NV#1011–NOV19

NEWS &VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 46th year in the gold business

November 2019

“I’m no insect. Gold is a great way to make a lot of money.” – Thomas Kaplan, Electrum Group


2020 vision
Five charts to contemplate as we prepare for the new year

1. Gold’s annual returns 2000 to present

Bar chart showing gold returns from 2000 to 2019, this year the best since 2010

In the February edition of this newsletter, we ran an article under the headline:  Will 2019 be the year of the big breakout for gold? Though we would not characterize gold’s move to the upside so far this year as ‘the big breakout,’ 2019 has been the best year for gold since 2010 even with the recent correction taken into account.  Back in September when the price gold reached $1550 per ounce – up almost 22% on the year – 2019 was looking more like a breakout year. Now with the move back to the $1460 level, the market mood has become more restrained. As it is, gold is up 15 of the last 19 years and still up 14.45% so far this year.

2. Gold’s seasonality

Line chart of gold's seasonal trends

Chart courtesy of Gold ChartsRUs/Nick Laird

We are moving into the part of the seasonal cycle when historically gold regains price momentum. Whether or not that will be the case this year remains to be seen, but more there is more than enough uncertainty on the global economy’s plate to elevate the possibility. “The first thing to notice on the chart is that gold tends to go up quite strongly and with relatively little choppiness in the first two months of the year,” says analyst Mike Acra at FXStreet. “This fits in quite well with the ‘January story’ but if you take a look at the end of the year, you will notice that the move up actually starts in December, not January, so it might be beneficial to consider a ‘December-February story.’”

3. The correlation between global negative-yield debt and the price of gold

Overlay chart showing gold and negative yield debt rising in tandem Chart courtesy of the World Gold Council

The World Gold Council recently released a timely report* tying gold’s sturdy performance this year to the rising tide of global negative-yielding debt and the demand it has already created among investors seeking safe haven. “Our research suggests,” says the Council, “that lower expected bond returns favor additional gold exposure in well-diversified portfolios.” The report concludes that “gold prices have responded to the surge in negative real-yielding debt, as evidenced by the strong positive correlation between the amount of debt and price of gold over the past four years. To some degree, this illustrates the erosion of confidence in fiat currencies related to monetary intervention.”

* It may be time to replace bonds with gold

4. The NEW correlation between money supply growth and the price of gold

Line chart showing correlation between MZM (money supply) and the price of gold

One of the principal points Degussa’s Thorsten Polleit makes in a recently published study is that gold has followed the money supply higher consistently since the early 1970s (what we often refer to as the fiat money era). Of late, the money supply has surged dramatically and gold is moving in tandem with it. “[S]ound economics,” says Polleit, “would inform us that central banks’ inflationary policies – and, no doubt, the expansion of the quantity of money is inflationary – do great harm to the economy and the purchasing power of money in particular. As long as central banks continue with their inflationary scheme, the savvy investor has good reason to consider keeping gold as part of his/her liquid means because the purchasing power of gold cannot be debased by central banks printing up ever greater amounts of currency.”

5. Additions to the Fed’s balance sheet

bar chart showing strong growth in Fed balance sheet over last few months

Chart courtesy of the St. Louis Federal Reserve [FRED]
Source:  Board of Governors Federal Reserve System [US]

This chart shows the abrupt reversal of the quantitative tightening program begun in early 2018. Current repo rescue operations, or QE Lite as it has been dubbed, is likely to further boost the Fed’s stockpile of U.S. Treasuries. “But clearly,” says Tocqueville’s John Hathaway in a recent interview, “I think the expectation of tightening – the pretense that they were going to be a responsible central bank is just totally out the window. And they’re joining the crowd and creating more and more liquidity. We saw what they recently did in terms of the repo market they’re not calling a QE. But I don’t know how they get away with that. $60 billion a month is bigger than QE 2, I think. So I think we’re back on a path towards monetary debasement. And that is what we in the gold world have always expected would take place. And now it’s sort of out there for everyone else to see.”

Thinking about buying gold and silver?

Wizard of Id cartoon reprinted with permission.  All rights reserved. USAGOLD 2019

Gold in six easy lessons

1. Don’t buy it because you need to make money; buy it to protect the money you already have.

2. Don’t look at price as a barrier; look at it as an incentive.

3. Don’t buy the paper pretenders; buy the real thing in the form of coins and bullion.

4. Don’t fall prey to glitzy TV ads; do your due diligence instead.

5. Don’t allow naysayers to divert your interest; allow yourself the right to protect your interests as you see fit.

6. Don’t forget the golden rule: Those who own the gold make the rules!


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The Power of Gold in Times of Crisis

photo of gold Kim Thanh VietNamese gold bars
Editor’s note:
  Ronan Manly’s incisive review of the uses of gold in a handful of contemporary worst-case scenarios – the fall of Saigon, South Korea’s national mobilization to erase its external debt, Argentina’s recurring economic disasters, Venezuela’s hyperinflation (plus two others we omit in this condensed version of his in-depth study) – is meant to instill the notion that the ordinary citizen-investor has options when full-out crisis comes knocking on the door.  Of course, gold has its uses for crises that fall short of the ultimate worst case, as it showed globally during the 2007-2008 financial meltdown.  Bullion Star offers the full article in the clear at the link just below. This article is reproduced with permission.

by Ronan Manly, Bullion Star

While physical gold is a well-known safe haven asset which investors flock to in times of market turbulence as a way of protecting their wealth, gold is also the ultimate asset to own and possess in times of crisis and emergency. These crisis situations can range from episodes in which fiat currencies collapse, to times in which gold buys safe passage across international borders, and even to periods in which only gold can bail out and rescue an entire nation. Sometimes gold even ensures self-survival and can literally be the difference between life and death.

History is replete with examples of gold being the ultimate asset in times of crisis and desperation, where time and time again, gold comes to the rescue and provides its holders with choice and freedom, choice and freedom that are not available to those who do not hold gold. This is not ancient but recent history, history in our lifetimes and in some cases even events ongoing now. . . .

Gold as a safe passage for refugees from Vietnam

Following the Vietnam War, the Fall of Saigon, and Vietnam’s reunification in 1976, the southern part of Vietnam experienced a mass exodus of people, driven by a crippled economy, government discrimination and forced departures. Hundreds of thousands of ethnic Chinese and Vietnamese fled to other parts of Asia over both land and sea, an exodus which peaked in 1978-1979.

Those refugees fleeing by sea sometimes did so in large ships organised by people smugglers and often with the support of the Vietnamese communist government. An exit route on these ships was only assured for those who could pay these government officials and people smugglers what they demanded. The price for safe passage? Between 10 and 12 taels of 24 karat gold for an adult and half that for a child (1 tael = 1.2 troy ounces).

This gold payment was often in the form of traditional Kim Thanh gold bars, two slim large bars and one small bar wrapped together in rice paper, making a total weight of 1 tael. While these bars were popular in Vietnam, they were also recognised and accepted across all of South East Asia as portable wealth and so were monetary liquidity for the region.

South Korea – Gold mobilization to pay external debt

As the Asian financial crisis spread to South Korea in late 1997 and torpedoed the country’s financial markets, it triggered a currency and banking crisis that decimated the Korean won and pushed the country to the verge of bankruptcy. Rapidly burning through its foreign exchange reserves and with international lenders circling, the government called in the International Monetary Fund (IMF) in December 1997 with a multi-billion rescue package to bail-out the country’s spiraling external debt. At that time the largest ever IMF bail-out, the rescue came as a massive blow to the Korean nation both economically and psychologically.

Embarrassed and at a loss to understand how a star Asian tiger economy could implode so quickly, the South Korean nation then did something quite extraordinary and spontaneous by collectively confronting the adversity via the mobilisation of a patriotic gold collection campaign to help pay off South Korea’s foreign debts. . . .

Running over four months from January to April 1998, the gold collection campaign collected 227 tonnes of gold worth $2.13 billion, with 165 tonnes alone collected in the first month January. The collection involved 3.5 million households, representing 23% of the nation’s 15 million households and 10% of the gold held in South Korea at that time, and the gold collection drive helped restore the nation’s credibility abroad, thereby allowing South Korea to fully repay the IMF-backed debt in August 2001, three years ahead of schedule.


image of gold compass

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Argentina – Accustomed to crisis, accustomed to gold

Beyond providing safe passage and saving a nation, gold comes into its own during periods of hyperinflation, economic stagnation, currency collapses and frozen bank accounts. Events unfortunately all too familiar to the majority of Argentinians in South America´s third largest economy. Lurching from one economic crisis to the other as it does, at times the economic history of Argentina can appear to be a long drawn out car crash of hyperinflationary events, currency collapses, debt crises, and general market panic.”

Argentinians unfortunately are accustomed to this drama, having seen years of high inflation, hyperinflation in 1989-1990, a severe economic crisis in 2001-2002, and many instances of rapid loss of value and confidence in their currency, the peso. For example, during the hyperinflationary period in 1989, prices in Argentina rose by an annualized 5000%.”

“During the 2001-2002 crisis, the peso lost three-quarters of its value at the same time that bank accounts across Argentina (in both US dollars and pesos) were more or less frozen. With the local population accustomed to rapidly escalating prices, evaporating savings and a plummeting peso, Argentinians have on a number of occasions done what everyone across the world eventually does when confronted with this same problem: they buy hard currencies and gold.”

And when prevented from buying currencies such as the US dollar due to government-imposed capital controls, banking restrictions or bank account freezes (the Corralito), Argentinians take the only available option – they flock to buy physical gold as a form of saving and wealth preservation, buying locally refined gold bars and coins from banks such as Banco de Ciudad in Buenos Aires. Popular coins include Mexican and Chilean gold bullion coins, South African Krugerrands and British gold Sovereigns.

Venezuela – Gold the ‘go to asset’ in ongoing chaos

photo of trayfuls of worthless paper currency tips for restaurant waitersWaiters and tips Venezuela restaurant

One place which is not on the verge of a crisis, since it is actually in one, is fellow South American nation Venezuela. Marked by a collapsing currency, hyperinflation, banknote scarcity, social unrest and shortages of essentials, gold has replaced paper currency across most aspects of Venezuela’s economic life as a means of payment, as a form of barter to acquire goods and services, and in some cases literally for day-to-day survival.

Sometimes it’s a direct exchange of gold for goods or food, but in Venezuela, gold is also money. For example, in the capital Caracas, in the central El Silencio district, citizens flock to the gold dealers who trade on the streets around the Esquinas of Padre Sierra, La Pedrera and La Bolsa. Amid the hyperinflation and rapid price rises, even previously well-off families and pensioners are now forced to sell their valuable gold jewelry and family treasures to supplement their incomes. . . .

In Venezuela, as the fiat currency bolivar has died and the economy collapsed, gold has emerged to perform the role that it has performed for thousands of years – which is a trusted form of money and a real form of wealth. In Venezuela’s case also, gold has become a survival mechanism for the struggling population.

