Monthly Archives: May 2022

Fed carrying $330B in unrealized losses on its assets according to Q1 financial statement

Reuters/Howard Schneider/5-27-2022

photo of the Federal Reserve Bank headquarters in Washington D.C., facadeUSAGOLD note: We are not certain what impact, if any, the situation summarized in the headline will have on Fed operations or the solvency of the Fed itself. The article does advise that if it chooses to actually liquidate Treasuries or mortgage-backed securities, the “unrealized losses would have to be booked as a tangible hit.” We have not seen a great deal of discussion on this arcane aspect of Fed operations, and one wonders if it even matters if the Fed runs at a profit. This article does not follow up on or reach any conclusions on the “tangible hit” observation, but perhaps it should have. I would think that a good many would like to know to what extent Fed monetary policy operations could be hemmed in due to a shrinking bottom line.

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Diversifying with commodites? Watch how they roll.

Bloomberg/John Authers/5-26-2022

cartoon image of a complacent reader contentedly smoking his pipe reading the newspaper“Times like these call for commodities. That’s what common sense dictates, and it’s one of those rare occasions when experience and theory agree; in times of inflation, commodities are a better bet than either stocks or bonds. The latter stand to be damaged by inflation, while the former actively contribute to it. And indeed, commodities have had a great time of it since the inflation scare began to take hold early last year.”

USAGOLD note: We see gold as a members of the commodities complex, but having a wider profile. Inflation is not the only apocalyptic horseman it challenges. It also has a history of protecting against stagflation, deflation, and hyperinflation. So, though Authers is correct that commodities require more attention than stocks or bonds, we still see gold’s primary role as a longer-term armchair investment – portfolio insurance rather than a speculation. If, however, one chooses to treat it as speculative, Authers advice, as delivered at the link, applies.

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Everything is collapsing at once – here’s what to do about it

MoneyWeek/Merryn Somerset Webb/5-23-2022

“I’m not often glad I am no longer the young person in the room, but this month I am. If you have only been knocking around in markets for, say, 15 years, you are seeing the collapse of everything that you have been told is true and have observed to be true about markets.”

USAGOLD note: As the new verities fall one after the other and Somerset Webb returns to an old verity saying that what is new to most market participants is actually old and a return to the 1970s. “With that in mind, ” she says, “hold gold.” But that is the bottom line in a very interesting longer analysis of the economic times at the link. The Misery Index – the combination of inflation and unemployment – became the poster child of the stagflationary 1970s.  As it rose, so did the price of gold, as shown in the chart below.

The Misery Index and the price of gold
(% change from year ago,1970s)
overlay chart showing gold and the misery index 1970-1980
Sources: St. Louis Federal Reserve [FRED], ICE Benchmark Administration, Bureau of Labor Statistics

 

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Hickey sees managed money report as ‘extremely bullish’ for gold

Fred Hickey/The High-Tech Strategist/5-20-2022

“Today’s COT report for gold (as of Tuesday) is extremely bullish. Managed Money (mostly hedge funds) net long futures contracts plunged 30% on the week to a net 43,360 contracts, the lowest level of the year and below late January’s level, just before gold soared $260/oz to a near-record high. Managed Money almost always has its lowest net long futures contracts at gold bottoms and largest net long positions at tops. The 43.4K net long contracts this week is just slightly higher than the lows seen around early August and late-September of last year when gold was trading sub-$1750.”

USAGOLD note: In the chart below, you can see managed money position bottoms signaling gold price uptrends, as Hickey indicates.

Gold future and options fund net positions vs price
(Managed Money)
9overlay line chart showing the price of gold and net trader positions based on COT report
Chart courtesy of MacroMicro.com

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Bitcoin could fall to $8,000, a more than 70% plunge, Guggenheim’s Minerd says

CNBC/Lauren Feiner and Arjun Kharpal/5-23-2022

graphic image of a melting bitcoin“‘When you break below 30,000 [dollars] consistently, 8,000 [dollars] is the ultimate bottom, so I think we have a lot more room to the downside, especially with the Fed being restrictive,’ Minerd told CNBC’s Andrew Ross Sorkin in a ‘Squawk Box’ interview at the World Economic Forum in Davos, Switzerland on Monday.”

