Monthly Archives: January 2023

MarketWatch/Steve Goldstein/1-11-2023

“Right now there’s a gap between where the bond market says interest rates are heading, and where Federal Reserve officials say they’re going — and the so-called bond king says investors should put their faith in markets.”

USAGOLD note: Obviously Gundlach is among Wall Street’s rebels…… He says his forty years experience in finance is telling him to trust what the bond market is telling him over what the Fed is telling him. The Fed’s Neil Kashkari takes the opposite view. “I’ve spent enough time around Wall Street to know that they are culturally, institutionally, optimistic,” he says. “They are going to lose the game of chicken, I can tell you that.” Gundlach, in short, believes interest rates are in for a period of decline. Kashkari believes they are headed higher. Looking at the chart, though,  it is difficult to read what the bond market is telling us.

Chart courtesy of TradingEconomics.com

It’s ‘foolhardy’ to think the Fed will cut interest rates at all in 2023, BlackRock’s bond chief says [Link]

The Fed will start cutting rates this summer, says UBS’ global chief economist [Link]

USAGOLD note: Headlines appearing simultaneously at the Markets Insider website……

OilPrice.com/Julianne Geiger/1-6-2023

“Andurand’s forecast goes against the trend that crude oil prices set so far this year. During the first week of the year, crude oil prices tumbled by 9% in the first two trading days in what was the worst start to a year since 1991.”

USAGOLD note: Oil would not be the only commodity to be energized should the Chinese economy kick into gear. At the same time, a sudden surge in commodity prices could wreak havoc with the Fed’s 2023 inflation modeling (with repercussions in financial markets).

Bloomberg/Rich Miller, Steve Matthews and Catarina Saraiva/1-8-2023

“The world economy looks to be transitioning to a more difficult era where interest rates will be higher, geopolitical tensions greater and uncertainties more pronounced. That’s the message that emanated from this year’s annual meeting of the American Economic Association in New Orleans.”

USAGOLD note: The economists, in short, see an economy in danger and capable of running off the rails. “We live in an era of many shocks,” say Harvard’s Kenneth Rogoff.

Gallup/Megan Brenan/1-3-2023

“When offered opposing outcomes on each issue, about eight in 10 U.S. adults think 2023 will be a year of economic difficulty with higher rather than lower taxes and a growing rather than shrinking budget deficit. More than six in 10 think prices will rise at a high rate and the stock market will fall in the year ahead, both of which happened in 2022. In addition, just over half of Americans predict that unemployment will increase in 2023, an economic problem the U.S. was spared in 2022.”

USAGOLD note: Gallup’s annual assessment of American sentiment…”Americans,” says the polling company, “are greeting 2023 with great skepticism and little expectation that the economic struggles that closed out 2022 will abate.”

Bloomberg/Alex Harris/1-6-2023

“The Federal Reserve will be the backstop of the Treasury market this year to alleviate dysfunction resulting from its increasing size and the retreat of regular buyers. That’s the view of Credit Suisse Group AG analyst Zoltan Pozsar, who in a note to clients Friday, predicted the Fed will restart asset purchases during the summer of 2023.”

USAGOLD note: There is considerable logic in Pozsar’s view…… And keep in mind, if it did occur, it would not be the first-time that the Fed renounced QT and embraced QE in virtually the same breath, as shown in the chart below.

“When the creation of money sufficiently hurts the actual and prospective returns of cash and debt assets, it drives flows out of those assets and into inflation-hedge assets like gold, commodities, inflation-indexed bonds, and other currencies (including digital). This leads to a self-reinforcing decline in the value of money. At times when the central bank faces the choice between allowing real interest rates (i.e., the rate of interest minus the rate of inflation) to rise to the detriment of the economy (and the anger of most of the public) or preventing real interest rates from rising by printing money and buying those cash and debt assets, they will choose the second path. This reinforces the bad returns of holding cash and those debt assets.” – Ray Dalio (Bridgewater Associates), Where We Are in the Big Cycle of Money, Credit, Debt, and Economic Activity and the Changing Value of Money

Gold and the Fed Balance Sheet
(2016-2021)Chart courtesy of TradingView.com • • • Click to enlarge

Bloomberg/Sing Yee Ong/1-6-2023

“China reported an increase in its gold reserves for a second straight month, topping up holdings again after its first reported purchase in more than three years.”

USAGOLD 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 succeessive 32-tonne and 30-tonne purchases in November and December. The question is why? Is it signaling an interest in official gold ownership to other nation-states?

USAGOLD note 2:  Preceding gold’s secular 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 62 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.

