Monthly Archives: July 2023

Short & Sweet
The true nature of inflation

ramirez showing the the 31¢ dollar adjusted for inflationCartoon courtesy of Michael P. Ramirez.com

“The nature of inflation is widely misunderstood and misinterpreted,” writes analyst Dave Kranzler in an Investing.com overview, “‘Inflation’ and ‘currency devaluation’ are tautological—they are two phrases that mean the same thing. … Dollar devaluation has been occurring since the early 1970’s. The value of the dollar relative to gold (real money) has declined 98%. In 1971, $40,000 would buy a 4,000 square foot home in a good suburb. Now it takes $700,000 on average to buy that same home. Price inflation is the evidence of currency devaluation. The CPI is not a real measure of price inflation. The CPI is methodically massaged – starting with the Arthur Burns Federal Reserve (it was his idea) to hide the real degree of currency devaluation from all of the money that has been printed since 1971.”

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The decline and fall of the U.S. dollar

The Heritage Foundation/EJ Antoni/7-13-2023

graphic illustration of US capital spewing dollars

“The U.S. dollar’s reserve currency status is one of America’s greatest strengths, but President Joe Biden seems hellbent on toppling the dollar from its throne through both his domestic and foreign policy agenda. Americans need to pay attention because we’ve seen this movie before, and it doesn’t end well.”

USAGOLD note: The Biden Administration is only one of the players undermining the dollar. Congress is equally culpable as is the Federal Reserve which is quick to turn to money printing at the first signs of a crisis.

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Daily Gold Market Report

Gold pushes higher in Fed aftermath
JPMorgan sees gold hitting ‘fresh records in 2024’

(USAGOLD – 7/27/2023) – Gold pushed higher in the aftermath of yesterday’s Fed hike and press conference. It is up $5 at $1978.50. Silver is up 13¢ at $25.12. The market reaction to yesterday’s events was generally subdued as Chairman Powell emphasized future decisions would be data-driven leaving market sentiment pretty much where it was prior to the meeting – up in the air and open to interpretation.

JP Morgan sees the Fed turning dovish by the second quarter of next year – a shift it believes will push gold to new record levels during 2024. “We’re in a very prime place,” says Greg Shearer, the firm’s director of commodities research, “where we think gold ownership and long allocation to gold and silver is something that acts as both a late cycle diversifier and something that will perform as we look to the next sort of 12, 18 months.… There is an eagerness here to really buy in and diversify allocation away from currencies.” [Source: Yahoo!Finance-Bloomberg]

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

Notable Quotable

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“I’m a fan of gold. I think gold’s valuable in a crisis. If the world turns to hell, the war expands and gets worse, God forbid a nuclear weapon is used, I think people are going to say: ‘How do I know what anything’s worth anymore? I’m going to make sure I have some gold because I don’t want to not have money at a time of desperation.’ It may never come to that, but I think it’s prudent to have a little bit of your portfolio in gold.” – Seth Klarman, Baupost Capital, Harvard University interview at Yahoo

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Pozsar on the ‘monetary divorce’ from the dollar

Zero Hedge/Tyler Durden/7-17-2023

photo of gold bar graph against $100 US note

“Gold is definitely something that’s coming back as a theme… we are seeing this more and more in the data that especially the countries that are not geopolitically aligned to the US are shunning Treasuries and shunning the dollar and they are buying gold instead.”

USAGOLD note: Pozsar elaborates on the evolving monetary system and the dollar and gold’s role in it.

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High-yield bond exodus gathers pace as 10% drains from funds

Yahoo!Finance-Bloomberg/Olivia Rainmonde/7-14-2023

cartoon on sticking with gold over stocks

“Investors have pulled more money out of US junk-bond funds than from any other asset class so far this year, according to a report by Bank of America.”

USAGOLD note: It’s not just the return on your money, but the return of your money that’s important.

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Short and Sweet
Structuring your portfolio for the rest of the 2020s

graphic illustration of gold coin stacks against a chart background

“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 considers 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.

Investors often ask about the percentage commitment one should make to precious metals in a well-balanced investment portfolio. Analyst Michael Fitzsimmons offered an interesting take on that subject in a Seeking Alpha editorial last fall, “Assuming a well-diversified portfolio (which does include cash for emergencies),” he says, “my belief is that middle-class investors (net worth under $1 million), should own at least 5-10% in gold. I also believe that as an American investor’s net worth climbs, the higher that percentage should be because, in my opinion, he or she simply has more to lose by a falling US$. For instance, an investor with a net worth of $2-5 million might have a 15-20% exposure to gold; $10 million, perhaps a 30-40% exposure.” As it has for many years, USAGOLD recommends a diversification of between 10% and 30% depending on your view of the risks at large in the economy and financial markets.


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Markets are propelled by what hasn’t happened

Bloomberg/Mohamed A. El-Erian/7-1 7-2023

illustration of recession at next exit with long road ahead“Whether you are examining the evolution of the US economy or the impact of monetary policy, one of the noteworthy developments this year is not what has happened but rather what has not.”

USAGOLD note: It’s been a year of surprises and unexpected serenity…… El-Erian offers food for thought in this Bloomberg piece.

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No DGMR today. Back tomorrow – 7/27/2023

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Notable Quotable

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“The truth, yet unspoken from on high is that radical monetary policy begets more radical monetary policy.”
James Grant, Grant’s Interest Rate Observer

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We put this page together just for you.

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Dollar’s busted bull run has doomsayers calling end of era

Bloomberg/Alice Atkins and Carter Johnson/7-16-2023

“The greenback’s worst slump since November has a bevy of strategists and investors saying a turning point is finally at hand for the world’s primary reserve currency. If they’re right, there will be far-reaching consequences for global economies and financial markets.”

