Monthly Archives: October 2022

Bezos, Solomon warn of rough times ahead

CNBC/Jeff Cox/10-19-2022

cartoon showing the three pigs building their houses out of euros dollars and gold

“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.”

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Posted in Today's top gold news and opinion |

Short & Sweet
The Fed has lulled Wall Street into a false sense of security
But that complacency could turn quickly to alarm.

graphic showing wolf in the middle of a flock of sheep all with their backs turned to the danger

“The Fed has been reasonably successful in convincing markets that they have their eye on the ball,” says Plante Moran’s Jim Baird (CNBC – 4/10/2022), “and long-term inflation expectations have been held in check. As we look forward, that will continue to be the primary focus. It’s something that we’re watching very closely, to make sure that investors don’t lose faith in [the central bank’s] ability to keep a lid on long-term inflation.” At least for now, the Fed seems to have successfully lulled Wall Street into a false sense of security on what could become runaway inflation, but, as Baird suggests, that complacency could quickly turn to alarm. In fact, a number of economists have warned that the current energy-driven lull in consumer prices might be short lived, particularly if the Chinese economy begins revving it engines.  Wall Street may have suddenly awakened to the wolf in its midst.

“The Fed’s forecasts from March, saying that inflation would be coming down to the 2s by the end of the year was, frankly, delusional when issued, and looks even more ridiculous today.”
Larry Summers, former Secretary of the Treasury (6-10-2022)

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The 9 painful stages of this bear market are not even halfway done

MarketWatch/Michael Sincere/10-18-2022

graphic image of a seated bear gazing quietly back at the viewer“It’s been a couple of years since markets have experienced extremely strong selloffs, but that record was broken the week of September 26 when the S&P 500 hit a new low for 2022. These strong selloffs are typical of a bear market, followed by rallies that don’t last (a roller-coaster that so far has played out during October).”

USAGOLD note: This tick list of nine stages to a bear market recalls the fundamental common sense that used to inhabit market analysis – before the nonsensical acronyms, ubiquitous algo-based trading systems, and the mindless trend chasing. Quoted above is Sincere’s stage 4 – where he says we are now. The remaining stages are worth knowing about at the link above.

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Posted in Today's top gold news and opinion |

Gold firms in early trading on four-day dollar slide
Traders weigh prospect of Fed restraint as economic indicators fall short of expectations

(USAGOLD – 10/26/2022) – The gold price firmed in early trading as the US dollar slid for the fourth day running, and investors began pinning their hopes on the Fed tempering its hawkish monetary stance. It is up $18 at $1673.50. Silver is up 28¢ at $19.69. Bloomberg ran an article this morning emphasizing the prospect of Fed restraint. A “slew of US data on manufacturing, home prices, and consumer confidence have all fallen short of economist estimates, underscoring the toll of Fed tightening,” it says. At the same time, improving prospects for the UK and the EU (each for their own reasons) have pushed their respective currencies higher against the dollar. The pound and euro are two prime components of the US dollar index.

Analyst Craig Hemke advises investors to keep an eye on the dollar index for clues as to when gold and silver might shake their current lethargy. “All bull and bear markets eventually come to an end,” he says in an advisory posted yesterday at the Sprott website, “and this one in the Dollar Index will end eventually too. When will it end? When the Fed finally halts their rate hike regime, of course. However, you must keep in mind that most ‘markets’ are generally forward-looking and proactive, not passive and reactive. With this in mind, perhaps we can look to the Dollar Index for clues before the Fed pauses and reverses. Maybe we should expect the Dollar Index to top and roll over in advance of this eventual policy shift and not as a response to the shift itself.” Hemke sees a break below the 50-day moving average at 110 on the dollar index as an indicator that “the uptrend has been broken.” This morning the dollar index is at 110.25.

Gold and the US Dollar Index
(2000 to present)
overlay line chart showing gold and the US dollar Index since 2000
Chart courtesy of TradingView.com • • • Click to enlarge

 

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

Mobius warns rates will go to 9% if inflation persists

Bloomberg/Vildana Hajric and Guy Johnson/10-17-2022

“The Fed is under pressure to handle the hottest inflation in 40 years after last week’s reading of September consumer prices came in above expectations. Other inflation readings have also remained elevated despite the Fed’s recent rate increases.”