USAGOLD note: Bitcoin finds itself more closely allied with tech stocks than gold in the trading realm. If Minerd is correct, bitcoin’s collapse could be part of a much wider meltdown.

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Short & Sweet
‘Hello, Mr. Gold Bullion, have you noticed what they’re doing?’
Grant weighs in on the fiftieth anniversary of the fiat money system

image showing the blur of high speed money printing press running at full tilt

The retrospectives on the Nixon shock continue to poured in at the end of this past August – the month fifty years ago when the Nixon administration severed the link between the dollar and gold and ushered in the fiat money era in which we are still immersed. The repertoire, though, would not be complete without a few words from James Grant – one of the great critics and chief chroniclers of the era through his highly recommended newsletter, Interest Rate Observer. The following are excerpts from an interview of Grant published by Sprott, the Canadian gold firm, in mid-August. Grant ends the exchange hosted by the firm’s Ed Coyne with an admission: “I think I spilled my entire bits of wisdom here on the counter!” We want to thank Sprott for permission to quote the interview at length. The full exchange is available at the previously highlighted link.

James Grant –

“It’s immensely frustrating, right? Because where you see heterodoxy posing as the gospel truth, we see heresy wrapped up as sound policy. And you keep on saying, ‘Hello, Mr. Gold Bullion, have you noticed what they’re saying and doing? Have you noticed that the Fed’s balance sheet doubled during the pandemic? Have you noticed that the Fed is talking about nurturing a rate of inflation higher than its target in the midst of evidence accelerating inflation? Have you noticed any of this?’ We address this new thing called gold bullion and gold bullion keeps on slumbering …

“Gold has a way of disappointing its most devoted adherents. In 2008-09 it broke people’s hearts and went down. ‘This is a crisis!’ Gold is an ancient medium that appears in the periodic table. I didn’t invent it. Some people think I invented it! It appears in the periodic table, it’s an old thing and it takes its sweet time, right. It has a kind of a geological time set, that’s its clock: geological. Over the sweep of a reasonable investment horizon, it protects against the depredations of the stewards of our currencies. That’s what its purpose is. And that’s what it mainly does. Over the course of fiscal quarters and even some years, it will disappoint, but over the course of a reasonable investment, long-term horizon, it will spare you the punishment that our central bankers so willfully are meting out.

[Y]ou really have to take these things in with a great grain of salt and just say, all right, what I have here in gold, and very cheap gold equities, by the way, what I have here is an investment in monetary disorder, not a protection against it. We have it (monetary disorder) already. Monetary disorder is in fact the monetary system. It is an inherently disorderly system. In gold, you have an investment in that you do well, the more disorderly it becomes and especially well when the world recognizes the essential chaos of our monetary institutions.”


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Stagflation danger stalks global economy beset by war fallout

Bloomberg/Enda Curran and Yuko Takeo/5-19-2022

graphic image of 1970s reducs coming soon to an economy near you“The world economy is increasingly succumbing to the threat of stagflation reminiscent of its 1970s ordeal, a mounting headache for global finance chiefs already navigating the fallout from the war in Ukraine. “

USAGOLD note: We remember distinctly when Alan Greenspan warned of stagflation’s return about two and half years ago to a gigantic yawn on Wall Street. He revisited those concerns October last year writing presciently, “If growth expectations continue to decline and price expectations continue to rise, we may be heading into a stagflationary environment as increased supply-side costs erode consumer purchasing power and, ultimately, final demand.” That’s about as succinct a portrayal of where we now stand as you are going to find. The real question is “how bad is it going to get?” Hopefully, we’ll hear more from Mr. Greenspan on the subject now that the rest of the financial world is catching up with him.

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Gold retreats ahead of Biden-Powell meeting this morning
Emerging country interest in gold could catalyze $3000 price ‘sooner than expected.’

