Monthly Archives: January 2022

Fed response to trading scandal risks more damage to reputation

Financial Times/Colby Smith/1-12-2022

photo of the Federal Reserve Bank headquarters in Washington D.C., facade“Critics say central bank has done too little to alleviate transparency concerns.”

USAGOLD note: The Fed comes under fire for the trading practices of top brass, including its chairman and vice-chairman, in a way few anticipated. “This makes it harder for people to stick up for the Fed and insist on the Fed retaining its independence,” says MIT professor Simon Johnson. Should the Fed’s critics succeed in undermining its independence, little stands in the way of a politically influenced monetary policy. In turn, we see little real resistance in either political party at this juncture to running significant budget deficits and printing money to cover them. Though now pretty much in the background, should the movement to undermine Fed independence gain traction, it will have major long-term implications for the dollar and gold.

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Fed has to be ‘far more aggressive … than the Street thinks,’ says Wharton’s Siegel: ‘This is too much money chasing too few goods’

MarketWatch/Mark DeCambre/1-12-2022

“Meanwhile, Siegel said that so-called TINA, or ‘there is no alternative’ (to stocks), trading will help buttress the equity markets as bonds get hit. Stocks are real assets, you just can’t hold paper assets, which are bonds,” Siegel said. The 10-year Treasury note yields 1.73% on Wednesday, hovering around its highest levels since March 2021.”

USAGOLD note: Siegel is right about the Fed’s timidity, but can it muster the will to become significantly more aggressive? A good many economists would take issue with Siegel’s long-held view that stocks are a hedge against inflation. During the 1970s, an inflationary period often cited as similar to the present, stocks were poor performers while gold and silver soared. In short, there is an alternative to stocks.

Gold and stocks price performance 
(%, 1970-1980)

overlay chart showing the performance of gold and stocks during the 1970s in percent
Chart courtesy of MacroTrends.net

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Notable Quotable

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“Gold is scarce. It’s independent. It’s not anybody’s obligation. It’s not anybody’s liability. It’s not drawn on anybody. It doesn’t require anybody’s imprimatur to say whether it’s good, bad, or indifferent, or to refuse to pay. It is what it is, and it’s in your hand.”

Simon Mikhailovich
Tocqueville Funds

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‘There’s no way the stock market goes up this year — it probably goes down pretty aggressively.” – Kyle Bass

MarketWatch/Mark DeCambre/1-13-2022

graphic image of a gun with a bang sign“Don’t expect stock-market gains in 2022 if the Federal Reserve sticks to its guns on rate hikes and tightening overall financial conditions, says Kyle Bass, founder and chief investment officer of Hayman Capital Management.”

USAGOLD note: Bass goes on to say that the Fed will be forced to back off its hawkish stance when stocks begin to decline “aggressively.”

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Market Overview

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Market Data by TradingView
Delayed data except FOREX

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Posted in Announcements, Today's top gold news and opinion |

Gold outlook 2022

Gold Hub/Staff/1-13-2022

“Dot-plot projections suggest that year-ahead Fed expectations have significantly exceeded actual target rates. More importantly though, financial market expectations of future monetary policy actions – expressed through bond yields – have historically been a key influence on gold price performance.  Consequently, gold has historically underperformed in the months leading up to a Fed tightening cycle, only to significantly outperform in the months following the first rate hike. (See below) Gold may have partly been aided by the US dollar which exhibited the opposite pattern. Finally, US equities had their strongest performance ahead of a tightening cycle but delivered softer returns thereafter.”

USAGOLD note: The World Gold Council offers a comprehensive review of gold’s prospects for 2022. In essence, it sees rising rates as a headwind for gold, but with limited effect along a six-month to one-year timeline.

bar chart coparison showing how gold performs before, during and after first Fed rate cyclical hike
Chart courtesy of the World Gold Council • • • Click to enlarge

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Notable Quotable

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“One of the signs that you have entered into a mania phase is when people have trouble absorbing non-conforming information. ‘Confirmation bias’ is a psychological behavior where individuals disregard any information which conflicts with their current beliefs. While that bias has always been problematic for investors, in recent years, as individuals lock themselves inside their ‘social media echo chambers,’ it has worsened.”

