Author Archives: News
“As Nomura’s Charlie McElligott pointed out in a note published Wednesday morning, markets are now bracing for the possibility of a ‘hard landing’ for the U.S. economy, as investors wake up to the reality that inflation will be much more stubborn than they had expected.”
USAGOLD note: We’ve gone from Inflation not being a problem to being manageable, from manageable to transitory, from transitory to persistent, from persistent to a major problem – all in the space of less than a year. And now some, as MarketWatch reports, believe the Fed may become more zealous than it needs to be thereby inflicting more damage than is necessary.
“‘Joseph and Sarah [Fernly-Maisters] clearly distrusted the newly formed Bank of England, the ‘banknote’ and even the gold coinage of their day because they [chose] to hold onto so many coins dating to the English Civil War and beforehand,’ [Spink & Son’s Gregory] Edmund said in the statement.”
USAGOLD note: Apparently, savers’distrust of the central bank in governing economic affairs is nothing new. In fact, it goes all the way back to the dawn of central banking itself and the founding of the Bank of England.
“It only took a 0.1% advance in the rate of consumer-price inflation last month to send markets into their worst tailspin in two years. But what might seem like a relatively small uptick — coupled with the fact that the headline number actually declined on an annualized basis — belies a far more significant shift in markets.”
USAGOLD note: Students of economic history will recall that during the 1970s, the Fed consistently informed the public of its commitment to taming inflation while simultaneously keeping interest rates below the inflation rate. All the while, inflation moved steadily higher. So where is the current Fed? Is Jerome Powell following in the footsteps of Paul Volcker, as he intimates, or those of Arthur Burns? At the moment, public posturing aside, Burns, in our view, looks to have the inside track.
“The Federal Reserve’s more rapid exit from crisis-era policies is set to place the $24tn US government bond market under extra strain, heightening concerns about the bedrock of the global financial system.”
USAGOLD note: This article delves into the effects of quantitative tightening on the already wobbly market for U.S. Treasuries. There may be a liquidity shock ahead which, as one analyst quoted puts it “is a fancy way of saying panic.”
“You may have learned about Fort Knox from the James Bond movie Goldfinger, or from the old cartoon where Bugs Bunny tricks Yosemite Sam into digging up some of the gold bars and getting arrested. But what do you really know about the U.S. bullion bunker in Kentucky?”
USAGOLD note: Ten little-known factoids about the U.S. gold reserve stored at Fort Knox……
Fed will need ‘great skill’ and ‘good luck’ to bring down inflation without crashing the economy, Yellen says
“The Biden administration has been supportive of the Fed’s rate hikes this year. Harvard Professor Jason Furman said Biden is a rare president for his support for a deliberate attempt to slow the economy.”
USAGOLD note: Not a confidence builder to think that the fumbling Fed will require good luck to keep the economy afloat…… If the Treasury Secretary is right on this she will not take a great deal of comfort knowing that it will cost the Fed and the Biden government dearly. It has not been a good year for Janet Yellen thus far.
“That binary choice of either a half point or an unprecedented 75 basis points of monetary-policy tightening masks an ever-expanding litany of challenges for the president and her colleagues in Frankfurt as they manage a fragile currency area with a war raging next door.”
USAGOLD note: The Telegraph’s Ambrose Evans-Pritchard summed up Lagarde’s dilemma neatly. “The European Central Bank can either bail out Italy,” he says, “or save its credibility in Germany. It will struggle to do both.” Likely, Lagarde, like Jerome Powell, will steer the middle course, and in so doing, further undermine the credibility of the euro. There might come a point when Germany seriously considers its place in the European Union and whether or not it might be in its best interest to resurrect the Deutschmark.
