Author Archives: Opinion
Gold macros are beyond powerful; price to see $3000 to $5000 says billionaire investor, Thomas Kaplan
“Let’s put it this way, gold still remains on Wall Street and in the west probably the most under-owned, least crowded trade in the global financial markets. … The era in which gold was the asset which people loved to hate and hated to love is starting to come to an end. We’re still in the very early innings. It’s still a smart money trade as opposed to a big passive money trade but that’s about to happen.”
USAGOLD note: Daniella Carbone, who is now with Stansberry Research, interviews Thomas Kaplan, who offers some interesting views on the impact of what he calls “bold-faced” names now involved in the gold business – like Buffett, El Erian, Mobius, Dalio, Gundlach, Rogoff. This interview is highly recommended. As always, Kaplan has profound things to say and Carbone does a good job of drawing him out on the important subject introduced above. (We referenced this interview in this morning’s DMR and repost it here for those who may have missed it.)
“After the upheaval caused by the COVID-19 pandemic, uncertainty has become the norm for investors and fund managers. As the UK property market – both residential, commercial – came to a standstill earlier this year, the absence of activity led to challenges in valuing property investments with the certainty required. As a result, property funds suspended withdrawals by investors. And until more normal levels of property market activity are seen, investors may continue to struggle to access their capital.”
USAGOLD note: One wonders if the same logic might not apply to any number of funds in the event of another economic emergency. Gopaul makes an important point. He sees the potential for such liquidity breakdowns as an opportunity for gold. Gold, he says, acts as “ballast” in the portfolio in good times and bad. He points to its inverse correlation to other assets as one of its strongest selling points. The $2.7 trillion global market for gold, he says, makes it very liquid “even at times of acute financial stress.”
Repost from 9-23-2020
“[DoubleLine Capital’s Jeffrey] Gundlach said, and buyers should be aware that holding shares doesn’t amount to having gold bars. ‘What happens if physical gold is in short supply and everyone wants to take delivery of their paper gold?’ Gundlach said. ‘They can’t squeeze blood out of a stone.'”
USAGOLD note: Gundlach hoists the same red flag we have raised often on this page. Gold ETF’s are a price bet. Gold coins and bars are a safe-haven store of value. And never the twain shall meet.
Repost from 4-4-2020
“‘If you don’t have a tail hedge, I suggest not being in the market [as] we’re facing a huge amount of uncertainty.’ That’s “Black Swan: The Impact of the Highly Improbable” author Nassim Nicholas Taleb offering his view on the risks swirling in the market and a growing lack of clarity about the future in the era of a deadly pandemic that has created a public health and economic crisis.”
USAGOLD note: Taleb goes on to say “we are printing money like there’s no tomorrow.”
Repost from 7-2-2020
“The mistake of ignoring the economic impact of lockdowns creates a social crisis that may last many years. If the European economy was ill-prepared for a series of lockdowns in February, it is even weaker now. What created a recession of unexpected proportions may generate a depression that will likely last for a few years.
USAGOLD note: Lacalle speaks to the issue as the United Kingdom regrettably goes into heightened restrictions that could be in place for up to six months.
Repost from 9-23-2020
USAGOLD note: Mike McGlone, the commodity expert at Bloomberg, reminds the hosts of gold and silver’s strong performance thus far this year, even with the recent correction taken into account and that the foundational elements remain in place for a solid performance over the next five to ten years.
“UBS has warned clients that now is the best time to stock up on gold as a “far from certain” presidential election outcome looms for the nation. ‘A contested outcome is still a possibility, which could add to further volatility and result in safe-haven flows,’ UBS chief investment officer of global wealth management Mark Haefele told clients, CNBC reported.”
USAGOLD note: Reading this article brought to mind the old maxim among veteran gold investors, i.e., “the best time to buy gold is when everything is quiet.” It has not been exactly “quiet” in the financial markets over the past few weeks, but the volume is definitely turned down – comparatively speaking.
“What will be the long-term consequences of the pandemic? Few if any answers are clear. In the financial realm, markets have automatic checks, balances and stabilizers. Tracing the impact of the last few months into the future soon becomes like plotting out an attack in chess.”
USAGOLD note: Authers goes on to offer a brief look at how the life insurance industry was impacted by the Spanish flu, but significant detail on the political and financial outcomes of the Irish potato blight.
Two thousand years of monetary history and what it tells us about fiat currencies
“Chancellors of the past would be turning in their graves – envious of Rishi Sunak’s ability to conjure money from thin air. In the past, there were three ways to increase money supply: Trade for precious metals, capture the wealth in battle and mine the metals. Over two millennia, the people of Britain have done all three. Rishi Sunak doesn’t have to do any of that – so much easier to wave a magic wand like Harry Potter.”
