Monthly Archives: January 2022
Don’t fight the Fed – Commodities may have gotten the message
BloombergIntelligence/Mike McGlone/1-4-2021
“The problem with commodities for 2022 is some normal reversion may seem extreme. Crude oil at the top of our 2021 scorecard vs. gold on the bottom is the pair we see as most subject to trading places. The roughly 20% 10-year decline in the price of crude to Dec. 22 vs. closer to a 30% gain in spot gold indicates the enduring trends, which we expect to return in 2022.”
USAGOLD note: Bloomberg’s McGlone expects to see this flip-flop between gold and the commodities (most represented by oil) occurring under a deflationary scenario in 2022. His January Commodity Outlook details prospects for the range of commodities.
Byron Wien’s 10 surprises for 2022
Zero Hedge/Tyler Durden-Byron Wien/1-3-2021
“Byron defines a ‘surprise’ as an event that the average investor would only assign a one out of three chance of taking place but which Byron believes is “probable,” having a better than 50% likelihood of happening. Byron started the tradition in 1986 when he was the Chief U.S. Investment Strategist at Morgan Stanley.”
USAGOLD note: Among Wein’s surprises for 2022, he says persistent inflation will become the dominant theme, the 10-year Treasury note will yield 2.75% (it’s 1.72% now) and gold will gain 20% increase as it “reclaims its title as safe haven for newly minted billionaires.”
Reflections on Greenspan’s ‘Irrational Exuberance’ Speech after 25 Years
Cato Institute/James A. Dorn/12-27-2021
“Greenspan began his speech by reminding us that ‘at root, money—serving as a store of value and medium of exchange—is the lubricant that enables a society to organize itself to achieve economic progress.’ Sound money (i.e., money that maintains its long‐run purchasing power), is the glue that holds a free‐market system together. In contrast ‘erratic money’ (i.e., wide variations in the quantity of money relative to the demand for money), distorts market price signals and the allocation of resources.”
USAGOLD note: Cato Institute’s Dorn revisits Alan Greenspan’s famous “irrational exuberance” speech in 1996 and applies the former Fed chairman’s observations therein to the present. “Asking the Fed to do too much,” Dorn concludes, “risks further politicizing the central bank, with the consequent loss of credibility.” Of late Greenspan has been a critic of Fed policy. In a note published last October, he reiterated the dangers referenced above. “Monetizing the debt,” he said, “cannot be a long-term solution, and increases in the money supply relative to the real goods and services an economy produces will eventually lead to higher price levels.” (For more, please see Alan Greenspan’s thoughts on inflation, 11/5/2021)
Jim Rogers: Next bear market will be ‘the worst in my lifetime’ — here are 3 assets he’s using for 2022 crash protection
Yahoo!Finance/Jing Pan/1-1-2022
“Rogers has long been a fan of commodities, and silver is one of his favorites. ‘The all-time high for silver is $50 an ounce; now it’s $23. Why can’t silver go back to its all-time high? That’s the way markets usually work,’ he says.”
USAGOLD note: Bullish on hard assets and bearish on stocks, it sounds like Rogers is setting up for a bout of inflation with traditional hedges contra cyclical to stocks. Rogers also likes copper, farm commodities, and fine art.
Wary global bond markets brace for the supply floodgates to open
Yahoo!Finance-Bloomberg/Garfield Reynolds/Liz Capo McCormick/James Harai, Masaki Kondo/1-10-2022
“While governments are set to pare borrowings as fiscal outlays ease, the $2 trillion drop in central banks’ net demand will provide a risky real-world test of how much private demand exists.”
USAGOLD note: It’s not just the United States that is pumping new-issue bonds into the marketplace. It’s happening globally. If the selling exceeds the buying, secondary market sell-offs are likely to force interest rates higher – just about everywhere at a time when inflation dampens demand. Those attempting to get ahead of the approaching whirlwind have already put yields on an accelerated trajectory.
Chart courtesy of TradingEconomics.com
AFTERNOON UPDATE
Gold continues inflation-induced advance
Some much-needed clarity on the nature of inflation and what it means for gold investors
(USAGOLD – 1/12/2021) – Upon release of today’s CPI number, gold initially paused then resumed the climb that began yesterday, tacking another $5 onto its price at $1827. Yesterday, it notched a $19 gain anticipating this morning’s report, which came in at a 7% annualized inflation rate. Silver is up 37¢ at $23.23.
The mainstream financial media is stuck on the Fed’s mantra that it can and will control inflation, even though it is running well ahead of the 2% target level. Those who buy food and gasoline, or happen to be in the real estate market, know full well that even the 7% number might be an illusion. The cost of living is rising, and the inflationary process is in full swing.