Credit Bubble Bulletin/Doug Noland/1-7-2023

“Issue 2023: The year of precious metals? Precious metals were generally out of the blocks quickly to begin the new year. Metals performed relatively well last year in the face of dollar strength and rising rates. A year of currency market uncertainty, persistent inflation, and ongoing expansion of non-productive Credit would seem to support the precious metals. After a 2022 inflection point, I would expect 2023 to provide more New Cycle momentum. There will be ebbs and flows, but the cycle of hard asset outperformance versus financial assets is in its infancy.”

USAGOLD note: It is not just one, but many, bubbles we have to contend with, and the one’s that are deflating are doing so at different rates– crypto fast, China with “acute uncertainty” (for example). All” bubbles eventually burst he says. “The bigger and more prolonged the Bubble, the greater the systemic monetary disorder and associated price distortions, along with deepening financial and economic structural maladjustment. Accordingly, the more ingrained Bubble excess becomes, the more central bankers will be compelled to forestall collapse.” Obviously, he sees gold as the non-bubble.

MarketWatch/Barbara Kollmeyer/1-9-2023

“All these guys worth $100mm got sucked into a portfolio mix with 75% illiquid investments, 25% liquid. Guys like that spend $3mm-$5mm year and make $2mm after tax. They’re slowly bleeding, but even after last year are not yet scared. Powell won’t finish tightening the tourniquet until he terrifies these guys. They need to feel like their private portfolios won’t come back. They need to see their liquid portfolios lower still. They need to take losses to raise liquidity. It happens every cycle. We’re clearly not there yet.”

USAGOLD note: The observations above are from an unidentified chief investment officer, as reported by One River Asset Management’s Eric Peters to MarketWatch. We thought them worth passing along. Many are worried that 2023 is going to be a repeat of 2022 based on a stubbornly hawkish Fed. Others, like Zoltan Pozsar (Please see above), believe that the Fed will be forced to reintroduce QE this summer – an event that would likely send markets (including gold) on a tear to the upside.

Financial Times/Ruchir Sharma/1-7-2023

‘The dollar is overvalued by about 25 per cent, and that kind of overvaluation foretells decline. The dollar started falling in October, turning at almost exactly the same point — 20 per cent above its long-term trend — that has on average signalled multiyear falls in the past. This year the economy is expected to grow more slowly and interest rates are set to rise less in the US than in other major nations. These signals point to a further fall for the dollar and less global purchasing power for Americans, more for everyone else.”

USAGOLD note: We think you will find this down-to earth foray into the future an entertaining and thought-provoking read……He offers ten focal points to monitor starting with the dollar’s peak and ending with a discussion about the possbility of” bluebirds” in 2023, i.e., the opposite of black swans. Sharma is the chair of Rockefeller International.

Future Fund Position Paper – The death of traditional portfolio construction – Dec 2022

USAGOLD note: Linked above is the position statement from Future Fund, Australia’s Sovereign Wealth Fund, on the rationale behind its decision to purchase gold and commodities. We do not know to what extent other sovereign wealth funds are repositioning their assets along these lines. If the move to gold catches on at other SWFs, it will put even more pressure on existing physical supplies already stressed by demand from central banks and other highly capitalized financial institutions.

Also see: Australia’s sovereign wealth fund buys gold, commodities as shadow of 1970s looms/Reuters-USNews/12-18-2022

OilPrice.com/Alex Kimani/1-5-2023

“The de-dollarization of the global oil industry is in a treacherous mission creep phase. Things like this don’t happen quickly, but determinedly and gradually, not exactly fitting into today’s media headline game that only considers instant developments. But it is happening and the tide will not be turned based on current and near and medium-term geopolitical developments.  Credit Suisse’s Zoltan Pozsar recently warned clients, in essence, that the de-dollarization of the global oil industry is in full swing–even if we can’t see the final end game from here.”

USAGOLD note: Might Kimani and others be underestimating the short-term ramifications of China’s petro-yuan ambitions? The level of involvement among oil producers already in motion is an attention-getter.

Bloomberg/Chris Antsey/1-6-2023

“Former Treasury Secretary Lawrence Summers warned that the assumption embedded in the bond market that the era of low interest rates — anchored by disinflationary pressures — is coming back is likely to be wrong.’I suspect tumult” for markets in 2023, Summers told Bloomberg…. ‘This is going to be remembered as a ‘V’ year when we recognized that we were headed into a different kind of financial era, with different kinds of interest-rate patterns.'”

USAGOLD note: Many on Wall Street think the factors that held down inflation in the past will return. Summers says “those assumptions are likely to be wrong,” and explains why at the link. “I’m not sure that continued strength points to a softer landing, rather than pointing to even a harder landing when things re-equilibrate,” he says. Summers is a former secretary of the Treasury and White House economics advisor.

CNBC/Krystal Hur/1-6-2023

“‘Nobody wants to root for layoffs or lower stock prices. But the alternative is persistently high inflation — endless price increases for everything — and nobody wants that either,’ he said.”

USAGOLD note: A painful dose of reality from Cramer……