USAGOLD note: So true, but the process does not read to a healthy conclusion and points up the need to own gold and silver as part of one’s personal defenses against the excesses of the money printers. This point is well made in the ultra-long term chart reproduced below. Note the stability in Britain’s consumer price index for more than 700 years – until it went off the gold standard in early 20th century and launched a fiat money economy. Also, the acceleration in the price of gold from the date of that decision.
Sources: Bank of England, ICE Benchmark Administration Limited, St. Louis Federal Reserve [FRED]
Cartoon courtesy of MichaelPRamirez.com
“We are focused on the next tweet. We are not focused on long term policy making. I think that this is part of the system failure that we have seen in Washington in recent years – that there is no long-termism. And that is clearly evidenced by its lack of focus on a fiscal package that would help us emerge from this crisis.”
USAGOLD note: A well-reasoned look at where we are headed on the fiscal side. Boltanky’s views will come as a disappointment for those who see a fiscal rescue package as a means to an end, i.e., a way to push money into an otherwise moribund credit market and boost recovery on Main Street. He sees the upcoming fight over a Supreme Court nominee as taking precedence over the economic crisis in the weeks ahead. Assuming Boltansky is correct, how all of this will play in financial markets is anyone’s guess at this juncture.
Repost from 9-24-2020
“Buffett has not been a fan of gold. As a matter of fact, he has often derided the precious metal. To the dismay of gold bugs, Buffett has been the de facto leader of the anti-gold crowd. There has been a belief that investing in gold was akin to betting against America. Buffett deserves credit for shifting his stance to the new reality as a result of the irrational policies of massive borrowing and money printing by U.S. leaders.”
USAGOLD note: Much debate has grown up around Buffett’s purchase of Barrick Gold stock. Though he did not purchase the real thing, it is the psychological aspect of the position for the rest of the financial community that carries the most importance. At the risk of stating the obvious, even stock ownership sends a signal that Berkshire anticipates accelerated demand for the metals. Perhaps, like a good many of us, Berkshire sees a long term future for gold the result of widespread interest from the financial sector and central banks.
Repost from 8-19-2020
“When asked about the staggering number, Nobel laureate Esther Duflo told CNBC, ‘That is not something that the general public should be worried about for the time being at all.’ She continued, explaining that American credit is one of the safest assets to hold, so in a sense, it is unlikely that the government will ever have to repay this debt.”
USAGOLD note: It is difficult to believe that intelligent, highly educated people including a Nobel laureate can persuade themselves that debt – particularly a nation’s debt – does not matter. This is all politics and politics in the silly zone. If, for example, the U.S. government will never have to repay its debt, why not borrow $100 trillion this year and spend it to offset the ill-effects of the coronavirus? Why not borrow $200 trillion? $300 trillion? Debts have a due date for a reason and that reason has to do with the creditor expecting to be repaid – even in this day and age – and, by the way, with interest.
Repost from 9-22-2020
“[H]e predicts, life in the U.S. could become more difficult: mountainous debt that stunts economic growth; fewer opportunities for ordinary citizens to get ahead financially; and a worldwide lack of trust in the U.S. dollar that diminishes Americans’ purchasing power and could lower their standard of living.”
USAGOLD note: This is a lengthy interview with much deep-thinking on where we are and where we are going as an economy and society. Dalio worries ultimately that if we do not re-engineer the economic system “we will risk losing the reserve currency status of the dollar.” He then reiterates his standard advice over the past few years to “diversify well and worry about the value of cash.” Dalio, as most of you already know, advocates owing gold.
Repost from 9-21-2020
“Gold was questioned as a safe haven asset in 2008, as it initially declined with other commodities (though closing the year higher). The dramatic continuing decline in interest rates and the advent of negative nominal rates across much of the bond space has made gold more competitive. Major financial institutions, like Bridgewater, have focused extensively on how gold works within a diversified portfolio. Gold is no longer viewed simply as an Armageddon asset class, but rather as one that can provide significant diversification benefits.”
USAGOLD note: McGuire is the Portfolio Manager of Emerging Markets and Gold Fund for the Teacher Retirement System of Texas.
“To be sure, Stephanie Kelton never killed a man. Nor is Kelton a historical figure; rather, she is a professor at SUNY. Her book, ‘The Deficit Myth’, is a NYT bestseller, her book tour is packed, she has the ear of Congress and she has 100k Twitter followers. By contrast, John Law did kill a man. (They say this happened in a duel, but it sounded more like a bar fight to us.) The Scotsman was born in 1671 and died 58 years later. Like Kelton, the guy was everywhere that mattered in early 18th century Europe, in no small part because he was on the run for having killed a man. And, like Kelton, Law also spent his waking hours spreading the good word of monetary innovation. If Twitter had been around, there is no doubt Law would have had a massive following too.”