(USAGOLD – 5/31/2022) – Gold retreated ahead of this morning’s meeting between President Biden and Fed Chairman Powell, in which inflation is sure to be the main topic. It is down $7 at $1851. Silver is down 40¢ at $21.68. In an advisory released over the weekend, Lombardi Letter’s Moe Zulfiqar says emerging country central bank interest “could be one of the biggest catalysts to take gold prices to $3,000 per ounce much sooner than expected.” Just in the past week, three central banks have made major announcements on gold acquisitions. The Bank of Ghana said it would begin bulk purchases from local miners instead of exporting the metal. (Ghana is the world’s sixth-largest gold producer.) The Czech National Bank said it intends to “gradually” add 100 tonnes to its reserves. The Reserve Bank of India reported a 65-tonne open market purchase.

“[W]hat central banks are doing these days when it comes to purchasing gold,” says Zulfiqar, “is grossly underreported in the mainstream media. It doesn’t get reported much because the gold market is considered boring, not like hot technology stocks or cryptocurrencies. Central banks need gold as the world becomes more polarized and currencies get questioned. The yellow precious metal has a history of preserving wealth in times of currency devaluation and crisis. Central banks know this well. They hold a lot of currency in their reserves and will need a lot of gold to hedge against volatility. This will help gold prices get to $3,000 per ounce. Given what central banks did in the first quarter of 2022, my stance on gold is as bullish as ever.”

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Fed officials raised possibility of ‘restrictive’ policy to fight inflation

Financial Times/James Politi/5-25-2022

graphic illustration of a a hawk and dove in flight“Federal Reserve officials discussed the possibility of moving the US central bank to a ‘restrictive’ policy stance that would better fight inflation through more aggressive interest rate increases, but worried that this could undermine the strong recovery in the jobs market.”

USAGOLD note: This FT report complements the Morici opinion piece below. Despite the constant press references to a hawkish Fed, its inner workings, as reflected in the minutes from the May FOMC meeting, increasingly tilt dovish. Example: “Several participants commented on the challenges that monetary policy faced in restoring price stability while also maintaining strong labour market conditions.”

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Notable Quotable

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“I’ve been saying for years that central banks can never step away from this. They can threaten to. And they can bluff, and they can do some probing bets like they did last year, and the market may fall for that, or call that bluff in the short term. But yes I think we’re in a position now where central banks can never back away, which sort of begs the question how can this ever end. Can asset markets get inflated forever?”

Mark Spitznagel
Universa
Bloomberg interview

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The Fed must boost rates by a full percentage point at every meeting to bring down inflation and avoid a job-killing recession

CNBC/Peter Morici/5-26-2022

photo of meeting between President Richard Nixon, Treasury Secretary John Connally and Fed chairman Arthur Burns, early 1970s

“We face the danger that Powell will bend to White House pressure to help re-elect President Joe Biden, as Chairman Arthur Burns did for President Richard Nixon and ultimately unleashed double-digit inflation.”

USAGOLD note: If Morici, an economist at the University of Maryland, is right, we might be living with inflation for a long time to come with the possibility it could become the runaway variety. He worries the war in Ukraine will become a stalemate with exports of key commodities “significantly impaired for years.”

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Favorite web pages

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Live Daily Newsletter
(The page you are now visiting)

Map of the world colored gold with www.usagold.com Member World Wide Web since 1997

“I cannot stress enough how important it is for everybody to really take it upon themselves to read as much as they can and try and understand what’s going on. Don’t rely on the mainstream media, don’t rely on short soundbite information, really dig into this and seek out the people who can help you understand it because it’s incredibly important right now.” – Grant Williams, RealVision-TV, Matterhorn interview with Lars Schall

We couldn’t agree with Grant Williams more.  Here at USAGOLD, we have always geared our content to what we believe our clientele would like to know or learn. Not the general public. Not Wall Street. Not the search engines. Not our colleagues in the field.  But our clientele.  The centerpiece to that endeavor is the page you are now reading.

We invite your visits.  We encourage your bookmark.

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Live Daily Newsletter
Up-to-the-minute gold market news, opinion and analysis as it happens.

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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.