Conclusion

Although each of the above examples are different, they all illustrate the power of gold in times of crises and emergency, a universal currency that is universally accepted and recognised, a universal asset that is borderless, liquid, and portable. In Vietnam, gold bought freedom of passage across international borders, with refuges using portable gold wealth to pay fares and as emergency money to start new lives.

In South Korea, an entire nation helped to rescue its economy using the only widely held asset which had held value and which was internationally liquid. Beyond the nationalism and patriotism, most Koreans sold their gold, albeit at a lower than market price, so for them too gold was emergency money as their economy imploded, a store of value that worked as expected and when expected.

Likewise in Argentina, Venezuela, Zimbabwe and Vietnam, physical gold was a safe haven and financial insurance for those that had the foresight to held it. Gold fulfilled its role of saving for those who had held it, a role that fiat currencies utterly failed in. Gold also played the role of medium of exchange in all of these situations, when trust in paper currencies had died.

The causes may differ – hyperinflation, death of paper currencies, economic mismanagement, capital controls, wars – but the outcome is always the same. People and economies instinctively turn to the ultimate asset gold as a safe harbour in times of crisis and emergency. Because only gold persists as a store of value and is trusted as a medium of exchange. Gold allows choices that are not available to those who do not hold gold. In crises, only gold provides economic freedom and liberty.


A word on USAGOLD
– USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)

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Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing – How to Protect and Build Your Wealth With Gold. He is also editor and commentator for USAGOLD’s Live Daily Newsletter and editor of the News & Views monthly newsletter.

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NV#1010–OCT19

NEWS &VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 46th year in the gold business

October 2019

“Gold has everything going for it.” – Paul Tudor Jones


What makes this gold market rally different from all others

1.  It is led by institutions and funds, not private investors. Global quantitative easing created a huge and mobile pool of capital in constant need of a place to call home. As the need for a safe haven became apparent among the stewards of that capital, the demand for gold flourished. The consistent presence of funds and institutions as buyers in this rally, as represented by the growth in ETF stockpiles, is one of its hallmarks and represents one of the major differences between this gold rally and rallies of the past. Though private investors have been late to the game, the rapid development of the physical market for gold coins and bullion in the United Kingdom is testament to the fact that sentiment can change quickly.

2.  Day-to-day price reversals often originate in Asia and Europe, not just the United States.  For decades, the U.S. commodity markets set the tone for gold pricing and the rest of the world was content to follow. Even the old London price fix tended to follow along with trends established in the United States.  That all changed when the Shanghai gold market began offering its own pricing mechanism and the effects of Brexit began to have a profound impact on both sides of the English Channel. Now, price reversals often begin in Asian or European markets overnight and carry over to the open in New York rather than the other way around.  All of this is a reflection of ramped up global investor interest in gold and a leveling of the playing field in terms of who and what influences the price on a daily basis.  As such, it comprises our second important difference between the current gold price rally and rallies in the past.

3. Central banks are buyers of physical gold, not sellers.  In 2011 something unusual happened in the gold market.  Central banks flipped from being net sellers of the precious metal to net buyers reversing a 40-year trend.  Since then, the official sector has added 4,563 metric tonnes to their coffers (through the first half of 2019) – a 15% gain in stockpiles to 34,407 metric tonnes.  The gold that central banks take off the market, though, is only part of the story. The rest has to do with how domestic production in two key producing countries – China and Russia (the world’s number one and three producers) – is treated.  Both countries channel their mined metal into national reserves rather than selling it in the global marketplace. Many analysts see this new and evolving approach to gold reserves as the key difference between the present gold rally and rallies of the past.

4. Bullion banks are covering their shorts on price retreats, not piling-on.  Declining global interest rates have put a damper on another traditional source of physical gold supply – bullion bank leasing programs. “We can conclude,” writes gold market analyst, Alasdair Macleod, in an insightful paper published at the GoldMoney website, “that the basis for highly geared interest rate arbitrage by borrowing gold is running into a brick wall. Not only is there no incentive for lessors but also there is also a diminishing appetite for lessees because the opportunities are vanishing. Synthetic gold liabilities are being gradually reduced, not only by ceasing the creation of new obligations, but by buying bullion to cover existing ones. This will have been particularly the case when the USD yield curve began to invert in recent months (itself a backwardation of time preference), and was the surface reason, therefore, that the gold price moved rapidly from under $1200 to over $1500.” This change in direction for bullion banks represents another fundamental difference between this rally in the gold price and rallies of the past.  What’s more, given the entrenched low-rate environment, it looks like it might remain a factor for some time to come.

5.  Yields in economically important parts of the world are negative, not positive. Negative interest rates are a reality in both the European Union and Japan, and Alan Greenspan said recently that it is “only a matter of time” before they spread to the United States.  One of the arguments against gold over the years has been that it costs money to own it. Now it costs money to own euros and yen, and before too long it might cost money to own the dollar as well.  The advent of negative rates is perhaps one of the more profound differences between this gold rally and rallies of the past. It might also prove to be the most enduring.  “One of the reasons,” Greenspan added in that same CNBC interview, “the gold price is rising as fast as it is – you know, at $1500 a troy ounce . . . What that is telling us is that people are looking for resources they know are going to have a value 20 years from now, or 30 years from now, as they age and they want to make sure they have the resources to keep themselves in place.”


The Precious Metals Safe Storage Advantage

graphic image of bank vault doorIt only takes a few minutes to complete a Precious Metals Safe Storage account opening form, but it could mean all the difference for the investor seeking a superior alternative to gold and silver ETFs. We use the word “superior” because depository storage accounts come with an option not readily available in most ETF accounts – You can take delivery of the metal in your account, or any portion of it, whenever you wish. At the same time, given the exclusive preferred referral storage rate you receive by opening your storage account through USAGOLD, the annual cost to maintain your holdings is comparable (and often lower) to what most ETF vendors charge in annual fees. All the while, your metal is stored safely and fully insured at one of America’s oldest, largest and respected independent depositories – a firm with which we personally have done business for decades.  To get started, we invite you to go to the link immediately below and fill out the application.

Account Form – Precious Metals Storage Account


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Gold and emerging markets

map of Asia multi-colored

An alternative to the dollar

In a recent GoldHub interview, the former governor of the Reserve Bank of India, Duvvuri Subbarao, made some interesting observations with respect to emerging countries’ attitude towards gold ownership as a national reserve asset. “‘In the immediate aftermath of the crisis,” he says, “we had to sell dollars to prevent our currency going into freefall. During Quantitative Easing, we had to buy dollars to protect our financial stability. And when the Federal Reserve began to taper QE, exchange rates slumped again and we had to defend ourselves with our reserves. All these events prompted one obvious question – Is there an alternative to the dollar?” Subbarao, goes on to explain that if central banks cannot rely on the dollar for stability then they need to find it elsewhere.  “Holding gold within our reserves,” he adds, “is an integral part of that self-defence.”  As it is, we might add, for private individuals as well.

Households in India pile up 24,000 tonnes of gold

India’s Financial Express tells us that “Households in India may have piled up around 24,000-25,000 tonnes of gold, remaining the world’s largest holders of the precious metal,” according to the World Gold Council. . .At current prices, the value of that private stockpile amounts to over $1.1 trillion – “or equivalent of more than 40% of India’s nominal gross domestic product” for the year.  To give you an idea just how much gold the people of India own in the overall scheme of things, the total amount of gold held by governments and central banks globally is 33,976 tonnes, according to World Gold Council statistics.

Russia’s huge gold stash is worth more than $100 billion

“The country [Russia] quadrupled gold reserves in the past decade as it diversified away from U.S. assets,” reports Bloomberg, “a move that has paid off recently as haven demand sent prices to a six-year high. In the past year, the value of the nation’s gold jumped 42% to $109.5 billion and the metal now makes up the biggest share of Russia’s total reserves since 2000.”  Russia’s reserve gains via appreciation of the precious metal will not be lost on a whole host of other countries looking to move in the same direction.

Gold as a central bank reserve asset

In a recap on the year with respect to central bank buying, the World Gold Council reports: “In 2018, central banks bought more gold than at any time under the existing international monetary system. The vast majority of demand has come from emerging and developing country central banks. 19 individual central banks bought more than one tonne of gold in 2018, giving rise to total purchases of 651 tonnes. Even the European Union re-emerged as a net buyer, due to substantial purchases from Poland and Hungary.”


image of gold compass

If you think you could benefit from a concise review of the latest news, analysis, and opinion on the gold market from a variety of expert sources, then News & Views is the newsletter for you. Since the early 1990s, we have offered it free-of-charge as a monthly service to our regular clientele and as an incentive to prospective clients. By subscribing, you will automatically receive future editions and occasional in-depth Special Reports by e-mail.

FREE SUBSCRIPTION!

Market cycles will endure as long as humans exist

Dr. Moneywise cartoon image with umbrella in rain“Four of the most dangerous words in the investment world are ‘It’s different this time,’ writes Howard Marks in a Bloomberg opinion piece.  “When people use them, what they’re saying is that the norms of the past no longer apply. . .Both these notions were soon shown to have been erroneous, and the market bubbles abetted by that optimistic thinking were popped, bringing on painful market crashes.”

Dr. MoneyWise says: “Old Ben Franklin said it best. ‘By failing to prepare, you are preparing to fail.’ And I will add, we do not know when the next crisis will begin, but begin it will. And when it does, only two kinds of investors will be there to greet it: Those who prepared and those who did not.”

The Rise and Fall of the Dollar
Purchasing Power of the U.S. Dollar (1913-20190

HowMuch graphic of decling dollar since 2013
Chart courtesy of HowMuch.net

“It’s no secret,” says HowMuch, “that $1 now will get you less than it would 100 years ago, but just how much has the purchasing power of the U.S. Dollar decreased over the years? To illustrate this, we created a visualization that demonstrates the rise and fall of the dollar since 1913. Using this graphic, we can see how inflation and changes in the Consumer Price Index have decreased the dollar’s purchasing power over the last century.

• $100 in 1913 would only be worth about $3.87 today.

• While the purchasing power of the dollar has gone up and down since 1913, it has never surpassed the purchasing power it had in 1913.

• The purchasing power of U.S. citizens has always topped the charts, but that could be changing in the future.

• Inflation impacts nearly all variables of macroeconomics, and many believe that current U.S. inflation levels are too low.”

Economic insecurity is becoming the new hallmark of old age

In the United States,” writes Katherine S. Newman and Rebecca Hayes Jacobs for The Nation, “economic security in old age was seen, for a long time, as both a social issue and a national obligation. From the birth of Social Security to the end of the 20th century, the common assumption has been that we have a shared responsibility to secure a decent retirement for our citizens. Yet that notion is weakening rapidly. Instead, we have started to hear echoes of the mantra of self-reliance that characterized welfare ‘reform’ in the 1990s: You alone are in charge of your retirement; if you wind up in poverty in your old age, you have only your own inability to plan, save, and invest to blame.”

