Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 46th year in the gold business

August 2019

“The true hallmark of a bull market in gold, however, is its ability to rise relative
to other major currencies. And it’s doing just that.” – John Murphy

Gold responds to the trade and currency war
At all-time highs in six of the world’s top currencies

The charts posted immediately below tell one of the quiet, but perhaps most important stories unfolding in the world of high international finance. Gold has appreciated sharply in the currencies of all of the world’s top economies.  In five of the top eight economies – the United Kingdom, Japan, Canada, Australia, and India – it is priced at all-time highs. In short, as currencies race for the bottom, gold is racing to the top. Investors everywhere are moving to insulate their portfolios against the combined threats of recession, plummeting yields, currency depreciation, and stock market instability. An over-arching nemesis not likely to relinquish its place any time soon has unleashed those four horsemen – the burgeoning trade and currency war. 

Gold is up 25% in sterling; 22% in the yuan; 21.5% in euros; 19.7% in Australian dollars; 18% in rupee; 13% in Canadian dollars and 12% in Japanese yen.  It is up sharply against a long list of emerging country currencies as well. By way of perspective, gold is up 16% in U.S. dollars thus far in 2019. “A host of global factors mean gold’s price is set to maintain its strength at least for the next six to 12 months,” said Howie Lee, an economist at Singapore’s Oversea-Chinese Banking Corporation, in a recent CNBC interview. “The world right now is in a precarious state and gold is due to benefit from this situation,” With the world – from Asia to Europe, the United States and a long list of emerging countries – now acutely attuned to gold ownership, it might not be long until we begin to see strains on the limited physical supplies. 

Charts courtesy of

Should I buy a gold ETF?
Are you looking for a price bet or the real thing?

For safe-haven, asset-preservation purposes, the best alternative is not futures, options, mining stocks or even ETFs, but delivery of the metal itself in the form of gold coins or bullion. Some think that owning an ETF is akin to owning real gold, but it is not. It is essentially a price bet simply because only owners of 10,000 ounces or more (with most trusts) can take delivery of the metal represented by the shares. Then there is the problem of counterparty risk. “Unlike physical gold bullion – which is a tangible asset,” says Mauldin Economics’ Olivier Garret, “ETFs are a financial product that have counterparty risk. Counterparty risk is present when there’s a possibility the other party in an agreement will default or fail to live up to their obligations. . .[O]ne of gold’s primary benefits is being the only financial asset that is not simultaneously somebody else’s liability. Therefore, these ETFs are a poor substitute.” In short, by owning an ETF instead of the real thing, investors expose themselves to one of the primary risks they hope to avoid through gold ownership.

The USAGOLD storage option – strong competition for the ETF
One of the advantages of a gold or silver ETF is that the trustee stores the metal for you and makes it easy to buy and sell. We can open a fully-allocated storage account for you that offers the same advantages. In fact, the annual cost of storage and insurance is actually lower than most ETF fees. You can buy and sell with a phone call. Most importantly, because specific coins and/or bullion are stored in your account, you can still take delivery in part or full whenever you so wish – something, as mentioned above, that the ETFs offer only to their largest institutional clients.

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MacroVoices: Gold is not going to be just ‘an asset’
but ‘the asset to own’ in the 2020s

Editor’s note: Stoferle, along with Mark J. Valek, publish the widely circulated and referenced In Gold We Trust annual report. In this interview, Stoferle says “It is crystal clear. We are in a gold bull market again.” The most important opinion expressed, in my view, is that the start of something different, perhaps very special, occurred in the gold market over the past 30-days or so. Stoferle and his hosts at MacroVoices delve into just what that “something” might be. If you are looking for fundamental insights as to why gold suddenly surged over the $1500 level, this interview will get you where you want to be.

Public pessimistic about the future of America

I came across this study in researching another subject.  It is a March 2019 Pew Research Center poll that quantifies the underlying mood of the country. Polls like this explain why gold and silver remain very much on the minds of many Americans.

Published with permission of Pew Research Center

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Dr. Moneywise asks:
“Where are we in Tyler’s historical cycle?”

“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasury. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship. The average age of the world’s great civilizations has been two hundred years. These nations have progressed through the following sequence: from bondage to spiritual faith, from spiritual faith to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency from complacency to apathy, from apathy to dependency, from dependency back to bondage.” – Alexander Tyler, 18th century historian and jurist

I always keep in mind Alexander Tyler’s historical cycle,” says Dr. Moneywise. “I estimate that we are now somewhere between the ‘complacency’ and ‘apathy’ stages with ‘dependency’ – if recent political rumblings can be taken at face value – knocking on the door. History is replete with examples of a rapid debasement of the currency accompanying the latter stages of Tyler’s cycle and that is why I own gold.

