“Essentially, the view is that next time around policymakers will go even further. That means the use of ‘Modern Monetary Theory’ — in which even more government debt is used to spur growth — along with negative interest rates and the possible step of distributing ‘helicopter money’ or direct cash from central banks like the Federal Reserve.”
USAGOLD note: We’re not making this up, folks. And a large number believe that there is nothing wrong with the mad-hatter policy alternatives just listed. If you do not believe that a gold hedge might be the personal policy position of the future, than perhaps you aren’t paying attention. In a recent Gallup poll, 43% said they believe socialism would be a good thing for America.
Repost from 5-28-2019
Chart Watchers/John Murphy/7-12-2019
“Gold recently rose to a six-year high on falling U.S. interest rates which have weakened the dollar (aided by a more dovish Fed). So gold is rising in dollar terms. 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.”
USAGOLD note: Murphy says all the top currencies are losing value against gold and says that “global traders have turned to gold as a new store of value. . .” We made reference to this article and yesterday’s DMR. It includes a couple of interesting charts that affirm Murphy’s criteria for a bull market.
Repost from 7-15-2019
Financial Times/Opinion/Rana Foroohar/7-7-2019
“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.”
USAGOLD note: Foroohar offers a fascinating delineation of the forces at work in the global economy and financial markets centered around the three “systems” mentioned above. She talks about things we should all be thinking about. We have not seen an analysis similar to this anywhere else. This is good stuff . . .
Repost from 7-8-2019
Money and Markets/JT Crowe/7-12-2019
“The way these things have always worked, in 2007, Iceland went bankrupt, and most people had no clue about that and didn’t know or care, and then later though, Ireland went bankrupt. Few more people noticed. A little while later after that, Bear Stearns went bankrupt. A few more people started noticing. A few weeks later, Northern Rock went bankrupt, then people started catching on. Eventually, Lehman Bros. went bankrupt and by then it was on the evening news all over the world.”
USAGOLD note: Rogers makes an important point for investors to consider in terms of formulating a crisis response. Of course, the best strategy is to diversify ahead of time in the interest of buying right and keeping the psychological damage to a minimum. It takes awhile for the public to actually believe that a crisis is underway. Most often, a major event – like Lehman Brothers in late 2008 – precipitates the full-out response. Up until then, the markets (including gold) tend to react slowly and gather pace gradually as investors sort out whether or not the crisis is real or a false alarm that the authorities have under control. Once the seminal event occurs, the market reaction can last many months – even years.
Repost from 7-15-2019
The Business Times/Willem Middelkooop/7-19-2019
“Beijing wants to increase its gold reserves in the shortest time possible to at least 8,000 tonnes. This would put China on a par, in terms of its gold to gross domestic product (GDP) ratio, with the US and European Union. It would open the way, should the need arise, for a possible joint US-EU-China gold revaluation to support the financial system.”
USAGOLD note: A bullish overview of possibilities for gold in the official sector . . . .
“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.”
USAGOLD note: Good bottom line analysis and advice from an analyst who’s taken a few laps around the track. . .through thick and thin.
“There is one other destination you might consider, if only because others are starting to think the same way. And that is gold.”
USAGOLD note: Deductive logic, game theory point to gold . . . A well-written thinking man or woman’s approach to the financial markets and gold.
Repost from 2-15-2019
“It’s gold’s time to shine. The price of gold has gained 9.6% to $1404.30 an ounce this year, and my work projects the precious metal will move substantially higher from current levels as it starts a new bull market. The fundamentals and technicals are aligned for gold to maintain its upward trend in the coming months.”
USAGOLD note: A public service announcement from Barron’s magazine [smile]. . . . . It is not often that the famed Saturday publication announces a new bull market in gold!