Chart showing 1929 stock market and recovery to old high in 1955
Some compare today’s stock market psychology to the period just before 2008. Others compare it to the 1920s when everything was hunky-dory until suddenly it wasn’t – perhaps a more apt comparison. Too many are “all-in” with respect to stocks in their Individual Retirement Accounts hoping to accumulate as much capital as possible without regard to the potential downside. The stock market did not recover from the losses accumulated between 1929 and 1933 until the mid-1950s, almost 25-years later – a fragment of stock market history lost to time.

Some will rely on the fact that stocks recovered nicely once the Fed launched the 2009 bailout. We should keep in mind though that many prominent Wall Street analysts have warned that the Fed no longer has the firepower it did then. The financial markets and economy are much more vulnerable as a result – all of which brings us back to the notions of self-reliance and taking personal responsibility for our retirement plans. If you find yourself among the group that thinks hedging a stock market downturn to be in your best interest, we can help you effectively structure a gold and silver diversification as part of your retirement plan to hedge that possibility.

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A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)

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Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing – How to Protect and Build Your Wealth With Gold. He is also editor and commentator for USAGOLD’s Live Daily Newsletter and editor of the News & Views monthly newsletter.

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NV#1009-SEPT19

 NEWS &VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 46th year in the gold business

September 2019


Bank of England’s Carney delivers dollar shocker
at Jackson Hole meeting

graphic image of humpty dumpty perched happily on wall

Bank of England governor Mark Carney, in something of a shocker, told the recent Jackson Hole central bankers’ conference that the world’s reliance on the US dollar ‘won’t hold’ and needs to be replaced by a new international monetary and financial system based on many more global currencies,” according to a Financial Times report. The greatest impact of Carney’s bombshell, though, came not from his opinion on the look and feel of some futuristic global monetary system. It came instead from his seeming tacit approval of the escalating movement to dethrone the dollar as the world’s reserve currency in the here and now. A good many in that audience were no doubt surprised – even rattled – by Carney’s remarks.

“Something is going on,” said St. Louis Fed President James Bullard in a Financial Times report, “and that’s causing I think a total rethink of central banking and all our cherished notions of what we think we’re doing. We just have to stop thinking that next year things are going to be normal.” To which FT added: “Interest rates are not going back up anytime soon, the role of the dollar is under scrutiny – both as a haven asset and as a medium of exchange – and trade uncertainty has become a permanent feature of policymaking.”

That about sums it up.  The dollar at the moment is something of a Humpty Dumpty in the global monetary system – sitting on his wall oblivious and seemingly immune to all that goes on around him.  Whether or not there will someday be a Great Fall remains to be seen, but increasingly, as Carney’s speech illustrates, forces are lining up against it. 

 “[H]istory,” Carney concludes, “teaches that the transition to a new global reserve currency may not proceed smoothly. Consider the rare example of the shift from sterling to the dollar in the early 20th Century – a shift prompted by changes in trade and reinforced by developments in finance. The disruption wrought by the First World War allowed the US to expand its presence in markets previously dominated by European producers. Trade that was priced in sterling switched to being priced in dollars; and demand for dollar-denominated assets followed. In addition, the US became a net creditor, lending to other countries in dollar-denominated bonds.”  In other words, it laid the foundation for the so-called American Century that followed.

A similar transition now could impact the dollar and dollar-denominated assets just as it did sterling and sterling-denominated assets at the turn of the 20th century. Though few believe the dollar can be fully replaced with something else at this juncture, many believe that its influence could erode – or that the old could gradually give way to something new and different.  In fact, as you are about to read, some see it as a process that has already begun. 

De-dollarization boosts central bank gold purchases 

Among the broad effects of the nascent de-dollarization movement has been to significantly boost central bank demand.  The World Gold Council reports 651 metric tonnes in new gold purchases during 2018 – the highest level since the Bretton Woods Agreement was abandoned in 1971. China, Russia, Poland, and Hungary head the list of central banks adding gold to their central bank reserves in 2018 and 2019.

In a recent interview with the World Gold Council, Dr. Duvvuri Subbarao, former governor of the Reserve Bank of India, explains the connection between “de-dollarization” and central bank gold acquisitions. “In the immediate aftermath of the crisis,” he says, “we had to sell dollars to prevent our currency going into freefall. During Quantitative Easing, we had to buy dollars to protect our financial stability. And when the Federal Reserve began to taper QE, exchange rates slumped again and we had to defend ourselves with our reserves.  All these events prompted one obvious question – is there an alternative to the dollar?” 

“It is clear,” he goes on, “that gold is a risk diversifier – a hedge against not just financial risk but also political risk. It is also a long-term store of wealth. As such central banks, especially those from emerging markets, can increasingly see the merits of adding gold to their reserves. Over time, therefore, I am confident that gold’s role will increase among central banks.”

bar graph of quarterly net purchases of gold since 2010, strong uptrend in 2018-2019
Chart courtesy of the World Gold Council

Currency problems stoke Asian physical gold demand

McKinsey & Co, the global consulting firm, warned in late August that a new Asian debt crisis might be in the making. Not surprisingly, gold is priced at all-time highs in a number of Asian currencies including the Japanese yen, India rupee and the Chinese yuan. It is also at all-time highs against the Malaysian ringgit and the Indonesian rupiah. Jayant Bhandari, the founder of Capitalism and Morality, provides some thought-provoking insights on the origins and sustainability of Asian gold demand. “Most of these people don’t really understand what is happening outside their boundaries,” says Bhandari, “so they have no option but to buy gold, silver, and currencies of Western countries. And that is why I think support for precious metals will continue to increase going forward. I don’t know what influence it will have in pricing, but really, if I had to suggest to someone on how to preserve his wealth, my suggestion would primarily be focused on gold and silver.”


image of golden compass

If you think you could benefit from a concise review of the latest news, analysis, and opinion on the gold market from a variety of expert sources, then News & Views is the newsletter for you. Since the early 1990s, we have offered it free-of-charge as a monthly service to our regular clientele and as an incentive to prospective clients. By subscribing, you will automatically receive future editions and occasional in-depth Special Reports by e-mail.

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Mobius, Soros take seats on the gold bandwagon

Question: What do Jeffrey Gundlach, Ray Dalio, Mark Mobius, Stanley Druckenmiller, Paul Tudor-Jones, David Einhorn, Naguib Sawiris, Paul Singer, and Thomas Kaplan – some of the greatest financial minds of a generation – all have in common?

Answer: An attachment to gold and its presence in their personal financial holdings as a safe-haven hedge.

Well-known emerging market analyst Mark Mobius is a recent addition to the list. “Investors,” he says in an interview posted at NewsMax, “should allocate about 10% of their assets in physical gold. The reason is that gold maintains its status as a currency – a currency that has stood the test of time.” George Soros, according to Sharps Pixley’s Lawrie Williams, is another new addition to the list having made “a very substantial investment in the yellow metal.” Gold ETFs, the favored ownership vehicle for the hedge funds, have grown 24% since May and are at their highest level since 2013.

Chart of growth in gold ETFs with gold price

Chart courtesy of GoldChartsRUs

“If I had to pick my favorite for the next 12 to 24 months, it would be gold. If it goes to $1400, it goes to $1700 rather quickly. When you break something like that [the 75-year expansion of globalization and trade], a lot of times the consequences won’t be seen at first. It might be seen one year, two years, three years later. . . So that would make one think that it’s possible that we might go into a recession or make one think that it would make rates go back toward the zero bound level and of course in a situation like that gold is going to scream.” – Paul Tudor Jones, Tudor Investment Corporation  (Bloomberg interview)

Alan Greenspan says gold surging because “people are looking for hard assets”

In a recent CNBC interview, former Fed chairman Alan Greenspan predicted that negative interest rates will reach the United States. “You’re seeing it pretty much throughout the world. It’s only a matter of time before it’s more in the United States.” Greenspan, a long-time advocate of gold ownership, went on to say that “gold prices have been surging because people are looking for ‘hard’ assets they know are going to have value as the population ages.”

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A word on USAGOLD
– USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)

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Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing – How to Protect and Build Your Wealth With Gold. He is also editor and commentator for USAGOLD’s Live Daily Newsletter and editor of the News & Views monthly newsletter.

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NV#1008-AUGUST19

NEWS &VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 46th year in the gold business

August 2019

“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.” – John Murphy


Gold responds to the trade and currency war
At all-time highs in six of the world’s top currencies

The charts posted immediately below tell one of the quiet, but perhaps most important stories unfolding in the world of high international finance. Gold has appreciated sharply in the currencies of all of the world’s top economies.  In five of the top eight economies – the United Kingdom, Japan, Canada, Australia, and India – it is priced at all-time highs. In short, as currencies race for the bottom, gold is racing to the top. Investors everywhere are moving to insulate their portfolios against the combined threats of recession, plummeting yields, currency depreciation, and stock market instability. An over-arching nemesis not likely to relinquish its place any time soon has unleashed those four horsemen – the burgeoning trade and currency war. 

Gold is up 25% in sterling; 22% in the yuan; 21.5% in euros; 19.7% in Australian dollars; 18% in rupee; 13% in Canadian dollars and 12% in Japanese yen.  It is up sharply against a long list of emerging country currencies as well. By way of perspective, gold is up 16% in U.S. dollars thus far in 2019. “A host of global factors mean gold’s price is set to maintain its strength at least for the next six to 12 months,” said Howie Lee, an economist at Singapore’s Oversea-Chinese Banking Corporation, in a recent CNBC interview. “The world right now is in a precarious state and gold is due to benefit from this situation,” With the world – from Asia to Europe, the United States and a long list of emerging countries – now acutely attuned to gold ownership, it might not be long until we begin to see strains on the limited physical supplies. 

chart of gold in Australian dollars
chart of gold in British pounds 2019
chart of gold in Canadian dollar 2019
chart of gold in Chinese yuan 2019
chart of gold in euro 2019
chart of gold in Indian rupee 2019
chart of gold in Japanese yen 2019
chart of gold in US dollars 2019
Charts courtesy of TradingView.com


Should I buy a gold ETF?
Are you looking for a price bet or the real thing?

For safe-haven, asset-preservation purposes, the best alternative is not futures, options, mining stocks or even ETFs, but delivery of the metal itself in the form of gold coins or bullion. Some think that owning an ETF is akin to owning real gold, but it is not. It is essentially a price bet simply because only owners of 10,000 ounces or more (with most trusts) can take delivery of the metal represented by the shares. Then there is the problem of counterparty risk. “Unlike physical gold bullion – which is a tangible asset,” says Mauldin Economics’ Olivier Garret, “ETFs are a financial product that have counterparty risk. Counterparty risk is present when there’s a possibility the other party in an agreement will default or fail to live up to their obligations. . .[O]ne of gold’s primary benefits is being the only financial asset that is not simultaneously somebody else’s liability. Therefore, these ETFs are a poor substitute.” In short, by owning an ETF instead of the real thing, investors expose themselves to one of the primary risks they hope to avoid through gold ownership.

