Monthly Archives: November 2021

Black holes could be inadvertently making gold, astrophysicists say

Science Alert/Michelle Starr/11-16-2021

Artist rendering of a black hole“The creation of metals such as gold, silver, thorium, and uranium require energetic conditions, such as a supernova explosion, or a collision between neutron stars. However, a new paper shows that these elements could form in the swirling chaos that rings an active newborn black hole as it swallows down dust and gas from the space around it.

USAGOLD note: The anti-gold contingent within financial media will no doubt seize upon this finding as just one more reason to short gold. [smile]

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How durable is the Potemkin economy?

Real Investment Advice/Michael Lebowitz/11-17-2021

photo of Powell and Yellen shaking hands“The original Potemkin Village dates to the late 1700s. At that time, Russian Governor Grigory Aleksandrovich Potemkin constructed facades to hide the poor condition of his town from Empress Catherine II. Since then, Potemkin Village represents a false construct, physical or narrative, created to hide the actual situation. As the pandemic ravaged the economy, the Federal Reserve, White House, and Congress went to work and built a Potemkin economy around the ailing economy.”

USAGOLD note: Lebowitz fears that “sustained inflation will weaken the foundation of the facade and blow our Potemkin economic recovery over.” We are puffing it up, he says, with “fiscal and monetary gimmickry.”

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Fed should hike interest rates immediately to cut stagflation risks, economist Stephen Roach suggests

CNBC Trading Nation/Stephanie Landsman/11-16-2021

artist rendering of the Titanic and icebergs

“Roach has been warning stagflation was one supply chain accident away. Now, he contends the U.S. is in the throes of a broken supply chain while consumer demand is at a fever pitch.”

USAGOLD note: Roach believes that the “supply-demand imbalance is going to be persistent. Enduring.” The Titanic continues to steam through quiet but increasingly dangerous waters.

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Short and Sweet

China’s monetary tradition and the origins of money

Artist rendering ancient Chinese spade money 1558-1050 BC

“The first step in theorizing correctly about money,” writes Mises Institute‘s Joseph T. Salerno, “is to understand that the value of money, like that of commodities, is never fixed and unchanging. Chinese philosophers who published the earlier Mohist Canons (468 B.C.~376 B.C.) grasped this crucial point. They recognized that metallic money, such as the ‘knife coins’ (pictured above) then in wide circulation, was valued and exchanged by weight and argued that the real value of money, despite its fixed face value, was not stable but fluctuated inversely with the prices of commodities. When commodity prices were high, money was ‘light’ or its purchasing power low; when prices were low, money was ‘heavy’ or its purchasing power high. Thus, if monetary conditions were such that the nominal prices of commodities were abnormally high, the real prices of commodities were not high, but rather money was ‘light’ or depreciated.”

According to Salerno, much of what we understand about sound money was first explored in ancient China, where metallic coinage was first introduced in the 12th century BC or earlier. Salerno’s article serves as an interesting introduction to Chinese monetary theory and philosophy. We recall that China was also the first country to experiment with paper money as an alternative to coins made from precious metals.  As might be expected, those experiments led to several instances of runaway inflation.

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“Does the deployment of helicopter money not entail some meaningful risk of the loss of confidence in a currency that is, after all, undefined, uncollateralized and infinitely replicable at exactly zero cost? Might trust be shattered by the visible act of infusing the government with invisible monetary pixels and by the subsequent exchange of those images for real goods and services? . . .  To us, it is the great question. Pondering it, as we say, we are bearish on the money of overextended governments. We are bullish on the alternatives enumerated in the Periodic table. It would be nice to know when the rest of the world will come around to the gold-friendly view that central bankers have lost their marbles. We have no such timetable. The road to confetti is long and winding.” – James Grant, Grant’s Interest Rate Observer


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The nation’s largest pension plan approves leverage to meet its targets

MIshTalk/Mish Shedlock/11–16-2021

graphic image of the charge of the lemmings“Despite huge stock market gains over the last decade, U.S. pensions are hundreds of billions of dollars short of what they expect to need to pay public worker retirement benefits.”