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America, China, Russia and the avalanche of history

Bloomberg/Niall Ferguson/5-19-2022

“In the same way, a belated tightening of monetary policy by the world’s most important central bank, the Federal Reserve, inflicts a sort of regime change not only on US households and businesses, but on the rest of the world, too. All the consequences of these two shocks — one geopolitical, the other economic — are very hard indeed to predict, but I am confident that we have seen only a small proportion of them so far.”

USAGOLD note 1: Ferguson goes on to say that “owning gold has preserved capital, but owning dollars has been a superior strategy.” That logic applies to investors in countries outside the United States but not to Americans who already own dollars by default.

USAGOLD note 2: Gold has held up well in response to the financial shocks of 2022 while other assets covered in the Ferguson analysis – most notably stocks, bonds, and bitcoin – have declined sharply, as shown in the chart below. Historically, Ferguson identifies the 1970s as the closest comparison to the present period but says “the analogy is far from perfect.” Like the 1970s, he says, we should not “expect a rapid return to stability, whether in macroeconomic or geopolitical terms.” The full analysis is highly recommended at the link.

Investment performances 2022
(%, year to date)
overlay line chart showing the performance of various investment categories year to date commodities, the dollar, gold, stocks, bonds and bitcoin
(SPGSCI = Standard & Poors Goldman Sachs Commodity Index; TLT = Bond ETF; SPX = S&P 500; BTCUSD = Bitcoin)
Chart courtesy of TradingView.com

 

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Posted in Gold-silver price predictions, Today's top gold news and opinion |

The Fed’s 15 minutes: Plan to offload mortgage-backed securities could push interest rates even higher

The New York Sun/Scott Norvell/5-20-2022

“The plan is to simply let the securities — bundles of home mortgages purchased from the banks that initially lent the money to homeowners — roll off its balance sheet as they mature. If the bank can’t meet its reduction targets through attrition, however, it may have to resort to selling those securities on the open market, which could nudge mortgage rates up even higher than they already are and put home buying out of reach for more Americans.”

USAGOLD note: Mortgage rates have already gone from 3% to 5.25% since the beginning of the year pushing a good many out of the housing market.

line chart showing the increase in mortgage rates over the past year
Sources: St. Louis Federal Reserve [FRED], Freddie Mac

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Jeremy Grantham and Ray Dalio discuss the stock-market plunge, ring the inflation alarm, and share investing tips.

Markets Insider/Theron Mohammed/5-20-2022

cartoon showing gold as something to be used in times of uncertainty“Grantham, the cofounder and chief investment strategist of GMO, predicted a sweeping crash in asset prices, blasted the Federal Reserve, and touted natural resources and clean energy as shrewd bets. Dalio, Bridgewater’s cofounder and co-chief investor, warned against holding cash or bonds, trumpeted gold and emerging markets, and touched on Tesla CEO Elon Musk’s deal to buy Twitter.”

USAGOLD notes: This article shares 15 quotes from two of the financial world’s most highly respected money managers. Dalio’s pro-gold stance is well-known, but Grantham’s thinking on the subject is not. This past January, he recommended both gold and silver as “good safe harbors to counter inflation,” in remarks posted at the Chief Investment Officer website.

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Short and Sweet
The Great Financial Shock of 2022
Today’s headlines serve as a constant reminder of why we own gold

cartoon image of an investor experiencing headline shock

Inflation, it has been said, comes as a thief in the night, and that it has. The famed British economist John Maynard Keynes warned of the dangers impressed upon an economy by inflation in his 1919 classic, The Economic Consequences of Peace. “Lenin was certainly right,” he wrote. “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Now we are suddenly faced with what could very well go down in history as the great financial shock of 2022 – an inflation rate approaching double digits in just a few short months and a steady stream of headlines that serve as a constant reminder of why we own gold.

“The nature of inflation is widely misunderstood and misinterpreted,” writes former Wall Streeter Dave Kranzler in an analysis posted at Investing.com.  “‘Inflation’ and ‘currency devaluation’ are tautological — they are two phrases that mean the same thing.…Dollar devaluation has been occurring since the early 1970s. 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 evidence of currency devaluation.”