USAGOLD note: With all due respect, it will be a very long time, in our view, before we see interest rates near double digits. You could drive a tank through the current gap between the fed funds rate and headline inflation. It would take nine 0.75% rate increases to close that gap as it stands.

Fed funds and headline inflation rates
overlay chart showing fed funds and headline inflation rate 922.png
Chart courtesy of TradingView.com

 

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Posted in Today's top gold news and opinion |

Momentum builds for creating a Treasury bond buyback program

Yahoo!Finance/Alexandra Harris/10-17-2022

“The long-simmering idea that the US government should stand ready to buy back Treasury securities from investors to improve market functioning is moving closer to reality.”

USAGOLD note: The question that immediately arises after reading the headline above is: “Where is the Treasury Department going to find the funds to buy back those bonds?” After all, we are talking about a government that is deeply in debt without the means. But Treasury’s proposal is classic. It intends to retire one bond by issuing another, similar to paying off one credit card by borrowing on another. And somehow, we are led to believe that it will make a difference.

Additions to the US federal debt
(Quarterly – 1970 through 2022 Q2)
bar chart showing additions to the national debt quarterly 1971 to present
Sources: St. Louis Federal Reserve [FRED], US Department of the Treasury, Fiscal Service

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Posted in Today's top gold news and opinion |

No respite for the Fed on high inflation

Bloomberg/Editorial Board/10-17-2022

graphic image of a lion unwilling to jump through hoops“If the Federal Reserve was hoping for some sign that inflation is subsiding, it was cruelly disabused by the latest figures for consumer prices. …The message was clear: Far from relaxing its recent pace of monetary tightening, the Fed might have to raise interest rates faster and further than expected.”

USAGOLD note: Given the current yield on the 10-year Treasury (even at these elevated numbers) versus the current inflation rate, it is difficult to believe that the Fed will get ahead of the curve anytime soon. Many analysts believe that the trigger for a pivot will be a credit event instigated by tight monetary policy, rather than a sharp turnaround on the inflation front. Bloomberg advises the Fed that honesty is the best policy. Whether it can or will jump through that hoop remains to be seen.

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Tug of war markets fear is central banks versus governments

Bloomberg/Ben Holland and Liz McCormick/10-16-2022

graphic image of helicopter money drop“In the all-hands-on-deck economics of the pandemic, governments and their central banks shared the same goals. Now they’re starting to pull in different directions.”

USAGOLD note: Is this really what is happening? Or are central banks and governments still on the same page? This article cites a split between the UK government and the Bank of England as evidence, but when push came to shove, the government cited a need, and the central bank, without hesitation, filled it by reintroducing sovereign debt purchases. In short, the two pulled in the same, not opposite, directions. We can debate the fine points all we want, but the bottom line is the bottom line.

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Gold drifts lower in generally directionless, low-volume trading
‘Mighty currents have been playing out a tug-of-war with the gold price.’

(USAGOLD –10/24/2022) – Gold drifted lower this morning in generally directionless, low-volume trading. It is down $7 at $1646.50. Silver is down 31¢ at $18.99. Despite gold’s rangebound pricing thus far this year, Mercer’s Matt Scott sees merit in holding the metal as “one of the few assets that has tended to do well in a stagflationary environment.” (See chart) He explains the rangebound behavior despite the poor performance of stocks and bonds as the product of an “exceptionally strong dollar” – strength, he believes, that could be “imperiled” in the future as nation-states diversify away from it as a reserve holding.

“So far,” he says in a review published yesterday, “2022 has been a dramatic year for markets, to say the least, with a 60:40 portfolio returning -15.6% year to date – only the fourth time in a century that stocks and bonds have both fallen over two successive quarters. Gold, by contrast, has had a seemingly placid time of it, significantly up in Q1 but giving back most of those returns more recently (-6.4% year to date ), with its realized volatility subdued relative to equities in recent times. However, anyone who has watched the horror movie Lake Placid knows that the lake is far from placid. Beneath the surface, mighty currents have been playing out a tug-of-war with the gold price.”

