Gold drops sharply in concert with steep sell-off in global financial markets
In Shanghai, gold trades at a $43 premium over London pricing

(USAGOLD – 9/23/2022) – Gold dropped sharply in concert with a steep sell-off in global stock, bond, and commodities markets. It is down $26 at $1647.50. Silver is down 60¢ at $19.14. News services attribute the broad sell-off to deepening investor concerns over the possibility of a global recession combined with stubbornly high inflation. Globally, investors continue to add to their physical precious metals holdings for defensive purposes despite (or perhaps because of) the ongoing drop in prices. On China’s Shanghai Gold Exchange, the physical metal is selling at a $43 premium over London pricing, according to a Bloomberg report posted overnight – a reflection of strong demand.

“Many of the investors we talk to,” says the World Gold Council’s Juan Carlos Artigas in a market note released yesterday, “feel that gold’s performance should be much stronger considering multi-decade high inflation across the world. Yet, what may not be evident to everyone is that gold has outperformed most major assets so far in 2022. In fact, gold has done much better than inflation-linked bonds both in the US and elsewhere.” Artigas goes on to say that US rate hikes are likely to slow down while other central banks become more resolute in defense of their currencies opening the door to a weaker dollar. “As recessionary and geopolitical risks increase,” he concludes, “investors may shift to more defensive strategies, looking for high quality liquid assets such as gold to reduce portfolio losses.”

Comparative investments
(%, year to date)
overlay line chart showing comparative investments year to date
Chart courtesy of Trading View.com • • • Click to enlarge
SPGSCI = Standard & Poors Goldman Sachs Commodity Index; TIPX = TIPS Index; SPX = Standard & Poors 500; TLT = Treasuries ETF

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Gold drifts higher as the dust settles from Fed Day
UK investment firm Schroders bullish on commodities based on an unusual rationale 

USAGOLD – 9/22/2022) – Gold declined before the Fed rate announcement, zoomed higher after, then settled back in the same range it was trading before the day began – in short, a sound and fury signifying nothing. As the dust settles this morning, it is up $2 at $1678. Silver is up 9¢ at $19.74. With Fed Day out of the way, the emphasis is likely to shift to Russia’s mobilization and what various countries are likely to do about the overly strong dollar. Overnight, the Bank of Japan intervened to support the yen in currency markets for the first time since 1998.

Schroders, the British investment firm, is out with a report overnight on why it remains bullish on commodities, and the primary rationale for its optimism might surprise you. “Perhaps what gives us the highest conviction on commodities as an asset class,” it reveals, “is not the similarities to historical bull markets but the differences. In particular we continue to believe that the global focus on climate mitigation strategies and decarbonisation is limiting the supply response to higher prices to an extent that is unprecedented. That breakage of the link between higher prices and a supply response is likely to significantly extend the commodities bull market. When we combine these factors to our belief that we are entering a fundamentally more inflationary age, the case for an enlarged commodities allocation remains compelling.”

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Gold manages a positive number in advance of today’s rate decision
Denver Gold Forum consensus projects gold at over $1800 before year-end

(USAGOLD – 9/21/2022) – Gold managed to put up a positive number ahead of today’s rate decision and press conference. It is up $9.50 at $1877. Silver is up 26¢ at $19.60. Gold miners, we are happy to report, have not lost faith in the metal upon which their livelihood depends. In fact, as a group, they think things will get decidedly better as the year progresses.

“Not even the most hawkish Federal Reserve in decades can beat down the exuberance of gold enthusiasts at the industry’s biggest annual gathering,” reports Bloomberg in an article posted yesterday. “Bullion prices will reach $1,806.10 an ounce by year-end, according to the average estimate in a survey of 10 participants at the Denver Gold Forum, the yearly meetup of mining executives, investors, bankers and analysts.” As concerns mount over Ukraine and the South China Sea, a remark from the World Gold Council’s Joseph Cavatoni seemed particularly relevant. “You’ll continue to see investment globally interested in owning gold strategically,” he said. “Plus the geopolitical risks are going to keep it front and center, on the mind of every investor.”

Gold annual price gain or loss
(%, 2000-present)
bar chart showing the percent gain or loss in gold annually 2000-2022
All Rights Reserved USAGOLD 2022 • • • Data source: MacroTrends.net

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Gold drifts lower as Fed convenes rate-setting meeting
Dwindling LBMA, COMEX silver stockpiles going to India at record-setting pace

(USAGOLD – 9/20/2022)  – Gold drifted lower in early trading as the yield on the 10-year Treasury pushed over 3.5%, and the dollar index neared the 110 mark. It is down $8 at $1670. Silver is down 24¢ at $1939. The FOMC begins rate deliberations today, with its decision due tomorrow and a press conference to follow. Despite silver’s Fed-driven struggles of late, Money Week’s David J. Stevenson believes the longer-term outlook for the metal “remains auspicious” and that a future Fed course correction would likely instigate a price rebound like “a coiled spring.”