Though the dollar has been in an uptrend against other currencies of late (recently hitting a twenty-year high and pushing the gold price sharply lower), its purchasing power in terms of goods and services is in sharp decline – and that, in the end, is the real reason why gold is now in such high demand. Kranzler says that the inflation wildfires are just getting started and to “hold onto gold and silver.” Similarly, veteran market analyst James Turk recently made some insightful comments during an Epoch Times interview on why gold has long served as a hedge against currency debasement.

“[Gold] does not suffer from entropy,” he said,  “It cannot be destroyed. All the gold mined throughout history still exists in its aboveground stock, which if formed in a cube could slide under the arches of the Eiffel Tower.…A gram of gold buys essentially the same amount of crude oil as it did in 1950. This result occurs because the aboveground stock of gold grows by approximately the same rate as world population, causing the supply and demand for gold to remain in balance with the supply and demand of the goods and services humanity needs. Nature provides everything humanity needs to advance, including money.”

Below, we offer two charts supporting the Kranzler/Turk argument. The first shows the performance of gold against the long-term decline of the dollar. The second shows the sharp acceleration in that decline over the past 12 months – a period during which the dollar has lost a stiff 8% of its purchasing power.

overlay line chart showing gold and the purchasing power of the dollar in log scale 1971-jan22

line chart showing purchasing power of the US dollar in percent 2017-present
Sources: St. Louis Federal Reserve [FRED], U.S. Bureau of Labor Statistics


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Congress has a stake in the dollar’s integrity

Wall Street Journal/Judy Shelton/5-17-2022

graphic overlay showing a 100 dollar bill and stacks of gold coins

USAGOLD note: In this editorial, Judy Shelton explores two interrelated questions. First, who is responsible for a sound dollar, Congress or the Fed? And second, who is to blame if the currency crumbles? She then attacks the political process in Washington for essentially defending inflation rather than producing a sound currency. She ends by calling for a commission “to carefully consider how best to secure the integrity of the American currency.” Much could be said about Shelton’s proposal to make the dollar a sound currency via the political process. While we are waiting for that to happen, though, the best alternative for those who share her concerns is to confront the issue by owning sound money outright in the form of gold and silver coins and bullion.

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Gold holds gains after inflation report
Real Clear Markets’ Tamny says gold is a constant and a ‘signal of inflation’

(USAGOLD – 5/27/2022) – Gold held on to overnight gains as the April PCE Index indicated inflation at 6.3%, slightly below March’s 6.6% –  a not too hot-not too cool number likely to play to mixed reviews in markets today. It is up $5 at 1858. Silver is up 16¢ at $22.25. Though markets now see inflation as a clear and present danger, John Tamny, the editor of Real Clear Markets, says they still do not fully understand its relationship to gold. Gold doesn’t track; it anticipates.

“Inflation is a decline in the value of a currency, period,” he says in an analysis posted at Forbes, “Rising prices are a consequence of inflation, or better yet, can be a consequence. But they’re not inflation itself. To presume that rising prices cause inflation is the equivalent of asserting that wet sidewalks cause rain. Causation is reversed.…To be clear, gold doesn’t rise as a result of inflation; rather gold’s rise is the signal of inflation. When the dollar weakens, gold reflects this weakness. Gold’s rise IS the inflation.” (Editor’s note: The World Gold Council recently argued that money supply is a better indicator of future gold price trends than the Consumer Price Index.)

Gold and the money supply (M1)

line chart showing gold and M1 since 1971
Chart courtesy of TradingEconomics.com

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

Notable Quotable

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“I don’t buy gold, I own it. I don’t buy gold at $1,100 because I think it’s going to go to $1,200. I buy it for what it does, not what the price is, the price is the last consideration for me. I think the way the picture has been developing over the last eight years, it’s like when you take a polaroid, you take a picture and you sit there and you watch this thing and it slowly comes into focus, and that’s what it’s been like for me watching gold, we’re watching this picture slowly develop. We’re getting to the point where people are going to be able to see the picture, and at that point gold is the answer. It’s not just an asset anymore. It’s the answer to a lot of people’s questions. . .The picture is becoming clearer, and everything the central banks are doing is bringing that day forward a little bit.”

Grant Williams
Vulpes Investment Management
June 2016

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