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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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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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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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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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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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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Dalio warns the Fed’s hands are tied and that higher U.S. inflation is sticking around

MarketWatch/Jonathan Burton/12-15-2021

photograph of Ray Dalio making a point at an investment conferrence“As an investor, Ray Dailo eyes the rearview mirror to see what’s ahead. If this paradox makes sense, then you likely agree with the view of history that ‘those who cannot remember the past are condemned to repeat it.’ Put another way, it’s hard to know where you’re going if you don’t know where you’ve been.”

USAGOLD note: Dalio issues a year-end warning saying that people are interested in the news but they are not interested in history and lessons of the past – two things he has made a fortune by studying. He sticks to his formula of the past few years: Stay out of cash, pay attention to the widening political and cultural divide, and get your finances in order by holding “a diversified portfolio of assets” which includes gold.


Image attribution: TechCrunch, CC BY 2.0 <https://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons – cropped

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The 60-40 portfolio won’t protect investors anymore

Institutional Investor/Hannah Zhang/12-16-2021

graphic of a satisfied investor sitting atop a pile of gold bars“The stable inflation of the last decade is unlikely to repeat itself in the 2020s, which could very well undermine the diversification benefits of the traditional 60/40 portfolio.”

USAGOLD note:  AQR Capital Management says gold, commodities, and “inflation breakevens” can provide investors with the best inflation hedges, and warned investors to be “especially wary of equity risk.” The article linked above provides interesting detail ……

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Spectre of three wars poses danger to America’s dominance

Financial Times/Gideon Rachman/12-13-2021

“For decades, American military planning was based on the idea that the US should be able to fight two wars, in different parts of the world, simultaneously. But even the gloomiest strategists did not plan for three wars at the same time.”

USAGOLD note: Rachman cites three flashpoints that could flare up simultaneously – Taiwan, Ukraine and Iran. He downplays a three theater World War Three, but says “it might mean the end of globalization.” As we have begun to see over the last few months, globalization has contributed to keeping the inflation rate in check. Its diminution could encourage the opposite effect.

 

 

 

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Gold drifts lower in uneventful year-end trading
Technical analyst sees potential 50% to 60% gain for silver in 2022

(USAGOLD – 12/27/2021) – Gold drifted lower in uneventful year-end trading as investors and pundits alike took stock of the year just passed and what might lie ahead for 2022. It is down $2 at $1808. Silver is down 7¢ at $22.88. Technical Traders’ Chris Vermeulen sees 2022 stacking up as a big year for silver, predicting the price could rise 50% to 60% and trade at the $33.50 to $36 price level.

“If my research is correct,” he writes in a Seeking Alpha article, “the recent lows in gold and silver will continue to be tested in early 2022, but gold and silver will start to move much higher as fear and concern start to rattle the markets.… I believe the lack of focus on precious metals over the past 12+ months may have created a very unusual and efficient dislocation in the price for silver compared to gold. (Please see our Chart of the Day) This setup may present very real opportunities for silver to rally much faster than gold over the next 24+ months – possibly longer.”

Chart of the Day

Gold and silver price performance
(%, 2021 year to date)overlay line chart showing percentage decline of silver relative to gold
Chart courtesy of TradingView.com

Chart note: Some market technicians see opportunity in silver’s sharp decline relative to gold in the latter part of 2021. As we near year-end, silver is down 13.7%. Gold is down almost 5%. Please see comments from Technical Traders’ Chris Vermeulen in today’s DMR above.

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Wishing you a warm and wonderful holiday season
from all of us at USAGOLD

Christmas Card 2021

Posted in Daily Market Report, dailyquotes, Today's top gold news and opinion |