USAGOLD note: CALPERS takes a bite of the derivatives apple …… Will it be its last? The Wall Street Journal reports that CALPERS, the nation’s largest pension fund, would now “use borrowed money and alternative assets to meet its investment-return target.”  The low yield environment drags another player into the embrace of high-risk leverage and trading.

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NEWS &VIEWS
Forecasts, Commentary and Analysis on the Economy and Precious Metals

The Masters of the Universe and Gold
‘A bond issued by God’

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Gold attempts to close November on a positive note
Gold ETF drawdowns reflect ‘diminished appetite’ among funds and institutions

(USAGOLD – 11/30/2021) – Gold is making an attempt to close the month on a positive note. It is up $7 at $1793.50. Silver is down 4¢ at $22.91. Global bond markets also firmed and stock bourses weakened as investors weighed the economic and financial impact of the Omicron variant. One of the factors weighing on the gold price over the past year has been the lack of interest among funds and institutions, as reflected in reduced gold ETF stockpiles. Some analysts, though, believe the apathy could suddenly turn to renewed interest if inflation were to prove more of a problem than advertised or if some other event were to raise the level of financial uncertainty.

“Gold-backed ETFs experienced net outflows of 25.5 tonnes (-$1.4bn, -0.7% assets under management) in October,” reports the World Gold Council in its most recent ETF Monthly Commentary. “Outflows of near equal magnitude from Europe and North America were marginally offset by inflows in Asia. Global gold ETF holdings fell to 3,567 tonnes (US$203bn) during the month – notching year-to-date low levels – as investor appetite for gold diminished in the ETF space following price declines in August and September. However, this was countered by both a pickup in COMEX managed money net long positions in gold futures and evidence of continued strength in vaulted physical gold, suggesting some investors may be shifting gold ETF positions into physical exposure while prices recover.”

Chart of the Day

overlay line chart showing gold ETF stockpiles and the price of gold 2000 to present

Chart courtesy of GoldChartsRUs.com

Chart note: There is a tight correlation between the ebb and flow of gold ETF stockpiles and the price of gold. Over the past two years, stockpiles have come down and so has the price, but, as mentioned above, that could change quickly and forcefully if inflation remains a problem or some other event raises the level of investor uncertainty.

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Notable Quotable

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“The ancient Egyptians believed their gods had shimmering skin made from gold. While the Aztec word for gold, teocuitlatl, literally translates as ‘excrement of the gods’. From ancient Rome to the California gold rush, this dense shimmering metal has been immutably connected with divine quality and the sense of opportunity. The reason for this is simple: gold is the most special element of them all.”

James Dacey
Physics World

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The central bank quandary: Inflation vs recovery

Blain’s Morning Porridge/Bill Blain/11-23-2021

Ed Stein cartoon showing a chart of stock and gold diverging with an investor thinking 'decisions-decisions'

“The problem is by messing around with interest rates, you unbalance the whole financial asset structure. Bonds yield too little, and Equities are overpriced. As I said above, that will continue till interest rates start to normalise, forcing the relative value of equity lower. Which means, have fun in the equity markets today… but we don’t know for how long. There is an alternative. Avoid financial assets. Think about real assets… Gold, Property, etc… Buy assets linked to the real world.”

USAGOLD note: Blain comes to this conclusion after a long excursion into the why’s and wherefore’s on stocks and bonds – all by way of answer to a reader asking about how the bond market works and what she should be doing with her savings.

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Legendary investor Jeremy Grantham issues investor warning

MarketsInsider/Theron Mohamed/11-14-2021

grpahic image of Dr MoneyWise pointing to a chart of the 1929 stock market crash with comment

“The legendary investor and chief strategist of Grantham, Mayo & van Otterloo also sounded the inflation alarm, blasted the Federal Reserve for pumping up asset prices, and reiterated his warning that the worst market crash in US history is coming.”

USAGOLD note: Grantham criticized the mentality that stock prices never decline and “all you have to do is buy.” Investors, he says, are more “blindly optimistic” than they were before the Crash of 1929 or the tech and housing bubbles.

