Monthly Archives: April 2023
Summers warns US is getting lonely as other powers band together
Bloomberg/Chris Antsey/4-14-2023
“’Somebody from a developing country said to me, ‘what we get from China is an airport. What we get from the United States is a lecture.’” – Lawrence Summers, Harvard University, former Secretary of the Treasury
USAGOLD note: Summers brings a sense of immediacy to a threat most believed to be on a long timeline……
Head of world’s largest asset manager says this is why Fed will struggle to bring down inflation
‘I believe interest rates are going to be higher for longer…I believe inflation is going to be stickier for longer. In other words I think we’re going to have a 4%-ish floor on inflation.’
USAGOLD note: In other words, prepare for more systemic risk and more safe haven demand for physical gold and silver. – something that has a been consistently strong since the latest banking crisis began through the gamut of investors – individuals, funds, institutions and central banks.
Daily Gold Market Report
Gold loses momentum as traders test the downside
Felder: ‘Gold may be on the cusp of another major bull market.’
(USAGOLD – 4/25/2023) – Gold turned lower this morning as momentum faltered just below the psychologically important $2000 mark and traders tested the downside. It is down $11 at $1980. Silver is down 59¢ at $24.62. Jesse Felder, the veteran market analyst and former hedge fund manager, thinks gold may be on the cusp of another major bull market driven by the federal government’s rapidly deteriorating fiscal situation.
“[I]f history is any guide, the best protection against a deteriorating fiscal situation (mathematically guaranteed by rapidly growing social security and medicare spending) is gold,” he writes in a recently posted analysis. “The last time the deficit reversed from a narrowing trend and began a major widening trend, back in the early-2000’s, it coincided with a major top in the dollar index which evolved into a major bear market for the greenback that lasted roughly a decade. This was one of the primary catalysts for a major bull market in the price of gold which rose from a low of $250 in 2001 to a high of nearly $2,000 a decade later.”
Gold and the US federal debt
(1971 to present)
Chart courtesy of Trading View.com • • • Click to enlarge
Debt ceiling jitters drive up cost of insuring against US default
Financial Times/Kate Duguid, Lauren Fedor and Colby Smith/4-14-2023
“The cost of buying insurance against a US government default has shot to its highest level in more than a decade, in an early sign of market concerns about the political impasse in Washington over the debt ceiling.”
USAGOLD note: Few believe that the politicians will let things get out of hand, yet some would say that the times dictate the unexpected should be expected. The deficits have clearly gotten out of control. By the end of last year, the difference between federal receipts and expenditures was $3.2 trillion.
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Sources: St. Louis Federal Reserve {FRED], U.S. Bureau of Economic Analysis
New interview: Eight best quotes from Howard Marks
Markets Insider/Theron Mohamed/4-15-2023
“Humility is a really important thing, especially in the market, which humbles us all. Anybody who doesn’t allow for humility, in a field where there’s randomness and uncertainty, and qualitative and subjective things are important, is riding for a fall.”
USAGOLD note: Howard Marks offers insights on a range of topics…… Humility was the thirteenth (and last) virtue Ben Franklin lived by.
Yellen says sanctions may risk US dollar hegemony
“‘”There is a risk when we use financial sanctions that are linked to the role of the dollar that over time it could undermine the hegemony of the dollar,’ Yellen said on CNN.”
USAGOLD note: An unusual admission by a US Treasury Secretary……
El-Erian terrified of central banks losing autonomy over errors
Bloomberg/Philip Aldrick and Sam Kim/4-14-2023
““I am terrified that if central banks don’t own their mistakes, if central banks don’t learn from their mistakes and are public about this process, people are going to say ‘You’re not accountable enough, and I’m not sure you should have the amount of political autonomy that you do’.” – Mohamed El-Erian, Cambridge
USAGOLD note: Some see central banks as god-like. Other see them as a source of instability. it cannot be overlooked that confidence in central banks is waning – especially the Federal Reserve which finds itself at the epicenter of a crisis largely of its own making.
If King Dollar is wobbling, silver is your best investment, says Citi
MarketWatch/Barbara Kollmeyer/4-18-2023
‘That brings us to our call of the day from a team of analysts at Citigroup, led by Maximilian J Layton, who see more dollar weakness ahead, which is good news for a shiny asset less often in the spotlight. ‘Silver has already rallied 20% in a short period of time, but we think it has another >10% move in the tank over the coming months to $30/ounce, with our bull case of $34/ounce still a distinct possibility over the next 6 -12 months,’ Layton and the team told clients in a note.”
