Monthly Archives: December 2022

Short & Sweeet
‘The world is being tested to the extreme.’
Protecting and building wealth in a new financial era

“Remember what we’re looking at. gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.” – Alan Greenspan, November 2014

graphic image of gold coins stacks and green arrow ascending

Interest Rate Observer’s James Grant referred to the current period as a “wild time in money.” Credit Suisse’s Zoltan Pozcar warned that “this crisis is not like anything we have seen since President Nixon took the US dollar off gold in 1971.” Mohamed El-Erian likened the Fed’s current monetary policy to that of a developing country central bank. “The Russian invasion of Ukraine and the corresponding Western sanctions and seizure of Russian FX reserves,” said long-time market analyst Lawrence Lepard, “are nothing short of a monetary earthquake.” Larry Fink, who manages BlackRock, the world’s largest investment fund, said the invasion marked “a turning point in the world order” and the end of globalization. Finally, George Soros went to the dark side calling Russia’s invasion of Ukraine “the beginning of World War III with the potential to destroy our civilization.”

If we have indeed embarked upon a new and turbulent financial era, as the above suggests, investors will be tasked with protecting and building their wealth under extraordinary and unpredictable circumstances. “History,” says James Grant, “would counsel us to be humble, prepared to listen and interpret correctly.” Swiss-based investment analyst Claudio Grass took a similarly philosophical approach (and one that we have counseled over many years). “It really does go a lot deeper than a comparison between gold and stocks, or considering the better ‘play’ for one’s portfolio performance,” he said. “The real counter-question now is ‘What is your peace of mind worth?’” Long-time money manager Stephen Leeb believes “the world is being tested to the extreme…Right now, as individuals, the best thing you can do for yourself is to buy protection, and that means investing in gold. Even under the best scenarios, a lot of turmoil lies ahead before we reach the other side, and gold will be the best way to get through it in good shape.”

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ColoradoChristmasGreetings 2019, Botanic Gardens

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Below is the final edition of Today’s Top Gold News & Opinion for 2022.
The next edition will be Monday, January 3, 2023.

 

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NEWS & VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 50th year in the gold business

We invite you to begin the year with the latest edition of our informative monthly newsletter. Prospective clients are welcome at no cost or obligation.

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The sum of all fears is falling with the dollar

Bloomberg/John Authers/12-7-2022

graphic illustration of decling US dollar“At present, investors seem confident that the sum-total of all they need to fear is declining. They might well be wrong, and there are many ways that perceived risk could start to rise again. But while investors continue to exhale with relief, we can expect the dollar to keep falling.”

USAGOLD note: Gold’s fate over the past few years has been inversely tied to that of the dollar, so when Bloomberg’s John Auther’s suggested the dollar might be topping in his column Friday morning, it caught our attention. The dollar’s run to record prices, says Authers, was tied to China’s strict covid policies, Europe’s energy problem, and the Fed’s tightening regime. Those three risks have now peaked, according to Deutsche Bank’s George Saravelos, and Wall Street is beginning to factor in a declining dollar as we move into the new year.

 

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Investors withdraw record levels of coins from crypto exchanges

Financial Times/Nikou Asgar/12-11-2022

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

“Traders rush for exits alarmed at safety of their assets after FTX filed for bankruptcy.”

USAGOLD note: The trouble with rushing for a clogged exit is that the asset in question is usually deteriorating in value as the investor is forced to patiently await his or her turn – if it comes at all (FTX being a case in point).

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Short and Sweet
Novice precious metals owners must decide where they stand on this important issue

visualization of gold as a stratgic move in portfolio planning

“Precious metals are and always have been the ultimate insurance,” says Pro Aurum’s Robert Hartman in an interview with Claudio Grass. “They provide protection both against state failures and against mistakes in the monetary policy of the central banks. Every investor who looks into the history books sees that both have happened over and over again in the past centuries. From that perspective, investing in physical gold and silver is a common-sense precaution and a necessary part of any wealth preservation plan. Investors and ordinary savers ignore this at their peril and the failure to include precious metals in one’s portfolio is pure negligence.”

There are essentially two broad schools of thought alive and well in the gold market. The first holds that crisis is around the corner and, as a result, precious metals should be owned to profit from the event. The second holds that crisis is a permanent fixture in the market dynamic and that the portfolio should always include precious metals as the ultimate safe haven. The first buyer sees precious metals as investment products, i.e., buy now and sell later when the time is right. The second sees gold and silver, like Hartmann, as insurance products to be held for the long run. Some combine the two, allocating one part of their precious metals portfolio for trading purposes and another as a permanent, or semi-permanent, store of value. The novice precious metals owner must decide where he or she stands in this regard because it determines, in turn, which products to include in the portfolio and to what degree.