USAGOLD note: Whatever it does against other currencies in the short term, the dollar’s history over the long run has been one of steady debasement and loss of purchasing power, and that era, in our view, is far from over.

The purchasing power of the US dollar and gold
(%, 1971-present)

overlay line chart showing gold price and purchasing power of the US dollar
Chart courtesy of TradingView.com • • • Click to enlarge

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India ties up with UAE to settle trades in rupees

Reuters/Arpan Chaturvedi/7-15-2023

“India has signed an agreement with the United Arab Emirates that will allow it to settle trade in rupees instead of dollars, boosting India’s efforts to cut transaction costs by eliminating dollar conversions.”

USAGOLD note: Is cutting transactional costs the real reason for this new arrangement?

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Short and Sweet
New smart money queues up in the gold market

graphic image of investors queuing up

First institutions and funds came over to gold’s corner, then central banks. Now, a whole new grouping of professional investors – pension funds, private wealth management, insurance companies, and sovereign wealth funds. “It’s a bit like what happened to big tech,” says highly respected economist Mohammed El-Erian. “People like [gold] because it’s defensive. People like it because it’s a reflation trade. People like it because it’s inflation protection.  What we are starting to see with the narrative about gold is starting to be like the narrative about big tech.  It gives you everything.” These groups bring considerable purchasing power and market savvy to the table. One immediate result might be more buying interest on price dips.  Another might be a better blend of investment psychology and objectives that could have a settling effect on the market overall.


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Battle lines are drawn

Credit Bubble Bulletin/Doug Noland/7-14-2023

ramirez suggesting Biden like Carter with stagflation in the wingsCartoon courtesy of MichaelPRamirez.com

Selected quotes

“I’m challenged to find significant evidence Fed policy is ‘starting to bite hard.’ My analytical framework prioritizes financial conditions. Generally, tighter market liquidity conditions presage tighter lending, slower Credit growth and weakened demand. Markets lead economic performance – not vice versa. Booming markets generate self-reinforcing liquidity, loose conditions and asset inflation, which work to bolster confidence and boost spending.”

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“I see inflation ebbing and flowing – with much more flow than ebb over time. But what conventional analysis sees as the previous inflation normal, I view as aberrational. Inflation risk remains highly elevated in New Cycle Dynamics. This exceptionally hot weekend will remind us of newfound climate hostilities. And there is deglobalization, with heightened China tensions adding to trade, supply-chain and pricing uncertainties.”

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“Bubbling markets readily disregard myriad stability risks. Inflation is seen in full retreat, with policy tightening having about run its course. Recession risks have dissipated. It’s difficult for me to imagine a backdrop of greater stability risk. Inflation risk remains highly elevated. The risk of bursting financial Bubbles is extreme. Fed rate increases have failed to tighten market conditions, with speculation and speculative leverage becoming only more acute. And fearless markets are more confident than ever that underlying fragilities ensure central bankers won’t risk bursting Bubbles.”

 

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Daily Gold Market Report

No DGMR today. Back tomorrow – 7/27/2023
Below is yesterday’s report
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Gold trades higher in run-up to Fed rate decision, press conference
Crescat predicts a powerful new wave of gold demand driven by a flood of government debt

(USAGOLD – 7/25/2023) – Gold is trading higher in the run-up to tomorrow’s Fed rate decision and press conference. It is up $7 at $1964. Silver is up 32¢ at $24.75. Crescat Capital’s Kevin Smith and Tavi Costa believe that the United States is immersed in a mounting debt problem that is weakening the dollar and creating an environment that will divert capital away from Treasuries and into gold.

“We believe a powerful new demand wave for gold is coming in the short term from both institutional and retail investors,” they say in a recent analysis posted at Zero Hedge. “In aggregate, global central banks are already ahead of the curve as they have been accumulating the monetary metal recently as a reserve asset in preference over USTs. Gold is a haven asset that can provide an inflation hedge while also offering strong absolute and relative real return potential in the stagflationary hard-landing environment that our models are now forecasting.”

line chart showing level of government debt issuance
Sources: St. Louis Federal Reserve [FRED], Board of Governors Federal Reserve

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Notable Quotable

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“The decline of Rome was the natural and inevitable effect of immoderate greatness. Prosperity ripened the principle of decay; the causes of destruction multiplied with the extent of conquest; and as soon as time or accident removed the artificial supports, the stupendous fabric yielded to the pressure of its own weight.”

Edward Gibbon
The Decline and Fall of the Roman Empire

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Taking the temperature

Oaktree/Howard Marks/7-10-2023

symbolic representation of wisdom as an owl perched on a golden keyEveryone can study economics, finance, and accounting and learn how the markets are supposed to work. But superior investment results come from exploiting the differences between how things are supposed to work and how they actually do work in the real world.”

USAGOLD note: The wisdom of Howard Marks at the link……

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Simon White: In real terms, equities likely to be one of the poorest performing asset classes

Zero Hedge/Simon White/7-11-2023

graphic image of 1970s reducs coming soon to an economy near you“Where things could go seriously awry for stocks is if Powell’s immediate response to re-accelerating inflation is to go ‘full Volcker. But I find that unlikely. Volcker was path dependent: we had to go through Arthur Burns and William Miller to get to the point where their successor had a mandate to cause a deep recession to neuter inflation. Powell isn’t there yet. On top of that, next year is an election year, and resisting cutting rates as the economy weakens might be the closest the Fed gets to hiking.”

USAGOLD note: White is Bloomberg’s macro strategist. He says, “We have several of the same dynamics today as in the 1970s.”

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