The USAGOLD storage option – strong competition for the ETF
One of the advantages of a gold or silver ETF is that the trustee stores the metal for you and makes it easy to buy and sell. We can open a fully-allocated storage account for you that offers the same advantages. In fact, the annual cost of storage and insurance is actually lower than most ETF fees. You can buy and sell with a phone call. Most importantly, because specific coins and/or bullion are stored in your account, you can still take delivery in part or full whenever you so wish – something, as mentioned above, that the ETFs offer only to their largest institutional clients.


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MacroVoices: Gold is not going to be just ‘an asset’
but ‘the asset to own’ in the 2020s

graphic image bull, black and whiteEditor’s note: Stoferle, along with Mark J. Valek, publish the widely circulated and referenced In Gold We Trust annual report. In this interview, Stoferle says “It is crystal clear. We are in a gold bull market again.” The most important opinion expressed, in my view, is that the start of something different, perhaps very special, occurred in the gold market over the past 30-days or so. Stoferle and his hosts at MacroVoices delve into just what that “something” might be. If you are looking for fundamental insights as to why gold suddenly surged over the $1500 level, this interview will get you where you want to be.

Public pessimistic about the future of America

I came across this study in researching another subject.  It is a March 2019 Pew Research Center poll that quantifies the underlying mood of the country. Polls like this explain why gold and silver remain very much on the minds of many Americans.

Graphic from Pew Research on how the public sees the future over next 30 years

Published with permission of Pew Research Center


image of golden compassIf you think you could benefit from a concise review of the latest news, analysis, and opinion on the gold market from a variety of expert sources, then News & Views is the newsletter for you. Since the early 1990s, we have offered it free-of-charge as a monthly service to our regular clientele and as an incentive to prospective clients. By subscribing, you will automatically receive future editions and occasional in-depth Special Reports by e-mail.

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Dr. Moneywise asks:
“Where are we in Tyler’s historical cycle?”

Dr. MoneyWise cartoon character pointing to chalkboard“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasury. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship. The average age of the world’s great civilizations has been two hundred years. These nations have progressed through the following sequence: from bondage to spiritual faith, from spiritual faith to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency from complacency to apathy, from apathy to dependency, from dependency back to bondage.” – Alexander Tyler, 18th century historian and jurist

I always keep in mind Alexander Tyler’s historical cycle,” says Dr. Moneywise. “I estimate that we are now somewhere between the ‘complacency’ and ‘apathy’ stages with ‘dependency’ – if recent political rumblings can be taken at face value – knocking on the door. History is replete with examples of a rapid debasement of the currency accompanying the latter stages of Tyler’s cycle and that is why I own gold.

Major Wall Street firms go bullish on gold

Goldman Sachs is off-again, on-again when it comes to gold. It is now on-again and on the record with one of the more bullish numbers among Wall Street firms. “For Goldman Sachs Group Inc. analysts, gold’s rally above $1,500 is just the beginning,” reports Bloomberg’s Luzi Ann Javier and Justin Vasquez. “Analysts at the bank predict that prices already at six-year highs will climb to $1,600 an ounce over the next six months as investors seek havens. The dimming global economic outlook, fueled by heightening trade tensions between the U.S. and China are boosting gold’s appeal as a hedge against financial turmoil.”

Meanwhile, NASDAQ says that “Societe Generale, famed European investment bank, has just told investors they should load up on gold. . .” and Nomura, the Japanese bank, tells us that any rebound [in stocks] ought to be treated with a heavy dose of skepticism, and as preparation for the next wave of selling.”

“There is nothing,” says JP Morgan’s Craig Cohen in an article titled Is the dollar’s “exorbitant privilege” coming to an end?to suggest that the dollar dominance should remain in perpetuity. In fact, the dominant international currency has changed many times throughout history going back thousands of years as the world’s economic center has shifted. After the end of World War II, the U.S. accounted for the biggest share of world GDP at more than 25%. This number is brought to more than 40% when we include Western European powers. Since then, the main driver of economic growth has shifted eastwards towards Asia at the expense of the U.S. and the West.” JPM suggests that its clients diversify dollar exposure by shifting to other developed market currencies and precious metals. It says that the aforementioned shift away from the dollar is already underway.

The shifting sentiment on Wall Street brings to mind Thomas Kaplan’s memorable Bloomberg interview given in late May. “My time horizon is that I usually measure moves like these in terms of decades,” he said at the time (gold was trading just below $1300 per ounce). “So let’s look at it like this: The first move, the first leg, in gold took it from $250 per ounce to $1900. . .We’ve now been in a correction that has taken gold from $1900 back to where we are today. You could easily see gold fall a couple of hundred dollars before you see it go up a couple of thousand dollars, but each move has been a decade or more which means that when gold embarks upon its next move, I believe that you will see that long wave will take gold relatively quickly to the $3000 to $5000 target that I believe is fundamentally justified based on the facts we have today.”

Heightened risk meets easy money
World Gold Council mid-year gold outlook 2019

“Contrary to popular belief,” says the World Gold Council in its mid-year report, “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.”

bar chart showing performances of various assets incuding gold
Source: World Gold Council

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 the equation that pushed gold back over the $1400 mark.


Graphic of USAGOLD client portal connection. Ready to invest. Start here.
A word on USAGOLD
– USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)

Graphic of Online Order Desk Connection: Great prices. Quick delivery. All the time.

ORDER DESK
1-800-869-5115 Ext#100
[email protected]


Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing – How to Protect and Build Your Wealth With Gold [Third Edition]. He is also editor and commentator for USAGOLD’s Live Daily Newsletter and editor of the News & Views monthly newsletter.

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NV#1007-July19

NEWS &VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 46th year in the gold business

July 2019

“There has been a dramatic change in sentiment.– Adrian Day


Summer doldrums turned upside down
Gold’s June upturn separates 2019 from the pack

The summer months historically present a buying opportunity in precious metals as illustrated in the charts shown below. In the past, there has been a clear change of direction in sentiment annually from the 185-195 day mark – midway in the year. So far this summer, though, gold has broken with tradition by turning in a strong June, as shown in the third chart.

“Gold trading usually gives pundits, dealers, and investors a break at some point over the summer,” observes Adrian Ash at BullionVault. “But like 2007, 2008, 2009, 2011 and 2016…this year is proving no time to take your eye off the market. And if 2019 is going to see an old skool summer lull in gold trading, it won’t feel much like a discount up at these prices.” With a range of economic and geopolitical issues preying on investor psychology – particularly at the funds and institutions that have fueled the upside this year – the summer of 2019 might go down as one of those years when we bypass the annual slowdown. Last year, gold hit a low of $1178 in mid-August. By December 31st, it was trading at the $1280 mark.

Chart on gold 10 year seasonal average showing summer months as buying opportunity Chart on silver 10 year seasonal average showing summer months as buying opportunityChart on Gold 2019 versus seasonal averages, price above average
Charts courtesy of GoldChartsRUs/Nick Laird

‘Expect markets to keep singing gold praises’

A quick run-down on gold’s performance in a select group of currencies over the past twelve months as of the end of June, tells the story of rapidly evolving change in attitude among global investors.  Over the past year, gold is up 15.7% in euros, 17.1% in Chinese yuan, 10.2% in Japanese yen, 13.6% in Indian rupee and 16.3% in the yuan.  For comparison purposes, gold is up 12.8% in the U.S. dollar. 

That change in attitude extends beyond the citizenry to central banks pursuing gold acquisition policies of their own. “Net buying by central banks,” reports the World Gold Council in Gold Demand Trends, “reached 145.5 tonnes in Q1, 68% higher y-o-y. This is the highest volume of Q1 net purchases since 2013 (179.1 tonnes), comfortably exceeding the five-year quarterly average of 129.2 tonnes. On a rolling four-quarter basis, demand reached a record high for our data series of 715.7 tonnes.”

“These days,” says Financial Times’ Lex columnist, “it is not dollars that emerging countries feel they have to hold. They want gold, and plenty of it. Since the first quarter of 2015, central banks in China, Russia, India and Turkey have boosted their gold holdings by two-thirds to 4,960 tonnes. Diplomatic and trade rows with the US explain some of this buying. There is a move to avoid buying dollars for their foreign exchange reserves. . . US interest rates are probably headed down. That move should depress the dollar against other currencies. Expect markets to keep singing gold’s praises.”

Bar chart on central bank gold purchases hitting six-year high
Chart courtesy of World Gold Council


image of golden compassIf you think you could benefit from a concise review of the latest news, analysis and opinion on the gold market from a variety of expert sources, then News & Views is the newsletter for you. Since the early 1990s, we have offered it free-of-charge as a monthly service to our regular clientele and as an incentive to prospective clients. By subscribing, you will automatically receive future editions and occasional in-depth Special Reports by e-mail.

FREE SUBSCRIPTION!

Trump dollar devaluation could send gold back to record highs

“China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA. We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!” – Donald Trump

The President is many things to many people, but the one thing he is not is naive enough to allow his adversaries to use currency depreciation as a means to circumvent the sting of tariffs. He would rather fight fire with fire through a devaluation of the dollar. For that to occur, though, he will need the co-operation of the Fed – hence the heavy pressure for easy money policies.

“Much of what is going on right now recalls the early 1970s,” writes Martin Wolf in a Financial Times editorial, “an amoral US president (then Richard Nixon) determined to achieve re-election, pressured the Federal Reserve chairman (then Arthur Burns) to deliver an economic boom. He also launched a trade war, via devaluation and protection. A decade of global disorder ensued. This sounds rather familiar, does it not? In the late 1960s, few expected the inflation of the 1970s.” The few who did, though, profited enormously by purchasing gold at $35 prior to the devaluation and holding it through the tumultuous decade that followed. Gold rose nearly 25 times.

Though almost no one expects an uptrend of that magnitude for gold in the 2020s, Forex Lives Adam Button offers a framework by which gold might return to the record highs of 2011. “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,” he says. “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.”

Wealthy Americans fret about finances

graphic image of various investment choices gold includedImage by TheVisualCapitalist/Jeff Desjardins

“Even relatively wealthy Americans are so worried about their finances that it’s affecting their mental and physical health,” says Bloomberg’s Lananh Nguyen. “That’s one of the findings in a Bank of America Corp. survey of more than 1,000 people in the U.S. who have enough investable money to qualify as “mass affluent.” Financial concerns affected the mental health of 59% of respondents, while 56% said their physical health has been hurt.” One wonders how many among that 59% are properly diversified – and by that, we mean with gold and silver as part of the portfolio mix. (Too many see diversification as the proper mix between stocks and bonds.)