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Market wakes up to fact that Fed pivot could signal recession

Bloomberg/Denitsa Tsekova and Emily Graffeo/12-9-2022

cartoon showing bicycle with silver dollar wheels and no wheels bike at standstill“The steady drumbeat of warnings that the American economy is careening toward a recession finally struck a nerve on Wall Street.”

USAGOLD note: It is interesting that as the sentiment shift described in this article took root, the price of gold began moving higher. if accurate, this description of the change in the ruling psychology on Wall Street from Academy Securities Peter Tchir will be significant: “We will shift from seeing ‘bad data’ as being ‘good’ to bad data being bad because it is a signal the economy is weakening faster and worse than most expected.” Stagflation, in short, will step to the forefront as stagflation with all its negative effects on the economy, and if that is the case, things are about to get considerably more complex for the average investor.

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Gold attempts to regain its footing this morning
‘The Fed is not your friend,’ says CNBC’s Cramer; Goldman predicts big 2023 for commodities

(USAGOLD – 12/16/2022) – Gold is attempting to regain its footing this morning as investors continue to weigh future Fed policy, the prospects of a recession, and the stubbornly high inflation rate. It is up $8.50 at $1788. Silver is down 12¢ at $23.04. CNBC’s Jim Cramer, the widely followed market analyst, told his audience yesterday that “investors have to learn that the Fed is not your friend, it’s not your pal – if anything, it’s your enemy.” Goldman Sachs says commodities will follow up 2022’s solid performance with another strong year in 2023, according to a Bloomberg report yesterday. Goldman predicts commodities will climb another 43% in 2023 as part of a multi-year super cycle that began in 2020. The ongoing rally, it says, will be fueled by supply shortages.

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This is the final DMR for 2022. Happy holidays! The next report will be the morning of Monday, January 2, 2023.

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Notable Quotable

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“I’m no insect. Gold is a great way to make a lot of money.”

Thomas Kaplan
Electrum Group

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Light needs shedding on the dollar swaps black hole

Financial Times/Gillian Tett/7-9-2022

image of whale surfacing in ocean“As the latest BIS quarterly report notes, forward dollar payment obligations ‘do not appear on balance sheets and are missing in standard debt statistics’, because they are not classified as a ‘loan’ in accounting systems. They are off-balance sheet — in other words, a black hole.”

USAGOLD note: It’s an $80 trillion black hole that needs closer regulatory scrutiny, says Tett, though that, she adds, might be easier said than done. This is the best analysis we’ve seen thus far on the danger lurking in the currency swap market – a whale that surfaced early last week. After all, if there was ever a moment when central bankers needed to understand the real vulnerabilities arising from dollar-linked debt,” she warns, “it is when the world faces geopolitical risks, economic pain and political challenges to the supremacy of the dollar. That is precisely what 2023 could bring.”

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Pozsar: Gold at $3600 is not improbable if US refills reserves with Russian oil

thedeepdive/ER Velasco/12-6-2022photo of gold bar graph against $100 US note

“Pozsar also said that at current market prices, ‘the cap of $60 per barrel for Russian oil equals the price of a gram of gold.’ In a hypothetical that US pegs Russian export at this price and Russia then pegs it at a gram of gold, ‘the US dollar effectively gets ‘revalued’ versus Russian oil.'”

USAGOLD note: Pozsar talks about the price of gold doubling to $3600 on the basis of Russia offering two barrels of oil for one gram of gold (instead of one gram per barrel, the current price when paid in dollars). “Crazy? Yes.” says Pozsar. “Improbable? No.” Bringing gold into the oil-pricing regime would not be impossible to contemplate given that many of the global exporters have an attachment to the metal. Note Ghana’s recent oil for gold offer being snapped up immediately by the United Arab Emirates.

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Financial instability: the hunt for the next market fracture

Financial Times/Eric Platt, Kate Duguid,Tommy Stubbington, Jonathan Wheatley and Leo Lewis/12-6-2022

graphic image of walk in a deep, fearful wood

“Soaring inflation is being met by rising interest rates, the slowing of central bank asset purchases and fiscal shocks, all of which are sucking liquidity, the ability to transact without dramatically moving prices, out of markets. Violent, sudden price moves in one market can provoke a vicious loop of margin calls and forced sales of other assets, with unpredictable results.”