Repost from 7-14-2019
“Perhaps ironically, Powell’s monetarily authoritarian remarks about gold were likely inspired by the fact that Donald Trump seeks to appoint the pro-gold Judy Shelton to the Federal Reserve’s influential board of governors. In this sense, Powell’s remarks are symptomatic of someone speaking from defensive position. As such, Powell’s defensive remarks are demonstrative of the fact that more and more people are looking to gold as a means of getting out of the inflationary traps and debt traps that are implicitly cyclical when one’s economy is predicated on the artificial value of a fiat currency.”
USAGOLD note: When Jerome Powell was asked about the gold standard during testimony before the Senate Banking Committee, it was not the first time a Fed chairman was questioned on the subject. Alan Greenspan and Congressman Ron Paul had a long-running discussion on the merits of gold and the gold standard in the late 1990s and early 2000s. We thought so much of those exchanges that we posted the transcripts in their entirety at the USAGOLD website’s Gold Classics Library where they still reside today. The following is an excerpt from the Editor’s Note introducing the Greenspan-Paul dialogue:
“In putting this page together, I was struck with Dr. Paul’s ability to cut through the political gamesmanship that necessarily comes with being chairman of the Fed to Alan Greenspan, the man and political/economic philosopher. What emerges is a powerful figure conflicted between the practical manager charged with operating within the current fiat monetary system and the philosopher-academic with a ‘nostalgia,’ as he puts it, for the days of the gold standard. Without Dr. Paul’s incisive questioning, I doubt that this aspect of the Greenspan character would have found its way to the public venue and the historical record. Though the relationship appears adversarial at first blush, one also detects a certain amount of mutual respect and interest. Says Dr. Paul of the exchanges: ‘My questions are always on the same subject. If I don’t bring up the issue of hard money vs. fiat money, Greenspan himself does.'”
Knowledge Leaders Capital/Bryce Coward/7-16-2019
“We have been surprised over recent weeks to read a slue of commentary proclaiming that the economy is in great shape and Fed Chairman Powell is just pandering to markets by signaling rate cut(s) in July and beyond. Specifically, “strong” readings from the employment report, inflation and now retail sales have received much attention even as much more leading data continues to point to weakness among these very indicators in the second half of 2019. In this post we’ll try to show why Chairman Powell is right to cut rates here and now and why incoming data has done little to alter the intermediate-term outlook of a slower economy ahead.”
USAGOLD note: We thought this article helpful in showing some of the statistical categories that could influence the Fed’s decision on rates come the end of July. The article’s most important message is that the Fed is looking at a great deal more than the numbers emphasized in surface analysis of the economy. We would add that it is not just chairman Powell who makes the decision on rates, but a panel of economic experts that meets as the Federal Open Market Committee. Powell often makes reference to “we” when he talks about monetary policy decisions and he has shown an inclination toward being a “consensus” Fed chairman.
“There have been three times when shocks from outside the U.S. have hit home — the late 1990s, encompassing the Mexican peso crisis, the Asian financial crisis and the collapse of Long-Term Capital Management; the 2011-13 European recession; and the 2015-16 Chinese slowdown. The Morgan Stanley note points out the Fed has responded on all three occasions.”
USAGOLD note: The next international shock can come from any one of several locations – or more than one all at the same time. The Fed is trying to throw a blanket over the problem with lower U.S. rates, and, yes, we agree with Morgan Stanley it is much larger factor in monetary policy than many think due to the potential for default on dollar-denominated debts and the fear of igniting a contagion if it fails to move.
Bloomberg/Katherine Greifeld and Saleha Mohsin/7-17-2019
“Administration officials believe that for any move on the dollar to succeed, the Fed must agree with the policy and clearly communicate its support, according to people familiar with the matter. The Treasury Department and Fed have coordinated the last three U.S. currency interventions, splitting the amount transacted evenly between them in 1998, 2000 and 2011 in order to nudge the dollar’s value.”
USAGOLD note: As we mentioned in a previous post, the Treasury’s ability to sell dollar holdings is limited. For a devaluation policy to have teeth, the Fed must join-in with dollar balances it can tap to sell into the foreign exchange market against various competitive currencies.
