Author Archives: News
United States Producer Price Index
Chart courtesy of TradingEconomics.com
“Wholesale prices in the U.S. surged again in October and offered little sign that the biggest increase in inflation in decades is going to peter out soon. The producer price index rose 0.6% last month, the government said Wednesday.”
USAGOLD note: Gold bumped higher after the report’s release. Year-on-year the producer price index posted an 8.6% gain – nearing double digits.
“The cost of food commodities that make up a typical breakfast has soared to its highest point in a decade under the strain of bad weather and supply-chain crunches, providing another in a long list of upward pressures on global inflation.”
USAGOLD note: This is the first we’ve heard of it, but Financial Times has what they call the “breakfast indicator,’ and it is up 63% (!) since 2019 … and the big food companies say prices will worsen before they get better.
“We’re going to end up with a real shortage of energy. And when you have a shortage, it’s going to cost more. And it’s probably going to cost a lot more.” – Steve Schwarman, Blackstone CEO
USAGOLD note: Schwarzman says banks are not making loans to drill for oil and that is going to create problems in the supply. Prices will rise globally and social unrest will follow. If you are old enough to remember the 1970s, rising oil prices and accompanying shortages are going to have the ring of familiarity.
“Outstanding U.S. public debt increased $1.4 trillion over the past year. Who were the buyers? The Federal Reserve’s Quantitative Easing (QE) policy gobbled up a net $1 trillion of Treasuries, while foreign buyers snapped up nearly $500 billion.”
USAGOLD note: For those of us who have been involved in the gold space for any length of time, the question posed in the headline will provoke a knowing smile or two. The purchase of government debt used to be called monetization, the very definition of which is printing money and, therefore …… inflationary. The value of this article lies in its presentation of relevant statistical facts, i.e., the Fed’s purchasing 70% of the federal debt issued last year.
USAGOLD note: An incredible tale of a fabulous treasure trove retrieved over the past five years from Sumatra’s Musi River. near Palembang. This article includes many photographs one of which shows part of a life-sized 8th century Buddha “studded with gems, and worth millions. ……”
“[W]ith available copper inventories at LME warehouses falling below 20,000 tons — less than China’s factories consume in one day — traders are grappling with the possibility that there simply won’t be metal available to deliver.”
USAGOLD note: Obviously, if there’s an availability problem with metals like copper there can just as easily be the same with gold or silver – a prospect we should not take lightly.
“The Federal Reserve is expected to take its first major step away from the easy policy it put in place to fight the pandemic, a milestone on the road back toward normal.”
USAGOLD note: Unless you’ve been living in a cave, the Fed announcing a taper will not come as a surprise. Nevertheless, even though there has been some consequent reshuffling of the deck on Wall Street, it is our distinct impression that we have yet to see the full reaction. We will know more of the Fed’s plans by late Wednesday.
Hedge funds seen facing heavy losses amid wrong-way Treasury bets ahead of Fed tapering, traders say
“Some hedge funds are likely to be facing substantial losses as the result of a steady narrowing in the differential between yields for long-dated U.S. government debt and shorter-dated ones, traders said on Friday.”
USAGOLD note: The problem is excessive leverage. Either way the rabbit (the Fed) jumps tomorrow (or even if it doesn’t jump at all), there is trouble building in the system and it is difficult to know the extent of the consequences. Who would have guessed two weeks ago that we would be back to worrying about the narrowing yield curve? MarketWatch describes that narrowing as “a harbinger of potential economic trouble.”
“[N]ow a crisis in China’s property sector, as manifest in the financial problems of developers Evergrande and Fantasia, has many worried that China’s near-insatiable demand for raw materials, which long proved a potent engine of growth for emerging economies, has run out of steam.”
USAGOLD note: We have raised the prospect of a slowdown impairing commodity demand in China – a situation that might also cause some to think gold demand might be hampered as well. There is another aspect to China’s property bust though that is likely to encourage gold demand – the global systemic risks and the potential for a contagion. As such, it is not just Chinese investors likely to seek refuge in the yellow metal.