USAGOLD note: It’s all about liqidity, or better put the lack of it, and how it might affect global bond markets in the event of a crisis. Financial Times does a good job of exposing the dangers lingering in the financial system at the link. Highly recommended. It seems like the warnings of a meltdown and contagion effect from mainstream media sources are at a level not seen in the past. For the average investor, these analyses point to potential black swans swooping in from multiple directions and, as Nouriel Roubini has recently warned, with an intensity never seen before.

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Short and Sweet
“Bear markets are sneaky beasts. . .”

photo of a bear peaking out from behind a tree“Bear markets are sneaky beasts and they like to do their damage as secretly and as unobtrusively as possible. I hate to say it but somewhere ahead, the bears going to get it all together and the innocent little stream is going to turn into a waterfall. What can you do about it? Stay out of the market? Protect yourself by remaining in pure wealth, gold. For thousands of years, silver and gold have been treated as pure wealth. As the standard measures of wealth (stocks and bonds) have deteriorated, veteran investors have forgone profits and moved their assets into pure wealth.” – Richard Russell, King World News, 2016

 King World News called the late, great Richard Russell – who regaled us with his wisdom in the Dow Theory Letter for nearly half a century – “the greatest financial writer in history.” We can only guess what Russell would have had to say about the current state of affairs, but the quote above provides a clue.  Never predictable in his opinions, he was rock solid on one axiom throughout his career – the necessity and transcendence of gold as a permanent component of the well-balanced investment portfolio. As he said, so often, it helped him sleep at night.


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China reveals gold buying after a quarter of mystery purchases

Bloomberg/Staff/12-7-2022

Ed Stein Cartoon of dragon atop gold hoard captioned Dragon's Hoard

“China reported an increase in its gold reserves for the first time in more than three years, shedding some light on the identity of the mystery buyers in the bullion market. The People’s Bank of China raised its holdings by 32 tons in November from the month before, according to data on its website on Wednesday. That brought its total to 1,980 tons, the sixth-biggest central bank bullion hoard in the world.”

graphic image of a book and reading glasses A Good Weekend ReadUSAGOLD note 1: Some gold market analysts believe that China’s true gold reserves are far higher than what is reported by the Peoples Bank of China. The Perth MInt’s Bron Suchecki believes the PBOC’s true holding is closer to 2400 metric tonnes with commercial banks holding another (state accessible) 2060 metric tonnes. He estimates 6490 tonnes in the hands of private buyers. (Source) It is interesting to note, though, that China would actually announce a 32-tonne purchase. The question is why? Is it signaling an interest in official gold ownership to other nation-states?

USAGOLD note 2:  Preceding gold’s massive bull market rise in the 1970s, European central banks went on a gold-buying tear, similar in psychological impact, if not scope, to what emerging central banks are in the process of executing now. It preceded the formal devaluation of the dollar and the severance of the link between the dollar and gold. When central bank buyers are asked now why they have chosen to add gold to their reserves the answer usually comes back “as a diversification away from the dollar.”

USAGOLD note 3: Though the PBOC is mum on its rationale, Bloomberg suggests in its subhead the “move may be part of PBOC plans to diversify away from dollar.” To achieve the level of diversification that would actually impact its very large holding of US Treasuries, it would take considerably more real money than 32 tonnes – or 4460 tonnes (Suchecki’s number) for that matter, or its current holdings would need to be priced at a much higher level per ounce.

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Gold plunges in overnight trading on Fed concerns
Austrian Mint is unable to keep up with the demand for gold coins

(USAGOLD – 12/15/2022) – Gold plunged overnight in an Asia-led selloff as the Japanese yen, Chinese yuan, and Korean won all dropped sharply against the US dollar. It is down $28 in early trading at $1782. Silver is down 83¢ at $23.20. The overseas reaction was a far cry from yesterday’s more muted response on Wall Street, where a good many still believe that a cooling economy will force the Fed to tone down its hawkishness at some point in 2023.

The Austrian Mint is “unable to keep up with demand [for its gold coins] as people rush to find a safe haven for their money amid surging inflation and economic fears caused by the war in Ukraine,” according to a Reuters report yesterday. The Mint’s Chief Executive Gerhard Starsich said, “every gold coin that comes off the coining press has already been sold. Right now we could sell three times as many as we are able to produce.” Gold is roughly level in dollar terms on the year, but it is up 5% against the euro. Starsich says that customers for its gold bullion coins are of all ages and from all walks of life.