“You’d be surprised,” Laurie Kamhi, managing director of a fund that serves entrepreneurs and executives,  recently told Financial Times “at how many of them invest in bars as a way to store money.”  In that same article, Brent Armstrong, a partner at Weatherly Asset Management which caters to clients $2 million to $25 million in assets, says gold is a unique commodity. “We can look at its use in jewelry and electronic products,” he says, “but it’s also been a human emotional store of value for thousands of years.”

Money managers, by and large, tend to focus on the bottom line, i.e., the tangible return on investment. With gold, though, there is also an intangible reward – peace of mind. In the end, there is much to be said for that quality of the precious metals which addresses the basic need for a reliable store of wealth in financially challenging and uncertain times. Want less stress – or no stress?  Diversify and let others fret about their finances.

Inverted yield curve launched two gold bull markets since 2000

Chart showing gold price and inversions since 2000

“The indicator on the bottom of this chart,” says Wall Street Window‘s Mike Swanson, “is the gap between the 3-month and 10-year US Treasury bond. As you can see it is now below zero, which means that the interest rate on the 3-month bond is higher than that of the 10-year. This is the very definition of an inverted yield curve and forecasts a future slowdown in the economy and future interest rate cuts from the Federal Reserve. Now as you can see this has happened twice in the past twenty years and both times it did gold soon broke out of a long-term resistance level to launch big massive gold bull runs that lasted for years.”

PIMCO analytical tool predicts higher gold prices

PIMCO, the bond fund, has developed an analytical tool that tracks “the relationship between gold prices and interest-rate yields,” writes Lauren Silva Laughlin in the Wall Street Journal’s Heard on the Street column. “[It] concludes that for every 1 percentage point decline in inflation-adjusted yields, gold prices should move up by roughly 30%. In that light, the recent jump in gold prices looks fairly tame. Since the end of October, inflation-adjusted yields on 10-year Treasurys have fallen roughly 0.9 percentage point, while gold is only up about 13%, PIMCO notes. The fund manager figures gold should have risen 20% to 30% in total based on the yield movement.”  At the end of October gold was trading at $1215 per ounce.  For gold to reflect PIMCO’s projected gains, it would need to be priced in the $1450 – $1575 range.


A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)

Graphic of Online Order Desk Connection: Great prices. Quick delivery. All the time.

ORDER DESK
1-800-869-5115 Ext#100
[email protected]


Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing – How to Protect and Build Your Wealth With Gold [Third Edition]. He is also editor and commentator for USAGOLD’s Live Daily Newsletter and editor of the News & Views monthly newsletter.

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NV#1006June19

NEWS &VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals

Celebrating our 46th year in the gold business

June, 2019


Gold breaks to the upside
COMEX speculator positions post largest single gain on record

Gold suddenly broke to the upside on the morning of Thursday, May 30th, 2019. After rising nearly $70 – a 5.4% gain and eight-straight days of posting gains, it took a breather on news that Mexico would take steps to stem migrant flow to the United States, thus avoiding the imposition of new tariffs.  We asked Zac Storella from Counting Pips, a widely-acknowledged expert on the COMEX Commitment of Traders reports, what he saw in last week’s numbers.  His response is worth  noting:

“This week’s change in speculative positions (Commitment of Traders) for gold jumped by a total of +69,427 net contracts. This is the largest one-week gain on record, according to the CFTC data dating back to 1986. The current net position (long positions minus short positions) is now at the most bullish level in over a year – showing that sentiment for gold is coming back into favor.

Speculator sentiment is and has been an important aspect to a strong gold price. Speculators are generally trend-followers (buying higher prices, selling lower prices) and on a running three-year basis, we have found a strong correlation between speculator net positions and the gold price.

chart of Gold COT Large Traders ending June 2019

The week’s change did include a healthy amount of speculators covering their short positions as the total number of short positions fell by -23,413 contracts. However, the stronger case for gold is that almost twice as many long contracts positions were initated (+46,014 long contracts) compared to the short covering. With a combination of new long positions and declining short positions, any which way you look at it, this was a strong week for gold and gold bulls.“

Mish Shedlock summed up the psychology at the heart of gold’s upside move.  “Some view gold as an inflation hedge. It isn’t,” he said at his MishTalk blog.  “Gold is a hedge against the notion that the Fed has things under control. Gold fell from $850 an ounce in 1980 to $262 an ounce in 1999 with inflation every step of the way. People believed Greenspan, the great ‘maestro’ had everything under control. It was an illusion. Faith in central banks is about to be tested again.”

Similarly, in this year’s edition of In Gold We Trust, Incrementum’s Ron Stoferle and Mark Valek say that “Gold looks to a future in which the natural value of this unique precious metal is once again fully appreciated. In our opinion, the currently high trust granted into the skills of central bankers and the supposed strength of the US economy are the main reasons for the somewhat weak development of the yellow metal. If the omnipotence of the central banks or the credit-driven record upswing is called into question by the markets, this will herald a fundamental change in global patterns of thinking and help gold to old honors and new heights.”

Chart showing gold rising from May 2019

Update from Billionaire’s Row

Billionaire Stanley Druckenmiller has been in and out of gold in recent years. He generally has a positive view of the metal and spoken favorably about owning it on a number of occasions. Apparently, he was one of those mysterious “investors” mentioned in countless press reports over the past few weeks who moved into safe havens. “When the Trump tweet went out, I went from 93% invested to net flat, and bought a bunch of Treasuries,” Druckenmiller told Bloomberg referring to the May 5 tweet from President Donald Trump threatening to increase tariffs on China. ‘Not because I’m trying to make money, I just don’t want to play in this environment.” . . . Druckenmiller says Treasuries are “the best game in town . . . “Gold’s not bad either,” he adds. 

Ray Dalio, another billionaire with an interest in gold, once said: “If you don’t own gold, you know neither history nor economics.” Market Realists reports Dalio’s Bridgewater Associates, the world’s largest hedge fund, as having increased its gold positions over the last few months. “Bridgewater Associates,” she writes, “didn’t have any major positions in gold ETFs until the second quarter of 2017. By the end of the third quarter of 2017, GLD formed 3.18% of the fund’s portfolio. Dalio likes gold due to its diversification and hedging properties. In a LinkedIn post last August, Dalio wrote, ‘If you don’t have 5–10% of your assets in gold as a hedge, we’d suggest that you relook at this. Don’t let traditional biases, rather than an excellent analysis, stand in the way of you doing this.'” 

Electrum Group’s Thomas Kaplan is another billionaire who subscribes to gold ownership for longer-term fundamental (supply and demand) and economic reasons. “I like those things where the scarcity is assured,” he told Bloomberg in a Peer-to-Peer interview recently. He also said that the yellow metal was on the cusp of a new decade long bull market capable of lifting it ultimately to between $3000 and $5000 per ounce.

Still firing on all cylinders: China’s physical gold market

“While headlines may be on the Sino-US trade war,” says Bullion Star’s Ronan Manly, “China’s gold market continues to fire on all cylinders, with physical gold continuing to flow into, and through, the world’s largest gold hub. Year-to-date, Chinese wholesale gold demand is on a par with recent years, Chinese central bank gold purchases have officially recommenced after a two-year halt, and gold import data into China is now more transparent than ever before.”

China still leads the world in physical gold demand and it is no small number: Year to date 688 tonnes have moved from the vaults of the Shanghai Gold Exchange into the hands of Chinese investors. At that pace, China will have imported over 2000 tonnes of physical gold by the end of the year, an amount equal to 61% of annual global mine production. “Therefore,” says Manly, “2019 is shaping up to be another very strong year for Chinese gold demand as physical gold continues to move from West to East.”

Regime change for the Fed – honest rates

Chart showing goose with golden eggs testifying to Congress

James Grant, the editor of Grant’s Interest Rate Observer, recently delivered a speech in acceptance of the 2019 Bradley Prize in Washington, D.C. He was honored along with two other recipients – The New Criterion‘s Roger Kimball and Judge Janice Rogers Brown.  The Bradley Prizes honor scholars and practitioners whose accomplishments reflect The Lynde and Harry Bradley Foundation’s mission to restore, strengthen and protect the principles and institutions of American exceptionalism. The following is an excerpt from that speech:

“The trouble is that the costs of radical monetary policy are dark and prospective; the gifts they bestow are bright and immediate. Those gifts are likewise transitory. Over-encumbered businesses finally fail, inflated asset prices ultimately revert to lower, more reasonable levels. The dividends and the yields that income-needy people have stretched sadly prove illusory. New federal regulations follow hard on the Congressional hearings called to ventilate society’s rage at the bankers — not the central bankers, mind you — who brought down the chaos.

What’s to be done?

An overhaul of the Ph.D. standard, for starters. The 700 doctors of economics on the Fed’s payroll seem not to understand the limitations of economic modeling or the relevance of the financial past. Send them to NASA, which is where they wanted to work in the first place. Replace them with a half dozen historians, a couple of philosophers and a physician. The historians would study the recurring patterns of economic and financial affairs, the philosophers would contemplate the true nature of money and the physician would repeat at intervals, ‘First do no harm.’”


The New York Sun/James Grant speech . . . . . Also, see Grant’s Interest Rate Observer

A coming financial crash as bad or worse than 1929 or 2008

James Rickards is out with a new book titled “Aftermath–Seven Secrets of Wealth Preservation in the Coming Chaos.” “The Bernanke choice of stoking asset price inflation via zero rates and QE is not something that can be reversed without a great deal of pain,” he says in an interview with R. Christopher Whalen.  “Once you make that trade-off between promoting inflation and future market instability, you have no way out.  You’re much better off taking the pain and accepting a lower level of economic growth in the short-run rather than deferring the pain but creating far larger asset bubbles down the road.  There is no way out of the Bernanke policy choice without bigger bubbles and much larger market crash that results.  This is why I believe that we face a financial market crash as bad or worse than 1929 or 2008.”  Ricards’ positive views on gold ownership are well-known.

The ignore them, then panic dynamic

“Healthy markets,” writes Doug Noland (Credit Bubble Bulletin), “would adjust and correct to reflect heightened uncertainties and deteriorating prospects. Speculative markets instead promote excess and the ongoing accumulation of imbalances, maladjustment and impairment. There’s no operable release valve. Pressure builds and builds – risks accumulate in all the wrong places – Then Panic. The flaw in contemporary finance – especially within market psychology over recent years – is to believe central bankers have nullified market, economic and Credit cycles. They have certainly averted a number of market crises over recent years, in the process significantly extending cycles. Along the way, risk market participants grew greatly overconfident in the capacity of central bankers to permanently forestall crisis. Moreover, they have turned completely blind to the historic crisis festering just below the surface of their delusional view of a ‘Permanently High Plateau’ of global peace and prosperity.”

