“For years, Russia has been the world’s biggest sovereign gold bug: Even while gold prices were in the doldrums, it doggedly kept increasing its reserves. Now that gold is at the highest level since 2013, the tactic appears to be paying off.”
USAGOLD note: An interesting short study on Russia’s reserve deployment strategy in which gold plays a central role. Most of the gold going into Russia’s coffers comes from domestic production. Russia is the third largest producer behind China and Australia. The United States is fourth. Russia at last count has just over 1800 tonnes of gold in reserve – the seventh largest stockpile in the world. It has added just under 600 tonnes since 2015 for a 48% gain.
“If the choice is between gold or a bond that yields 5%, that’s one thing but the balance changes when it’s gold versus something that yields nothing. Add on the chance of more QE, a currency war or a real war and gold looks better and better. It’s not going to be a straight line but we’re back in an easing cycle. The last easing cycle ended with gold at $1900. If central bank easing unfolds as expected, we will get back there. If there’s a recession or war, it will go even higher.”
USAGOLD note: We alluded to this odd but beneficial set-up for gold in yesterday’s DMR – a hedge against negative yield (especially when including inflation!) and upside potential. In many countries gold is the better safe-haven alternative.
Image courtesy of VisualCapitalist/Jeff Desjardins
Repost from 6-21-2019
“Albert Edwards says we’re in an economic Ice Age. The BIS says we’ve got too many zombies. The U.S. president is a clown. There’s a horror movie in this somewhere. But look on the bright side. Wall Street’s having another party.”
USAGOLD note: As it all begins to sink in, perhaps not so much of a party after all . . . . This article is worth the visit at the link above. “Economic Ice Age” is a metaphor with staying power.
Financial Times/Richard Waters and Hannah Murphy/6-24-2019
“Flawed, derided, feared: Facebook’s proposal for a new virtual currency, revealed last week, has already provoked a backlash. But might it end up blowing the financial system wide open anyway?”
USAGOLD note: We have had a few questions on this by e-mail and we frankly do not know what to think of Libra at this juncture. Financial Times, as is often the case, is among the first to offer some intelligent commentary on the subject as linked above. We thought we would pass along the link for those with an FT subscription and the curiosity to pursue the subject.
“Gold has been broadly following the US Economic Policy Uncertainty (EPU) Index higher as safe-haven buying has helped to lift the price. President Trump’s threat to put tariffs on Mexican imports led to the gold price jumping in June.”
USAGOLD note: Heraeus’ findings fall in line with studies we have highlighted here showing the price of gold rising in an assortment of currencies around the world. In many places, particularly in Asia, those increases are directly associated with strong physical demand. In turn, that global demand is beginning to have an effect on the US dollar price of gold.
Image courtesy of VisualCapitalist/Jeff Desjardins
“The next big event is a meeting between President Trump and President Xi at the G20 in Osaka, Japan, on June 28-29. If the two sides strike a good long-term deal, the probability is high for gold to fall as much as $100 an ounce in a short period. On the other hand, if the acrimony between the two sides drastically worsens and Trump goes ahead with additional tariffs, the possibility of gold rising by as much as $200 an ounce over a period of a few days is not out of the question.”
USAGOLD note: Interesting speculation on the future price of gold in the context of the upcoming meeting between Trump and Xi scheduled for this week in Japan. No matter what comes of that meeting, it will not change, in our view, the fact that prudent investors will continue building physical gold and silver positions for the purposes of long-term asset preservation – including a good many in both China and the United States.
Image courtesy of the World Gold Council
“When overall stock market corrections happen, they don’t leave any stocks behind. Contrary to popular belief, gold stocks are not spared while physical gold has proven to perform well in corrections.”
USAGOLD note: That’s the bottom line. For the full rationale including supporting demand, we recommend a visit to the link. Gold essentially is a solid disinflation hedge particularly if things regress to the point that the recession affects the stability of financial institutions. When it comes to asset preservation over the long run, nothing compares to the physical in form of coins and bullion.
Repost from 6-19-2019
“Gold prices could outperform a lot of assets in the coming months. In fact, don’t rule out gold going for even $2,000 per ounce.The case for owning gold keeps getting stronger. You really potentially be making a big mistake if you ignore the yellow precious metal. Why be so bullish on gold? Well, there are a few factors that could raise the price of gold, including uncertainty, volatility, low interest rates, and money devaluation. And right now, a lot of these factors are coming into play, which could lead to gold prices skyrocketing.”
USAGOLD note: The influential Lombardi Letter weighs in on gold. The downside, it says, could be “very small” and the upside “immense.”
