Monthly Archives: November 2022

The week that could unravel the global oil market

Financial Times/Derek Bower and David Sheppard/11-28-2022

“The potential unraveling of the old order in the global oil market will reach a defining moment over the next week when Europe starts to block Russian seaborne crude from the continent — one of the strongest responses yet to Vladimir Putin’s brutal invasion of Ukraine.”

USAGOLD note: A deep dive inside the oil market …… “No one can say,” advised FT, “how disruptive these measures will be.” Much hangs in the balance.

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Brace for ‘violent’ shocks that may reshape the global economy forever, warns top economist Mohamed El-Erian

MarketsInsider/George Glover/11-25-2022

graphic image of road sign reading Welcome to Bedlam‘Markets should brace for a severe recession that might forever change the world economy, Mohamed El-Erian has warned. The economist said on Tuesday that a combination of pressures on supply, central bank tightening, and market “fragility” were all likely to weigh on growth.”

USAGOLD note: El Erian issues his bleakest warning to date… He says that the Fed erred on inflation by judging it was “transitory,’ and now it is erring on the upcoming recession by predicting it will be “short and shallow.”

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Quality service & portfolio guidance since 1973

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USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the gold industry’s oldest and most respected names. The firm’s unblemished, zero-complaints record and solid reviews with the Better Business Bureau testify to the exceptional customer service and professional excellence which sets it apart from the competition.

USAGOLD specializes in gold and silver coins and bullion delivered to our client’s safekeeping. For over 49 years, we have resolutely advocated owning precious metals for asset preservation purposes rather than speculation. Admittedly, this philosophy does not resonate with all prospective gold and silver owners, but if it does with you, we think you will find our firm a kindred spirit.

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Not just another recession

Foreign Affairs/Mohamed A. El-Erian/11-22-2022

graphic representation of bulletin board note hope for the best prepare for the worst“Three new trends in particular hint at such a transformation and are likely to play an important role in shaping economic outcomes over the next few years: the shift from insufficient demand to insufficient supply as a major multi-year drag on growth, the end of boundless liquidity from central banks, and the increasing fragility of financial markets.”

USAGOLD note: Out with old, in with the new…… El Erian explains why the global economy may never be the same. “…Resilience, optionality, and agility are all vital,” he says.

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China thought to be stockpiling gold to cut greenback dependence

Nikkei Asia/Munemasa Horio/11-22-2022

Ed Stein Cartoon of dragon atop gold hoard captioned Dragon's Hoard“Central banks are snapping up gold this year, but it is uncertain which ones are behind most of that shopping spree, fueling speculation that China is a big player. Seeing how Russia has been hit by monetary sanctions by the West, China and some other countries must be hurrying to reduce dependence on the dollar, analysts reckon.”

USAGOLD note: Since the World Gold Council reported recently that it could not identify the source for 300 tonnes in official sector gold demand, speculation has been rife as to who the whale might be. Opinion is now beginning to coalesce around China as the buyer in question and Russia as the seller, according to this Nikkei Asia report. The newspaper points out that China sold U.S. Treasuries to the tune of $121.2 billion so far this year – “the equivalent of roughly 2,200 tonnes of gold.”

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Stephen Diehl: Crypto is the ‘commoditisation of populist anger, gambling and crime’

Financial Times/Henry Mance/11-20-2022

cover 'Popping the Crypto Bubble'“After 14 years, [crypto] is still a solution in search of a problem. It’s not building a new financial system. It’s not building a new internet. It’s not an asset uncorrelated with the market. It’s not a hedge against inflation. It is a vehicle for pure, naked speculation detached from anything in the economy. It’s a casino that’s wrapped in all of these lies. When you tear back those lies, what’s left looks like a net negative for the world.” – Phillip Diehl, author, Popping the Crypto Bubble

USAGOLD note: Diehl says the chase for crypto profits “reveals a lot of our dark tendencies” and that young people already throttled by the financial crisis and the pandemic are its most consequential victims. His observations follow along the lines of Niall Ferguson’s posted here earlier today. Before you buy the dip, you might want to read this interview.

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Short and Sweet

Gold, vanadium, europium reveal the existence of a mysterious particle

Átomo de Oro
“Atomo de oro”/Galarza Creador

“To observe the Majorana fermions,” reports Mining.com, “a team of physicists from the Massachusetts Institute of Technology, the Institute of Technology at Delhi, the University of California at Riverside, and the Hong Kong University of Science and Technology, scientists designed and built a material system that consists of nanowires of gold grown atop a superconducting material, vanadium, and dotted with small, ferromagnetic ‘islands’ of europium sulfide, which is a ferromagnetic material that is able to provide the needed internal magnetic fields to create the Majorana fermions. When the researchers applied a tiny voltage and scanned the surface near the islands, they saw signature signal spikes near-zero energy on the very top surface of gold that, according to theory, should only be generated by pairs of Majorana fermions.”