In his famous work on financial bubbles – Extraordinary Popular Delusions and the Madness of Crowds Charles Mackay writes “We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”  But before the millions move on, they are generally relieved of a generous portion of their wealth. . . .Unless, of course, they have taken pains to properly hedge the financial madness of the era (or found the discipline to avoid it altogether).  Most of the delusions covered in Mackay’s work are built on the misguided belief that the new and enlightened era had rendered the age-old market cycle obsolete. It never does. . .

By the way, Michael Lewis, the financial journalist, rates Mackay’s book one of the six great studies in economics in league with the work of Adam Smith, Thomas Malthus, David Ricardo, Thorstein Veblen, and John Maynard Keynes. It is featured at our Gold Classics Library here.


HowMuch graphic showing national gold reserves by country shown as map(Click to enlarge)

“In 2010,” says HowMuch, “the world’s central banks stopped selling gold and started accumulating it. As gold provides a hedge against economic uncertainty and currency manipulation, the action of these central banks gives us insight as to which countries are most capable of handling an economic storm. . .A common theme in economics is ‘those who own the gold make the rules.’ Recent statistics suggest a large disparity between the top gold holders in the world and those governments holding less of the yellow metal.”

Visualization courtesy of HowMuch.net


East Asian states contemplate gold-backed common currency

“Malaysian Prime Minister Mahathir Mohamad,” reports Reuters, “mooted the idea of a common trading currency for East Asia that would be pegged to gold, describing the existing currency trading in the region as manipulative. Mahathir said the proposed common currency could be used to settle imports and exports, but would not be used for domestic transactions.”

If East Asian states were to agree to a gold-backed currency, it would present an immediate challenge to the yen, dollar and yuan as a reserve asset particularly when you blend in the region’s cultural affinity for gold. “The currency that we propose,” Mahathir says, “should be based on gold because gold is much more stable.”

Mahathir’s proposal raises a question. Where will the gold come from to back this new currency?  Local production could become one source – a slow and tedious process for building reserves as China and Russia are finding out. Still, it would likely take production from those countries off the market.  Where the market could really get a major boost, though, is from open market purchases – something that might be required to achieve the desired end Mahathir envisions.  The fact that such a currency is even being discussed shows how far gold has come over the last five to ten years – a time featuring massive repatriations, a virtual halt to central bank sales and outright acquisitions by a number of nation-states and/or their central banks for reserve purposes.

The next downturn could see a radicalization of the policies used during the financial crisis

“Essentially,” writes CNBC’s Jeff Cox, “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.”

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

Why Judy Shelton’s views on gold would be good for the Fed

photo of meeting of FOMC, large table, many participants
Normally, we do not 
worry ourselves and our readers about the appointment of Federal Reserve Bank governors.  We kind of take those appointments as they come – for better or worse.  The situation with Judy Shelton’s possible appointment, though, should be a matter of more than casual interest to gold owners.  I say that not just because she has been a staunch advocate of the gold standard. Shelton, if approved, would bring a thorough understanding of gold to the Governor’s table at a time when the world’s views toward the metal are rapidly changing – and in particular with respect to its treatment as a central bank reserve asset.

Cato Institute’s Lawrence H. White tells us that Nobel laureate Robert Mundell was a major influence on Shelton’s thinking. We should remember that when Mundell, often referred to as the ‘Father of the Euro,’ advised Europe on the euro, he did not recommend a gold-backed euro. Rather he advised that gold should play a role as a freely-priced, marked-to-market central bank reserve asset to hedge currency risk – much in the way that ordinary investors treat gold in their private portfolios. Europe did as Mundell suggested.

Gold was once a pariah in central bank circles. Paul Volcker referred to it as “the enemy” of central bank monetary policy. Now, with many nation states building their gold reserves, others repatriating metal held overseas, and the new de-dollarization movement that encourages central bank gold ownership, that is all changing. As a matter of fact, it could be argued that the nation states now acquiring gold are doing so precisely for the reasons Mundell advocated. Perhaps the time has come for the United States to change its official viewpoint as well. After all the United States does own some 8000 tonnes of the metal.  Properly marked to market, it would create a very large asset on the national balance sheet – nearly $400 billion at $1500 per ounce.


“A heterodox appreciation for the classical gold standard, and a desire to see the Federal Reserve perform at least as well, should not be grounds for disqualification from a seat at the table where monetary policy is made. After all, that is what is presently at stake: one seat out of seven. The Board of Governors nomination process is not a referendum on restoring the gold standard, and there is no risk that one Governor today can restore the gold redeemability of the US dollar when Alan Greenspan never did so in more than 18 years at the helm.” – Lawrence H. White, the Cato Institute

Silver Eagle sales on strong pace for 2019 – up 40% over last year

(USAGOLD-May 1, 2019) – The U.S. Mint reports sales of American Eagle gold and silver bullion coins running ahead of last year’s pace at the end of May. Silver Eagle sales have been notably robust – up 40.39% over the same period last year with 866,000 one-ounce coins sold in May as opposed to 380,000 sold in May of last year. Gold Eagle sales are up 8.33% over the first five months of last year.  Month over month, Gold Eagle sales were down significantly from May of last year when 24,000 ounces were sold as compared with 4000 ounces this year. Silver Eagle sales, on the other hand, were more than double sales for May of last year.

Many analysts consider bullion coin sales a bellwether for overall interest in the precious metals among investors. This year’s uptick over last year indicates increased activity among American investors interested in including gold and silver in their holdings as safe-haven hedges and an underpriced asset class with that latter motivation particularly striking in the Silver Eagle category.

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A word on USAGOLD
– USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)


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Scott Stantis cartoon published with permission. All rights reserved.

Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing – How to Protect and Build Your Wealth With Gold [Third Edition]. He is also editor and commentator for USAGOLD’s Live Daily Newsletter and editor of the News & Views monthly newsletter.

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NV#1005-May19

NEWS &VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 46th year in the gold business

May 2019


The Exter Inverted Pyramid of Global Liquidity
Credit risk, liquidity and gold

Exter's inverted pyramid of debt with derivatives at the top and gold on the bottom

In a recent edition of Credit Bubble Bulletin,  Doug Noland, the long-time critic of contemporary monetary policy, writes about the odd times in which we live from a financial perspective.  “Such a precarious time in history,” he laments. “So much crazy talk has drowned out the reasonable. Deficits don’t matter, so why not a trillion or two for infrastructure? Our federal government posted a $691 billion deficit through the first six months of the fiscal year – running 15% above the year-ago level. Yet no amount of supply will ever impact Treasury prices – period. A Federal Reserve governor nominee taking a shot at ‘growth phobiacs’ within the Fed’s ‘temple of secrecy’, while saying growth can easily reach 3 to 4% (5% might be a ‘stretch’). Larry Kudlow saying the Fed might not raise rates again during his lifetime. Little wonder highly speculative global markets have become obsessed with the plausible.”

In that essay, Noland goes on to note having been influenced by the highly regarded Dr. Kurt Richebacher (1918-2007). Although he actually worked directly with the Austrian economist/banker, my connection came only as an appreciative reader of the Richebacher Letter (in pre-internet times) and his Wall Street Journal editorials. Richebacher concerned himself regularly with the interplay between financial market credit leverage, ordinary investors and the real economy. Please see International Precious Metals & Commodities Fair – Munich, Germany Transcript of Dr. Kurt Richebächer’s Lecture (USAGOLD, November 19, 2005). In re-reading that lecture, I am struck with how much of Richebacher’s analysis at the time can be applied to the present and a very similar set of circumstances. Now that Noland has acknowledged Richebacher’s influence, it explains to a large degree why his writings – like the snippet above – strike a chord with those of us concerned with the financialization of the markets.

In this context, we reproduce at the top John Exter’s famed Inverted Pyramid of Global Liquidity.  Exter, who was an economist at the Federal Reserve and highly-respected analyst, made a fortune by purchasing gold just before Richard Nixon’s devaluation of the dollar in 1971 and its rapid ascent in the ensuing decade.

“His pyramid,” explains Capital Wealth Advisor’s Lewis Johnson, “stands upon its apex of gold, which has no counter-party risk nor credit risk and is very liquid.  As you work higher into the pyramid, the assets get progressively less creditworthy and less liquid.  For instance, paper money here means cash, which is recognized everywhere but is ultimately dependent upon the creditworthiness of the U.S. government.  Farther up the pyramid, we find longer-dated U.S. government debt, which like cash is dependent upon the full faith and credit of the U.S. government – but on a longer time horizon.  The next level is debt of municipals and corporations, whose value is more safely assured than that of more junior claims, such as investments in stocks, the junior tranche of a corporation’s capital structure.  A rough estimate of the global liquid financial markets would place their value close to $100 trillion.  This number grows further still as less liquid assets are added, such as private businesses, real estate and ultimately bank derivatives, the largest and murkiest of all assets.”

In a credit crisis, he concludes, “this bloated structure pancakes back down upon itself in a flight to safety.  The riskier, upper parts of the inverted pyramid become less liquid (harder to sell), and – if they can be sold at all – change hands at markedly lower prices as the once continuous flow of credit that had levitated those prices dries up.” In short, what Lewis Johnson outlines is the bottom-line rationale for diversifying one’s portfolio with gold.

U.S. gold bar and coin demand up 38% over last year

Map of the world showing gold demand by country

Map courtesy of the World Gold Council

The World Gold Council reports U.S. bar and coin demand rose 38% over the past year (through the first quarter). Global central banks and financial institutions drove physical gold demand the past 12 months raising once again the question if professional investors know something that retail investors do not. As the map above illustrates, the United States ranked at the top globally for growth in gold coin and bullion demand over the past year, while Asian demand fell back. Most of the U.S. demand, as previously mentioned, originated with funds and institutions, not individual private investors.

Here’s the World Gold Council’s summary of demand trends through the first quarter of 2019:

“Central banks bought 145.5t of gold, the largest Q1 increase in global reserves since 2013. Diversification and a desire for safe, liquid assets were the main drivers of buying here. On a rolling four-quarter basis, gold buying reached a record high for our data series of 715.7t. Q1 jewellery demand up 1%, boosted by India. A lower rupee gold price in late February/early March coincided with the traditional gold-buying wedding season, lifting jewellery demand in India to 125.4t (+5% y-o-y) – the highest Q1 since 2015.  ETFs and similar products added 40.3t in Q1. Funds listed in the US and Europe benefitted from inflows, although the former were relatively erratic, while the latter were underpinned by continued geopolitical instability. Bar and coin investment softened a touch – 1% down to 257.8t. China and Japan were the main contributors to the decline. Japan saw net disinvestment, driven by profit-taking as the local price surged in February.”

JP Morgan study ranks gold second best
investment over the past twenty years

J.P. Morgan Asset Management released a report recently ranking investments over the past twenty years. It shows gold as the second best performer over the period at a 7.7% average gain annually. REITs (Real Estate Investment Trusts) were number one at a 9.9% gain. Stocks ranked fourth at 5.6%.