There has been considerable discussion about the recent drain on global silver bullion inventories as investors load up on the metal at cyclically low prices. Analyst David Heller reports LBMA physical silver stockpiles are now at their lowest level since 2016. Likewise, COMEX inventories are currently running at about one-third of what they were in 2020. “Where is the physical silver going that is leaving the LBMA and COMEX?” he asks in an article published in Numismatic News. “Metals Focus India reports that silver demand in that country, perhaps the world’s top silver consuming nation, is now so strong that the silver price in India is trading at a premium to the world silver spot price. In July 2022, almost 58 million ounces of physical silver was imported into India. This was at least 50 percent higher than in any month in the previous four years and may be an all-time high record amount of imports into India in any month.”

Silver annual gain or loss
(%, 2000 to present)
bar chart showing silver gains and losses as a percent 2000-2022
All Rights Reserved USAGOLD 2022 • • • Data source: MacroTrends.net

Editor’s note: Although we do not see a Fed course correction coming anytime soon, we believe that the Fed will be hard-pressed to push interest rates above the inflation rate – the circumstance many economists see as necessary for containing inflation. In short, the Fed will continue raising rates but fail, in our view, to bring inflation anywhere near its 2% target level anytime soon. This prospect – stagflation – has yet to be fully factored into asset pricing, though it cannot be long ignored. The stagflation scenario, as forecasted by several prominent economists from Roubini, to Greenspan, to El-Erian and Hanke (among others), was very friendly to precious metals during the 1970s. At the time, investors generally saw their accumulation as a defensive strategy, which we believe is the strongest argument for their accumulation now.

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Gold turns south as we head into Fed Week
Economic pessimism and the outlook for real rates, not inflation, drive the price of gold

(USAGOLD – 9/19/2022) – Gold and the rest of the markets turned south this morning as we head into Fed week with a rate decision and press conference scheduled for Wednesday. It is down $10 at $1667. Silver is down 22¢ at $19.46. We hear a great deal these days about inflation as the chief influence on the price of gold, but a study recently published by the JP Morgan Center for Commodities at the University of Colorado finds that since 2001 it has taken a back seat to two other important concerns.

“Gold is regarded as protective against bad economic times,” reads the study. “…In the early part of the sample [i.e., 1971-2000], variation in inflation or inflationary expectations was the single most important consideration for the real price of gold. From 2001 on, however, long-term real interest rates and pessimism about future economic activity appear as the dominant factors. While disinflation since 2001 might have been expected to result in low gold prices, any effect of low inflation was more than compensated for by unprecedentedly low long-term real interest rates and by pessimism about future economic activity.”

Editor’s note: In this context, the log chart posted below might be one of the more relevant included in these reports over the past several months. The University of Michigan Consumer Sentiment Index is now at its lowest level since 1971, as shown in the chart below (and, in fact, at a record low), a development that market analysts have largely overlooked.

University of Michigan Consumer Sentiment Index and the price of gold
(log scale, 1971 to present)
overlay line chart showing the University of Michigan Consumer Sentiment Index and the price of goldsince 1971
Chart courtesy of TradingView.com

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Gold flat to close out the week
Where seldom is heard an encouraging word, Druckenmiller says ‘I like darkness.’

(USAGOLD – 9/16/2022) – As we close out the week and first half of September, finding an encouraging word on the gold and silver markets isn’t easy. At $1667 and level on the day, gold has broken below important chart support levels. After starting September with a promising move to the upside, silver has reversed course over the past few days. It is down 11¢ at $19.14 on the day and off almost $1 from recent highs. Of course, the precious metals are not alone in nursing deep, Fed-inflicted wounds. Year to date, stocks (S&P 500) are down 19%; bonds (TLT) are down 25%, and crypto (Bitcoin) is down 57%. On that roster, silver (down 17%) looks respectable, and gold (down 7.5%) downright admirable.

