Monthly Archives: October 2022
‘Strikingly tight’ copper market belies price drop, miner says
Bloomberg/Yvonne Yue Li and James Attwood/10-20-2022
“It’s ‘striking how negative financial markets feel about this market and yet the physical market is so tight,’ said Richard Adkerson, chief executive officer of Freeport-McMoRan Inc.”
USAGOLD note: A familiar refrain often heard among gold market analysts and investors.…… In fact, such was the subject of Monday’s Daily Market Report. Freeport-McMoRan is the world’s largest publicly traded copper producer. Gold, as it turns out, is not the only market with a major disconnect between physical demand and paper pricing.
Here’s why the US dollar may be closer to a peak than markets think, even as inflation rages and the Fed remains hawkish
MarketsInsider/Jennifer Sor/10-23-2022
“But examples of dollar peaks in the 1970s and 1980s may be more applicable to today since those periods also saw high inflation, [Goldman Sachs] analysts said in a note on Thursday.”
USAGOLD note: Seems logical…… The article at the link above gets into Goldman’s full rationale. Given the well-entrenched inverse correlation between the dollar and the yellow metal, one would think a peak in the dollar index would be good news for gold investors.
How Cold War II could turn into World War III
Bloomberg/Niall Ferguson/10-22-2022
“History shows that nothing causes fiscal and monetary instability quite like multiple big, long conflicts.”
USAGOLD note: Ferguson offers considerable historical perspective on empires in this lengthy essay and ends with a warning that “we must not make the mistake of assuming that the US is an indestructible empire, for there is no such thing.” With that, he echoes the thinking of important historians of the past – Gibbon, Toynbee, Quigley – among others.
A political backlash against monetary policy is looming
Financial Times/Martin Sandbau/10-23-2022
Cartoon courtesy of MichaelPRamirez.com
“Three weeks ago, Sanna Marin, Finland’s prime minister, retweeted a link to an article by a Finnish academic together with the following quote: ‘There is something seriously wrong with the prevailing ideas of monetary policy when central banks protect their credibility by driving economies into recession.'”
USAGOLD note: Marin’s criticism goes to the heart of the matter…… It raises the fundamental question how the Fed got itself into the position of having to defend its credibility in the first place. It wasn’t simply that it printed money, but that it printed money and encouraged fiscal spending then tried to downplay the resulting inflation as something likely to be short-lived. Now, in the name of restoring it credibility, it is advancing a policy that could damage its credibility even further.
Gold weakens marginally as we enter Fed Week
‘You might want to go into gold.’ – Nouriel Roubini
(USAGOLD – 10/31/2022) – Gold weakened marginally as we enter the stormy waters of Fed Week. It is down $3 this morning at $1644. Silver is down 7¢ at $19.26. There is a school of thought among investors that the Fed might be preparing for a future pivot on inflation and many will be looking for clues in Wednesday’s statement and press conference on its validity. Stocks and bonds have rallied on that presumption while precious metals have taken a more circumspect approach. Economist Nouriel Roubini is among the group that believes that the Fed is headed for an abrupt change of heart. The central bank, he says in a recent Bloomberg interview, is likely to “wimp out” on its inflation stance and push the economy, as a result, into the worst monetary crisis since the 1970s.
For years, Roubini shied away from gold despite his notoriously gloomy outlook, but now he recommends it. “You might want to go into gold,” he says. “It has not done very well in the last year but once inflation becomes unhinged when the central banks are going to blink, and until now central banks have played tough. That’s why gold has done poorly, because the real rates were going higher. Then gold is going to outperform like other precious metals, like probably many commodities. But the commodities are going to be hurt by the recession. So gold is actually less cyclical.”
Giustra sees bitcoin as a threat to sovereign currencies
Finbold/Justinas Baltrusaitis/10-22-2022
“They are going to create their own central bank digital currency like everybody else in the world and they’re not going to want competition. I see Bitcoin as an anti-sovereign fiat play and if I’m right about a monetary reset where everybody’s going to something else that incorporates digital currencies in whatever they create, the last thing they’re going to want is the competition from Bitcoin,” he said.
USAGOLD note: Though this article attempts to pose billionaire Frank Giustra as a champion of bitcoin, what he is really saying is that investors should be attuned to monetary authorities acting at some point in the future to remove it as competition for sovereign currencies. It is a cautionary tale. Giustra is a long-time advocate of gold ownership as a hedge against currency debasement.
The market in Treasuries is storing up trouble
Financial Times/Gillian Tett/10-20-2022
“This month, global investors have watched the wild gyrations of gilts — and British politicians — with mounting horror. But now that UK bond markets seem calmer — if not UK politics — investors should peek look across the Atlantic at the unfolding story in the $23.5tn world of American government bonds.”