Repost from 6-19-2019
Blain’s Morning Porridge/Bill Blain
“On the other side of the pond, it’s a Wow on Bunds…. Spectacular gains y’day taking the 10-year Bund rate to -0.33% after Mario Draghi talked about immediately lower rates, reopening QE and using all the unused A380s Superjumbos to drop wads of money across Yoorp. Spain bond buyers now get a gnat’s crotchet of positive yields, while Italy is just over 2%! Trump immediately tweets branding Draghi an unfair currency manipulator. Draghi looks at the miserable German ZEW and wonders why Donald doesn’t get on an do his own job… (Good to know Trump is on the ball and watching everything… everything.. (Crashing Minor Chords! Note to self – buy Treasuries and Gold).”
USAGOLD note: Mr. Blain’s latest insights on the value of money, gold and other things rattling around the financial markets. . . . . . .Have to smile at his Note to self. Like Stanley Druckenmiller he has taken an interest in safe havens. Is your piggy bank in the crosshairs?
Repost from 6-20-2019
“The G20 meeting is important but is unlikely to be decisive. Financial markets are once again focused on trade policy, in anticipation of the upcoming meeting between President Trump and President Xi at the G20 meeting in Osaka, Japan (June 28-29). However, we do not expect whatever announcement they make following the meeting to provide very much clarity on whether the US has finished increasing tariffs or whether a deal will eventually be reached with China. While we can imagine several potential outcomes from the upcoming meeting, the most likely outcome seems likely to prolong trade policy uncertainty.” – Alec Phillips, Goldman Sachs political analyst
USAGOLD note: In other words more of the same. . . . .Goldman Sachs has developed a tracking tool on the probability of trade settlement between the U.S. and China. It puts that probability now at 20%. It has been as low as 7% in May and as high as 80% last March. This piece also makes the connections between the trade war and Fed monetary policy concluding that the Fed’s likely route is “setting up Trump nicely for the election.”
“Market observers have hitherto condemned gold for a lacklustre performance over the last few years, seemingly oblivious to the headwinds it has faced from a strong US dollar and a few other factors. That is to say simply that the US dollar price has not fared too well – yet in 72 currencies gold is now at or at least within a few percentage points of being at an all time high. We seem to forget that US citizens represent only 4% of the planet’s population. Perhaps most significantly, gold is only 2.5% from a record high in Indian rupee terms. This deeply important and highly price sensitive market should perhaps be the most keenly observed barometer of gold sentiment. Indians are cany – in gold, they are the ‘smart money’. “
USAGOLD note: London-based Ross Norman raises important issues about the value of gold in a range of currencies that not many are thinking about. His point on India’s gold demand is well-taken. India’s citizenry have stockpiled about 25,000 tonnes of gold, according to the World Gold Council. The world’s governments and central banks, by way of contrast, hold about 34,000 tonnes of gold. Norman’s article begins with an interesting anecdotal tale about an investor from Turkey.
Financial Times/Andrew England and Monavar Khalaj/6-21-2019
“The extraordinary events of the past 24 hours were indicative of how the stand-off between the US and Iran has become a game of brinkmanship with no apparent objective in sight.”
USAGOLD note: The president apparently pulled back from an attack on Iran at the very last moment. We see the president as a reluctant warrior when it comes to the Middle East. At the same time, the U.S. could be forced into a military reaction and that possibility hangs over the financial markets as we go into the weekend.
“The S&P 500 is up 18% and powering toward its biggest first half since 1997. For bulls, things are great. Will they get any better? To a handful of cross-asset strategists who turned skeptical on stocks before this week’s manic sessions, that’s becoming the most pressing question. Increasingly, their answer is: not likely.”
USAGOLD note: The longer an investor waits to diversify the greater the likely loss of purchasing power of stocks vis a vis gold. The wise investor diverifies before the bottom falls out.
“’It would be harder for the Fed to explain why they were cutting rates and letting the balance sheet continue to run-off,’ said Joseph Kalish, chief global macro strategist at Ned Davis Research, in a note. ‘That would be like pressing on the gas and the brakes at the same time.’”
USAGOLD note: As you can see in the chart below, the Fed has reduced its balance sheet somewhat, but not by a large degree. So far it has sold off roughly $525 billion of a nearly $4.2 trillion portfolio since the beginning of 2018 – a reduction of about 12.5%. Taking its foot off the brake, however, could have a psychological impact on both the gold and stock markets . . .
“ANZ analysts point out that gold has benefitted from its safe haven status amid deteriorating macroeconomic outlook and see prices settling above USD1,400/oz, with a reasonable chance of breaking USD1,500/oz over the next 12 months.”
USAGOLD note: ANZ (Australia New Zealand Banking Group) is Australia’s second largest bank. The link takes you to the rationale behind their positive forecast.
