Author Archives: News
“The initial focus will be on how a new currency, which Brazil suggests calling the ‘sur’ (south), could boost regional trade and reduce reliance on the US dollar, officials told the Financial Times. It would at first run in parallel with the Brazilian real and Argentine peso.”
USAGOLD note: The dollar rebellion gains new adherents – the two largest economies in South America, and that makes for an interesting headline. That said, Argentina might find it difficult to give up its money printing ways – something that will no doubt be required in a monetary union along the lines of the European Union. In short, discussions about a currency union at some point will necessarily get down to the nitty-gritty of government spending, deficits, money printing – and most importantly, monetary sovereignty. Austerity has never been one of Argentina’s strong suits, and that fact of life, in our view, is likely to keep this new currency union in the discussion stage for a long time to come.
“The divergence reflects beliefs about future inflation, which has cooled in recent months but remains high by historical standards. ‘There is a very clear disconnect and it is a disconnect about inflation, said Priya Misra, head of rates strategy at TD Securities.
USAGOLD note: The tug of war between Wall Street and the Fed proceeds…… The “disconnect” described could be in force for some time to come.
“Investor cash holdings are near record highs, and that could be good news for stocks since there is a wall of money ready to come right back into the market. But the question is this: Will those investors return any time soon, especially with sentiment still so sour and stocks at risk of a major selloff?”
USAGOLD note: For the first time in years, investors are able to garner a decent return on money markets. That’s no small matter. Wall Street, no doubt, is chomping at the bit for that cash to wash like a great wave into the stock market, but that money could also sit where it is for a long time to come. Merryn Somerset Webb, a senior columnist at Bloomberg Opinion, thinks cash holdings might be another dead end for investors. “If you are holding cash,” she says, “it is only a temporary king.” She says that inflation, which erodes the value of cash, will be with us for the long haul and that investors should look to gold, as an alternative.
“Global oil demand is set to rise to an all-time high in 2023 as China relaxes its Covid-19 restrictions in a move that may push crude prices higher in the second half of the year, according to the International Energy Agency.”
USAGOLD note: Should oil prices start higher, as some predict, it could bode well for the rest of the commodity complex, including precious metals, but undermine hoped-for restraint on monetary policy.
“For the US central bank, the burden of controlling elevated inflation falls increasingly on hopes for favorable supply shocks.”
USAGOLD note: And that could go either way. A one-paragraph, no-nonsense summary of the Fed’s latest policy conundrum……
Chart courtesy of TradingEconomics.com
“strategists say investors may hold back from putting more money into stocks, since sentiment is sour and money markets are now generating more return than they have been in years.”
USAGOLD note: It’s been so long since investors have received a decent return on their money that they are mesmerized by its sudden materialization. Persistent inflation, though, will undermine those returns. Then some might find further diversification to be in their best interest.
“The world’s largest oil exporter, which has maintained a currency peg to the dollar for decades, is seeking to strengthen its relations with crucial trade partners including China. The kingdom is a pillar a petrodollar system established in the 1970s that relies on pricing crude exports in the US currency.”
USAGOLD note: Saudi Arabia’s gesture follows important talks between Saudi Arabia and China on the issue of oil invoicing. Many will deem it important that Finance minister Mohammed Al-Jadaan delivered his comments at the Davos conference – the annual gathering of the world’s business and political elite. It obviously wanted to deliver a message.
“Treasury Secretary Janet Yellen said the Federal Reserve likely wouldn’t accept a $1 trillion platinum coin if the Biden administration tried to mint one to avoid breaching the debt limit, dismissing an idea that has been floated to circumvent Congress on the issue.”
USAGOLD note: Why do some choose to believe that outrageous solutions do not come with equally outrageous consequences? The best solution is to abolish the debt ceiling. It serves no practical purpose.
“In a fascinating new study has found that dozens of silver pieces found during excavations in Israel and the Gaza Strip were actually used as currency in ancient times. Since the silver pieces were likely made and put into circulation sometime between 1,700 and 1,600 BC, in the Middle Bronze Age, this would make them the oldest form of currency ever discovered in the Levant (modern-day Israel, Jordan, Lebanon and Syria).”
USAGOLD note: Before gold, silver was the circulating medium of exchange, and savers hoarded it. The “coins” were minted in Turkey then shipped to the Levant where it was used as currency.
Map courtesy of MapMaster, (2021, February 21). Map of the Levant. World History Encyclopedia. Retrieved from https://www.worldhistory.org/image/13269/map-of-the-levant/
“Analysts have pointed out that Russian investors and Russian banks’ premium customers do not have any other serious investment options: the Russian stock market is of no interest, the purchase of real estate amid mass emigration is a questionable investment, and making investments in foreign assets and foreign currency are fraught with risk.”
USAGOLD note: Not to mention that the country is at war that is not going as planned, the rouble is down and the inflation rate is running at double digits. Russia’s citizens bought 67 tonnes of gold in 2022.
