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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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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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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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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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 |

Surging dollar stirs markets buzz of 1980s-style Plaza Accord

Bloomberg/Ruth Carson and Amelia Pollard/5-18-2022

graphic image of a digitalized crypto dollar zeroes and ones“Through that agreement which France, Japan, the UK, US and West Germany agreed to weaken the dollar — a stance taken out of a belief that the dollar’s huge move higher was damaging the global economy.”

USAGOLD note: In 1985 there was general agreement among industrialized nations that the dollar needed to be throttled. If that were not the case, the Plaza Accord never would have gotten off the launch pad. Which nation-states today would be interested in elevating their currencies, as was the case in 1985? Not many, we will venture. That said, a new accord to weaken the dollar, should it happen, would likely stimulate demand for precious metals.

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Ghana starts gold purchase programme to strengthen currency

Reuters/Cooper Inveen/5-17/2022

photo of two gold miners' bars

“Ghana has started a bulk purchase programme to buy gold locally to raise the gold component of its reserves, Central Bank Governor Ernest Addison said on Tuesday, in a bid to strengthen the cedi currency without increasing inflation.”

USAGOLD note: Ghana joins Russia and China as a top-ten global gold producer now channeling the bulk of its production into national reserves. it is the world’s sixth-largest gold producer. China is number one and Russia is number three.

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Nasdaq could plunge 75% from peak, SP 500 45%, warns Guggenheim’s Minerd

MarketWatch/Mark DeCambre/5-18-2022

Graphic of sitting bull and sitting bear

“[Guggenheim’s Scott Minerd] said attendees at that Hoover conference estimated that the Fed would need to take interest rates to 3.5% to 8% to hit neutral, which suggested to him that the central bank might need to dial-up rates until something in the economy or markets, or both, breaks. The Fed appears to have ‘very little concern about the continuation of what I think now is a bear market,’ Minerd said. If that is the case, ‘we are probably going to have a pretty severe selloff,’ he said.”

graphic image of a book and reading glasses A Good Weekend ReadUSAGOLD note: Minerd says we are headed for a summer of pain. About a year ago, he predicted gold would eventually rise to between $5,000 and $10,000 per ounce and that silver would outperform it. In short, he foresees a major bear market for stocks and, on the flip side, a major bull market for gold.

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History says buying the dips is a dangerous game

Bloomberg/John Authers/5-17-2022

photograph of a yellow caution flag in the breeze“Amazingly, shares have never recovered their value relative to gold [after the 2000-2001 dot-com collapse]. Relative to bonds, it would have taken until 2015 for stocks to come out ahead, and they would even have dipped behind again very briefly during the Covid selloff two years ago. Buying the dips in that bear market was a way to lose money on any basis.”

USAGOLD note: Authers raises the caution flag on current stock market dogma, i.e., buy the dips. We will add to the above that the Dow Jones Industrial Average did not revisit its 1929 highs until 1954 – 25 years later.

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Gold slides below the $1850 mark in quiet trading
Bridgewater’s Dalio says, ‘you have to have a certain amount of gold in your portfolio’

(USAGOLD – 5/26/2022) – Gold slid below the $1850 mark in quiet trading as financial markets processed yesterday’s Fed minutes and braced for tomorrow’s PCE Index report. It is down $8 at $1848. Silver is down 8¢ at $21.99. Ray Dalio, who heads up Bridgewater Associates with $160 billion under management, recommends a well-diversified portfolio as the best approach to the current economic upheaval. “You have to have balance,” he told CNBC in an interview at the Davos conference, “and I think you have to have a certain amount of gold in your portfolio.” As CNBC points out, that recommendation echoes his call three years ago that “the precious metal will be a top investment in the years to come.”

“[T]hose that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold,” he said in an advisory posted at Linked-In in July 2019. “Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better-balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio. I will soon send out an explanation of why I believe that gold is an effective portfolio diversifier.” At the time of that Linked-In post, gold was trading in the $1400 range.

bar chart showing the long term performance of gold against a range of competitive assets
Chart courtesy of the World Gold Council • • • Click to enlarge

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Overdue reality check for Fed and markets has barely begun

Financial Times/Sonal Desai/5-22-2022

photgraph of the seal of the Federal Reserve system“The US Federal Reserve and financial markets are experiencing a long overdue reality check on inflation and interest rates. But markets have barely begun to take into account how far the world has changed.”

USAGOLD note: A realistic appraisal of where we stand now from Franklin Templeton’s chief investment officer, Sonal Desai. To think that the Fed will ease policy again in the short term, she says, is a “severe degree of wishful thinking.” She then adds an important kicker. It is a mindset that “seems to inform the central bank’s own outlook.” Hhmmm…….

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