USAGOLD note: Citigroup jumps aboard the silver bandwagon…“Precious metals and especially silver has near perfect conditions for the ongoing bull market,” it says.
Daily Gold Market Report
Gold off to slow start this morning in featureless trading
Sharma: ‘Gold is now a vehicle of central bank revolt against the dollar.’
(USAGOLD – 4/24/2023) – Gold is off to a slow start this morning in featureless trading. It is up $1 at $1986.50. Silver is level at $25.16. In a Financial Times opinion piece over the weekend, Rockefeller International’s Ruchir Sharma says that there is “something new” in the gold market – “heavy” central bank gold buying driven by weaponization of the US dollar. He points out that central banks now account for a record 33% of monthly gold demand.
“[T]he oldest and most traditional of assets, gold,” he writes, “is now a vehicle of central bank revolt against the dollar. Often in the past, both the dollar and gold have been seen as havens, but now gold is seen as much safer.” Separately, the World Gold Council reports central banks picking up in the first two months of 2023 where they left off in 2022 – a record year for central bank offtake. Early-year demand was at a pace not seen since at least 2010, says WGC.
Central bank gold demand
(First two months of the year, 2010-2023)
Source: World Gold Council, IMF IFS, respective central banks
Notable Quotable
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“The cities were still there, the houses not yet bombed and in ruins, but the victims were millions of people. They had lost their fortunes, their savings; they were dazed and inflation-shocked and did not understand how it had happened to them and who the foe was who had defeated them. Yet they had lost their self-assurance, their feeling that they themselves could be the masters of their own lives if only they worked hard enough; and lost, too, were the old values of morals, of ethics, of decency.”
Pearl S. Buck
Novelist who was in Germany during the hyperinflation in 1923
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Jamie Dimon issues warning on rates: ‘It will undress problems in the economy’
“People need to be prepared for the potential of higher rates for longer. If and when that happens, it will undress problems in the economy for those who are too exposed to floating rates, for those who are too exposed to refi risk. Those exposures will be in multiple parts of the economy.” – Jamie Dimon, JP Morgan
USAGOLD note: Dimon pressures the Fed to come around on rates or prepare for more systemic risk……
The gold bull market is just getting started
Seeking Alpha/Christopher Yates/4-13-2023
“Clearly, real yields look to be in the process of peaking for this cycle, meaning we are likely in the early innings of a renewed bull market in precious metals. But, it may be a little too early to suggest they will roll over just yet, particularly if the Fed has one or two surprise hikes left in them as economic and inflation resilience remains for now. However, as growth is likely to slow materially in the second half of the year, there will be a time where nominal yields fall faster than inflation expectations, and thus, real yields roll over hard and fast. One would expect such an environment to be accompanied by a more accommodative Federal Reserve, thus ultimately setting the stage for a fundamentals-backed move higher in precious metals.”
USAGOLD note: A well-constructed argument calling for a bull market in gold based on an erosion in the real rate of return……
Grantham doubles down on bearish stock market call
MarketsInsider/Theron Mohamed/4-14-2023
“Prepare for US stocks to plunge, the economy to slump, and more financial fiascos to emerge, Jeremy Grantham has warned.”
USAGOLD note: There is a reason Grantham gets considerable attention in the mainstream financial media. His bearish calls have proven to be on the money over the past two years. He is now saying that the S&P 500 will fall another 27% to around the 3000 level, and to the 2000 level in a worst-case scenario – a 50% drop overall.
Hank Paulson: ‘We can never abolish financial crises. They will always happen.’
Financial Times/Interview of Hank Paulson/4-15-2023
“It’s been a real wake-up call. Confidence has been shaken. The risks are still out there. There was a theory that in the midst of a systemic crisis, the government could wind down a failing institution and stop a panic without damaging the economy. That should have been disproved by Covid.… There shouldn’t be a myth that ‘too big to fail’ has been solved, because it hasn’t.” – Hank Paulson, former Treasury Secretary
USAGOLD note: The quote above is Paulson’s response to the question – Are you “happy with the fact that the US government is now essentially guaranteeing every deposit in the land. Isn’t that getting close to having a socialist banking system?” He goes on to say that “We can never abolish financial crises. They will always happen.”
Daily Gold Market Report
Gold tracks lower in cautious end of week trading
Eurizon reports sharp decline in global dollar reserves, gold a beneficiary
(USAGOLD –4/21/2023) – Gold tracked lower this morning as uncertainty over the rate picture lingered, worry about the banking system cooled, and cautious end of week trading prevailed. It is down $17.50 at $1990. Silver is down 15¢ at $25.22. A recently released study by Eurizon SLJ Asset Management finds that the dollar’s share of total global reserves declined sharply in 2022 while its status as the dominant currency in international trade remained “unchallenged” – a differentiation we have not seen referenced by other analysts.