Major Wall Street firms go bullish on gold

Goldman Sachs is off-again, on-again when it comes to gold. It is now on-again and on the record with one of the more bullish numbers among Wall Street firms. “For Goldman Sachs Group Inc. analysts, gold’s rally above $1,500 is just the beginning,” reports Bloomberg’s Luzi Ann Javier and Justin Vasquez. “Analysts at the bank predict that prices already at six-year highs will climb to $1,600 an ounce over the next six months as investors seek havens. The dimming global economic outlook, fueled by heightening trade tensions between the U.S. and China are boosting gold’s appeal as a hedge against financial turmoil.”

Meanwhile, NASDAQ says that “Societe Generale, famed European investment bank, has just told investors they should load up on gold. . .” and Nomura, the Japanese bank, tells us that any rebound [in stocks] ought to be treated with a heavy dose of skepticism, and as preparation for the next wave of selling.”

“There is nothing,” says JP Morgan’s Craig Cohen in an article titled Is the dollar’s “exorbitant privilege” coming to an end?to suggest that the dollar dominance should remain in perpetuity. In fact, the dominant international currency has changed many times throughout history going back thousands of years as the world’s economic center has shifted. After the end of World War II, the U.S. accounted for the biggest share of world GDP at more than 25%. This number is brought to more than 40% when we include Western European powers. Since then, the main driver of economic growth has shifted eastwards towards Asia at the expense of the U.S. and the West.” JPM suggests that its clients diversify dollar exposure by shifting to other developed market currencies and precious metals. It says that the aforementioned shift away from the dollar is already underway.

The shifting sentiment on Wall Street brings to mind Thomas Kaplan’s memorable Bloomberg interview given in late May. “My time horizon is that I usually measure moves like these in terms of decades,” he said at the time (gold was trading just below $1300 per ounce). “So let’s look at it like this: The first move, the first leg, in gold took it from $250 per ounce to $1900. . .We’ve now been in a correction that has taken gold from $1900 back to where we are today. You could easily see gold fall a couple of hundred dollars before you see it go up a couple of thousand dollars, but each move has been a decade or more which means that when gold embarks upon its next move, I believe that you will see that long wave will take gold relatively quickly to the $3000 to $5000 target that I believe is fundamentally justified based on the facts we have today.”

Heightened risk meets easy money
World Gold Council mid-year gold outlook 2019

“Contrary to popular belief,” says the World Gold Council in its mid-year report, “gold’s performance is well explained by its supply and demand dynamics. Gold demand is linked to jewellery, technology and long- term savings, and these are important determinants of long-term performance. In the short and medium term their impact is felt predominantly when there are significant changes to demand. Conversely, gold investment demand amidst higher uncertainty – including speculative activity – can sway prices in a meaningful way in the short and medium term but its effects level off in the long run. In addition, gold supply through mining or recycling bring balance to the market.”

Source: World Gold Council

Well put. . . . Eventually, strong demand (or lack of demand) shows up in the pricing, particularly if it is persistent over the longer run. A good example is central bank demand. When the announcements appear of an acquisition – Poland’s recent purchase is an example – the gold pricing mechanism does not usually respond in the here and now. At the same time, the trend toward central bank acquisitions and repatriations had already become an important part of the equation that pushed gold back over the $1400 mark.


“For years, gold’s corrections have been brutal, and that is why many erstwhile bulls have not rushed to buy this rally. They have instead been waiting for a nasty pullback in order to load up at bargain prices. But Mr. Market has not obliged. Instead, retracements have been shallow and rallies steep. The latter have often occurred after-hours, but in one recent instance via a trampoline bottom that came early in the day. By playing hard-to-get, gold is displaying the most encouraging signs we have seen in a long, long while.” – Rick Ackerman, FXStreet

“In terms of grand strategy, the relevance of gold is often underestimated. To a certain extent, this misperception is a consequence of the disdain publicly expressed by some prominent economists. For instance, Lord John Maynard Keynes held that gold was a ‘barbaric relic,’ whereas former Federal Reserve Chairman Ben Bernanke claimed the yellow metal is stockpiled in vaults all over the world merely because of ‘tradition.’ The view that gold is like any other ordinary commodity is utterly reductionist . . .” – Jose Miguel Alonso Trabanco, Eurasia Review

“Markets may have rallied on Donald Trump’s potential trade ‘deal’ with China, but the corporate world isn’t buying it. That’s one of the key points I took away from several days spent last week at a summit for global chief executives. They were busy preparing for a new world order that many believe will involve a stand-off not between two countries (the US and China) but between three systems — liberal democracy and free markets, state-run capitalism and cyber-libertarianism.” – Rana Foroohar, Financial Times