USAGOLD note: Tett explores the ramifications of a Treasuries market long on supply and short of buyers……What happens next? Without some necessary reforms, as she sees it, the recent turmoil in the UK could serve as a “prologue to a much bigger American market drama.”
Sources: St. Louis Federal Reserve [FRED], Federal Reserve Bank of Dallas
Noriel Roubini foresees ‘ugly’ mix of the 1970s and the Global Financial Crisis
Bloomberg/Joe Wiesenthal and Trach Alloway/10-20-2022
“Now, Roubini’s conviction is only growing that the world will be ensnared in a period of stagflation as central banks struggle to keep a lid on inflation expectations and will eventually blink in the face of things breaking in financial markets.”
USAGOLD note: Roubini says, “this is just the beginning of that pain. Wait until it’s real pain.” He is working with Atlas Capital Team to structure a digital currency backed by gold, US real estate, and US Treasuries. We like the gold part of that formula but think the other items just add unnecessary risk and instability. Stick with gold and silver coins and bullion as the chief bulwark against life’s uncertainties.
Musk second-guesses the Fed
MarketInsider/Theron Mohamed/10-21-2022
“Elon Musk has a new nemesis in the Federal Reserve. The Tesla CEO has slammed the US central bank for soldiering on with interest-rate hikes, despite what he considers growing signs the inflation threat is fading.”
USAGOLD note: Musk like everyone else in the business-finance realm is talking his book. He tells the Fed that inflation is contained because the copper price is down. Is that an accurate indication of what to expect on the inflation front? Musk, more than most, should be well aware of the problems in the global supply chain beyond copper driving up prices. At the same time, his concerns about the strong dollar, which he shares with a long list of nation states, are well-taken.
Gold pushes lower in run-up to next week’s FOMC meeting
Lundin projects a $1.4 trillion federal government interest expense at 4.5% fed funds rate
(USAGOLD – 10/28/2022) – Gold pushed lower this morning as it often does in the run-up to FOMC meetings. It is down $12 at $1654. Silver is down 24¢ at $19.43. Gold Newsletter‘s Brien Lundin believes that the greatest impediment to future Fed rate hikes is the intolerable interest expense it would impose on the federal government. He says that there is “no doubt that the costs are going to soon soar well past $1 trillion” and put up a roadblock to any further rate hikes. (By way of perspective, total federal tax revenue for 2021 was $2.76 trillion.) The resulting negative real rate environment, he concludes, will be “extremely positive for precious metals and other tangible assets.”
“This is the direct result of a federal debt that has more than tripled since the Great Financial Crisis of 2008,” he contends, “and is 64% higher than the last time the Fed tried to raise interest rates. But today the Fed is raising rates at more than three times the speed it has at any time since the 1980s. .… If the consensus range were to be reached (4.5% on the Fed funds rate), the yearly cost to service the federal debt would reach toward $1.4 trillion, and rising. This is a stark reality that the market will now be forced to face, as we just received the initial third-quarter estimate of annualized federal interest expenses. The number is buried within the Bureau of Economic Analysis’ first estimate of third-quarter GDP, which was released just this morning. According to that report, the cost has soared to $736.579 billion.”
Sources: St. Louis Federal Reserve [FRED], US Bureau of Economic Analysis
Notable Quotable
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“I have to say, the implications of a 59% jump in investment bankers buying gold for their personal portfolios has some alarm bells ringing. What’s going on at the banks? Are there problems looming? What do they know that we don’t? Something similar was going in the lead up to the Lehman crisis.… I don’t think it’s reason alone to go out, sell everything, buy gold and run for the hills. But it’s one of those telling insights, I’d say, to have at the back of your mind as you make your broader macro investment decisions.” – Dominic Frisby, MoneyWeek
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What should the Fed (and Congress) do now?
Cato Institute/Norbert Michel/September-October 2022
“For starters, monetary policy should not be viewed as wholly independent of fiscal policy. The Fed serves as a fiscal agent of the United States. Even though the Fed is legally independent, it is, in practice, always under political pressure to accommodate the government’s fiscal policies. In large part owing to accommodating a recent federal spending spree, an active choice by Fed officials, the Fed now holds almost 30 percent of the outstanding federal debt held by the public, up from 22 percent in 2014.”
USAGOLD note: And we can be pretty much assured that the Fed’s 30 percent holding will increase the next time a financial crisis hits……Michel is director of the Center for Monetary and Fiscal Alternatives at the Cato Institute. As for what the Fed and Congress should do now, he offers a long list of reforms most of which center around the Fed playing less of a direct role in the day-to-day functioning of the financial system and the economy.