Credit Bubble Bulletin/Doug Noland/6-22-2019
“Capitalism is in clear and present danger. This sounds extreme – unless you’ve followed the trajectory of developments over the years. How are capitalistic systems to operate with central banks abrogating adjustments and corrections both for market and economic systems? It takes a tremendous amount of wishful thinking to believe that today’s markets will effectively allocate real and financial resources. Sound analysis also points to only more precarious imbalances and maladjustment on a global basis. And with global fragilities increasingly conspicuous, it’s reached the perilous point where markets believe central banks will preemptively flood the global system with liquidity to forestall ‘risk off’ in the markets and recession globally.”
USAGOLD note: Sounds like moral hazard in the extreme . . . Some post-FOMC meeting thoughts from Doug Noland.
“That brings us to our call of the day from Citigroup analysts who say this ‘bullish gold fever is justified,’ and say the metal could reach between $1,500 to $1,600 an ounce in the next 12 months, and $1,500 by end-2019 in the most optimistic of their new predictions for the metal.”
USAGOLD note: A good many bank analysts will be adjusting their market forecasts based on events of the past week. Citigroup is among them. It has been bullish on the metal for some time now, but this forecast of $1500 to $1600 gold still comes as a surprise.
“A more accurate interpretation is that China, like many other countries, is watching very closely global economic indicators, in anticipation that the global economy may be heading towards gloomier days. As it strives to buffer its people from the harmful effects of a downturn, the Chinese are responding in a routine manner to protect themselves against potential headwinds by making safe investments to protect coffers and shoring up reserves of the US dollar and gold, both of which tend to rise in value when the international economy slows down.”
USAGOLD note: China’s official sector gold acquisitions are nothing new. They have been going on for over a decade and for the reasons the author mentions. We continue to believe that the announcements of increases to their gold reserves of late are after the fact. At some point, China will reveal its real gold reserve number and it will likely jolt the market. The roughly 15 tonne additions per month now being announced, we believe, are just the tip of the iceberg.
Chart courtesy of TradingEconomics.com
Repost from 6-15-2019
“Among the key risks, tensions between China and the U.S. deserve special attention, Roubini says, particularly if they result in China retaliating by closing its market to U.S.-based multinationals like Apple. ‘Under such a scenario, the shock to markets around the world would be sufficient to bring on a global crisis, regardless of what the major central banks do,’ Roubini warned. ‘And given the scale of private and public debt, another financial crisis would likely follow from that.'”
USAGOLD note: Roubini sees danger at every turn. . . .The article linked delves into a number of his concerns at a time when central banks are ‘constrained’ to do anything about it.
Repost from 6-17-2019
Bloomberg/Vivien Lou Chen/6-20-2019
“‘If we’re in a world where the Fed is seen as returning to the zero lower bound, and then starting another QE program, that could easily be enough to push 10-year yields below 1%,’ Hill said in an interview. ‘Although not our base case, it is possible that scenario could play out in the next 12 to 18 months.'”
USAGOLD note: And where would gold be priced in a sub-1%, QE-saturated world? We will leave that for our readers to contemplate. This article runs through how a number of bank-based economists see that kind of world.
“John Templeton once famously said, ‘Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.’ Leon Cooperman, billionaire chairman and CEO of Omega Advisors, says we could be ‘knocking on the door of euphoria’ if the rally continues.”
USAGOLD note: Seeing the Templeton quote for the first time, I was reminded of yesterday’s chart of the day in the Daily Market Report. We repost it below for those who may have missed it. Gold, by the way, is on the other end of the spectrum – probably somewhere between “depression” and “hope”.
Click to enlarge.
Real Investment Advice/Jesse Colombo/6-20-2019
“The moral of the story is that nobody should be complacent in these times when recession risk is so high, especially because the coming recession is likely to set off a global cluster bomb of dangerous bubbles and debt. The current probability of a recession is the same as it was during the Big Short heyday of 2007 when subprime was blowing up – just let that sink in for a minute. Do you think ‘this time will be different’? How can it be different when we didn’t learn from our mistakes and have continued binging on debt and inflating new bubbles?! Anyone who believes that ‘this time will be different’ is seriously delusional and will be taught a very tough lesson in the not-too-distant future.”
USAGOLD note: Smart money is already moving in the direction of safe havens for exactly the reasons Colombo outlines in this warning.
“The Federal Reserve may be on its way to delivering a half-point interest rate cut next month even though economic conditions don’t seem to warrant such an aggressive move, according to Goldman Sachs economists.”
USAGOLD note: Goldman’s Jan Hatzius makes a case similar to Jeff Gundlach’s as posted below and mentioned in this morning’s DMR. He says that FOMC members are “increasingly influenced by the expectations embedded in bond market pricing.” In other words, the Fed is chasing not leading rates set in the bond market.
