Monthly Archives: December 2021

Turks wary of ‘Erdogan dollars’ despite hard sell

Financial Times/Laura Pitel and Funja Geller/12-22-2021

“Erdogan hopes that the message — combined with an attractive new investment proposition — will persuade millions of Turks to turn their backs on dollars and gold and put their savings in lira.”

USAGOLD note: One Turkish analyst asks the essential question: “Why would you hold Erdogan dollars when you can hold real dollars?”……..Or even better, as the chart below shows, real gold. Over the past five years, gold is up over 400% in Turkish lira and the dollar is up almost 225%.

Gold and the U.S. Dollar in Turkish Lira
(%, 2017-2021)

overlay line chart showing the performance of the Turkish lira in gold and the dollar
Chart courtesy of TradingView.com

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happy new year 2022

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Gold knocked off perch above $1800 in thin pre-holiday trading
Despite rangebound year, gold is poised to finish 2021 with the highest average price on record

(USAGOLD – 12/29/2029) – Gold was knocked off its perch above the $1800 mark in thin pre-holiday trading. It is down $11 at $1796.50. Silver is down 18¢ at $22.86. As we approach year-end, it looks like gold will finish the year down 7.5%, and silver, down about 16%. As we have reported consistently all year, though prices have been rangebound, demand for the precious metals incongruously has run at record levels as investors shore up their portfolios against an uncertain future. Market analyst Adam Hamilton is optimistic about the new year. He sees gold as being on the cusp of a major breakout based on what he calls “technicals wound up in a gigantic bullish pattern.”

“But the major trend shifts that earn smart contrarian traders fortunes are never apparent with a myopic short-term focus,” he says in a piece posted at the Seeking Alpha website. “Much-broader perspective is necessary to see when probabilities favor key transitions from uplegs to corrections and vice versa. Layered on top of gold’s core fundamental analysis from my last couple essays is a gigantic bullish technical pattern. It is winding ever-tighter, portending a major breakout. Gold felt awesome in 2020 because it blasted 25.1% higher, and bearish in 2021 because it has dropped 5.7% year-to-date. But prevailing gold levels are actually better this year than last year, as gold averaged $1,798 so far in 2021 compared to $1,773 in 2020! (Please see our Chart of the Day) Gold has largely spent this year consolidating high, digesting its huge gains from last year. That consolidation has formed a huge bullish pennant formation.”

Chart of the Day

bar chart showing the average annual price of gold from 1971 to present

Sources: St. Louis Federal Reserve [FRED], ICE Benchmark Administration

USAGOLD note: As Adam Hamilton points out above, it is interesting to note that even though gold looks like it will finish the year on the downside, it is still poised to post its highest average annual price ever at just below $1800 per ounce.

 

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happy new year 2022

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USAGOLD

CLIENT ALERT


Which is better?

A gold or silver ETF or outright ownership of the real thing?

Not a day goes by that one gold ETF or another is reporting strong gains to its stockpile. Most of those gains come from financial institutions and hedge funds boosting their portfolio positions. We applaud Wall Street’s move to gold. At the same time, though an ETF might make sense for funds and institutions, it might not be the best choice for private investors interesting in owning gold for long-term asset preservation purposes.

Gold ETFs, says Simon Black of the SovereignMan website, are “purely a financial product that defeats the entire purpose of owning gold to begin with. Why turn one of the best, longest-standing physical assets in the history of the world into a paper asset? With this type of debt instrument, you don’t actually own the gold yourself. You become a creditor with nothing more than a claim on someone else’s gold.”

At USAGOLD, we have an alternative you might want to consider ……

The Precious Metals Safe Storage Advantage

Image of golden safe doorIt only takes a few minutes to complete a Precious Metals Safe Storage account opening form, but it could mean all the difference for the investor seeking a superior alternative to gold and silver ETFs. We use the word “superior” because depository storage accounts come with an option not readily available in most ETF accounts – You can take delivery of the metal in your account, or any portion of it, whenever you wish.

At the same time, given the exclusive preferred referral storage rate you receive by opening your storage account through USAGOLD, the annual cost to maintain your holdings is comparable (and often lower) to what most ETF vendors charge in annual fees. All the while, your metal is stored safely and fully insured at one of America’s oldest, largest and respected independent depositories – a firm with which we personally have done business for decades. To get started, we invite you to go to the link immediately below and fill out the application.