Lance Roberts
Real Investment Advice

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Do you trust the Fed?

On the Money/Dennis Miller/1-13-2022

Image of the word "FED" with a gold coin in the background“I feel the current edition of Fed Heads will attempt to tackle inflation with 25 BPS rate hikes… The Fed has mentioned that they will be hiking rates 2-3 times in 2022… Well, if my thoughts are correct, that would only bring our base rates to 1/2% – 3/4%… How’s that going to tackle 14% inflation? It won’t… Meanwhile Main Street will continue to scramble.” – Chuck Butler

USAGOLD note: A number of analysts who concentrate on the fundamentals say the greatest fundamental of all is whether or not the investing public trusts the Fed. If it does gold tends to remain subdued. If it doesn’t, the lack of trust can fuel strong demand and future price increases. The 14% inflation rate comes from Shadow Government Statistics which calculates inflation using Bureau of Labor Standards methodology from the early 1980s.

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Graphic to link the calendar of reports and events for the week ahead

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The road to confetti is long and winding

“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 Cartoon image of Dr. Moneywise at the lecternthe 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

Dr. MoneyWise says. . . .Some think it takes an advanced degree in economics to understand the merits of a diversification in gold and silver when all it takes is a little common sense. Common sense ownership of physical metal saved the skeptical saver in the time of the French assignat inflation in 1789, the nightmare German inflation in 1923, the global bank collapses in 1932, the American stagflationary breakdown in the 1974 and Venezuela’s inflation in 2019 – even though those episodes span almost 250 years. As old Ben Franklin once said: “A change of fortune hurts a wise Man no more than a change of the Moon.”

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Favorite web pages

Graphic of black swan on gold circleBlackSwansYellowGold
How gold performs during periods of deflation,
disinflation, stagflation and hyperinflation

“That men do not learn very much from the lessons of history is
the most important of all the lessons of history.”
–– Aldous Huxley ––

Though Huxley’s observation is readily applied to humanity collectively, it does not apply so easily to individual investors. As justification, we offer the ongoing (and long-term) success of the USAGOLD website as well as the soaring statistics on the growth of private gold ownership over the past decade both in the United States and abroad, inspired directly by the lessons learned from financial market upheaval. The following short essays are dedicated to the safe-haven gold investor who, like noted financial author Nicholas Taleb, believes that it is just as important to prepare for what we cannot foresee as what we can.


BlackSwansYellowGold Series

Gold as a deflation hedge

Gold as a disinflation hedge

Gold as a stagflation hedge

Gold as a hyperinflation hedge

Gold as the portfolio choice for all seasons

A chronology of panics, mania, crashes and collapses
(400 BC to present)

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Reality bites: A forecaast for precious metals in 2022

SprottMoney/Craig Hemke/1-11-2022

cartoon image of a complacent reader contentedly smoking his pipe reading the newspaper

“Oh, boy. Here we go again. It’s the start of a new year, and that means it’s time for another adventure in long term price forecasting. Around here we call it a ‘macrocast’ because we figured out long ago that, in a world dominated by computers trading derivatives, if you can get the macroeconomic conditions right, you’ve got a decent shot at forecasting the gold price, too.”

USAGOLD note: Even that is an assumption fraught with peril. It’s that part about getting the macroeconomic conditions right that raises an eyebrow. Just when you think you have it nailed something like a pandemic or credit crisis comes along to blow it apart. Viewing gold as a defensive portfolio asset – one without contingent liabilities – is still the best course of action. Better a successful armchair investor, from our perspective, than a thoroughly disenchanted speculator. That said, Hemke stays conservative and ends up with $2050 gold and $29 silver by year end.