Only the US dollar – up 14% – has been able to keep its head above water in 2022, but that gain is measured against the rest of the world’s lowly currencies. In the real world, where consumers must meet their living expenses and investors scramble to retain value, the US dollar has lost 8% of its purchasing power over the past two years. Stanley Druckenmiller weighed in this morning on the future of stocks. He says we are in for a long (in fact, very long) flat market like the period from 1966 through 1982. “I like darkness,” he says in an interview featured at Yahoo. And so it is, we actually do find something encouraging to add to this morning’s report – though in a roundabout way. That dark period for stocks from the mid-1960s to the early 1980s is a time when gold and silver shone brightly.

Some humor (and encouraging news) from Mr. Ramirez to end the week:

cartoon showing Uncle Sam bearing the burden of crushing inflationCartoon courtesy of MichaelPRamirez.com

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Gold turns south in early trading
Frisby thinks silver might be on the cusp of a multi-week rally

(USAGOLD – 9/15/2022) – Gold turned south in early trading as investors continued to process the implications of this week’s surprise inflation data. It is down $11 at $1689. Silver is down 21¢ at $19.48. Even with the downside of the past two days taken into account, silver has gained almost 10.5% since the start of September, and MoneyWeek’s Dominic Frisby thinks it could be on the cusp of a multi-week rally.

“There are three groups of traders [on the COMEX]: the commercials, the large speculators and the small speculators,” he explains in an analysis posted yesterday. “The commercials tend to be seen as the smart money, and, as they are often acting on behalf of miners, they tend to be sellers and so they tend to be short. Every Friday evening, the positions of the various traders the previous Tuesday – the open interest, as it is known – is announced. On Friday we discovered something extraordinary. That the commercials are net long – ie buyers – for only the third time in 40 years. That suggests a genuine shortage of metal. Meanwhile the speculators, who for the most part do not have metal to deliver, are net short. This opens up the possibility for a short squeeze.”

Silver average annual prices
($/troy ounce, 1971-2022)
bar chart showing the average annual price of silver 1971-2022
Data source: MacroTrends.net

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Gold drifts marginally higher in quiet, post-inflation data trading
Charlie Munger warns the biggest inflationary bubble in world history is bursting

(USAGOLD – 9/14/2022) – Gold drifted marginally higher in quiet trading as investors began digesting the implications of yesterday’s inflation report. It is up $2 at $1705.50. Silver is up 14¢ at $19.56. If the Fed was hoping for a sign of future convergence between the interest and inflation rates, it didn’t get it from yesterday’s data. In fact, inflation might very well be headed in the opposite direction. In a thought-provoking interview posted on YouTube recently, Charlie Munger, the 98-year-old partner in Berkshire Hathaway, warned that the biggest inflationary bubble in world history is now bursting and explored some of the implications.

“There’s never been anything quite like what we’re doing now,” he says, “and we do know from what’s happened in other nations if you try and print too much money, it eventually causes terrible trouble. And we’re closer to terrible trouble than we’ve been in the past, but it may still be a long way off. I certainly hope so.… If you look at the Roman Republic, they inflated the currency steadily for hundreds of years. Eventually, the whole damn Roman Empire collapsed. So inflation it’s the biggest long range danger we have probably, apart from nuclear war. I think the safe assumption for an investor is that over the next hundred years, the currency is going to zero. That is my working hypothesis.”

Editor’s note: The historical trend, as shown in the charts below, suggests that Munger’s “working hypothesis” is justified. The dollar has declined sharply in purchasing power over the past two years. Since the founding of the Federal Reserve in 1913, it has lost 96.7% of its value and is now worth 3.3¢. Since 1971, the year the United States severed the dollar’s link to gold, it has lost 86.5% of its purchasing power and is now worth 13.5¢.

 Purchasing Power of the US Dollar
(% change from year ago, 2017-2022)
line chart showing the purchasing of the dollar 2017 to present

Purchasing Power of the US Dollar
(Indexed to 100, 1913-2022)

line chart showing the purchasing power of the US dollar 1914 to present

Purchasing Power of the US Dollar
(Indexed to 100, 1971-2022)
line chart showing the purchasing power of the dollar 1971-2022
Sources: St. Louis Federal Reserve [FRED], Bureau of Labor Statistics

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Gold pushes to higher ground ahead of headline inflation data
Bloomberg’s McGlone sees gold, stock market parallels between 2001 and 2022

(USAGOLD – 9/13/2022) – Gold continued its push to higher ground this morning as markets await the headline inflation data due shortly. It is up $4.50 at $1732. Silver is up 9¢ at $19.94. Bloomberg commodity specialist Mike McGlone thinks the Fed’s tendency to hike rates until something breaks is “deflating” the stock market, a circumstance that might give it pause.