Account Form – Precious Metals Storage Account


Interested in the convenience of an ETF but want gold and silver you can get your hands on?
DISCOVER THE USAGOLD DIFFERENCE
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ONLINE ORDER DESK-24/7
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FOMC fallout: Gold emerging as explosive winner

Seeking Alpha/Boox Research/12-16-2021

cartoon showing gold as something to be used in times of uncertainty

“Despite an initial rally in stocks taking the S&P 500 back to an all-time high, risk assets are again under pressure. Bonds climbing and Dollar selling off reflect a deep skepticism that the Fed will be able to follow through with its tightening signal. The result is significant implications for the broader market and a bearish setup for stocks. In our view, gold is the big winner which we believe can gain momentum through 2022.”

USAGOLD note: Boox says that the Fed has managed to burnish the appeal of gold both as a store of value and an inflation hedge.

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What really caused inflation

Mauldin Economics/John Mauldin/12-10-2021

Artist rendering of two doves, Asian motif‘If [Jerome Powell] does favor Wall Street over Main Street, the cost of doing so will be more inflation, which, as noted, is what the Fed really wants anyway. I think Powell believes the disinflationary era is over, at least for a few years. The China-led globalization that kept goods prices low for the last 20 years has mostly run its course. Add in demographic-driven labor shortages and we seem set for a meaningful trend change.”

USAGOLD note: This came out before the events of last week. Mauldin says he hopes that Powell is “made of sterner stuff” than Arthur Burns or William Miller, but the Fed took a significant step in their direction last week. As Bloomberg’s John Authers pointed out last Thursday after the chair’s news conference, Powell had “plenty of opportunities for a ‘Volcker moment,’ and he didn’t take them.”

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The Federal Reserve faces a troubling 1965 parallel

BloombergOpinion/Narayana Kocerlakota/12-14-2021

Ramirez cartoon of Treas Sec sitting in a pot of boiling water while an alarmed frog leaps outCartoon courtesy of MichaelPRamirez.com

“This kind of rapid shift has a troubling historical parallel. At the beginning of 1965, too, the Fed had little reason to be concerned about inflation – until the federal government greatly expanded the scope of the U.S. engagement in Vietnam. The extra demand pushed the core PCE inflation rate rapidly upward.”

USAGOLD note: Kocherlakota is not the first to liken fighting the pandemic to fighting a war. We would add to his observation that economic consequences seem to manifest themselves much more quickly now than they did in 1965. Though it wasn’t until the 1970s that the mid-1960s monetary inflation ended up in consumer prices, we are already beginning to see signs of inflation taking root as a result of the pandemic stimulus.

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Short and Sweet

Worry about the return ‘of’ your money, not just the return ‘on’ it

photograph of a bag of gold coins
There is an old saying among veteran investors to worry not just about the return on your money, but the return of your money. In the wealth game, emphasize defense when you need to, offense when it makes sense. At all times, remain diversified. And by that, we mean real diversification in the form of physical gold and silver coins and/or bullion outside the current fiat money system – not just an assortment of stocks and bonds denominated in the domestic currency. Keep in mind – if the currency erodes in value, the underlying value of those assets erodes along with it. A proper, genuine diversification addresses that problem now and in the future.


Are you ready to deploy genuine diversification in your portfolio?
DISCOVER THE USAGOLD DIFFERENCE
ORDER DESK: 1-800-869-5115 x100/orderdesk@usagold.com

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Inflation rate at staggering 14.9% using 1980 CPI modeling

The New York Sun/James S. Robbins/12-13-2021

“That analysis is from John Williams’ Shadow Government Statistics, which presents data using previous Consumer Price Index frameworks. The number it comes up with for November 2021 marks the worst inflation rate since the 17.6% in June 1947 when President Truman was in office.”

USAGOLD note: One wonders where monetary policy would be had we stuck to the 1980s formulation – not to speak of the monetary framework itself.

overlay line chart showing Shadow Government Statistics

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U.S. posts biggest goods trade deficit on record

Trading Economics/Staff/12-29-2021

“The US goods trade deficit widened to an all-time high of USD 97.78 billion in November 2021 from a revised USD 83.2 billion in the previous month, the advance estimate showed. Imports rose 4.7 percent to USD 252.43 billion, reflecting the ongoing recovery in domestic demand due to rising wages and a fast-recovering economy. Purchases rose for industrial supplies (10.0 percent), consumer goods (4.5 percent), vehicles (4.5 percent), and foods, feeds, & beverages (3.4 percent). Meanwhile, exports were down 2.1 percent to USD 154.66 billion on the back of lower sales of industrial supplies (-2.3 percent), capital goods (-3.0 percent), consumer goods (-2.1 percent), and vehicles (-2.3 percent). So far this year, the US posted a goods gap of USD 984.6 billion, and is on track to book its biggest annual shortfall on record.”