Bar chart of returns on various investments from 1999 to 2018, gold number 2

Why a 60%-65% stock market loss would be run-of-the-mill

Though the presence of bearish sentiment on stocks is widely acknowledged, it is also generally ignored.  Too many believe that even if the stock market tumbles, it will quickly recover as it did after the 2007-2008 credit debacle.  There is another scenario – the 1929 example – where the market does not return to peak values for decades (See chart below).  “One might view the very comparison of present stock market conditions to 1929 market peak as exaggerated and preposterous, but then, one would be wrong,” says John Hussman of Hussman Funds, “The fact is that on the valuation measures we find most strongly correlated with actual subsequent long-term and full-cycle market returns across history (and even in recent decades), current market valuations match or exceed those observed at the 1929 peak.”

Chart showing 1929 crash and recovery in 1955, 26 years later

Chart courtesy of MacroTrends.com

Why the U.S. needs to encourage Americans to hold gold

We have always believed that citizen ownership of physical gold is in the national best interest, not just the best interest of its accumulators.  In the event of a worldwide economic breakdown or a realignment of the global monetary system, it would be good for the country to have a storehouse of gold held by the populace.  China encourages citizen gold ownership for precisely that reason.

“With a growing number of countries encouraging their central banks and citizens to acquire gold,” writes The Federalist‘s Sean Fieler, “it is increasingly reasonable to assume that gold will be part of the world’s monetary future, not just its past. The U.S. Treasury should embrace policies that will attract more of the world’s gold to America and better position our citizens and our nation for whatever the monetary future may hold.”

German citizens own a staggering 8918 tonnes of gold

Along these lines, Bullion Star‘s Ronan Manly published a stunning revelation that the German people have accumulated a “staggering” hoard of gold – 8918 tonnes – a hoard larger than that held by the United States government.  The German central bank owns another 3370 tonnes, the second largest official sector holding after the United States.

In reading Manly’s analysis, we were reminded of the old aphorism – Those own the gold make the rules.  “While the Chinese and Indian populations are well known for their insatiable appetite for importing, buying and hoarding physical gold,” he says, “there is one market in the West that does likewise but which flies under the radar slightly, garnering less attention than China and India. That gold market is Germany. Although German citizens are known for their fondness for holding gold, the vast size of the German population’s gold holdings was clarified recently in a newly published survey commissioned by Reisebank, a bank active in the German precious metals market.”

American Eagle bullion coin sales up sharply over last year

The U.S. Mint reports sales of American Eagle gold and silver bullion coins running well ahead of last year’s pace at the end of April. Gold Eagle sales were up 49.6% over the first four months of last year. Silver Eagle sales were up 35.2% over the same period. Month over month, Gold Eagle sales were nearly double the sales from April of last year. Silver Eagle sales were up 31% over March of last year. Many analysts consider bullion coin sales a bellwether for overall interest in the precious metals among investors. This year’s strong uptick over last year indicates increased activity among American investors interested in including gold and silver in their holdings as safe-haven hedges and an underpriced asset class.

OECD indicator flashing danger ahead

The Organization for Economic Co-operation and Development (OECD) measures consumer confidence in various economies including the United States. A reading above 100 indicates a positive outlook toward the future economic situation.  Values below 100 reflect a more pessimistic outlook.  As you can see, we are now at a level in consumer confidence that has signaled downturns in the past.  In fact, consumer confidence is now ahead of where it was just before the 2008-2009 recession and just below the level it registered before the dot.com stock market bust in 2000.

chart on consumer confidence showing near peak number

Why gold could rise for the next ten years

Bert Dohmen, editor of the Wellington Letter, called the twenty-year bear market in gold that began in 1981 and ended in 2001. Now in Forbes article, he reminds us not only of that call but the one that went with it. “The second part of our forecast in 1981 said that according to our very long-term cycle study, that bear market would be followed by a 30-year rise in gold. We even said we had no idea what would cause it, but the cycles said it should happen. If the forecast I made in 1981 still holds true, gold could have a continued secular bull market until 2030. That means the gold bull market could have about 11 more years to go. Historically, the final phase of a bull market is the most spectacular.” [Emphasis added]

The lesson is one as old as the gold market itself:  The best time to buy is when the market is quiet – a strategy that requires both discipline and conviction.  As an old friend and client of USAGOLD used to say (he passed away years ago):  “It is not a question of if, but when.” He accumulated a large hoard of the metal in the 1990s and early 2000s between $300 and $600 per ounce and lived to see his prediction come true.  His estate though was the ultimate beneficiary of his wisdom. He was not one to sell gold once he had acquired it.  We chatted regularly on the phone back then and I told him that I had used the story just told in one of my newsletters.  He was in his late 80s at the time. “Tell them,” he said resolutely, “that I bought my first ounce of gold at $35.”

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A word on USAGOLD
– USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)


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Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing – How to Protect and Build Your Wealth With Gold [Third Edition]. He is also editor and commentator for USAGOLD’s Live Daily Newsletter and editor of the News & Views monthly newsletter.

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NV#1004–APRIL19

NEWS &VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 46th year in the gold business

April 2019
____________________________________________________________________

The inverted yield curve as a harbinger of higher gold prices

Chart showing interest rate converfence and price of gold since 1998(Grey vertical bars indicate recessions.)

During the course of the past few weeks, we have heard much about the inverted yield curve in three-month and ten-year Treasuries as a harbinger of recessions. Missed in the press reports is the fact that it has also been a harbinger of higher gold prices. In the chart above, please note the upward surges in the price of gold in the five-year periods following the two most recent yield inversions in 2000 and 2006.  The first occurred with gold trading in the $300 range.  It subsequently rose to the $600-650 level in 2006.  The second occurred with gold priced in the $600-650 range.  It subsequently rose to over $1900 per ounce in 2011 – its all-time high.

“Ominously,” writes Robin Wigglesworth and Joe Rennison in a recent Financial Times editorial, “the US yield curve has now inverted once again, with the 10-year Treasury yield on March 22 dipping below the three-month T-bill yield for the first time since 2007. Combined with the length of the post-crisis expansion — this summer it will become the longest growth spurt in US history — and deteriorating economic data, the inverted yield curve has stirred fears that the countdown to the next downturn has already begun.”

Peter Fisher, formerly head of fixed income at BlackRock and currently a professor at Tuck School of Business at Dartmouth, puts it succinctly in that same Financial Times editorial.  “The mistake,” he says, “is to think it [an inverted yield curve] is a predictor of recessions. I think it causes recessions.”  The rise in the price of gold following the two prior instances of yield inversion, it is now well understood, came in response to aggressive central bank monetary easing and the sudden emergence of credit-related systemic risks.

Fed and White House go to war over monetary policy

In an ideal world, the Fed would be above politics. The American political landscape these days, however, is far from ideal. Fed Chairman Powell migrated to a more dovish stance on monetary policy following the December stock market scare, but from President Trump’s perspective, that stance is not dovish enough.  “I personally think the Fed should drop rates,” Mr. Trump recently told White House reporters.  “I think they really slowed us down. There’s no inflation. I would say in terms of quantitative tightening, it should actually now be quantitative easing. You would see a rocket ship.”

Such a statement by itself would be enough under ordinary circumstances to motivate some judicious position adjustments on Wall Street’s trading desks. Mr. Trump, though, has upped the ante by offering up two Federal Reserve Board nominees – Stephen Moore and Herman Cain – known more for their hardened political sympathies than economic policy objectivity. That shift could send Wall Street speculators into overdrive as we enter the election season and simultaneously heighten gold’s safe-haven appeal.

The Federal Reserve Board of Governors looks to be on a path to becoming not just more politically inclined as the presidential election cycle draws near but highly politicized. The Fed’s reaction to the market retreat of last December has made it look indecisive and confused.  The White House, for its part, seems all too eager to shift the blame for any imminent slowdown to the Fed. The nation, as a result, finds itself in the unprecedented situation of witnessing the executive branch of government in outright conflict with its central bank.

China is on a big gold-buying spree

“China’s on a bullion-buying spree,” says Bloomberg’s Ranjeetha Pakiam. “The world’s second-largest economy expanded its gold reserves for the fourth straight month, adding to optimism that central banks globally will continue to build holdings. The People’s Bank of China raised reserves to 60.62 million ounces in March from 60.26 million a month earlier, according to data on its website. In tonnage terms, last month’s inflow was 11.2 tons, following the addition of 9.95 tons in February, 11.8 tons in January and 9.95 tons in December.”

Keep in mind that China, the world’s leading mine producer, keeps most its domestic gold production (roughly 450 tonnes per year) within its borders. Though China does not officially claim that production as part of its national reserves, many gold market experts believe it ends up in the coffers of either the national government or the central bank – acknowledged or not. Last year central banks purchased a record 650 tonnes of gold in the aggregate according to the World Gold Council.  Add China’s production and official sector offtake vaults to 1100 tonnes – 70% higher than the WGC’s widely-touted number and a little over one-third of global mine supply.

Latest Q ratio illustrates overvalued the stock market

“The Q Ratio,” writes Lorimer Wilson at Munknee.com, “the total price of the market divided by the replacement cost of all its companies, is a popular method of estimating the fair value of the stock market… and it shows that the stock market is overvalued by 50% compared to its arithmetic mean and by 62% compared to its geometric mean. This article explains the Q Ratio more fully complete with illustrative charts.”

Those percentage valuations, we believe, are worth noting. . . . .

Ed Stein cartoon showing stocks and gold with investor thinking 'decisions, decisions. . .'

Gold still suitably undervalued in 2019

“The price of a fine suit of men’s clothes,” says the U.S. Geological Survey, “can be used to show anyone who is not familiar with the price history of gold just how very cheap gold is today. With an ounce of gold, a man could buy a fine suit of clothes in the time of Shakespeare, in that of Beethoven and Jefferson, and in the depression of the 1930s.”

So where do we stand in 2019 with respect to the Quality Man’s Attire-Gold Ratio? At Brooks Brothers, a top quality, off-the-rack suit ranges between $2625 and $3122 without a vest. Brooks Brothers carries a less expensive suit at about $1250, but the ratio requires a top (not lower or middle) quality man’s suit. On London’s Saville Row – the standard for quality men’s attire – a hand-tailored men’s suit ranges in price from £3500 ($4620) at Huntsman to £4950 ($6534) at Kilgour (as published in Gentleman’s Quarterly). By any of those measures, gold at $1300 per ounce is suitably undervalued.