United States inflation rate
“The annual inflation rate in the U.S. eased for a second straight month to 8.3% in August of 2022, the lowest in 4 months, from 8.5% in July but above market forecasts of 8.1%. The energy index increased 23.8%, below 32.9% in July. Smaller increases were reported for gasoline costs (25.6% vs 44%) and fuel oil (68.8% vs 75.6%) while inflation sped up for natural gas (33% vs 30.5%) and electricity (15.8%, the most since August 1981). Meanwhile, inflation rose for food (11.4%, the most since May of 1979), shelter (6.2% vs 5.7%), used cars and trucks (7.8% vs 6.6%). Compared to the previous month, consumer prices were up 0.1%, following a flat reading in July and compared to forecasts of a 0.1% drop.” (Source: U.S. Bureau of Labor Statistics)
USAGOLD note: Stocks, gold, and bonds are down. The dollar remains the chief beneficiary. Two points. One, the initial response to unexpected data is not always the real response – so stay tuned. Two, we believe there will come a time when the very real damage inflicted by inflation on the economy and financial markets will replace the USD Index-gold analog as the critical factor in gold’s pricing.
“European energy trading is being strained by margin calls of at least $1.5 trillion, putting pressure on governments to provide more liquidity buffers, according to Norway’s Equinor ASA. Aside from fanning inflation, the biggest energy crisis in decades is sucking up capital to guarantee trades amid wild price swings.”
USAGOLD note: We would say that a $1.5 trillion margin call on an economy qualifies as a major problem. We find it odd that the reaction from Europe’s financial markets has been so subdued thus far……
“The region’s market for high-grade government and corporate debt posted a fall of 5.3 percent in the month to Tuesday, the biggest drop since the Bloomberg Pan-European Aggregate Total Return index began in 1999. The decline has been broad, with UK, German and French debt all hit by heavy selling in a reversal of July’s gains.”
USAGOLD note: Rates are going higher to address inflation that seems to be only getting worse. It is no longer just Italy and Greece with debt market problems, but the more stable nation-states as well. Will Europe be forced to finance government spending with printing press money?
“Bonds are sliding toward the first bear market in a generation, burning investors who erred in bets that central banks would pivot away from rapid interest-rate hikes.”
USAGOLD note: In addition to raising rates, as mentioned previously on this page, the Fed will be stepping up QT at the same time. All the while, a recession is brewing in the background. The bond market, as Bloomberg reports, is already down 20% on the year by most measurements. Systemic risk, it would seem, might suddenly become a hot issue. Beware, my friends, the Black Swan.
(Bond ETF, %)
Chart courtesy of TradingView.com
“Move over bond spreads, there’s a new canary in the credit coal mine when it comes to showing the early signs of a looming recession. So says Morgan Stanley strategist Srikanth Sankaran in a new note. He points out that while junk-rated bonds have traditionally been the credit market’s first to crack as economic conditions deteriorate, that position may now be filled by the more than $1 trillion worth of floating-rate loans.”
USAGOLD note: This could be a serious problem, particularly when a recession is factored into the equation.
“As many of the world’s most powerful economic policymakers took to the lectern at an annual economic symposium in Jackson Hole, Wyoming, in the last few days, a recurring — and disturbing — theme emerged from the proceedings. Many of these leaders believe that the extraordinary economic volatility of the last few years — with whipsawing growth, supply disruptions and inflation — are likely to persist for many years to come.”
USAGOLD note: Increasingly one gets the feeling that the central banks see these problems as intractable. In a talk delivered at the conference, ECB board member Isabel Schnabel warned that there likely will be “more frequent and more persistent shocks in the years ahead.”
“The Federal Reserve won’t be able to curb inflationary pressures because they are rooted in expansionary fiscal policy, according to a paper presented at the central bank’s annual Jackson Hole conference on Saturday.”
USAGOLD note: The Fed has already admitted to being limited as to what it can do about supply-side-driven inflation. Now, researchers at the San Francisco Fed tell us that it can’t do much about inflation because its driven by government spending. One of the great mysteries of the times – at least on the financial front – is why Wall Street continues to believe that the Fed has the inflation problem under control when the institution itself keeps telling us it does not. In the meanwhile, Washington is never at a loss for finding new ways to pile up the spending and debt.