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Silver Insitute’s interim silver market review

TheSilverInstitute/Staff/11-17-2021

Photo stacks of silver bullion coins“Physical investment in 2021 is on course to increase by 32%, or 64 Moz, year-on-year to a six-year high of 263 Moz. The strength will be driven by the US and India. Building on solid gains last year, US coin and bar demand is expected to surpass 100 Moz for the first time since 2015. Growth began with the social media buying frenzy before spreading to more traditional silver investors. Indian demand reflects improved sentiment towards the silver price and a recovering economy. Overall, physical investment in India is forecast to surge almost three-fold this year, having collapsed in 2020.”

USAGOLD note: Yesterday the Silver Institute released its interim overview of the global silver market – a quick and important read for our clientele who own silver or are contemplating it. The report includes a comprehensive supply-demand table and bullet commentary on each of the categories.

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Investors lulled into ‘dreamland’ by central banks, warns Bill Gross

Financial Times/Robin Wigglesworth/11-15-2021

Advertisement for the 1960s television serial The Twilight Zone“‘It’s dangerous,’ Gross warned of accommodative central bank policy. “It’s all dreamland that’s been supported by interest rates that aren’t where they should be.'”

USAGOLD  note: Gross joins the ranks of prominent investment managers and commentators warning of twilight zone markets saturated with financial euphoria. He points out that the Fed is captive to the markets and cannot do much about it.

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Short and Sweet

‘No one questions its value. . .’

image of a Croesus Lydia stater“No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counter-party. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.” – Alan Greenspan, former chairman of the Federal Reserve


Image courtesy of the British Museum Collection/Lydia, croesid, ca 550 BC


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Let’s dance: Buy the credentials – Forget reality, baitballs and financial ergot!

Blain’s Morning Porridge/Bill Blain/11-15-2021

cartoon showing a chorus line corodinatedkick

“Oh dear. When market pricing is determined primarily by the fashion sense of flash-mobs it’s probably time to hang up my hat and go with them… but, of course… I won’t. My spidey-senses are all-a-tingle. I sense a madness in the air, a contagion on the loose. Is it just a disease? Something wicked this way comes… and we all know what it is….”

USAGOLD note: Thoughts on the current financial irrationality …… “Crank up the volume,” he advises, “keep dancing and keep buying! Yay!”

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Gold stabilizes in a range below $1800 to start a busy week for financial markets
Incrementum’s Stoferle puts gold’s 2021 rangebound pricing into perspective

(USAGOLD – 11/26/2021) – Gold looks to be stabilizing in a range below the $1800 mark this morning as news filters through financial markets to start the week that the latest variant might not be as problematic as first thought. It is level at $1793. Silver is up 3¢ at $23.23. With several Fed luminaries delivering speeches, Chairman Powell testifying before Congress, Treasury Secretary Yellen weighing in with a speech tomorrow, and a steady stream of data releases culminating with Friday’s payroll report, Wall Street may get more than its fair share of stimulation this week. Incrementum’s Ronald Stoferle added some much-needed perspective over the weekend on gold’s stubborn, rangebound behavior thus far in 2021.

“Confidence comes from repeatedly fulfilled expectations,” he says in a speech titled The Tipping Point and the New Normality, “That’s why gold is many things, but certainly not dead. A 25% price rise in 2020 and its role as a hedge in the Covid Crash speaks for itself. And now gold is down 3.5%. But what is this 3.5% against the 25%, is this really so bad? No, and many other events speak in favour of gold. One of these is the gold purchases by central banks around the world. As Palantir’s interest shows, this is not limited to central banks. Comex gold delivery is also higher than it has been for a long time. And what do we see in technical analysis? The mother of all ‘cup and handle’ formations. A breakout from this formation could mean a price of $2800.”

Chart of the Day

Personal Consumption Expenditure Index
(% change year over year, 2016 to present)
line chart showing the personal consumption expenditure index less food and energy October 2021
Sources: St. Louis Federal Reserve [FRED], U.S. Bureau of Economic Analysis

USAGOLD note: The PCE price index posted its largest gain since 1990 last week at 4.4%, excluding food and energy. With food and energy, the index posted a 5% gain – another solid indication that inflation is anything but transitory.