“The nature of inflation is widely misunderstood and misinterpreted,” writes analyst Dave Kranzler in an Investing.com overview, “‘Inflation’ and ‘currency devaluation’ are tautological—they are two phrases that mean the same thing. … Dollar devaluation has been occurring since the early 1970’s. The value of the dollar relative to gold (real money) has declined 98%. In 1971 $40,000 would buy a 4,000 square foot home in a good suburb. Now it takes $700,000 on average to buy that same home. Price inflation is the evidence of currency devaluation. The CPI is not a real measure of price inflation. The CPI is methodically massaged – starting with the Arthur Burns Federal Reserve (it was his idea) to hide the real degree of currency devaluation from all of the money that has been printed since 1971.”
Gold and the purchasing power of the U.S. dollar
(Log scale, 1971-2021)
Sources: St. Louis Federal Reserve, Bureau of Labor Statistics, ICE Benchmark Administration
Bridgewater Securities’ famed founder and investment manager Ray Dalio believes we are in an entirely new paradigm that requires a sea change in the way investors handle their money. During the Roaring 1920s, he says, you would want to own stocks and avoid bonds, but it was the polar opposite in the 1930s depression era. In the inflationary 1970s hard assets like gold were the place to be. In the disinflationary 1980s, financial assets were the place to be and hard assets were to be avoided.
“What should one do in this new paradigm?” he asks in a recent LinkedIn piece. “This paradigm is leading to a big shift in wealth and power. Naturally, as a global macroeconomic investor, the economic and market behaviors in this paradigm are top of mind. I think one should consider minimizing one’s ownership of cash and bonds in dollars, euros, and yen (and/or borrow in these) and putting funds into a highly diversified portfolio of assets, including stocks and inflation-hedge assets, especially in countries with healthy finances and well-educated and civil populations that have internal order.” Dalio is a long-time proponent of gold ownership.
U.S. Mint gold bullion sales soar
“Sales of American Eagle gold coins combined to 1,252,500 ounces this year — the most since 2009 and up 48.4% from the 844,000 ounces sold last year. As another recent comparison, they ended at just 152,000 ounces in 2019 for their lowest annual total since the series was introduced in 1986.”
USAGOLD note: More direct evidence of the strong market for physical coins and bullion in 2021 despite rangebound prices. Silver eagle sales were also strong though lower by 6% from healthy 2020 sales.
US economy 2022 preview: Could the great asset and credit bubbles burst?
American Enterprise Institute/Desmond Lachman/1-3-2022
“In recent years, accurate economic forecasting has not been the economic profession’s strong suit. In 2008, it spectacularly failed to anticipate the Great Economic Recession despite the advanced signals that the US housing and credit market bubbles were about to burst. In 2021, with very few exceptions, it failed to anticipate that inflation would accelerate to a forty-year high.… 2022 looks like it might be another year in which the economics profession in general gets caught very flatfooted with its forecasts.”
USAGOLD note: Lachman goes on to outline why we should be worried about the health of the financial system in 2022. He says economists now believe that the banks are much better positioned to weather higher rates than they were in 2008, but they are blind to the vulnerability of “unregulated hedge funds, private equity companies, insurance companies, etc.”
The last great inflation
The Epoch Times/Milton Ezrati/12-31-2021
“With inflation in the headlines, a look back at the last experience might offer needed perspective. There is no claim here that history repeats exactly. Rather, a look back offers ways to dispel nonsense and identify what is important.”
USAGOLD note: Ezrati, an economist, thinks there are some differences between the 1970s and present, but that the overall “picture looks disturbingly like it did last time.”
The Fed’s doomsday prophet has a dire warning about where we are headed
Politico/Christopher Leonard/12-29-2021
“The historical record shows that Hoenig was worried primarily that the Fed was taking a risky path that would deepen income inequality, stoke dangerous asset bubbles and enrich the biggest banks over everyone else. He also warned that it would suck the Fed into a money-printing quagmire that the central bank would not be able to escape without destabilizing the entire financial system.”
USAGOLD note: Is this not where we are as 2022 dawns? Former president of the Kansas City Fed Thomas Hoenig says, “There is no painless solution. It’s going to be difficult. And the longer you wait the more painful it will end up being.” Under the circumstances Hoenig envisions, there will only be two kinds of investors – those who prepared and those who did not. The full article is worth the time spent at the link above.
Central banks accelerate shift from dollar to gold worldwide
NikkeiAsia/Haruki Kitagawa/12-29-2021
“Central banks around the world are increasing the gold they hold in foreign exchange reserves, bringing the total to a 31-year high in 2021. Central banks have built up their gold reserves by more than 4,500 tons over the past decade, according to the World Gold Council, the international research organization of the gold industry. As of September, the reserves totaled roughly 36,000 tons, the largest since 1990 and up 15% from a decade earlier.”
USAGOLD note: And those numbers do not include what China has added to its holdings surreptitiously via proxy reserve acquisitions by its commercial banks. The mainstream media by and large gives credit to central bank acquisitions as supportive of the price. What it neglects is something not so obvious, i.e. their withdrawal from the market as sellers of the metal. That swing – from net sellers to net buyers – has had a profound impact on the metal’s fundamentals.