“The U.S. budget deficit tripled to $85 billion in December from a year earlier, reflecting somewhat higher spending and a small decline in tax receipts.… Some of the extra outlays stem from the U.S. paying higher interest rates on its mountain of debt.”
USAGOLD note: As of 1/11/2023, the national debt stands at $31,375,141,998,674.97 – and it has almost doubled over the past decade. The national debt, as Ross Perot colorfully called it, is the crazy aunt in the attic. It is rarely a topic of discussion these days in the mainstream media and Washington political circles.
Aggregate National Debt
“‘The market thinks the Fed is playing without a playbook, since their forecasts have been wrong before and they’ve downplayed them in the past,’ said Marc Chandler, chief market strategist at Bannockburn Global, who’s been working in financial markets since 1986. Investors judge that the US is ‘headed for a recession, and that the Fed doesn’t quite yet get it.'”
USAGOLD note: Chandler describes a Wall Street attitude toward the Fed a far cry from what it was under the Greenspan and Bernanke chairmanships. In those days, Wall Street did not dare fight the Fed. Now, it is in full defiance.
“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.”
“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.
“Global stocks and bonds lost more than $30tn for 2022 after inflation, interest rate rises and the war in Ukraine triggered the heaviest losses in asset markets since the global financial crisis.…[S]aid Luca Paolini, chief strategist at Pictet Asset Management. ‘The lesson of this year is that at some point there’s a day of reckoning, and when it comes it’s brutal.’”
USAGOLD note: We posted this chart regularly in 2022 and here’s the final tally.
Stocks… down 19.95%
Treasuries… down 31.00%
Crypto… down 64.25%
Gold… up 1.19%
Silver… up 4.61%
Performances key asset groups 2022
(Stocks, bonds, crypto, gold and silver)
Chart courtesy of TradingView.com • • • Click to enlarge
“Central banks are scooping up gold at the fastest pace since 1967, with analysts pinning China and Russia as big buyers in an indication that some nations are keen to diversify their reserves away from the dollar.”
USAGOLD note: We have likened the current central bank gold-buying spree to a similar event in the late 1960s when European nation-states drained gold from the U.S. Treasury to buttress their reserves against dollar debasement. FT makes the same reference in this article. Ultimately, the United States was forced to devalue the dollar and dismantle the Bretton Woods monetary architecture, giving birth to the fiat money and launching a decade-long bull market in gold. The World Gold Council estimates central banks bought 673 tonnes thus far in 2022 – the largest annual amount in 55 years.
“Demand for gold has never been as high as this year…At the moment, every gold coin that comes off the coining press has already been sold. Right now we could sell three times as many as we are able to produce.” –Gerhard Starsich, Chief Executive, Austrian Mint
USAGOLD note: All the mints at one point or another during the course of the past year have complained about their inability to keep up with demand. The Austrian Mint says it is “unable to keep up with demand [for its gold coins] as people rush to find a safe haven for their money amid surging inflation and economic fears caused by the war in Ukraine,” Gold is up 5% in euro terms year to date. Starsich says that customers for its gold bullion coins are of all ages and from all walks of life.
“Commodities will be the best-performing asset class once again in 2023, handing investors returns of more than 40%, according to Goldman Sachs Group Inc. The Wall Street bank said that while the first quarter may be “bumpy” due to economic weakness in the US and China, scarcities of raw materials from oil to natural gas and metals will boost prices after that.”
USAGOLD note: If Goldman is right that commodity prices are about to reignite, it will blow a hole in the peak inflation narrative now making the rounds. It predicts oil will go to $105/barrel from the current $82, and that copper will go from its current price of $8400 per tonne to $10,050. Gold and silver are not mentioned in this article.
Chart courtesy of TradingEconomics.com
“In market parlance, a real interest rate is one that is above inflation. The rate of inflation right now, using the Fed’s preferred personal-consumption-expenditures, or PCE, price gauge, is 6%. That’s markedly higher than the current 4.25% to 4.5% fed-funds rate”
USAGOLD note: If you are a regular reader of this page, this argument will sound familiar. We are a very long way from achieving the positive real rate milestone. Too, the PCE price index, though preferred by the Fed, excludes food and energy prices, so how realistic is it as a real measure of inflation? The inflation rate, as measured by the more worldly Consumer Price Index is 7.1%. Shadow Government Statistics, which tracks the inflation rate using the Labor Department methodology of the 1980s, puts the inflation rate at 15%. By either measure, the ten-year Treasury yield at roughly 3.5% leaves a substantial gap that needs to be breached for investors to achieve a real rate of return.
10-year US Treasury yield vs the inflation rate
Chart courtesy of TradingView.com
“The survey showed a net 69% of respondents expect weaker growth next year, a modest improvement from the 73% in November, reflecting what strategists led by Michael Hartnett called “stable pessimism” among investors.”
USAGOLD note: Well, it’s pessimism, but at least it’s not runaway pessimism, according to the survey…… At the same time,, Yahoo reports that bearishness is stable at record levels.