“Bridgewater Associates didn’t have any major positions in gold ETFs until the second quarter of 2017. By the end of the third quarter of 2017, GLD formed 3.18% of the fund’s portfolio. Dalio likes gold due to its diversification and hedging properties. In a LinkedIn post last August, Dalio wrote, ‘If you don’t have 5–10% of your assets in gold as a hedge, we’d suggest that you relook at this. Don’t let traditional biases, rather than an excellent analysis, stand in the way of you doing this.’” – Annie Gilroy, Market Realist

 “Cash over the long run is the worst-performing asset class and therefore the riskiest asset class. So where do you go? To me, going to any one asset increases risk. So the best way to deal with the challenging environment I foresee is by diversifying well. . . [G]old is just an alternative currency to fiat paper currencies. If your portfolio is likely to perform poorly in the adverse environment I’ve been describing—less effective monetary policy, the need to run larger fiscal deficits and monetize them, and challenging politics—the behavior of gold as alternative cash has some diversifying merit.” – Ray Dalio, Bridgewater Associates

“Most of these people don’t really understand what is happening outside their boundaries, so they have no option but to buy gold, silver, and currencies of Western countries. And that is why I think support for precious metals will continue to increase going forward. I don’t know what influence it will have in pricing, but really, if I had to suggest to someone on how to preserve his wealth, my suggestion would primarily be focused on gold and silver.” – Jayant Bhandari, StreetwiseReports interview

“Rome fell because the dictators ruined the Roman economy and the institutions that had made it prosperous. Rome was falling apart before the barbarian invasions. How did the Caesars do that? They were profligate spenders. As emperors with absolute power usually do, they thought big: infrastructure (roads, temples, palaces), a huge bureaucracy, and, as the key to maintaining their power they had a very large, loyal, and well-paid army. As a consequence, massive government spending far outstripped revenue. They had what today we call a deficit problem.” – Jeffrey Harding, Mises Institute

“Gold can be best viewed as financial insurance. If you believe that you should own insurance, then you should also own gold. In terms of investment performance, gold will do best during times of international financial stress. In the past, the price of gold has moved exponentially higher during these periods as demand for the ultimate safe haven goes viral.” – Eric Lytikainen, Real Investment Advice

“In their conspiracy theories, frustrated silver bulls were missing the one obvious conclusion confirmed by the Blythe Masters interview, that JPMorgan was, and probably still is, working for the Chinese central bank as their client. China is the whale in the market, which explains why we see the lack of correlation between the largest four traders and the second four going back over a decade. Bear in mind also that the commitment of trader’s reports covering Comex are not the whole story. Forward trades in London on the LBMA are a significantly larger market and JPMorgan operates its own vaults in London as well.” – Alasdair Macleod, GoldMoney, A whale is accumulating silver futures

“More importantly, a new multi-year bull market has now emerged. Turning points from bear to bull markets (and vice versa) are not always recognized in real-time because investors and analysts are too wedded to the old story to see that the new story has already started. But, looking back it’s clear that the bear market ended in December 2015 at the $1,050 per ounce level and a new bull market, now in its fourth year, is solidly intact. The recent break-out to the $1,440 per ounce level is a strong 37% gain for the new bull market. This price break-out has far to run. (The 1971 – 1980 bull market gained over 2,100%, and the 1999 – 2011 bull market gained over 650%).” – James Ricards, Daily Reckoning

“Gold has always been seen as an important diversifier in an investor’s portfolio, both as a hedge against inflation and equity fluctuations. However, investors should start thinking of gold as an Alpha generator in their portfolios. Gold’s technical picture has changed this year, and I strongly believe it is set to embark on a multi-year uptrend.” – Greenwood Investments, Seeking Alpha

“One of the most important warnings offered by firefighters is simple: get out early. In the face of wildfires, some homeowners get the idea of staying in their homes and riding it out. As one firefighter warned, “The point is to go.” But if you don’t, it’s better to stay than to panic and run in the midst of a firestorm of smoke and embers. It’s not the fire that gets you. It’s the heat. Even before the flames reach the house, it can be fatal to stand outside trying to protect what you have (h/t John Galvin). Similarly, our ‘Exit Rule for Bubbles’ is straightforward: You only get out if you panic before everyone else does. You have to decide whether to look like an idiot before the crash, or look like an idiot after it.” – John Hussman, Hussman Funds

A word on USAGOLD
– 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 oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)

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Disclaimer – Opinions expressed on the website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing – How to Protect and Build Your Wealth With Gold [Third Edition]. He is also editor and commentator for USAGOLD’s Live Daily Newsletter and editor of the News & Views monthly newsletter.