“An elongated period of gold underperformance and stock market outperformance may be reversing,” he writes in a recent series of tweets.on where the metal might be headed. “This narrative from 2000 is gaining traction in 2022. (See chart below.) The metal is down about 6% vs. about a 15% decline for the S&P 500 to Sept. 9. In euro and yen terms, gold has advanced around 7% and 17%, which emphasizes its store-of-value attributes.… Our graphic shows the gold-to-s&P 500 ratio potentially bottoming from its enduring support level since 2002, with the Federal Reserve’s tightening being the key difference to the last time the stock market dropped from a similar stretched condition in 2021.… The Fed started easing in 2001 as equities deflated and helped to buoy gold. We see parallels brewing in 2022.”

Gold and the S&P 500
(%, 2000-2004)
overlay line chart showing gold and stocks 2000-2004
Chart courtesy of TradingView.com

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Precious metals off to a solid start ahead of tomorrow’s inflation data
New University of Colorado study tells what really drives the price of gold

(USAGOLD – 9/12/2022) – Precious metals are off to a solid start this morning ahead of tomorrow’s headline inflation report. Gold is up $14 (+1%) at $1734. Silver, always more volatile, is making an even stronger showing – up 65¢ (+3.5%) at $19.56. We hear a great deal about inflation as historically the chief influence on the price of gold, but a study recently published by the JP Morgan Center for Commodities at the University of Colorado finds that since 2001 it has taken a back seat to two other important concerns.

“Gold is regarded as protective against bad economic times,” reads the study. “…In the early part of the sample [i.e., 1971-2000], variation in inflation or inflationary expectations was the single most important consideration for the real price of gold. From 2001 on, however, long-term real interest rates and pessimism about future economic activity appear as the dominant factors. While disinflation since 2001 might have been expected to result in low gold prices, any effect of low inflation was more than compensated for by unprecedentedly low long-term real interest rates and by pessimism about future economic activity.”

Editor’s note: In this context, the log chart posted below might be one of the more relevant included in these reports over the past several months. The University of Michigan Consumer Sentiment Index is now at its lowest level since 1971, as shown in the chart below (and, in fact, at a record low), a development that market analysts have largely overlooked.

University of Michigan Consumer Sentiment Index and the price of gold
(log scale, 1971 to present)
overlay line chart showing the University of Michigan Consumer Sentiment Index and the price of goldsince 1971
Chart courtesy of TradingView.com

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Gold takes a turn for the better
Goepfert: Institutional traders in ‘mad scramble for protection’ against a stock market crash

(USAGOLD – 9/9/2022) – Gold took a turn for the better this morning as markets sidestepped the hawkish tone from key global central banks, the dollar turned sharply lower, and traders shifted attention to next week’s US inflation numbers. It is up $12 at $1722.50. Silver is up 11¢ at $18.73. The consensus forecast for Tuesday’s report is an 8.1% headline inflation rate – well-below July’s 8.5% reading but still considerably higher than the Fed’s 2% target. The S&P 500 is down over 15% year to date (compared to gold’s -4%). SentimenTrader’s Jason Goepfert says institutional stock market traders are suddenly in a “mad scramble for protection.”

“In February 2021,” he reports in a client update released yesterday, “small speculators were going bananas. At the time, we showed what was perhaps the most remarkable chart that we’d seen in our entire careers. Until now… This time, it’s not small options traders that have panicked. And it’s not FOMO that’s causing it. Rather, it’s the largest traders in the market, and they’re buying protection against a crash at a pace unlike anything the market has ever seen. Last week, traders of fifty or more contracts bought to open nearly five million put options. More importantly, they spent a whopping $8.1 billion on those contracts. That is almost double the amount of any other week in 22 years.”

line chart showing massive put options among instiuttional traders
Chart courtesy of SentimenTrader/Jason Goepfert

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Gold tracks higher in continuation of yesterday’s upside reversal
Once again bounces off support at just below $1700

(USAGOLD – 9/8/2022) – Gold is tracking higher this morning in a continuation of yesterday’s upside reversal during US trading hours. It is up $8 at $1729. Silver is up 17¢ at $18.76. Both metals revisited chart support levels before reversing – just below $1700 for gold, and just below $18 for silver. Energy pricing has calmed this week and taken the pressure off global bond markets – at least for now – though the yield on the 10-year Treasuries benchmark is still well above the 3% level.

