Monthly Archives: June 2022
“In place of gold, currency’s anchor is the trust in the central banks that issue them. Now credibility appears to be at an end. With central banks desperately ripping up their playbooks to try to rein in inflation that’s veered far beyond target, they’re admitting they’ve been wrong, and giving up on trying to steer the markets on their plans for the future. That’s alarming, because the precedent of the 1970s is not encouraging.”
USAGOLD note: Articles, like fiat currencies, come and go. Once in a while though, one sticks like a gold coin in the palm of the hand. This article stands a good chance of becoming one of the latter. Authers sees the recent central banks’ inflation blunder as more than just a gaffe. It signals the beginning of the end to the age of central bank credibility. “The word of Powell or Lagarde,” he says, “is no longer as good as Volcker’s, and it’s certainly not as good as gold.”
“Europe’s largest economy faces the unprecedented prospect of businesses and consumers running out of power. For months, Russian President Vladimir Putin has gradually reduced supplies in apparent retaliation over sanctions imposed over the invasion of Ukraine. The standoff escalated last week after steep cuts to the main gas link to Germany, putting reserves for the winter at risk.”
USAGOLD note: Though the natural gas problem for Germany is covered in the United States, few have weighed its implications for the European Union as a whole and the rest of the global economy. This article explores the details. It might turn out to be a very unpleasant winter for Europe, as a settlement in Ukraine seems more distant now than ever. Germany’s Economic Minister Robert Halbeck raises an early red flag saying “The whole market is in danger of collapsing at some point.”
“Thank you! It has been a pleasure doing business with your Company! You’ve treated the small investor (me) just like you would a millionaire. Best wishes, and I hope I can make some purchases in the future.” – L.W., Savannah, Georgia
We also treat millionaires . . . well. . . like millionaires – whether they admit to being millionaires or not [smile].
We receive unsolicited testimonials like L.W.’s routinely. Please see our Client Testimonials page for more feedback, and be sure to visit the Better Business Bureau for even more in the way of FIVE-STAR reviews. Don’t do business with any gold company until you have checked it out.
“Thus, the supply and demand fundamentals of the physical substance do not determine the price of paper gold. The paper market follows its own heavily-financialized logic and is divorced from physical fundamentals. Instead, the paper price acts as a beacon, on which all physical prices are locally determined.”
USAGOLD note: At any given point in time, physical investors must make a determination if the paper price is trading at a discount, premium, or at par with the current market reality. To do so a number of factors must be taken into account, but there is one that takes precedence. Does the current paper price reflect the amount of danger lurking in financial markets and in the general economy? Of course, that call is subjective, but, as a prospective buyer, it helps enormously to view the price of gold within the context of the times. That is how we get to a place where the demand for gold can be off the charts even as the price languishes. This article offers solid insights into the nature of the gold investment, especially for first-timers.
“For its sake and that of both the domestic and global economy, the central bank desperately needs to regain control of the inflation narrative. The persistent failure to do so in the past 12 months is turning the perception of the Fed from the world’s most powerful central bank — long respected for its ability to anchor global financial stability — to an institution that too closely resembles an emerging-market bank that lacks credibility and inadvertently contributes to undue financial volatility.”
USAGOLD note: That lack of credibility and contribution to volatility usually goes hand in hand with a deteriorating currency. We were surprised that El Erian went so far as to compare the Federal Reserve to a troubled emerging-country central bank. If Larry Summers is the leading critic of current Fed policy, El-Erian is a strong number two.
“‘I believe in gold,’ Cramer tells CNBC Make It. He argues that it is one of three things that ‘holds its value in a recession.’ The other two: masterwork paintings and incredible mansions.”
USAGOLD note: Cramer also sees gold as offering relief from rising inflation. He mentions physical gold as one of three options but says, “it not like you can sell a gold coin easily through a brokerage account.” We beg to differ. For those who think they might like to trade gold and silver, we offer a storage account by which you can buy and sell with a quick phone call – any amount. Some of our clients, particularly those with substantial holdings, have taken advantage of this service. If you have an interest, give us a call. We will lay out the options for you. (1-800-869-5115, Ext#100).
Short & Sweet
The true nature of inflation
Cartoon courtesy of Michael P. Ramirez.com
“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.”
Worried about what currency devaluation is doing to the value of your savings?