“Schlick started minting coins with his newly mined silver, similar in size and weight to the Guldengroschen (shortened to Guldener), which were just gaining popularity at the time – each 1⁄8th of a Cologne Mark of silver. Schlick called his coins, which weighed roughly an ounce and were an inch and a half (4cm) across ‘Joachimsthalers’. German speakers to the north and west shortened this to ‘thaler’, while Czech and Slavic speakers to the south and east called them ‘tolars.'”
USAGOLD note: Now you know how the dollar got its name – historically associated with an ounce of silver. Nineteenth and Twentieth century American silver dollars contain .77345 ounces of pure silver.
Attribution: Classical Numismatic Group, Inc. http://www.cngcoins.com, CC BY-SA 3.0 <http://creativecommons.org/licenses/by-sa/3.0/>, via Wikimedia Commons
“Shortages of workers, fuel, cargo ships, semiconductors and building materials as the global economy bounces back after pandemic lockdowns have companies from electric car makers to chocolatiers scrambling to keep a lid on costs.”
USAGOLD note: Long before inflation began showing up in the Consumer Price Index, business leaders and purchasing managers were waving a red flag on price increases. Eventually the increases they predicted were to passed along to consumers by necessity. It is for that reason, that we should probably give special consideration to reports like the one linked above.
“The American economy expanded an annualized 2% on quarter in Q3 2021, well below market forecasts of 2.7% and slowing sharply from 6.7% in Q2. It is the weakest growth of pandemic recovery as an infusion of government stimulus continued to fade and a surge in COVID-19 cases and global supply constraints weighted on consumption and production. Personal consumption eased sharply (1.6% vs 12% in Q2) as spending on goods decreased (led by motor vehicles and parts) and services decelerated (led by food services and accommodations). Also, nonresidential investment rose much less (1.8% vs 9.2%) and residential one continued to shrink (- 7.7% vs -11.7%). Meanwhile, net exports subtracted 1.14 percentage points from the growth as exports declined 2.5% (vs +7.6%) and imports surged 6.1% (vs 7.1%). Private inventories however added 2.07 percentage points to the growth.”
USAGOLD note: This GDP read might force the Fed to tread lightly on tapering next week.
“There, in the barbershops and restaurants and hotels that constitute the main strip of one dusty little outpost after another, you’ll find prices displayed in grams of gold.”
USAGOLD note: “There” is Venezuela’s backcountry. We included a note on Venezuela’s hyperinflation just over a week ago (10/14/2021) in our Daily Market Report: “While hyperinflation in the U.S. economy is unlikely, It is a reality in Venezuela,” we wrote. “One of the characteristics of hyperinflation is how quickly it can impose itself on an economy. The chart below shows the rapid depreciation in the value of Venezuela’s bolivar over the past nearly two years. At the end of 2019, it took, as you can see, 45,760 bolivars to buy a dollar. The exchange rate is now 4,133,144 bolivars per dollar. Yesterday, the price of gold in Venezuela was 383,207,885,304,659.50 bolivars per troy ounce, according to Goldrate24 – an indication of its utility as a long-term store of value under even the most extreme circumstances.”
Sources: St. Louis Federal Reserve, Board of Governors of the Federal Reserve System (U.S.)
Repost from 10-20-2021
“In the case of 10-year TIPS yields for the U.S., they have managed to fall once again below the once-inconceivable minus-1% level. Yields like that are not supposed to happen, and certainly not when the economy is growing and people are worried about inflation.”
USAGOLD note: Authers ties together presidential politics, bond yields, and inflation. He concludes with a question: “Can I summarize this neatly?” And answers: “No not really.” But between thesis and final conclusion, he offers much to consider including a return to a theme he first advanced months ago: How do we go about dealing with the consequences of a paradigm change from low inflation and interest rates to the polar opposite? There are a couple of time-tested options we might suggest along those lines and both now seem to be priced favorably.