Global gold ETF stockpiles, the World Gold Council reports, declined for the fourth consecutive month in line with the price performance. UK-based analyst Charlie Morris isn’t all that concerned about the decline of interest among funds. “Don’t worry,” he advises in the latest edition of Atlas Pulse, “they’re collectively behind the curve, and you can guarantee they’ll be back.” Meanwhile, central banks continue to acquire the metal with over 300 tonnes purchased thus far in 2022. “As the bond yield continues to rise,” writes Morris, “the downward pressure on US equities bites as they become extended. The move since March 2020 is one for the record books. The risk facing gold is marginal compared to the risk facing US equities, and it is hard to see a scenario where gold doesn’t win.”

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Gold oddly subdued despite the economic crisis unfolding in Europe
Former German foreign minister suggests we are at ‘the end of contemporary history’

(USAGOLD – 9/7/202) – Gold is level this morning at $1705 – and oddly subdued, we might add, given the unfolding economic crisis in Europe. Silver is up 13¢ at $18.21. Investors are watching developments in the Eurozone with considerable apprehension. However, that concern, thus far, has failed to materialize to any significant degree in asset pricing – beyond, of course, the soaring US dollar. Comparisons to the 1970s proliferate among the best analysts. Stanford University historian Niall Ferguson last week posed the question: “Why shouldn’t it be as bad as the 1970s?” (See below if you happen to be reading this on the “Live Daily Newsletter” page.)

In a recent essay titled The End of Contemporary History, Joschka Fischer, Germany’s former foreign minister, says that he “cannot recall a time during the past 75 years when there has been such a massive accumulation of major and minor shocks. The world today is dealing with intensifying climate change, a pandemic, major wars, surging inflation, disruptions to international trade and supply chains, and acute food and energy shortages.” He says that the West did not anticipate the consequences of its “economic dependencies” on rivals China and Russia. “The bill for this naivete,” he says, “is now coming due and it will be large.”

Gold, Stocks, and the Misery Index during the Stagflationary 1970s
(% change, annual; Misery Index = Inflation + Unemployment)
baar chart comparing the performance of gold, stocks and the Misery Index in the 1970s
Data sources: St. Louis Federal Reserve [FRED], MacroTrends.net • • • Click to enlarge

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Gold drifts higher, held in check by significantly weaker Japanese yen
Jimmy Rogers: ‘If we have inflation, you should own things.…’

(USAGOLD – 9/6/2022) – Gold drifted higher in quiet trading after a significantly weaker Japanese yen took the steam out of an early rally in Asian markets. It is up $3 at $1715. Silver is up 26¢ at $18.52. Bank of Japan governor Haruhiko Kuroda recently made clear his determination to keep monetary policy loose on the presumption inflation will cool early next year. Overnight the yen hit its lowest level since 1998 against the US dollar. Jimmy Rogers, the widely followed Singapore-based analyst, sees inflation much differently than the Bank of Japan. He says it is “calming down because nothing goes straight up,” but it is not finished yet because “governments have printed so much money, more than ever in history.”

“[T]he world is not okay now and it’s going to get worse as the war gets worse,” he concludes in a Mint interview, “In my view, this is a bear [stock] market rally.… If you look at asset classes, bonds are certainly a problem, Bonds have not been so expensive ever. Property has been forming a bubble in many countries. Many technology stocks are also forming a bubble. The only asset class I know that is cheap are commodities, which are real assets. If we have inflation, you should own things that will go up in price. Real assets always go up in inflation and that is the way I am looking to protect myself.”

Ramirez cartoon on Yellen's botched inflation callCartoon courtesy of MichaelPRamirez.com

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Gold finds technical support once again just below $1700
Saxo Bank’s Hansen sees the potential for a wave of short covering in the silver market

(USAGOLD – 9/2/2022) – Gold once again found technical support at just below $1700 in overnight trading. It is up $12 in early trading at $1711 after briefly dipping below $1690. Silver is up 33¢ at $18.19. Meanwhile, the dollar index hit a 20-year high in Asian trading before reversing course. Saxo Bank’s Ole Hansen sees potential for a reversal of silver’s downward spiral should “evidence emerge that inflation concerns are fading.”

The market, he says in an interview featured this morning at MarketWatch, “could quickly find itself wrong-footed,” encouraging a wave of short covering. For an indicator of where silver might be headed, he says investors should pay attention to the price of copper, not gold. “The rout in silver and copper, as well as zinc and aluminum, two metals that recently found support from smelters reducing capacity due to high energy costs, has by now reached the capitulation stage with silver having entered a previous consolidation range between $16.50 and 18.50.”

Silver and copper pricesoverlay line chart showing silver and copper prices five year

Chart courtesy of TradingView.com

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