Click to enlarge
Despite gains and the holidays, investors are glum
SentmenTrader/Jason Goepfert/12-28-2021
“Not only is it unusual to see this behavior when the S&P 500 is holding near all-time highs, but even crabby people tend to turn more optimistic during the holidays. Not this year – this is only the 2nd year time the inception of the AAII survey that the Bull Ratio was negative for the first 4 weeks of December. Returns after similar behavior were mostly positive.”
USAGOLD note: Another indication of the peculiar market action these days – and, as Jason Goepfert shows, it’s not in just the gold and silver markets.
Bull Ratio
(American Association of Individual Investors)
Black = S&P 500 Blue + AAII Bull Ratio (last = 46.6)
Clouds over 2022
Project Syndicate/Nouriel Roubini/12-29-2021
“Central banks’ resolve will be tested if policy-rate hikes lead to shocks in the bond, credit, and stock markets. With such a massive build-up of private and public debt, markets may not be able to digest higher borrowing costs. If there is a tantrum, central banks would find themselves in a debt trap and probably would reverse course. That would make an upward shift in inflation expectations likely, with inflation becoming endemic.”
USAGOLD note: The shifting sands of central bank policy, in our view, will become the major story in financial markets in the coming year. Roubini concludes, “Come what may, investors are likely to remain on the edge of their seats for most of the year.”
The perfect storm for gold
Gold-Eagle/Nick Barisheff/12-27-2021
“In December 1997, The Financial Times ran an article entitled ‘The Death of Gold.’ Since then, the gold price in US dollars has increased 519I% from $288 to $1,780. Today, after many political events and crises we have evidence of the continuous and in many ways spectacular growth of the gold price. This confluence of many current events is creating a perfect storm for gold to increase dramatically more than we imagined.”
USAGOLD note: This article by Nick Barisheff caught our attention because financial press gold naysayers are out in full force once again proclaiming the death of gold, even as storm clouds gather on the horizon. Given the record demand for gold coins and bullion over the past 12-months, we suspect that the reports of its death are greatly exaggerated.
Image attribution: MichaelKirsh, CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons
The Fed’s big lie that much of the world has bought into
Toronto Star/Frank Giustra/12-28-2021
“It almost feels as if there is a universal collective denial of the obvious facts. And, truthfully, I believe there is something much more insidious at play, and the precarious state of the U.S. financial system is, in fact, known to those who pull or influence the levers of monetary policy.”
USAGOLD note: A thought-provoking look at what’s been and what’s likely to be from a deep thinker who has made a fortune in the gold mining business. Giustra says we are living in a “collective delusion aided and abetted by a loosely aligned club of players.” This no-punches-pulled editorial is highly recommended ……
Gold’s turn to shine
Seeking Alpha/Adam Hamilton/1-1-2022
“Gold’s turn to shine again is nearing, with major bullish drivers aligning heading into this new year. The Fed’s vast deluge of new money remains intact despite QE tapering, continuing to fuel raging inflation. A new rate-hike cycle to fight that is looming, but gold has thrived during past cycles. This Fed tightening will weigh heavily on QE-levitated bubble-valued stock markets. As they fall, gold investment demand will surge. Gold mostly spent 2021 grinding sideways-to-lower in a high consolidation. That lack of upside progress left this leading alternative asset increasingly out of favor with speculators and investors alike as the year marched on. Heading into year-end midweek, gold was down 4.9% year-to-date. While psychologically-grating, maybe big gains needed to be digested after gold surged 18.4% in 2019 then another 25.1% in 2020.”
USAGOLD note: We often read about investor rotation from one asset class to another, and sometimes those rotations begin as a trickle that ultimately turns to a flood. The World Gold Council reports record coin and bullion investment demand in 2021. The trickle before the flood? Much will depend on what 2022 brings to the table, but the strong on-going worldwide demand for precious metals implies an uneasiness among investors not likely to be easily placated.
Dollar’s best days look numbered amid rush to front-run Fed
Bloomberg/Ruth Carson and Payne Lubbers/12-28-2021
“Investors are primed for the dollar to climb next year. But the juiciest trades may be over even before 2021 ends.”
USAGOLD note: In other words, the speculative tide may be set to turn against the U.S. dollar as 2022 unfolds. The Fed, one analyst points out, may prove to be “a bit more dovish than people were expecting.”
Gold: Good riddance 2021’s hangover and ‘inflation fail’
Bullion Vault/Adrian Ash/12-29-2021
“Private investors and money managers bought unprecedented quantities of bullion and gold-backed ETFs as the Covid Crisis began in 2020, and new inflows in 2021 have naturally lagged that surge, even as pundits and headline writers pointed at inflation and declared that ‘Gold is broken!’ Yes, the vast bulk of last year’s allocations remain in place, showing confidence in gold’s role as long-term portfolio insurance.”
USAGOLD note: When quantifying the long-term prospects for gold, it is sensible to keep things in perspective, as Adrian Ash does in this entertaining year-end review and outlook. In the end, gold is really portfolio insurance more than it is a speculative investment. On that score, its long-term value as a hedge against depreciating currencies is a matter of record.