Powell says inflation risks rising, but Fed can be ‘patient’/Christopher
“Federal Reserve Chair Jerome Powell said Friday that the tangled supply chains and shortages that have bedeviled the U.S. economy since this summer have gotten worse and will likely keep inflation elevated well into next year.”
Yellen says U.S. is not losing control of inflation
Reuters/Doina Chiacu and Michael Martina/10-24-2021
“U.S. Treasury Secretary Janet Yellen said on Sunday that the United States was not losing control of inflation, and that she expected inflation levels to return to normal by the second half of next year.”
\USAGOLD note: Although Powell and Yellen admit that inflation might be more of a problem than they’ve been letting on, they still think it will dissipate before the end of next year. As such they are likely to allow yields to remain in negative territory for some time to come – a policy Mohamed El-Erain calls the biggest monetary policy blunder in forty years. (Please see “Mystical hold of transitory tempts huge Fed error” below.) We will add that the Fed and Treasury Department have underestimated inflation from the start of this paradigm change – a position that undermines their contention now that inflation will be back to normal levels before the end of 2022. The obviously orchestrated mantra on inflation will also call to question the Fed’s supposed independence from direct political influence.
Repost from 10-20-2021
“The Federal Reserve’s army of more than 400 Ph.D. economists has a message on inflation for policy makers and the American public: Chill out.”
USAGOLD note: Presented as a public service announcement …… Out of the army of economists at the Fed, how many predicted a year ago that the inflation rate would go from 0.5% to over 4.25%? Not many, we would venture. So why should we believe Fed economists when they tell us inflation will be under 2% in 2022?
Repost from 10-19-2021
“Mr. Powell, a Republican, has been the front-runner to keep the job when his term expires early next year. But questionable trading activities by two Fed bank presidents, first reported last month by The Wall Street Journal, cast a cloud over his prospects by giving a vocal minority of Democrats who already opposed his nomination new grounds to call for his replacement.”
USAGOLD note: Interestingly, a former Fed economist says if Powell is implicated in the trading scandals, it involves Lael Brainard, the oft-mentioned alternative, as well. This is a solid update on the critical changes unfolding at the Fed.
“If we were to see a risk of inflation moving persistently higher, we would certaintly use our tools.” – Jerome Powell
USAGOLD note: Promptly – in a matter of minutes – gold and silver gave back most of this morning’s gains.
Repost from 10-18-2021
“Demand for Australian bullion products surged in September, figures from The Perth Mint show, with sales of gold coins and bars the highest in five months and sales of silver coins and bars the best in three months. The Mint’s minted bullion sales not only surpassed those from the prior month but those of a year ago.”
USAGOLD note: The Perth Mint is seeing much better results than the U.S. Mint thus far in 2021 in terms of percentage growth. We need to keep in mind though that the U.S. Mint was down for a few months due to a changeover in coin design to the new American Eagle. Gold bullion coin sales for October for the gold American Eagles have been very strong – 121,500 troy ounces and already 6% over September sales.
Repost from 10-13-2021
“But the forecasts — displayed as anonymous dots on a chart — can be affected by shifts in personnel. In addition to Powell’s chairmanship, President Joe Biden has the chance to pick three other governors on the seven-seat Board in Washington. A decision on the chair is expected this fall.”
USAGOLD note: This article is of value to gold investors on several different levels having to do with the politics of central banking. Some might quarrel with our use of the word “politics” with reference to central banking, but it has become apparent that it now plays a direct role in monetary policy. The Biden administration has some major decisions ahead of it in that regard – decisions that could radically alter the already dovish course of the Federal Reserve with an even more dovish tilt. (In addition to appointments listed above, it will also be choosing replacements for Robert Kaplan and Eric Rosengren, “two of the most hawkish” regional Fed presidents.)