed into a decade-plus period of economic and social disruption that will transform our political, economic, financial and social systems. Volatility will reign. Crushing inflation looks likely. We may see a stock market crash and widespread job losses. Perhaps even war.” For those unfamiliar with Howe’s theories, this is a full immersion that will likely change the way you see the march of history and what might lie ahead – from the master theorist himself.


“The next Fourth Turning is due to begin shortly after the new millennium, midway through the Oh-Oh decade. Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation, and empire.” – Neil Howe and William Strauss, The Fourth Turning (1997)

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

A trillion-dollar game of chicken

Daily Reckoning/James Rickards

Repost from 10-18-2021

graphic image recession ahead sign on darkened road leading to city

“One study from the Federal Reserve Bank of San Francisco in collaboration with outside academics showed that of the 15 highest-fatality pandemics since the Black Death in the mid-1300s, the average time needed to return to normal levels of interest rates, growth and employment is more than 30 years.”

USAGOLD note: Rickards still thinks disinflation is in the cards and warns that we should “get ready for a recession in 2022.” The trillion-dollar game of chicken he references has to do with the $4.5 trillion infrastructure and “welfare” legislation now before Congress – a federal government response “characteristic of a new Great Depression.”

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