Gold, Stocks, and the Misery Index during the Stagflationary 1970s
(% change, annual; Misery Index = Inflation + Unemployment)bar chart comparing the performance of gold, stocks and the Misery Index in the 1970s
Data sources: St. Louis Federal Reserve [FRED], MacroTrends.net • • • Click to enlarge

Notable Quotable
Get what you can, and keep what you have, that’s the way to get rich.… [T]he demand for gold persists due to the fact that during periods of instability and higher price volatility, the price of gold tends to have a negative correlation with the prices of other assets. This implies that in situations of financial stress, gold prices often rise while prices for other assets fall, thereby increasing the role of gold as a universal ‘diversifier’ of the investment portfolio, regardless of the source of financial stress. This differentiates gold from other ways to protect the value of your portfolio by using, for example, derivative financial instruments since these are focused on protecting the portfolio against some specific risks.” – Olegs Jemeljanov, The Data Driven Investor

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

The mystery of gold prices: Who if not what?

The Alchemist/Adrian Ash/October 2022

graphic image of the charge of the lemmings“Tail wagging dog? Perhaps. But while solving the mystery of gold pricing may continue to defy a quick sound bite analysis, and while the size of investment plus speculative flows doesn’t show any kind of consistent relationship to the size of price swings, it’s plain that the behaviour of gold ETF investors and Comex speculators, although marginal to physical demand across longer time frames, tends to map if not drive the market’s direction.”

USAGOLD note: Ash runs through the gamut of influences on the gold price and lands at the place described above. However, he leaves a step yet to be taken. What, in turn, influences the flow in and out of ETF and COMEX positions? Too often, in our view, it is a matter of crowd behavior more than a fundamental shift based on sound reasoning. That is why when the market turns in a meaningful way, so many are at a loss to explain why. The best way for the private investor to capitalize on that shift (when, not if, it comes) is to be well-positioned ahead of its inception.

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

Nobel laureate says US is ‘really exposed’ to a financial crisis

MarketsInsider/Ben Winck/10-16-2022

graphic illustration of a crowded exit“It takes at least somewhat unexpected events to cause a financial crisis, or the type of run where there’s enough loss of confidence and loss of net worth to get people rushing to the exits before others get there, The ‘fear of fear itself’ or self-fulfilling prophecy kind of run.” – Douglas W. Diamond, 2022 Nobel Laureate in economic sciences

USAGOLD note: Diamond worries about the Fed kindling market chaos and the public, in turn, losing faith in the system.

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New cycle realities – ‘The world has changed right before our eyes.’

Credit Bubble Bulletin/Doug Noland/10-14-2022

graphic image of road sign reading Welcome to Bedlam“It would have been a nonevent; inconsequential. Confirming New Cycle Dynamics, the Truss government’s ‘mini budget’ has unleashed absolute mayhem. Pension funds blowing up. Emergency central bank rescue operations. Global market instability. UK’s Treasury Secretary sacrificed after a mere 38 days, while an entire government hangs in the balance. Friday evening Financial Times headlines: ‘Gilts in Fresh Slide as Investors Say Truss U-turn Did Not Go Far Enough.’ ‘Can Liz Truss Survive as UK Prime Minister?’; ‘Austerity Beckons as Truss Seeks to Restore Britain’s Reputation with Investors.” And “UK Debacle Shows Central Bank ‘Tough Love’ is Here to Stay.’

The world has changed right before our eyes. It has been one of my favored rhetorical questions for the past couple decades: Is ‘money’ (monetary inflation) the solution or the problem? The answer is obvious – has been for some time, and I’ll assume central bankers have accepted the harsh reality. Years of unprecedented monetary inflation created false realities. The perception of endless cheap (free) “money” distorted how our market, economic, financial, political and social systems function. The long-overdue adjustment period has commenced, and there’s every reason to expect it to be especially brutal. So quickly, so many things are different. There were this week more tremors and that nagging feeling the ground was about to give way.”

USAGOLD note: Noland at his best……

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Roubini warns next decade could bring ‘massive insolvencies and cascading financial crises’

Yahoo!Finance-Fortune/Will Daniel/10-14-2022

graphic illustration of stagflation - stagnation + inflation
“Of course, Roubini was right. The U.S. housing market began to unravel in 2007, ultimately sparking the Great Financial Crisis a year later, and the Fed wasn’t able to rescue markets. So it might make sense to pay attention to Roubini’s warnings of impending economic doom this time around, even if they can get a bit repetitive.”