Financial Times/Ortenca Aliaj and Robin Wigglesworth/7-17-2019
“Kyle Bass, the outspoken hedge fund manager who rose to prominence through prescient bets against the US housing market, Greece and Iceland, is now wagering that US interest rates will collapse to near zero next year as the country enters a recession and the Federal Reserve is pushed into crisis mode.”
USAGOLD note: Bass has a wide following among gold owners. Let’s not forget that he was the advisor who recommended that the University of Texas buy gold with its wealth fund (which it did). He now believes, as this article reveals, that the United States could go the way of Europe and Japan – deep into the realm of “the zero bond yield world.” If gold’s performance has been impressive the result of potentially lower rates, how might it react if the yield on the 10-year Treasury actually went to zero?
“The world’s debt rose by $3 trillion in the first quarter of 2019 — an almost unprecedented borrowing binge that brought total global debt to $246.5 trillion. High levels of debt put countries in a vulnerable position in the event of a downturn and could endanger the world’s economic recovery, said economists from the Institute of International Finance, which released the study today.”
USAGOLD note: Question – Why is gold up in almost every national currency on the globe? Answer – Because most of the countries in the world are in debt up to their eyeballs and the citizen/investor feels a need to protect his or her hard-earned savings.
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Hussman Funds/John Hussman/7-16-2019
“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.”
USAGOLD note: A not-so-subtle warning from John Hussman who says a 50% loss in the current stock market indices would be “optimistic”. . . . . . .
Gold Eagle/Frank Holmes
“Although not directly addressed in Darkest Hour, the U.K. ended up evacuating billions of dollars’ worth of gold bullion and other assets across the Atlantic, all to be kept safely in Canada. The mission, codenamed ‘Operation Fish,’ is still the largest movement of physical wealth in history.”
USAGOLD note: An interesting story about the the bedrock value of gold in the context of a very good movie and Gary Oldman’s extraordinary portrayal of Winston Churchill. Holmes weaves Britain’s gold mobilization of World War II with Germany’s repatriation in the modern era along with that country’s recent rise to the number three position for gold investment consumption globally.
Repost from 6-7-2018
“Gold is flashing a bright and shiny warning signal when it comes to the currency markets. It is telling us that the value of currencies is declining, and the price action is a continuation of a trend that began near the turn of the century. The currency markets validate the beginning of the next leg of the bull market in the market that is part currency and part commodity; a hybrid, unlike no other asset the world has ever seen.”
USAGOLD note: We agree with Hecht on his primary point that the devaluation of currencies on a long-term basis is also the foundation for long-term demand for gold and a strong argument for an extension of gold’s secular bull market. In fact, we covered the depreciation of a number of currencies against gold over just the past year in a recent Daily Market Report.
Repost from 7-11-2019
“Is there something to learn from the Deutsche Bank collapse? In my opinion, investors should watch the troubled banks in Europe very closely. Deutsche Bank isn’t the only bank with problems – it’s not even in the worst shape. It’s possible that the European banking sector’s instability could bleed over into the U.S. banking system as well.”
USAGOLD note: We have seen Deutsche Bank compared frequently to Lehman Brothers situation in 2008, but this is the first time we have seen it compared to Bear Stearns. Bear Stearns, of course, received a bail out from the Federal Reserve and Lehman didn’t. That distinction was critical. Deutsche Bank, like Lehman, has not received a bailout, at least as far as we know at this juncture. The real value of this article, that said, is in the heads-up it offers that Deutsche Bank is not the only source of concern in Europe’s financial sector, and that there is a potential contagion effect – perhaps even a major contagion effect – when derivative exposure is blended into the analysis.