Why breaking the QE addiction is such a struggle
Bloomberg/Daniel Moss/10-19-2022
“Few in Britain may want to hear it, but the financial crisis that rocked the country has a silver lining for the rest of the world. The dramatic intervention by the Bank of England reminds us that quantitative easing, the large-scale bond buying commonly associated with low inflation rather than today’s price surge, isn’t going away.”
USAGOLD note: It’s always the large gap between what one would like to do and what one has to do that weighs heavily in human affairs. What one has to do usually wins out.
‘Fragile’ Treasury market is at risk of ‘large scale forced selling’ or surprise that leads to breakdown, BofA says
MarketWatch/Vivien Lou Chen/10-20-2022
“The world’s deepest and most liquid fixed-income market is in big, big trouble. For months, traders, academics, and other analysts have fretted that the $23.7 trillion Treasurys market might be the source of the next financial crisis.”
USAGOLD note: The pace is quicker and the volume louder on warnings about potential problems in the U.S. Treasuries market. Zero Hedge last week reported “ugly, tailing 20Y auction prices at highest yield on record as foreign buyers flee.” ……
Inflation: The Fed becomes an issue for 2024
The New York Sun/Editorial Staff/10-13-2022
“Quite a battle is shaping up over the outsized role played by central banks in America’s and other countries’ economic, and political, affairs. The failure to control inflation — witness today’s news that consumer prices rose again at a pace not seen in 40 years — comes at a time of rising concern, as Judy Shelton writes in the Wall Street Journal, that ‘central banks have become too powerful, too prominent and too political.’”
USAGOLD note: A critique on the oversized role the Federal Reserve plays in the economics, finances and politics of the nation……
Gold drifts lower in quiet trading ahead of next week’s Fed meeting
Computer trading has a ‘correlation to the US$, but no correlation to common sense.’
(USAGOLD – 10/27/2022) – Gold drifted lower in quiet trading ahead of next week’s Fed meeting. It is down $3 at $1664. Silver is down 20¢ at $19.46. The Bank of Canada surprised markets with a lower-than-expected rate increase yesterday. The sudden dovishness prompted Oanda’s Edward Moya to suggest that “expectations are growing for the Fed to shift to a half-point pace in December and if that seems more likely after next week, gold could have a nice breakout above the $1700 level.” (MarketWatch) Similarly, High Tech Strategist’s Fred Hickey sees gold and the US dollar at turning points based on managed money positioning in futures markets.
“I think we’re in the final innings of peak Fed hawkishness,” he tweeted recently. “Might not take an actual ‘pivot’ for overvalued $ to fall & gold to get going – just a bit of a turn. Everything’s in place: sentiment, investor positioning. Would catch many by surprise.…… COT open interest for gold very low – only 434K contracts – below almost all previous gold bottoms. Levered traders (Managed Money) net short 26K gold futures contracts (only other two times short – around 2015 & 2018 bottoms). Institutions heavily long US $.……Kinda nonsensical gold’s selling off because inflation’s remaining sticky – but that’s the world we’re in – where levered traders (including computers) have correlations to US$ – but no ‘correlation’ to common sense. But when something breaks & Fed pivots with inflation still high….”
Chart courtesy of GoldChartsRUs.com
Retail investors take shelter in cash after stock market rout
Financial Times/Eric Platt, Madson Darbyshire and Kate Duguid/10-20-2022
“Retail investors are piling into cash after a brutal sell-off in financial markets this year triggered trillions of dollars in losses, stamping out enthusiasm for riskier assets. … That rush into cash follows a long and volatile sell-off in US equity markets this year, which has wiped nearly $15tn off the valuations of publicly traded companies.”
USAGOLD note: Cash is king until it isn’t. Runaway inflation is likely to be the force that dethrones it. The selloff that has brought down the gold price this year is in the paper markets. Reports of heavy demand for mint and refinery production tell us that physical investors are buying as the price drops.
The US economy is still running on a post-COVID sugar high that’s about to run out
Busiiness Insider/Ben Winck and Madison Hoff/10-19-2022
“The US economy’s post-pandemic party is over. Strap in for a pretty nasty comedown.”
USAGOLD note: There is yin and yang to economic life that too many ignore. Economies are not linear but cyclical, and there has been enough in the way of warnings from prominent individuals to warrant being concerned about the next bend in the road. Next year will feel “miserable,” says Business Insider. The stimulus that helped the US economy rocket out of its early 2020s funk came at price – inflation and Fed policies to tame it.
Bezos, Solomon warn of rough times ahead
“In a tweet posted Tuesday evening, the former president and CEO of the online retailing giant echoed comments that Goldman Sachs Chief Executive David Solomon made to CNBC earlier in the day.”
USAGOLD note: This article blends the thinking of Jeff Bezos (Amazon founder) and David Solomon (Goldman Sachs’ CEO). Both say it’s time for businesses and investors “to batten down the hatches.”