New Strait Times/Steve H. Hanke/6-10-2019
“He brought the audience to attention by proposing an Asian currency linked to gold. Dr. Mahathir argued that such a currency would promote regional stability, while avoiding the so-called ‘dollar trap’ (read: dollar dependency). This time around, the 93-year-old Dr Mahathir is onto something — something that would deliver its advertised benefits. Dr. Mahathir’s comments on currencies are, of course, legendary. Remember the Asian Financial Crisis of 1997-1998?”
USAGOLD note: Interesting that Johns-Hopkins’ Steven H. Hanke who has acted as an advisor to a number of emerging countries on their currency problems would endorse Mahathir’s proposal on a gold-backed East Asian currency. He says the ringgit “would literally be as good as gold” and predicts that others might follow Malaysia’s lead. An article worth reading and filing for future reference. . . . . . .
Repost from 6-22-2019
“If reading financial markets is usually as inscrutable as reading tea leaves, bond investors have decided now is the time to send a message in big, bold letters. They want central banks to know they are concerned. Concerned about the strength of the global economy. Concerned about the US-China trade war. Concerned about geopolitics, particularly in the Middle East. Concerned about persistently low inflation.”
USAGOLD note 1: With our concentration on U.S. economic affairs, we forget that the rush to bonds is world-wide involving nearly every nation state, every economy, every currency. Yields are dropping as investors rush to safe-havens – a category of investment that also includes gold.
USAGOLD note 2: Yesterday afternoon the yield on the 10-year U.S. Treasury went below 2%. It has fallen over .75% since March 2019.
Chart courtesy of TradingEconomics.com
Bloomberg/Shawn Donnan, Rich Miller and Katherine Greifeld/6-19-2019
“President Donald Trump has already given the global economy trade wars. Now there are signs he may be gearing up for a currency war, too. With a series of tweets on Tuesday aimed at the European Central Bank and an announcement by Mario Draghi, its president, that he was prepared to cut interest rates further below zero in response to Europe’s slowing growth, Trump made a rare American presidential intervention into another economy’s monetary policy.”
USAGOLD note: We mentioned yesterday that the series of tweets directed at Mario Draghi was also aimed indirectly at the Federal Reserve. We would not be surprised if the trade war morphed to a trade/currency war. The Trump administration is many things to many people, but the one thing it is not is naive enough to allow its adversaries to use currency depreciation as a means to circumvent the sting of tariffs. For that to occur, though, it will need the co-operation of the Fed hence the heavy pressure for easy money policies.
Seeking Alpha/Daniel Schonberger/6-12-2019
“At the end of August 2018, I published an article where I argued that everybody should own physical gold. At the time of publication, gold was trading at $1,200 and has since then increased almost 12%. That by itself is certainly a decent return, but when comparing it to the three major US indices, it gets even better. The Dow Jones Industrial Average lost 1.01% since then, the S&P 500 lost 0.36% and the Nasdaq-100 lost even 2.38% and gold has quite easily outperformed the US stock market since summer 2018.”
USAGOLD note: Schonberger’s comparison speaks for itself. . . . . .
Repost from 6-13-2019
Bullion Star/JP Koning/6-8-2019
“The classic story for the adoption of coinage involves the efficiency gains that society enjoys when trade can be conducted by tale rather than by weight. Tale is a sum or a tally. All modern payments are done by tale. A payor counts up the right amount of coins (or notes), then passes the stack to the payee who – if they wish – can glance at the inscription on each coin’s face to ensure that it is legitimate. Circulation by tale is a convenient way of doing business.”
USAGOLD note: Koning guides us on an exploration of ancient numismatics and monetary economics – a study of electrum coins created by Lydia’s King Croesus from whom grew the legend of King Midas and the Midas touch.
Image courtesy of the British Museum Collection/Lydia, croesid, 550BC
Repost from 6-13-2019
“Billionaire investor and Oaktree Capital Management Co-Chairman Howard Marks is worried to hear investors say ‘this time it’s different’ or openly wonder if the historic bull market and economic success ‘can only get better forever.’ In a 12-page letter sent to Oaktree clients on Wednesday, Marks questioned nine financial theories he’s heard in recent meetings, including the notion that central bank policy can lead to evergreen market success and that economic recessions can be consistently delayed.”
USAGOLD note: Markets cycle. Linear thinking, when it comes to markets, is rarely rewarded.
Repost from 6-13-2019
“The trouble is that overall market levels generally do not reflect the current fortunes of the economy,” [says Scottish Trust’s Alasdair McKinnon], “Market levels, in fact, better reflect the degree of confidence in the aforementioned ‘disruption’ bubble. As we expect this bubble to deflate, we think it is highly likely that President Trump’s vociferous campaign for the US Federal Reserve to cut interest rates and print more money will ultimately prove successful.”
USAGOLD note: Gold, McKinnon suggests, should do well under such circumstances.