“It is especially imperative that U.S. bank regulators ask the 25 largest U.S. banks to measure their credit exposure to Deutsche. It is not only our eight globally systemically important banks that are engaged in a wide range of transactions with Deutsche in the U.S. or abroad. Indeed, even regional banks hold derivatives and repurchasing agreements with Deutsche. All 25 banks invest in Deutsche’s bonds and stocks and provide all kinds of short- and long-term liquidity and credit facilities to the German giant.” – American Banker (October 2016)
Repost from 7-12-2019
Credit Bubble Bulletin/Doug Noland
“I don’t believe the primary impetus behind the global central bank swing toward additional stimulus is economic. Indeed, I see Powell, Draghi, Carney, Kuroda and the like confirming the Acute Global Financial Fragilities Thesis. This fanciful notion of “insurance” stimulus will be debated for years to come. A system suffering from risk aversion, illiquidity and Credit contraction would be expected to experience some perk from monetary stimulus. But a global financial ‘system’ already excessively embracing risk, wallowing in liquidity abundance and generating record Credit growth will be only further destabilized by greater stimulus. I’ve been long fascinated by how things turn ‘crazy’ at the end of cycles. My thesis is the world is in the late stage of an extraordinary multi-decade Credit Bubble. From this perspective, we should not be surprised by phenomenal late-cycle excess.”
USAGOLD note: I thought for sure that Noland was headed for “politics” as the reason for the additional stimulus, but he thinks it’s a fragile global financial bubble that needs propping up. He says the additional Fed stimulus though is “effectively throwing gas on the fire.” – Worth the visit for the full flow of Noland’s logic with respect to where we are now. . . . .
Repost from 7-13-2019
“I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold,” the Bridgewater Associates leader [Ray Dalio] said.”
USAGOLD note: We featured a post on Ray Dalio’s current thinking just this morning. He is back now with an an even more detailed commentary via Linked In. . . .and a summary at the link above.
“With a currency war most likely to be fought on USD/CNY and EUR/USD terrain, one approach would be to steer clear of the direct conflict. By far the most direct and simple way to trade the complexities of a currency war is by going long gold.”
USAGOLD note: Deutsche Bank joins the long list of funds and institutions suggesting gold ownership as a way to hedge the trade and currency wars.
“But when the downturn comes, there is little doubt that it will exacerbate these internal and external conflicts; if they seem difficult now when times are good, imagine what they’ll seem like when times are bad. That said, I don’t think the next downturn will be as severe as the 2008 financial crisis. We anticipated that crisis by calculating the debts coming due, and determining that we were headed for a classic debt crisis. Next time around, I think the downturn will be like a big squeeze in a politically challenging environment, much more akin to what we saw in the late 1930s. But that makes it very risky in its own way, leaving us more susceptible to political risk, currency devaluations, and so forth.”
USAGOLD note: This is the Goldman Sachs interview of Bridgewater Associates’ Ray Dalio cited in yesterday’s DMR. In this wide ranging interview that ends with Dalio recommending a diversifiction into gold, he also suggests that the Fed might be limited as to what it can do in another downturn raising the spectrum of considerable market pain in financial markets.
“Silver prices are one thing that investors shouldn’t ignore. The gray precious metal is undervalued, and could reward immensely in 2019 and beyond. There has been a disparity in the silver market for few years now, and this could result in a major appreciation in silver prices. This is a bold statement, but don’t be shocked to see silver soar to $50.00 an ounce within a few years.”
USAGOLD note: Appropriately, we post the link to this analysis on a day when silver has gained nearly 30¢ an ounce. The counter-intuitive upside of the past two days comes unexpectedly while gold has tracked marginally to the downside. It comes as a pleasant surprise for our many clients who own silver, especially those who bought it recently at much lower prices. Part of the move, in our view, is catch-up, but we could also be witnessing some judicious, pro-active short covering. For those of you who missed it, please see this interpretation of what might be going on in the silver market posted last Thursday:
A whale is accumulating silver futures
Gold Eagle/Rudi Fronk and Jim Anthony
“Clearly, from these numbers, there are far more players of the musical chairs game than there are chairs. Claims against the real economy have grown exponentially faster than the economy that must meet those claims. Either real GDP must rise at an unprecedented pace or the value of financial assets must fall precipitously. We have a huge phony wealth problem which is unsustainable and it cannot be fixed by monetary policy that has as it method the printing of more claims. What is the resolution of this mismatch of real vs. financial assets? Investors will begin to flee to reliable value that protects their wealth and purchasing power. We think that inevitably means fleeing to the backing of gold.”