United States Goods Trade Balance
bar chart U.S. trade balance through November 2021

USAGOLD note: Gold had gone negative during overnight trading and was down as much as $17 at one point this morning. It began making up those losses soon after the record trade deficit was announced, and is down only $4 as we post this update.

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Gold knocked off perch above $1800 in thin pre-holiday trading
Despite rangebound year, gold is poised to finish 2021 with the highest average price on record

(USAGOLD – 12/29/2029) – Gold was knocked off its perch above the $1800 mark in thin pre-holiday trading. It is down $11 at $1796.50. Silver is down 18¢ at $22.86. As we approach year-end, it looks like gold will finish the year down 7.5%, and silver, down about 16%. As we have reported consistently all year, though prices have been rangebound, demand for the precious metals incongruously has run at record levels as investors shore up their portfolios against an uncertain future. Market analyst Adam Hamilton is optimistic about the new year. He sees gold as being on the cusp of a major breakout based on what he calls “technicals wound up in a gigantic bullish pattern.”

“But the major trend shifts that earn smart contrarian traders fortunes are never apparent with a myopic short-term focus,” he says in a piece posted at the Seeking Alpha website. “Much-broader perspective is necessary to see when probabilities favor key transitions from uplegs to corrections and vice versa. Layered on top of gold’s core fundamental analysis from my last couple essays is a gigantic bullish technical pattern. It is winding ever-tighter, portending a major breakout. Gold felt awesome in 2020 because it blasted 25.1% higher, and bearish in 2021 because it has dropped 5.7% year-to-date. But prevailing gold levels are actually better this year than last year, as gold averaged $1,798 so far in 2021 compared to $1,773 in 2020! (Please see our Chart of the Day) Gold has largely spent this year consolidating high, digesting its huge gains from last year. That consolidation has formed a huge bullish pennant formation.”

Chart of the Day

bar chart showing the average annual price of gold from 1971 to present

Sources: St. Louis Federal Reserve [FRED], ICE Benchmark Administration

USAGOLD note: As Adam Hamilton points out above, it is interesting to note that even though gold looks like it will finish the year on the downside, it is still poised to post its highest average annual price ever at just below $1800 per ounce.

 

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Notable Quotable

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“We live in a technological golden age but in a monetary and fiscal dark age. While physicists discover the so-called God particle, governments print and borrow by the trillions. Science and technology may hurtle forward, but money and banking race backward.”

James Grant
Grant’s Interest Rate Observer

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After the Fed

SprottMoney/Craig Hemke/12-15-2021

graphic image of modernistic Atlas carrying the world on his shoulders

“So do you see how everything is completely in flux at present? This is madness, and it’s all due to the overwhelming reliance and dependence that ‘the markets’ now have for the Fed. Perhaps this was the Fed’s plan all along? Maybe they have always desired this sort of centralized, market-controlling power? But does having this power make their jobs easier or more difficult?”

USAGOLD note: What happens, in other words, if Atlas shrugs? The sentiments Hemke expresses in this short essay likely echo what many of our readers have been thinking for some time now.

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U.S. economy loses Fed, fiscal props after Powell-Manchin pivots

Bloomberg/Rich Miller and Mike Dorning/12-20-2021

“The U.S. economy will spend 2022 learning to live with the coronavirus without much in the way of help from the Federal Reserve or the federal government — especially with the derailing of President Joe Biden’s $1.75 trillion spending plan.”

USAGOLD note: So where do we go from here? Stocks took a major turn to the downside when the realization hit that things had changed, and perhaps radically. Moody’s Mark Zandi put it well: “It’s like landing the economic plane on the tarmac in a storm that at points has a 100-mile-an-hour headwind and at other points a 100-mile-an-hour tailwind.”

 

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The bond market isn’t buying Fed’s sketch of rate hike plans

Bloomberg/Liz McCormick and Michael Mackenzie/12-18-2021

photgraph of the seal of the Federal Reserve system“Bond traders suspect the Federal Reserve will quickly discover it’s being too ambitious with its newly hawkish stance.”

USAGOLD note: The market thinks the Powell Fed is in a dream state …… And that has to do with a rate outlook that many analysts already anticipate sending real rates deeply into the negative. “The Fed,” says Pacific Management’s Dan Ivascyn, “is in a difficult position.”