USAGOLD note: Roubini says things Wall Street does not want to hear. At critical junctures though – like just before the 2008 Great Financial Crisis – he has gotten it right. As the headline indicates, he sees danger ahead – a “stagflationary crisis unlike anything we’ve ever seen.” What is not shown in the illustration above are the potentially debilitating repercussions in the stock, bond, and real estate markets – a hint of which we have already begun to experience.

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Gold turns lower in follow-up to Friday’s surprise rally
A gold rush is underway in India – festival demand up 595% over last year

(USAGOLD –10/24/2022) – Gold turned lower to start the week after Friday’s surprise rally driven by the growing perception that problems in the global bond market might force the Fed to ease off the monetary brakes. It is down $8 at $1652. Silver is down 25¢ at $19.24. The incongruously low paper price of gold in the face of the current global economic turmoil is creating shortages and driving up premiums for the physical metal in key Asian markets.

On China’s Shanghai Exchange, for example, gold bullion is running about $43 per ounce over US prices, according to the World Gold Council. As a result, major wholesale bullion suppliers like Standard Chartered and JP Morgan are channeling metal to China. India’s on-hand stockpiles are now at 10% of where they are typically this time of year, according to Tribune India. The resulting shortage, it reports, could “force Indian buyers to start paying hefty premiums for supplies in the approaching peak-demand season.” Over this past weekend, Business Standard reported a gold rush is underway in India, with festival jewelry orders jumping 595% over last year.

Gold in Indian rupee, Chinese yuan, US dollars
(%, year to date)
overlay chart showing the price of gold in India rupee, Chinese yuan and US follar year to date
Chart courtesy of TradingView.com

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Sunday In-Depth
The avalanche of history
‘It’s a very, very difficult place for us to be in.’

cartoon image of a scared skier trying to outrun an avalanche

“[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,” writes historian Niall Ferguson in a recent Bloomberg opinion piece. “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.”

In testimony before the British Parliament this past May, Bank of England governor Andrew Bailey admitted he felt “helpless” in the face of what has become runaway inflation. In doing so, he may have framed a new conundrum for central bankers everywhere – taming what increasingly looks like an untameable course of events. Unlike the Fed, which is raising rates and unwinding its balance sheet in the face of a slowdown, Bailey says BoE will not be selling government bonds in a time of economic turmoil. “It’s a very, very difficult place for us to be in,” he says.

Gold, as you can see in the chart immediately below, has held up well in response to what Ferguson calls the avalanche of history, while other assets covered in his lengthy analysis – most notably stocks, bonds, and bitcoin – have declined sharply. Commodities have been the star performer by far, and under such circumstances, we might have expected more from gold. Then again, it’s early in the game. Ferguson identifies the 1970s as the closest comparison to the present period but says “the analogy is far from perfect.” Like the 1970s, though, we should not “expect a rapid return to stability, whether in macroeconomic or geopolitical terms,” he says.

“For most of the past year,” writes Wisdom Tree, the Dublin-based financial firm, “gold has been ignoring the red-hot inflation that we have been living in.… It’s as if gold has been living in an alternate universe.” Now, though, it believes gold has reached a turning point. Its consensus forecast has the metal at $2315 by the first quarter of 2023. Its bullish scenario, based on sticky near double-digit inflation and a sharp correction in the dollar index, puts it at $2680. Its bearish forecast, which would result from the Fed successfully taming inflation, puts it at $1790.

Investment performances 2022
(%, year to date)
overlay chart showing the performance year to date for commodities, gold, stocks, bonds and bitcoin
SPGSCI = S&P Goldman Sachs Commodity Index; TLT = Bond ETF; SPX = S&P 500; BTCUSD = Bitcoin)

Chart courtesy of TradingView.com • • • Click to enlarge

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Posted in Sunday In-Depth, Today's top gold news and opinion | Tagged |

‘Macro’ forecasters are everywhere these days, but they tend to be wrong about investing most of the time

MarketWatch/Mark Hulbert/10-1-2022

black sheep with book white sheep with ipads

“A recent Howard Marks essay provides one of the best bill of particulars I’ve ever read for why we should be skeptical of macro predictions, and I urge you to read it in its entirety. Marks is the founder of Oaktree Capital Management; his periodic commentaries, known as memos, are widely read on Wall Street. Warren Buffett, for example, once said that ‘when I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something.'”