USAGOLD note: A well-written short article on the nuances of real value. . . .And why “gold as its own settlement” is important.
Repost from 7-10-2019
World Gold Council mid-year gold outlook 2019
“Contrary to popular belief, 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
USAGOLD note: 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 equation that pushed gold back over the $1400 mark.
Repost from 7-11-2019
ETF Trends/Ian Young
“Analysts at European precious metals retailer, Degussa, also said that they see gold prices pushing higher through the rest of the year as global interest rates ultimately head lower. Degussa analysts said that they see U.S. interest rates falling to 1.25 per cent by the first half of 2020. Meanwhile, European interest rates could fall further into negative territory to -0.7% from -0.4%. With inflation expected to rise this means that real interest rates could fall in negative territory, the analysts add. This is all good news for gold.”
USAGOLD note: We do not rate the probability high that gold will reach $2000 by the end of 2019 but stranger things have happened once the bull escapes the pen.
Repost from 7-10-2019
“Gold has broken out from a massive base formed over a six-year consolidation. The breakout has left most investors on the sidelines. The powerful rally from below $1,300 to over $1,400 and a 6 year high caught most either wrong-footed (short) or flat footed (no exposure at all.) That is why we believe substantial further upside lies ahead. Gold’s allure (and the explanations for it) should grow as the price advances in the months and years ahead.”
USAGOLD note: Hathaway goes on to say that the bubble in complacency and “excessively brittle” consensus views are about to give way to market recognition of new realities.
Financial Times/Robin Wigglesworth/7-12-2019
“The bond market ‘vigilantes’ of old used to bully wastrel governments. Now they appear to have moved on to a grander target — the US Federal Reserve.”
USAGOLD note: Will the Fed lead, follow or get out of the way? The bond market has made its decision – the beneficiary of investor flight to safe haven, at least for now. As the press has reported extensively over the past few weeks, gold is also a beneficiary of the flight to safety.
“Yet as we noted in January, being held hostage, or captive, by the market is nothing new to Powell; in fact, it was way back when in March 2013, ahead of the Fed’s taper announcement, that the Fed chair first realized that it was not the Fed that controls the market, but rather – after years of ZIRP and QE – the Fed had become a hostage of the market’s every whim. And now, none other than the world’s biggest incubator of central bankers, Goldman admits as much.”
USAGOLD note: We’ve alluded to the Fed’s being forced to chase the market on rates previously in connection with recent thinking from Jeffery Gundlach. This piece by Tyler Durden is one for the deep-thinkers out there. Be aware that reading it could upend the comforting belief that the Fed is in control of the situation . . .
Repost from 7-8-2019
“We still don’t have very much inflation, and yet there is renewed interest in gold with prices reaching their highest since early 2013 at about $1,440 an ounce. There are a lot of reasons to like gold. One is that gold tracks fairly closely with budget deficits. The highs of 2009-2011 roughly corresponded with the large deficits that reached 10% of GDP during the Obama administration, which included the stimulus spending during the Great Recession and a sharp depreciation in the value of the dollar.”
USAGOLD note 1: Below we post a chart favorite here at USAGOLD showing, as mentioned above, the strong relationship over the long run between growth in the national debt and the rising price of gold.
USAGOLD note 2: By the way, we know more than our fair share of gold owners. Though a good many are business owners and managers, doctors, dentists, nurses lawyers, scientists, teachers, stay-at-home moms and ordinary working men and women (to name a few gold-owner job descriptions), none has ever mentioned anything about a tin foil hat and only a handful have referred to themselves as gold bugs. . . .yet some in the media persist with this nonsense. Gold owners, as we have said many times in the past, are a slice of Main Street America – nothing more, nothing less.
Repost from 7-10-2019