“TTF natural gas futures, the European benchmark jumped more than 30% to above €280 per megawatt hour on Monday, after touching a three-week low of €203 on Friday, as Russia’s Gazprom reversed its plan to resume flows through the Nord Stream pipeline and shut it indefinitely, citing maintenance requirements. The Nord Stream pipeline was already running at just 20% of capacity before flows were halted last week for a three-day maintenance period. Gazprom decision is set to deepen an ongoing energy crisis in Europe, with countries trying to find alternatives to Russian gas supply, including liquefied natural gas from the US. European Union ministers will have an emergency meeting this week to discuss the energy crisis and define special measures to fight rising costs, which could include gas prices caps.”
Chart courtesy of TradingEconomics.com
“Sweden will give emergency liquidity support to electricity producers as its prime minister warned that Russia’s decision to halt gas deliveries to Europe could place its financial system under severe strain.”
USAGOLD note: Natural gas-burning European utilities cover their price exposure by shorting electricity futures. As a result of the rapid acceleration in natural gas prices and increased volatility, market makers are requiring significantly larger margins to maintain those hedges and some utilities are faced with demands they cannot meet. Sweden is attempting to fill the gap with cash infusions, but it is an open question how much government intervention will be required. Governments and central banks in Europe will be watching anxiously when financial markets open tomorrow.
“In 2021, U.S. government revenue totaled more than $4 trillion. About half of it came from individual income taxes, while about 30% came from Social Security and Medicare taxes.… Despite the trillions in revenue generated, like most years, U.S. federal spending was higher in 2021, which put the federal government in a budget deficit of $2.7 trillion. This was the second highest deficit on record, down from a peak of $3.1 trillion in 2020 during the height of the global pandemic.”
“After a calm period in January in which the land market remained steady, sales prices took another jump as a result of the outbreak of war in Ukraine and ongoing inflation fears, he notes. Farmers saw stronger commodity prices and investors wanted a low-risk inflation hedging investment, which together propelled the competition for good cropland.”
USAGOLD note: It used to be the farmland and gold were often mentioned in the same breath as inflation hedges and stores of value. Maybe we will come around to that again……And farmers and ranchers, we can add from experience, are no strangers to gold and silver ownership.
Short and Sweet
Gold, vanadium, europium reveal the existence of a mysterious particle
“To observe the Majorana fermions,” reports Mining.com, “a team of physicists from the Massachusetts Institute of Technology, the Institute of Technology at Delhi, the University of California at Riverside, and the Hong Kong University of Science and Technology, scientists designed and built a material system that consists of nanowires of gold grown atop a superconducting material, vanadium, and dotted with small, ferromagnetic ‘islands’ of europium sulfide, which is a ferromagnetic material that is able to provide the needed internal magnetic fields to create the Majorana fermions. When the researchers applied a tiny voltage and scanned the surface near the islands, they saw signature signal spikes near-zero energy on the very top surface of gold that, according to theory, should only be generated by pairs of Majorana fermions.” This must have been what Ben Bernanke was talking about years ago when he said he didn’t understand gold. [Smile] Gold’s allure, to be sure, is a mystery to some, but for those who understand the ever-present dangers imposed by the money printing press, the only mystery is why so few own it.
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“Moreover, the central government is trying to sanctions-proof itself. On April 22, officials from the finance ministry and central bank met with representatives of dozens of banks, including HSBC, to discuss what Beijing could do in the event of the imposition of punitive measures on China.”
USAGOLD note: When Nobel laureate Spence is asked what are the biggest risks to the US economy (See below), he responds, “expansion of geopolitical conflict. Something going wrong in Taiwan would be a disaster.” China expert Chang details alarming steps China is now taking to prepare for war.