USAGOLD note 1: We featured Howard Marks’ thinking on macro forecasting in the August edition of News & Views under the headline: Dare to be different – Choose assets that ‘others haven’t flocked to and caused to be fully valued’. Marks has garnered considerable attention for his views particularly in light of the Fed’s seeming inability to get things right when it comes to forecasting problems like inflation or unemployment. That shortcoming, as Marks points out, extends to predicting how various investments are likely to perform over extended periods of time particularly when they are based on assumptions that might be off-base in the first place.

USAGOLD note 2: In our view, that is about as strong an argument for diversification as one could make. Says Marks, “If you seek superior investment results, you have to invest in things that others haven’t flocked to and caused to be fully valued. In other words, you have to do something different.” If you were asked to list assets yet to be fully valued, what would top your list?

The September 2022 edition of Marks’ newsletter: The Illusion of Knowledge

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The Fed’s next crisis is brewing in Treasuires

Bloomberg/Robert Burgess/10-14-2022

image showing the blur of high speed money printing press running at full tilt“Make no mistake, if the Treasury market seizes up, the global economy and financial system will have much bigger problems than elevated inflation.”

USAGOLD note: Another treatise on the problems festering in the US sovereign bond market, this one from Robert Burgess, the executive editor of Bloomberg Opinion. He outlines the dangers of quantitative tightening. What should most concern the Fed and Treasury, he warns, is the “deteriorating demand at US debt auctions.” We are reminded that economic history is riddled with examples of nation-states turning to the printing press when they cannot find buyers for their sovereign debt.

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The Fed is losing the war against inflation

CNN Business/Allison Morrow/10-13-2022

graphic showing the 1970s do not equal the 2020s“’This inflation report today was an unmitigated disaster,’ wrote Christopher S. Rupkey, chief economist at Fwdbonds, a financial markets research company. ‘It shows whatever Fed officials are doing, it is just not working.'”

USAGOLD note: This is the 1970s scenario. The central bank talks the talk but it never walks the walk. It stays behind the inflation curve setting the stage for a stagflationary economy and all it portends. When things go bad, politicians tend to blame central bankers, but in this case, both are to blame. The government ran huge deficits that the Fed financed with printing press money. Predictably, inflation was the result. As for the present, it is not just the Fed that losing the war on inflation. The federal government with its continued overspending financed with debt is losing it as well.

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When in Rome. . .

photograph of Roman coin hoard

“The coins’ excellent condition indicated that the owner systematically stashed them away shortly after they were made, the archaeologists said. For some reason that person had buried them shortly after 294 and never retrieved them. Some of the coins, made mainly of bronze but with a 5% silver content were buried in small leather pouches. The archaeologists said it was impossible to determine the original value of the money due to rampant inflation at the time, but said they would have been worth at least a year or two of wages.” –  The Guardian (11-19-2015) on a find of 4000 Roman silver coins buried in a Swiss orchard

“Salvian tells us, and I don’t think he’s exaggerating, that one of the reasons why the Roman state collapsed in the 5th century was that the Roman people, the mass of the population, had but one wish after being captured by the barbarians: to never again fall under the rule of the Roman bureaucracy. In other words, the Roman state was the enemy; the barbarians were the liberators. And this undoubtedly was due to the inflation of the 3rd century.” – Joseph Peden, Inflation and the Fall of the Roman Empire

“Now one interesting thing with all this inflation should be a great comfort to us: historians of prices in the Roman Empire have come to the conclusion that despite all of this inflation — or perhaps we should say, because of all of this inflation — the price of gold, in terms of its purchasing power, remained stable from the first through the fourth century. In other words, gold remained, in terms of its purchasing power, a stable value whereas all this other coinage just became increasingly worthless.” – Joseph Peden, Inflation and the Fall of the Roman Empire

cartoon image of Dr Moneywise pointing to a chart of Roman silver coin values

Dr. MoneyWise says. . . .”In the wealth game, emphasize defense when you need to and offense when it makes sense.  At all times, though, no matter how tempting the prospects for speculative gain, remain fully and judiciously diversified.”

Chart image courtesy of Nicolas Perrault III [CC0], from Wikimedia Commons

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