DISCOVER THE USAGOLD DIFFERENCE
Reliably serving physical gold and silver investors since 1973
“A year ago, the Federal Reserve turned a blind eye to the gathering storm of inflation. Now the Fed is missing another big problem: A rapidly slowing economy. In an effort to appear strong on inflation, the central bank can’t recognize that the economy is already downshifting to a slower growth rate. If it doesn’t wake up to this new threat, a job-crushing recession is inevitable.”
USAGOLD note: That about sums up the current state of affairs for the Fed and the rest of the population. Nutting is concerned the Fed will be late on the recession, just as it was late on inflation. As one critic put it: “They’ll kill inflation for sure. And create a lot of collateral damage.” We may already be seeing the first signs of that collateral damage among highly leveraged speculators and the housing market. As we have mentioned in the past, the Fed tightened into a slowdown in the late 1920s – a policy stance many economists feel triggered the Great Depression of the 1930s.
Gold bounces around the $1825 level in quiet, end-of-week trading
‘The trend change in the inflation will last decades.’ – Goehring & Rozencwajg
(USAGOLD – 6/24/2022) – Gold bounced around the $1825 level in listless end-of-week trading that is beginning to take on the characteristics of the typical summertime lull – at least for now. It is up $2 at $1826.50. Silver is down 14¢ at $20.92. Some, though, see the quiet as symptomatic of something more telling than a case of the annual summer doldrums. “Pundits, market analysts, and investors remain in a state of confusion and hope that the trends of the previous cycle will return,” cautions Goehring & Rozencwajg in a report released yesterday. “Very few market commentators or investors have taken serious steps to protect themselves from the massive trend change that has now taken place.”
“The deflationary trend of the last 40 years is now over,” it continues. “A new inflationary trend is in place and will last longer and carry on farther than anyone expects. Huge changes in investment flows are about to take place with large implications. Although inflation-sensitive assets have already begun to radically outperform bonds and the general stock market, investors’ interests in these assets remains subdued.… Given the significant amount of money printed and the huge amount of debt now accumulated throughout the world, we believe the trend change in inflation as telegraphed by the 2019 BusinessWeek cover story* will last decades. We also believe the recent outperformance of inflation-sensitive assets will last for years as well. There is still plenty of opportunity to not only protect yourself from the ravages of inflation, but to profit by it as well.”
* Is Inflation dead? (Bloomberg Businessweek, April 2019)…Goehring & Rozencwajg see this cover story in a major publication as an important contrarian indicator.
Gold, stocks and bonds (TLT)
(% change, year to date)
Chart courtesy of TradingView.com • • • Click to enlarge
“Seth Klarman trumpeted gold as a haven asset, dismissed cryptocurrencies as dangerous and pointless, and predicted the Federal Reserve would back down from its inflation fight.… The billionaire investor and Baupost Group chief — widely seen as Warren Buffett’s spiritual successor — also championed the US dollar, and warned rising interest rates could spell trouble for funds that have taken too many risks in recent years.”
USAGOLD note: We posted a link to Klarman’s Harvard Business School comments earlier in the week, but this one offers more in the way of direct quotes, including some interesting comments on gold ownership.
Jim Rogers warns of the ‘worst bear market’ in his lifetime – these are the ‘least dangerous’ assets to own today
“With the S&P 500 down 21% year-to-date, the situation for stocks is pretty grim — but according to legendary investor Jim Rogers, it’s just the start. ‘This has to be the worst bear market in my lifetime, which means it will go down a lot and it will last a long time,’ the 79-year-old told ET Now earlier this month.”
USAGOLD note: Silver is his top recommendation as least dangerous, though he adds that “there’s no such thing as safe.” We agree – not in this life, and particularly not in this investment environment. He also rates gold as “less dangerous.”
“The truth, yet unspoken from on high is that radical monetary policy begets more radical monetary policy.” – James Grant, Grant’s Interest Rate Observer
“His view is that the result will be a third Bretton Woods era, mostly defined by three main pillars: The Chinese renminbi is going to play a far larger, international role; gold is going to play a far bigger role in foreign currency reserves; and countries are going to stockpile reserves in essential natural resources in addition to financial ones.”
USAGOLD note: Zoltan Pozsar commands considerable interest whenever he publishes and his Bretton Woods III treatise released this past March is still being parsed and discussed among pundits, investors, and fellow analysts. Wigglesworth explores Pozsar’s origins, influences, and current thinking in the article linked above. “People are learning that you can have all the money in the world,” he tells Wigglesworth, “but if you can’t buy shit with it, it’s a problem. So you might as well stock up on stuff.” That, in a nutshell, explains why central banks, funds, institutions and high-net-worth individuals globally are buying yellow metal.