USAGOLD note: Politt makes the point that there is nothing new or different about Modern Monetary Theory. The temptations of free and easy money are just as alluring and palatable today as they were to French society in 1720. Chris Powell makes the point in his introduction to this piece at the GATA website that “Kelton may not quite realize it, but the policy she advocates has been in force in the United States since long before she began writing about it.” Kelton is simply suggesting that the United States tromp down hard and long on the accelerator, and American society, as Pollitt points out in the paragraph above, appears ready for the ride – wild as it might be.
Image: the two books reviewed in Pollitt’s study.
“A fourth explanation is an excessive increase in the quantity of money, which leads to a loss of confidence in money to store savings. This can be the quantity of money in the United States (in dollars) or in the OECD as a whole. Rapid money supply growth may explain the rise in the gold price from 2009 to 2012 and in 2019-2020. … The rise in the gold price in the recent period (since March 2020) can be attributed to dollar depreciation, falling share prices and monetary expansion.”
USAGOLD note: Some interesting perspective on what be driving interest in gold investments in 2020 – old concerns have become new concerns.
“Recent speculation is that the Fed may not print money and cut rates with quite the gay abandon that had been assumed. This may or may not be good news for the U.S. economy, but it raises real yields and for investors in gold and in risk assets, who might benefit from currency debasement, it is definitely bad news.”
USAGOLD note: It also may or may not be true. Given the Fed’s well-established penchant for securing the stock and bond markets and gearing monetary policy to that end, it is difficult to believe that, when push comes to shove, it is going to act any differently in the future than it has in the past. More than anything, the Fed does not want to send the wrong signal and upset the precarious balance it has already achieved. From that perspective, one could go so far as to say that a falling gold price might signal precisely the sorts of things the Fed is trying to avoid.
“In real terms though, there will almost certainly be no decline in the price of sound money. Meaning versus production-weighted real assets, the GSCI Commodity Index, gold will likely skyrocket again as it did during the deflationary panics of 2008 and March 2020, because gold tends to fall much less in dollar terms than other commodities during these periods. Meanwhile, the dollar price will inevitably catch up as it always does after the money supply skyrockets once again. For all these reasons, this ongoing correction in gold could be the final opportunity to buy below $2,000. Once we cross that threshold a second time, we will likely never see anything below $2,000 gold again, and it will be off to the races.”
USAGOLD note: An interesting read at the link …… His three immediate reasons why we may never see gold under $2000 again are a bit off the beaten track but certainly well worth your consideration.
“The US government bond market is akin to the investment world’s bomb shelter, a safe space where everyone can seek refuge when the rest of the financial system is exploding. In March, the bomb shelter itself started to rumble ominously.”
USAGOLD note: Wigglesworth quotes the head of one big hedge fund as saying “the moral hazard is massive … The brittleness [basis trades] create is a massive problem.” Basis trades, according to Wigglesworth, utilize high speed electronic trading to exploit tiny price differences between T-bonds and Treasury futures and require “massive dollops of leverage to turn small discrepancies into healthy, consistent profits.” And massive leverage, as we all know, raises the prospect of systemic risks that fall upon the central bank to mitigate when things go massively wrong. Wigglesworth raises questions and offers considerable detail at the link above.
Repost from 9-23-2020
“Whatever; the fact is that gold tends to sustain its value over time. National currencies, eroded by inflation and political manipulation, do not. …… As I say, a rising gold price reflects, above all other things, a loss of trust in the value of fiat currencies, for which there is good reason right now.” – Jeremy Warner, The Telegraph
“The sale [of a large portion of the UK’s gold holdings] was a personal decision by Gordon Brown on the advice of the Treasury mandarins who thought it would make him look “modern” and of course it all came unstuck. It would plague him for the rest of his career and remains one of the great blots on his reputation.” – Robert Pringle, Central Banking
USAGOLD note: We recall that the British government’s argument at the time was that the gold could be swapped for currencies that drew an interest rate. How shortsighted it all seems today. At a time when major currencies are being debased aggressively and Britain is suffering the economic pain of Brexit, how comforting would it be to have that gold sitting in the national vault gathering dust at nearly $2000 per ounce? (Gold, by the way, it sold at under $300 per ounce in 1999.) Robert Pringle is formerly head of public policy for the World Gold Council and founder of the Central Banking Journal.
Related note: If you have an interest in the 1999 UK gold sales, you might find “Britain’s gold sales ‘a reckless act” an engaging read. It includes the complete text of an important speech delivered in the House of Commons at the time by Sir Peter Tapsell – a speech by the way that still rings with clarity today as one of the most eloquent public appeals ever made on the merits of gold ownership for both nation-states and individuals. Reprinted with the permission of the United Kingdom Parliamentary Archives, it also includes comments from other members of Parliament and those of Patricia Hewitt, Economic Secretary to the Treasury.
Repost from 9-22-2020