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Here’s what happened the last time the Fed attempted to shrink its balance sheet and hike rates simultaneously

The Reformed Broker/Joshua M. Brown/1-7-2022

cartoon showing a boat riding the rising tide“Two separate major corrections occurred that year, culminating with a nasty 20% crash into Christmas Eve which finally forced the Fed to say “Okay, just kidding. Not only are we not raising rates anymore, actually, the next few moves will be cuts. Merry Christmas, we’re sorry.” I’m paraphrasing, but that’s literally what happened.”

USAGOLD note: For some reason unbeknownst to us and most the rest of the investment community, the Fed feels compelled to create the illusion of setting a new course. Meanwhile, economic and financial forces, it knows full well, are unlikely to allow it. So here we go again …… The bond market will be the final arbiter.

 

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Gold is the investment for All Seasons

Looking to prepare your portfolio for whatever uncertainty lies ahead?
DISCOVER THE USAGOLD DIFFERENCE
ORDER DESK: 1-800-869-5115 x100/orderdesk@usagold.com

ORDER GOLD & SILVER ONLINE 24-7

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Spot gold at $2,100? Commodities analyst says gold could test new highs this year

CNBC/Abigail Ng/1-4-2021

photo image of gold bars with colorful chart in background

“We do think across the course of 2022, we will see the gold price testing at the all-time record highs, but we can’t see it traveling much beyond that once it gets there.” – David Lennox, Fat Prophets

USAGOLD note: Lennox says that the Russia-Ukraine confrontation could turn “disastrous” and if it does the $2100 target would come “sooner rather than later.”

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The commodity that soars when inflation is rising

Rogue Economics/Laurynas Vegys/12-31-2021

photo of stacks of silver coins

“So silver is relatively cheap right now. In fact, the metal is currently trading well below its July 2020 price of roughly $27 – before the Fed’s printing press really went into overdrive. In other words, it’s trading as if no money-printing has happened. … The next few years could be huge for silver. Now is the time to add some exposure to this unloved metal to your portfolio.”

USAGOLD note: Given the strong volumes for silver coins and bullion over the course of last year and going into 2022, it appears investors agree with Vegys’ assessment.

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The Fed minutes that shook the world

BloombergOpinion/John Authers/1-6-2022

photgraph of the seal of the Federal Reserve system“This commits the central bank to nothing, but the notion that there were hawks on the committee who thought that the Fed should reduce the size of its balance sheet (in other words, start to sell off its huge bond holdings in a move that, all else being equal, should raise yields) came as an unpleasant surprise.”

USAGOLD note: In the aftermath of the Fed’s minute release, CNBC reported the balance sheet reduction as being in the majority. Authers quotes the minutes directly as reading Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate.” Authers’ rendition seems the more plausible of the two.

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Gold is in a strong rebound position in 2022

NewsMaxFinance/Lee Barney/1-3-2021

“Gold’s lackluster year may pave the way for renewed interest in exchange-traded funds in 2022 from investors seeking a hedge against growing global uncertainties.”

USAGOLD note: As we have posted here previously and as the chart below shows, there has been a direct correlation in the past between growth in ETF stockpiles and rising prices.

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

Chart courtesy of GoldChartsRUs

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Is gold on schedule to catch the inflation train?

Seeking Alpha/Van Eck Funds/1-12-2022

grpahic illustration of powder kets with fuse lit“For those who think gold missed the inflation train, there are several reasons to reconsider. There have only been two other inflationary periods in the last 50 years. The first was in the seventies, the second from 2003 to 2008. In each of these inflationary periods, gold underperformed commodities in the first half and outperformed in the second half. It seems that markets don’t take inflation (or gold) seriously until it proves to be intractable. There are many reasons to believe 2022 will see the beginning of a wage/price spiral.”

USAGOLD note: Van Eck explains the things that held gold down in 2021 and what might cause it to break out in 2022.

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Notable Quotable

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“We believe 2020 marked the secular low point for inflation and interest rates. The 40-year bull market in bonds is over.’”

Michael Hartnett
Bank of America

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