“In a Monday note, strategists Joana Freire and Stephen Jen calculated that the greenback accounted for about two-thirds of total global reserves in 2003, then 55% by 2021, and 47% last year. ‘This 8% decline in one year is exceptional, equivalent to 10 times the average annual pace of erosion in the USD’s market share in the prior years,’ the authors said.” [Source: Markets Insider, 4/17/2023)
Editor’s note: Gold has been one of the primary beneficiaries of that 8% shift in global reserves. The World Gold Council reports record central bank purchases of 1136 metric tonnes in 2022. “There has been a concerted shift away from over-reliance on the US dollar as a reserve currency in an environment of non-existent real yields on sovereign debt,” writes the Council’s Louise Street in a recent market review.
Cartoon courtesy of MichaelPRamirez.com
Notable Quotable
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“[T]he object of speculation may vary widely from one mania or bubble to the next. It may involve primary products, especially those imported from afar (where the exact conditions of supply and demand are not known in detail), or goods manufactured for export to distant markets, domestic and foreign securities of various kinds, contracts to buy or sell goods or securities, land in the country or city, houses, office buildings, shopping centers, condominiums, foreign exchange. At a late stage, speculation tends to detach itself from really valuable objects and turn to delusive ones. A larger and larger group of people seeks to become rich without a real understanding of the processes involved. Not surprisingly, swindlers and catchpenny schemes flourish.”
Robert Z. Aliber and Charles P. Kindleberger
Manias, Panics and Crashes – Anatomy of a Typical Financial Crisis (2001)
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Bank of America’s Hartnett sees 20% dollar selloff, turns bullish on gold
Markets Insider/Benzinga/4-14-2023
“According to the most recent ‘The Flow Show’ from Hartnett, markets are entering a new period of conflict, geopolitical isolationism, populism, fiscal excess, state intervention, regulation and redistribution. These factors will result in a world with 3%-4% inflation and 3%-4% interest rates.”
USAGOLD note: Hartnett is highly respected on Wall Street, so this forecast will not be taken lightly……He sees the dollar entering its fourth bear market in the last 50 years. The chart below shows the relationship between the US Dollar Index (DXY) and gold. A 20% decline would take the DXY back to the 80 level, implying the potential for an upside move in the gold price.
US Dollar Index and Gold
(1970 to present)
Chart courtesy of TradingEconomics.com • • • Click to enlarge
What I learnt from three banking crises
Financial Times/Gillian Tett/4-8-2023
“The first lesson is that when a bank implodes, this is almost always a symptom — not a cause — of something askew in the wider financial world, affecting other institutions. Financiers rarely want to admit this.”
USAGOLD note: As a reporter and columnist at the Financial Times, Gillian Tett has had a ringside seat, as FT puts it, for “a quarter century of financial crashes.” In this detailed analysis, she walks us through “five key lessons to ponder” she learned from covering those events. We reference the first above. We add that the same erosion of bond values that caused the collapse of SVB also brought down Credit Suisse a short time later and remains a cause for concern in the international banking system.
Top US banks to reveal $521 billion deposit drop, most in decade
YahooFinance/Bloomberg/4-12-2023
“Deposits at JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp. are expected to have tumbled $521 billion from a year earlier, the biggest drop in a decade, according to analysts’ estimates. The decline — which includes a $61 billion slide in just the first quarter — comes as a late influx of cash following a crisis at regional lenders failed to offset the steady drain of customers to products offering higher rates.”
USAGOLD note: The lion’s share of the deposit drain is going into money market funds while a not-so-insignicant amount is flowing into gold and silver. Investors are attempting to protect hard earned savings.
Why bitcoin will never eclipse gold
MoneyWeek/Merryn Somerset Webb/4-11-2023
“Imagine, says [Orbis’ Alec] Cutler, that a divine ruler had written a white paper for gold, just as the inventor of bitcoin apparently did for his new currency. Humanity will, he might have thought, need ‘a convenient and reliable vehicle for the preservation of wealth and universally trusted medium of exchange, for both government-issued and peer-to- peer transactions’, one that ‘will maintain its value for all eternity.'”
USAGOLD note: A thoughtful and thought-provoking comparison between bitcoin and gold. In Somerset-Webb’s mind, “Gold has been used as a medium of exchange for millennia – and it works just as said divine being might have wished it would.”