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Short and Sweet

730 years of a strong British pound ends
in 1931 with gold standard exit

ovelay chart showing price of gold and UK CPI over 730 yearsSources: Bank of England, ICE Benchmark Administration,
St. Louis Federal Reserve [FRED] •  • • Click to enlarge

This telling chart from the St. Louis Federal Reserve chronicles the history of consumer prices in the United Kingdom from 1209 to present. We added the price of gold to show the direct relationship between declining purchasing power in the British pound and the sterling price of gold after 1931, the year Britain departed the gold standard. Prior to 1931, there was an occasional minor bump higher in the price of gold, but for the most part, it followed along the same flat line as consumer prices.

It was only after Britain separated the pound from gold in 1931 that the price began to move radically higher in terms of the currency. It gained significant momentum after 1971 when the Bretton Woods agreement was abolished. Currencies and gold were then allowed to move freely in international markets. Though interesting from a historical perspective, the real lesson in this chart is that when a nation-state goes from gold-backed to fiat money, gold coins and bullion become a logical and worthwhile alternative for citizen-investors – even after 730 years of relative price stability.


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The Fed still thinks inflation is transitory

Financial Times/Robert Armstrong/12-15-2021

graphic image of inflation genie out of the bottle“[W]e still think many observers are mischaracterising Federal Reserve policy and misunderstand what the Open Market Committee is saying. It’s not that the Fed is being subtle; it’s that some people are ignoring the literal meaning of its statements, which show that the “Powell pivot” is a tactical tweak by Fed that remains very dovish indeed.”

USAGOLD note: Another top drawer analyst comes public with a declaration of Fed dovishness …… Because of the degree to which the markets are betting the Fed is right on inflation – that the genie has not escaped the bottle –  Armstrong says it could get ugly “if the bet is lost.”

 

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Gold pushes deeper into the $1800s
Perth Mint lists several possible catalysts for further gains

(USAGOLD – 12/28/2021) – Gold pushed deeper into the $1800s this morning – albeit cautiously – as investors worried about the omicron variant, inflation, and a waning economic recovery going into year-end. It is up $6 at $1819.50. Silver is up 19¢ at $23.30. The Perth Mint posted its outlook for gold in 2022 yesterday, taking note of the 7% move to the upside off the March lows while listing several possible catalysts that could trigger further gains.

“[E]xpensive equity markets and the potential for a correction may see gold find a safe haven bid,” writes the Mint’s Jordan Eliseo, “especially given the low nominal and negative real yield environment investors face when looking at sovereign debt markets. With markets already looking jittery given the withdrawal of policy support, it would not take much to boost gold. The emergence of the Omicron variant and the lockdown response we are starting to see, as well as the continued energy crisis in Europe and heightened tensions between Russia and Ukraine, also represent potential tailwinds as we head into the new year. … It should also be noted that while rising prices haven’t led gold to deliver a positive return in 2021 so far, we think it’s too early to say the precious metal has ‘failed’ as an inflation hedge, as some have argued this year.”

Chart of the Day

overlay line chart showing gold and world money supply 2000 to present
Chart courtesy of Merk Investments • • • Click to enlarge

Chart note: Though gold does not always rise in direct proportion to price inflation, it is heavily influenced by growth in the money supply no matter where monetary stimulus ends up. Charts showing growth of the U.S. money supply and gold are fairly common. This chart is the first we have seen combining the price of gold with growth in the global money supply.

 

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Notable Quotable

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“Ask anyone in Germany what they associate with gold and, more often than not, they will say that it is synonymous with enduring value and economic prosperity. Ask us at the Bundesbank what our gold holdings mean for us and we will tell you that, first and foremost, they make up a very large share of Germany’s reserve assets … [and they] are a major anchor underpinning confidence in the intrinsic value of the Bundesbank’s balance sheet. The Bundesbank produced this publication to give a detailed account, the first of its kind, of how gold has grown in importance over the course of history, first as medium of payment, later as the bedrock of stability for the international monetary system.”

Jens Wiedmann
President, Bundesbank

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Margin interest hit a massive $595 billion. What’s it mean?

MishTalk/Mike Shedlock/12-13-2021

“Margin is a coincident indicator of sentiment towards speculation in financial and real assets.”

USAGOLD note: We alluded to the heavy margin debt load in Tuesday’s Daily Market Report. Leverage begets forced selling in a downturn which can exacerbate the trend. Also, as Shedlock points out, when it turns, it could be reflecting an important change in sentiment that feeds off itself.

line chart showing volume of margin debt 1971 to December 2021
Sources: St. Louis Federal Reserve [FRED], Board of Governors Federal Reserve

 

 

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