“More specifically, I now hear it commonly said that inflation is the big problem so the Fed needs to tighten to fight inflation, which will make things good again once it gets inflation under control. I believe this is both naïve and inconsistent with how the economic machine works. That’s because that view only focuses on inflation as the problem and it sees Fed tightening as a low-cost action that will make things better when inflation goes away, but it’s not like that. “
USAGOLD note: The unhappy tradeoff is containing inflation with economic weakness. The Fed, says Dalio, will opt instead to “chart a middle course that will take the form of stagflation.” Dalio, we mention for the sake of our new visitors, is a staunch advocate of gold ownership.
“These seem to be all the necessary ingredients for a perfect oil storm, spiced up with the latest massive oil field outage in Libya. Things are, indeed, worse than pretty much everyone expected, and, what is perhaps more worrying, they will remain so for a while yet because there is no quick fix on the table.”
USAGOLD note: Irina Slav offers an essential overview on the current state of the oil market. In her view, the perfect storm now enveloping supply is not likely to let up anytime soon.
“You can look but you won’t find a stretch of futility as pervasive as the one that is landing on Wall Street. Even in the long and storied history of market meltdowns, the breadth of losses is without equal, based on data that goes back to the Great Depression. In five of the seven sessions through Thursday, at least nine in 10 S&P 500 stocks dropped, a record run of widespread losses, according to Sundial Capital Research.”
USAGOLD note: That might be because the inflationary expansion of the financial bubble has been without equal.
“Most people alive today grew up alongside a simply historic rise in financial wealth. We know nothing but relentless asset appreciation, propelled by disinflation and falling rates. Liquidity outpaced the economy. So did asset prices. But violent financial and geopolitical regime change is upending that status quo and the bubbly valuations that hinge on it.”
USAGOLD note: Baker, who heads up a hedge fund advisory firm, says that we need to prepare for inflation and interest rates being much higher for much longer than the markets are “willing to price.” She sees a return to the 1970s and a new age of real wealth destruction.
“They are hiking into the popping of a bubble.” – Michael Novogratz, CEO, Galaxy Digital
USAGOLD note: In a separate MarketWatch article, Novogratz likens cryptocurrencies’ meltdown to the LTCM implosion in 1998 that nearly brought down the entire financial system. We do not know the degree to which crypto positions are leveraged and what the impact that will have on the rest of the global markets should their rapid decline continue. Doubleline Capital’s Jeff Gundlach recently warned that bitcoin could go to $10,000. It’s at $22,500 as we post this comment.
UPDATE: Financial Times reports this weekend that crypto hedge fund Three Arrows – one of the biggest players in the digital currency space – has failed to meet margin calls. It goes on to cite problems with other crypto-entities as over-leveraged players deal with “a major correction in prices [that] is sending shockwaves through the ecosystem.” On Saturday morning, Bitcoin was trading just above the $19,000 mark and down almost 25% since Monday. Unmet margin calls can result in the liquidation of underlying positions further pressuring the downside.
Short and Sweet
Howe says this Fourth Turning will go to 2030
“To be clear, the road ahead for America will be rough,” writes Neil Howe, author of the modern classic, The Fourth Turning (1997), in a recent analysis posted at Hedgeye. “But I take comfort in the idea that history cycles back and that the past offers us a guide to what we can expect in the future. Like Nature’s four seasons, the cycles of history follow a natural rhythm or pattern. Make no mistake. Winter is coming. How mild or harsh it will be is anyone’s guess, but the basic progression is as natural as counting down the days, weeks, and months until Spring.”
For those who, like me, buy into Howe’s notion of a Fourth Turning, the problem is to get to the other side of the woods with our assets reasonably intact. “Currently, this period began in 2008,” he points out, “with the Global Financial Crisis and the deepening of the War on Terror, and will extend to around 2030. If the past is any prelude to what is to come, as we contend, consider the prior Fourth Turning which was kicked off by the stock market crash of 1929 and climaxed with World War II.” Eventually, he says, we will find our way to a first turning – a time of renewal – but we will be sorely tested before we get there. The precious metals have offered solid protection through the first half of the Fourth Turning. Gold is up 145% since the collapse of Lehman Brothers in September 2008 – the event most analysts associate with the start of the crisis. Silver is up 165%. In both instances, the greatest price acceleration occurred in the early years of the crisis.
Are you looking for a way to get to the other side of the deep, dark wood?
DISCOVER THE USAGOLD DIFFERENCE