(Editor’s note: What would the chart below look like if global mints and refineries could keep up with demand?)

bar chart showing global gold coin and bar demand
Chart courtesy of the World Gold Council • • • Click to enlarge

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Notable Quotable

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“Ask anyone in Germany what they associate with gold and, more often than not, they will say that it is synonymous with enduring value and economic prosperity. Ask us at the Bundesbank what our gold holdings mean for us and we will tell you that, first and foremost, they make up a very large share of Germany’s reserve assets … [and they] are a major anchor underpinning confidence in the intrinsic value of the Bundesbank’s balance sheet. The Bundesbank produced this publication to give a detailed account, the first of its kind, of how gold has grown in importance over the course of history, first as medium of payment, later as the bedrock of stability for the international monetary system.”

Jens Wiedmann
President, Bundesbank

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Be careful, here comes the predictions for 2023

Bloomberg/John Authers/12-7-2022

graphic image of calendar pages“Christmas is coming, the goose is getting fat, and throughout the financial world analysts are publishing their predictions for 2023. A lot of the research produced at this time of year is genuinely interesting, and teams often benefit from the discipline of being forced to put their assumptions on paper and arrive at a prediction. That said, there’s still not much point in the exercise — because it is driven by the calendar.”

USAGOLD note: Some will applaud this dose of common sense from John Authers – even if it throws cold water on the annual year-end prediction festivities. Markets are notoriously difficult to predict, and then there’s the timing/buy/sell issue. “Uncertainty,” says Authers, “is greater than at any time since the worst of the Great Financial Crisis.” Another reason to diversify, sit back and watch the show. (Please see: “The cockroach portfolio: Still dumb, still robust, still superior“/themarketNZZ/Dylan Grice/1-28-2022)

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Saxo Bank’s outrageous predictions for 2023

Saxo Bank/Staff/12-6-2022

“Gone are the days where low interest rates could foster dreams of a harmonious world built on renewable energy, equality and independent central banks. In 2023, world economies will shift into War Economy mode, where sovereign economic gains and self-reliance trump globalisation. Our 2023 Outrageous Predictions revolve around how countries’ focus on asserting themselves will affect the global economy and political agenda.”

USAGOLD note: Among the ten outrageous predictions is gold at $3000 as” the market finally discovers that inflation is set to remain ablaze for the foreseeable future……” Saxo’s annual venture into the outrageous gets considerable attention in the financial media.

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Short & Sweet
Ubiquity, complexity, and sandpiles
Contemplating the impact of that last grain of sand

photograph of a pyramid shaped sandpile illustrating angle of repose and also vulnerability

For a long while, John Mauldin (Mauldin Economics) has been one of the more thoughtful big picture analysts – someone whose work we read regularly. In a recent reflection posted at the GoldSeek website, he begins with a section on a Brookhaven National Laboratories study of sandpiles. Researchers attempted to ascertain at which point, and to what degree, the last grain of sand falling on the pile causes disequilibrium and the collapse of the pile. It found that the impact of the last grain of sand varied. It “might trigger only a few tumblings or it might instead set off a cataclysmic chain reaction involving millions.”

“We cannot accurately predict when the avalanche will happen,” Mauldin concludes. “You can miss out on all sorts of opportunities because you see lots of fingers of instability and ignore the base of stability. And then you can lose it all at once because you ignored the fingers of instability. You need your portfolios to both participate and protect. Don’t blindly buy index funds and assume they will recover as they did in the past. This next avalanche is going to change the nature of recoveries as other market forces and new technologies change what makes an investment succeed. I cannot stress that enough. Don’t get caught in a buy-and-hold, traditional 60/40 portfolio. Don’t walk away from it. Run away.”

So why would the story of the last grain of sand hitting the pile before it begins to dissemble be important? “The peculiar and exceptionally unstable organization of the critical state,” says Mark Buchanan, who wrote a book on catastrophes of all kinds (and referenced by Mauldin), “does indeed seem to be ubiquitous in our world. Researchers in the past few years have found its mathematical fingerprints in the workings of all the upheavals I’ve mentioned so far [earthquakes, eco-disasters, market crashes], as well as in the spreading of epidemics, the flaring of traffic jams, the patterns by which instructions trickle down from managers to workers in the office, and in many other things.” There comes a breaking point a which time the result is uncontrollable.

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