This must have been what Ben Bernanke was talking about years ago when he said he didn’t understand gold. [Smile] Gold’s allure, to be sure, is a mystery to some, but for those who understand the ever-present dangers imposed by the money printing press, the only mystery is why so few own it.
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Image attribution: Galarza Creador, Atomo de oro, CC BY 3.0 <https://creativecommons.org/licenses/by/3.0>, via Wikimedia Commons

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FTX kept your crypto in a crypt not a vault

Bloomberg/Niall Ferguson/11-20-2022

ramirez cartoon on the FTX scandal meltdownCartoon courtesy of MichaelPRamirez.com

“In truth, however, these modern analogies fail to do justice to Bankman-Fried’s rise and fall. To understand what just happened, you really need to go back a century and a half, to Anthony Trollope’s coruscating The Way We Live Now (1875). Inspired partly by the 1866 collapse of Overend, Gurney and Co., the novel describes the ascent and descent of Auguste Melmotte, whom Victorian society hails as a financial genius not because he is one, but because he offers the elite the prospect of easy money.”


USAGOLD note:
The anatomy of a scam and how it fits into the long history of such misadventures……Ferguson does not have nice things to say about Bankman-Fried, but what happened with FTX is nothing new in financial markets. “Time and again,” he writes, “share prices have soared to unsustainable heights only to crash downwards again. Time and again, this process has been accompanied by skullduggery, as unscrupulous insiders have sought to profit at the expense of naive neophytes.” And crypto, let us not forget, was promoted with great fervor (and disdain for those who questioned it) as a New Age alternative to gold.

 

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Gold continues advance begun yesterday ahead of options expiry, Powell speech
The yellow metal is up 7.1% in November, and silver an eye-catching 12.3%

(USAGOLD – 11/30/2022) – Gold continued the advance begun yesterday, ignoring today’s Comex options expiration and reflecting expectations of a more moderate approach from Fed Chairman Powell in his address to the Brookings Institution later today. It is up $12 at $1764. Silver is up 33¢ at $21.67. Quietly, while attention stayed riveted on Fed policy, the precious metals had a good month. Gold is up 7.1% in November while silver posted an eye-catching 12.3% gain. Maverick Investor’s Paul Franke, a nationally ranked stock picker for 30 years, sees gold as grossly undervalued at current prices.

“You heard me right,” he writes in an analysis posted at Seeking Alpha on Monday. “Gold buried in your back yard has risen in price at essentially the same rate as U.S. equity market total returns over the last two decades! Believe it or not, measured from June 2002, the two asset classes are effectively TIED for total return performance. Warren Buffett, CNBC, and the WSJ do not and will not advertise this fact. If equities are only keeping up with general monetary inflation, what’s the point pushing stock investments? … If gold is the base currency our fractional reserve banking system is built upon, it should retain value vs. such over many years. My research suggests gold’s real-world valuation in U.S. dollars should be above $2800 an ounce today. I am using a math technique of annual median averages since 1969 to reach this conclusion, where half of the time gold should trade higher than $2800 and the other half under this price point.”

Gold and the Dow Jones Industrial Average
(%, 1971 to present)
overlay chart showing gold and stocks performance 1971 to present
Chart courtesy of TradingView.com • • • Click to enlarge

 

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Stagflation will rule 2023, keeping stocks in peril

Bloomberg/Farah Elbahrawy and Heather Burke/11-27-2022

“Almost half of the 388 respondents to the latest MLIV Pulse survey said a scenario where growth continues to slow while inflation remains elevated will dominate globally next year. The second most likely outcome is deflationary recession, while an economic recovery with high inflation is seen as least probable.”

USAGOLD note: 50% of professional investors and 44% of retail investors see stagflation as the most likely economic scenario for 2023. As shown in the chart below, during the stagflationary 1970s gold and silver glittered while stocks languished.

Gold, silver, stocks in the 1970s
(%, cumulative)overlay line chart showing gold, silver and stocks 1970-1979
Chart courtesy of TradingView.com • • • Click to enlarge

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Notable Quotable

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“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.” –  Adrian Ash, The Alchemist

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Chanos warns of 55% drop in stocks, blasts crypto

MarketsInsider/Theron Mohamed/11-27-2022

cartoon image of a scared skier trying to outrun an avalanche“The various parts of speculation are getting wrung out of this market one by one. We’ve waded right into the middle of our second crypto crisis. On top of that you’ve got the tech complex melting down. Whether it’s crypto, whether it’s NFTs, whether it’s SPACs, the poster children for that speculation are basically being taken out to the woodshed and disposed of.” – Jim Chanos, Chanos & Co.

USAGOLD note: This article includes ten quotes from Chanos worth reading. At 55%, his crash scenario is probably the most aggressive among Wall Street’s best and brightest.