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Notable Quotable

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“If we are lucky, the next Fed-caused downturn will cause only a resurgence of 1970s-style stagflation. The more likely scenario is the type of widespread economic chaos not seen in America since the Great Depression. The growth of cultural Marxism, the widespread entitlement mentality, and the willingness of partisans of various sides to use force against their political opponents suggests that this economic crisis will result in civil unrest that will be used to justify new crackdowns on individual liberty. Those who understand the causes of, and cures for, our current predicament have two responsibilities. First, prepare a plan to protect your family when the crisis occurs. Second, do all you can to spread the truth in hopes the liberty movement reaches critical mass so it can force Congress to make the changes necessary to avert disaster. Since the crisis will result in a rejection of the dollar’s world reserve currency status, individuals should consider alternatives such as gold and other precious metals.”

Dr. Ron Paul
Former Texas Congressman and candidate for president
Ron Paul Institute for Peace and Prosperity
Septermber 2018

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When in Rome. . .

photograph of Roman coin hoard

“The coins’ excellent condition indicated that the owner systematically stashed them away shortly after they were made, the archaeologists said. For some reason that person had buried them shortly after 294 and never retrieved them. Some of the coins, made mainly of bronze but with a 5% silver content were buried in small leather pouches. The archaeologists said it was impossible to determine the original value of the money due to rampant inflation at the time, but said they would have been worth at least a year or two of wages.” –  The Guardian (11-19-2015) on a find of 4000 Roman silver coins buried in a Swiss orchard

“Salvian tells us, and I don’t think he’s exaggerating, that one of the reasons why the Roman state collapsed in the 5th century was that the Roman people, the mass of the population, had but one wish after being captured by the barbarians: to never again fall under the rule of the Roman bureaucracy. In other words, the Roman state was the enemy; the barbarians were the liberators. And this undoubtedly was due to the inflation of the 3rd century.” – Joseph Peden, Inflation and the Fall of the Roman Empire

“Now one interesting thing with all this inflation should be a great comfort to us: historians of prices in the Roman Empire have come to the conclusion that despite all of this inflation — or perhaps we should say, because of all of this inflation — the price of gold, in terms of its purchasing power, remained stable from the first through the fourth century. In other words, gold remained, in terms of its purchasing power, a stable value whereas all this other coinage just became increasingly worthless.” – Joseph Peden, Inflation and the Fall of the Roman Empire

cartoon image of Dr Moneywise pointing to a chart of Roman silver coin values

Dr. MoneyWise says. . . .”In the wealth game, emphasize defense when you need to and offense when it makes sense.  At all times, though, no matter how tempting the prospects for speculative gain, remain fully and judiciously diversified.”

Chart image courtesy of Nicolas Perrault III [CC0], from Wikimedia Commons

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Favorite web pages

World Gold Production by Country

Top ten producers, in metric tonnes
2004 – 2020
Source: U.S. Geological Survey
photo of two gold miners' bars
In the seventeen years of this survey, China more than doubled its gold mine production and rose to the top slot, while South Africa cut its production in half and fell from first to tenth. The United States and Australia held steady in and around the two and three slots for much of the period until 2014 when the United States slipped to the number four slot. Russia climbed from number seven in 2006 to number three in 2014 and has held that ranking ever since. 
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wishing all a Happy Thanksgiviing 2021 pumpkins in a row

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Gold to see a recovery to last week’s high at $1877 as $1750 holds – Commerzbank

FXStreet/Staff/11-24-2021

OPINION

“Gold has sold off aggressively following a key day reversal. The sell-off is viewed as corrective and the market should remain well supported on dips back to the $1,750 region. Assuming that the $1,750 area holds the downside, we should see a recovery to last week’s high at $1,877. Above here lies $1,917/22, the May 2021 peak and 61.8% retracement and the 2011 high. This will act as the break-up point to the $1,965 November 2020 peak and the 78.6% retracement at $1,989. This is the last defence for the August 2020 peak at $2,072.”

USAGOLD note: Commerzbank technicians undeterred……Make a gutsy call.

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