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RCM sales of gold Maple Leafs up 14% last quarter

Coin World/Jeff Starck/11-23-2022

“Sales of Maple Leaf gold coins at the Royal Canadian Mint are up, according to the latest quarterly report from the RCM, released Nov. 18. Sales during the third quarter of fiscal year 2022, which ended Oct. 1, were 14% higher than in the same period the previous year. The RCM sold 354,300 ounces of gold during that 13-week period, compared to 310,400 ounces in the comparable period a year ago. Silver bullion sales for the same period were down 2%, to 9.6 million ounces (compared to 9.8 million during that stretch of 2021).”

USAGOLD note: All the major national mints are reporting strong quarterly gains in bullion sales – the U.S Mint, Australia’s Perth Mint, and the Royal Canadian Mint. The Perth Mint is reporting the strongest sales of the three.

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Bear markets come in three stages; and we’ve only just started the second, says veteran analyst

MarketWatch/Jamie Chisholm/11-25-2022

graphic image-icon of bear stepping through round portal“If you have a big purchase that you have to make within the next year or two, whether it’s a kid going college or it’s a wedding, a bar mitzvah or some other expense like a home that you have put aside money for, it should not be in the stock market. It should be in the bank it should be in short-term T-bills. It should be in cash equivalents because the next couple of years are going to be challenging for those with shorter-term time horizons.” – Peter Boockvar, Bleakley Financial Group

USAGOLD note: The latest from the widely-followed Mr. Boockvar…… He is a long-time advocate of gold and silver ownership.

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From the small investor just starting out to the high-net-worth individual hedging a multi-million dollar portfolio, we have helped many thousands add precious metals to their holdings in our nearly 50 years in the gold business – safely, economically and with the investor’s goals in mind.

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History says inflation could persist for a decade

MarketWatch/Brett Arends/11-19-2022

graphic showing exit for THERE being a great distance down road through desert“The likelier scenario is that even if it starts to come back down, inflation may persist higher for longer than the markets, money managers, or the Federal Reserve thinks. That’s because, in effect, inflation has reached the kind of critical mass or momentum this year that makes it much harder to control.”

USAGOLD note: Based on the analysis of “legendary financial guru,” Rob Arnott, Arends warns the right approach to inflation might be to buckle our seat belts for a long, rough ride ……

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Did Bullard undershoot? Stifel economists say fed funds rate may need to go to 8% or even 9%.

MarketWatch/Vivien Lou Chen/11-18-2022

stein cartoon of a couple headed down a steep 401k roller coaster track

“Stifel, Nicolaus & Co. economists Lindsey Piegza and Lauren Henderson said they think that even a 7% federal funds rate may be ‘understating’ how high the Fed’s benchmark interest rate likely needs to go. Calculations show that there’s a possible need ‘for a federal funds rate potentially 100-200bps higher than [Bullard’s] suggested upper bound,’ they wrote in a note. In other words, a federal funds rate that gets to between 8% and 9%, versus its current range of between 3.75% and 4%.”

USAGOLD note: It does not take an advanced degree in economics to predict how an 8% or 9% lending rate would be received in the stock and bond markets. It is interesting to note in this context that the average 401K is down 20% thus far this year, according to Fidelity Investments. Where would its value be if rates were at 8%-9%? By the way, Bullard, not Powell, in our view, is the true Volckerian in the current mix of Fed officials.

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Foreign demand for U.S. Treasurys, other debt plunges to $80 billion in September

Morningstar-MarketWatch/Joy Wiltermuth/11-17-2022

image of Uncle Sam saying I need vast sums of money“Demand from foreign investors for Treasurys and other long-term U.S. bonds dropped by more than half to $80 billion in September from a month before, according to a Barclays tally of Treasury Department data. While foreign investors bought nearly $190 billion in longer U.S. fixed-income securities in August, they scaled back dramatically a month later, according to Treasury Department data.”

USAGOLD note: The problem of funding Uncle Sam’s borrowing needs is something that does not get a lot of attention outside the Treasury Department and certain quarters of the financial business. At the same time, amidst a sea of challenges facing the federal government, this might very well be its greatest. Failure to sell Treasuries through traditional means ominously raises the prospect of resorting to the printing press.

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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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FTX and the age of fiat money

The New York Sun/Staff/11-17-2022

photo of U.S. one dollar bills rolling off the printing press“The best story so far on the collapse of FTX, at least in our view, is A.R. Hoffman’s dispatch in the Sun that marks the drama as a feature of our national experiment in fiat money. After all, if America had a sound currency, one anchored in the classical monetary specie of gold or silver, we wouldn’t have so many young geniuses out there hawking crypto coins and tokens as units of account and mediums of exchange.”

USAGOLD note: Thought-provoking editorial connecting printing press money to the crypto fiasco……… Also interesting to know that former Speaker of the House, Paul Ryan is pushing a “new plan to avoid a debt and currency crisis” – not the sort of concern addressed by the typical Washington politician.

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