Economic insecurity is becoming the new hallmark of old age

In the United States,” writes Katherine S. Newman and Rebecca Hayes Jacobs for The Nation, “economic security in old age was seen, for a long time, as both a social issue and a national obligation. From the birth of Social Security to the end of the 20th century, the common assumption has been that we have a shared responsibility to secure a decent retirement for our citizens. Yet that notion is weakening rapidly. Instead, we have started to hear echoes of the mantra of self-reliance that characterized welfare ‘reform’ in the 1990s: You alone are in charge of your retirement; if you wind up in poverty in your old age, you have only your own inability to plan, save, and invest to blame.”

image of 1929 Wall Street Journal showing stock market crash

Some compare today’s stock market psychology to the period just before 2008. Others compare it to the 1920s when everything was hunky-dory until suddenly it wasn’t – perhaps a more apt comparison. Too many are “all-in” with respect to stocks in their Individual Retirement Accounts hoping to accumulate as much capital as possible without regard to the potential downside. The stock market did not recover from the losses accumulated between 1929 and 1933 until the mid-1950s, almost 25-years later – a fragment of stock market history lost to time.

Some will rely on the fact that stocks recovered nicely once the Fed launched the 2009 bailout. We should keep in mind though that many prominent Wall Street analysts have warned that the Fed no longer has the firepower now it did then. The financial markets and economy are much more vulnerable as a result – all of which brings us back to the notions of self-reliance and taking personal responsibility for our retirement plans. If you find yourself among the group that thinks hedging a stock market downturn to be in your best interest, we can help you easily and effectively structure a gold and silver diversification as part of your retirement plan to hedge that possibility.

American Eagle coin sales up sharply over last year

The U.S. Mint reports sales of American Eagle gold and silver bullion coins running well ahead of last year’s pace at the end of March. Gold Eagle sales were up 33.3% over last year’s first quarter performance while Silver Eagle sales were up 37.9% over the same period. Month over month, Gold Eagle sales were more than three times higher than sales from March of last year. Silver Eagle sales were down 7% when compared to March of last year. The strong uptick indicates increased activity among American investors interested in including gold and silver in their holdings as safe-haven hedges and as an underpriced asset class.

Tech analyst: Gold could go to $1800 to $2200 in long run

A number of technical analysts have reverted to a more bearish forecast over the past few weeks with the $1250 area once again being touted as the downside support area.  Many of those same technical analysts, though, have a significantly more positive outlook for the longer term.

Among that group is Gary Wagner of the Wagner Financial Group who sees $1267 or even $1247 as possibilities in the short run, but also forecasts the possibility of $1800 to $2200 in the longer run.  “Our research,” he explains in an article published recently at the Singapore Bullion Market Association website, “suggests that gold is in the final phase of a major long-term impulse cycle. This model also provides a look-back at the final major bullish wave could be traced back to end of 2015, following a correction to $1,040. This corrective fourth wave developed from the all-time high at $1,900 in 2011. The model suggests that gold could re-test the record highs that, if taken out, could see an extensive surge to between $1800 and $2200 per troy ounce.”

At USAGOLD, it bears repeating, we have always advocated the ownership of both gold and silver coins and bullion for long-term asset preservation purposes rather than short-term speculative gain.  Though we report on the short-term, we do so with the caveat that anything can happen.  The analyst who forecasts a short-term downside today can quickly change his or her outlook to the upside tomorrow – or vice versa.  The long term charts for gold and silver, though, reveal a consistent upward trend that has served investors well in the period since 1971 when the global monetary system departed the gold standard and entered the fiat money era.

Is Warren Buffett wrong about gold?

“While I very often agree with Warren Buffett’s views regarding, for example, the level of cash in portfolio or migration from growth to value stocks,” says Independent Trader for ETF Trends, “I absolutely can not agree with what he wrote in the letter to shareholders about gold, once again showing how badly it performs in comparison to the US shares.”

The article goes on from there to debunk Buffett’s latest attack on gold  – one of many he has conducted over the years – while drawing on cyclical analysis to lay out a solid longer-term future for the metal. It concludes with the opinion that Buffett’s stance on gold is “part of a deal with the establishment of the United States.” That could be true, but it could also be little more than an old professional bias going back decades. We counter with a single chart that refutes Buffett’s argument at a glance. It tells the story of gold and stocks in the time in which we live – the historically distinct fiat money era that began in 1971 – not some other timeline that carries little relationship to the present.  To make a very long story short, gold has appreciated 3,399% since January 1971. Stocks have appreciated 2,884%.


Live Daily Newsletter

“I cannot stress enough how important it is for everybody to really take it upon themselves to read as much as they can and try and understand what’s going on,” says Real Vision-TV’s Grant Williams in an interview at GoldPrices.biz. “Don’t rely on the mainstream media, don’t rely on short soundbite information, really dig into this and seek out the people who can help you understand it because it’s incredibly important right now.”  We couldn’t agree more. At USAGOLD, we have always geared our content to what we believe our clientele would like to know or learn. The centerpiece to that endeavor is our popular Live Daily Newsletter which offers a variety up-to-the-minute gold market news, opinion and analysis posted as it happens. 

NotableQuotable

Graphic of USAGOLD client portal connection. Ready to invest. Start here.

A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)


Graphic of Online Order Desk Connection: Great prices. Quick delivery. All the time.

ORDER DESK
1-800-869-5115 Ext#100
[email protected]


Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.


Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing – How to Protect and Build Your Wealth With Gold [Third Edition]. He is also editor and commentator for USAGOLD’s Live Daily Newsletter and editor of the News & Views monthly newsletter.

 

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NV#1003–MARCH19

NEWS &VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 46th year in the gold business

March 2019


Gold in the age of high-speed electronic trading

graphic image of tower transferering high speed data represented by beam of light
“The best thing you can do is know how to have a balanced portfolio.”

Ray Dalio, Bridgewater Associates

“The Flash Boys story put in jeopardy billions of dollars of
Wall Street profits and a way of financial life.”
Michael Lewis

What’s the line in that popular song. . . .  “Are you happy in this modern world?”

In an article headlined Robots conquered stock markets/Now they’re coming for bonds and currencies, Bloomberg finance reporter Lananh Nguyen tells us: “In the most liquid equity markets, more than 90 percent of trades are executed electronically, according to estimates from Greenwich Associates. That compares with 79 percent in global foreign exchange, 44 percent in U.S. Treasuries and 26 percent in U.S. corporate bonds, with the most room for growth in the latter two markets, according to [Kevin] McPartland at Greenwich.” [Link]

“These algos,” said hedge fund guru Stanley Druckenmiller toward the end of last year, “have taken all the rhythm out of the market and have become extremely confusing to me. And when you take away price action versus news from someone who’s used price action news as their major disciplinary tool for 35 years, it’s tough, and it’s become very tough. I don’t know where this is all going.” In other words, human investors have become strangers in a strange new land of computerized trading and investing.

“The best thing,” warns Ray Dalio the famed hedge fund operator, “is don’t play the game, because it is pros against you. We spend hundreds of millions of dollars a year to get an edge, and others do that too. So it’s very difficult for the individual investor to assume that he [or she] can pick something better. The best thing you can do is know how to have a balanced portfolio … because you ain’t going to win that game.” Dalio heads up Bridgewater Associates, the largest hedge fund in the world. He is a long-time advocate of gold ownership and his fund holds a significant position in the precious metal.

In the event of a major software-driven panic

Just this past January, Morgan Stanley and Goldman Sachs requested counterparties forgive rogue, machine-driven trades that caused a $41 billion flash crash in a matter of seconds. Though concentrated in a single stock, such anomalous events serve as a cautionary tale on how a full-out, machine-driven panic might evolve on a larger scale.

Because gold does not rely on the performance of another party, it is detached from the matrix of interlocking counter-party risk and occupies a unique place on the financial balance sheet as an asset of last resort and the final arbiter of value.  That is why nation states and central banks hold large amounts of it on their own balance sheets and why funds and institutions are more and more moving to it as an offset against other trading strategies. 

Investors have always viewed gold as a reliable hedge against inflation and deflation. In the years to come, they might very well come to know it as an effective hedge against computer-generated financial mayhem as well.

Ed Stein cartoon of hedge fund manager on phone to client saying 'buy gold'

Gold’s parabolic rise remains intact

Gold, the old saying goes, likes to take the stairs up and the elevator down.  The first chart (shown below) illustrates the process.  Since its most recent elevator drop which began towards the end of February, gold seems to have consolidated at least for now above the $1275-$1285 support zone.

Technical analyst Clive Maund sees the recent drop as part of a larger process – a parabolic rise as illustrated in our second chart.  “The rather sharp drop in gold late last week,” he says, “especially on Friday, came as something as a shock to many investors in the sector, yet as we will proceed to see it was set up to react back here or soon, and a period of consolidation or reaction at around this level will actually put it in a better technical condition to mount a sustainable breakout above the key $1400 level. On its latest 7-month chart the 1st point to observe is that gold is still well within our parabolic uptrend, whose lower boundary is coming into play and providing support, as is the rising 50-day moving average, with additional support being generated by premature sellers in the small Pennant pattern that formed during the first half of January. This is why it closed well off the lows on Friday, and why it could now resume the upward path again soon . . .”  (Please see his Gold Market Update for the full analysis.)

Chart showing gold's rise from late 2019 to over $1300 and retracement

Chart courtesy of TradingEconomics.com

The return of quantitative easing

Suddenly, investors are returning to a safe-haven mindset following reports of abrupt slowdowns in both China and Europe. The central banks of both countries have moved quickly to announce stimulus measures and support for their banking systems in policy U-turns reminiscent of past quantitative easing programs. Those announcements, rather than instilling confidence in the markets, created a sense that the oft-predicted global slowdown might actually have begun. The economic gloom gained momentum when the Labor Department released a jobs report, suggesting that the U.S. economy might be slowing as well. Gold and silver responded immediately with surprisingly strong price advances.

“The global picture continues to be quite concerning,” Columbia Threadneedle’s Gene Tannuzzo told Bloomberg recently. “Europe might be on the edge of recession now, and China has had the slowest growth in a decade. If that continues, there will certainly be an impact to the U.S. economy and we could possibly see QE in 2020.”

Along these lines, Fed vice chairman Richard Clarida resurrected the specter of quantitative easing for the United States in a late February speech. “[T]he FOMC could,” he said,establish a temporary ceiling for Treasury yields at longer maturities by standing ready to purchase them at a preannounced floor price.” In a Bloomberg article, Interest Rate Observer’s James Grant said that the Fed vice chair’s speech “acknowledged no doubts that radical monetary policy has worked, that it will continue to work and that it may well become more radical.”  Clarida, he says, “was pushing no novel agenda of his own” and that his views were “institutional.” 

Worry about the return of your money,
not just the return on it

photo of velvet sack spilling out gold coins

“To be fair, the fiscal side of our current system has been nonexistent. We’re not all dead, but Keynes certainly is. Until governments can spend money and replace the animal spirits lacking in the private sector, then the Monopoly board and meager credit growth shrinks as a future deflationary weapon. But investors should not hope unrealistically for deficit spending any time soon. To me, that means at best, a ceiling on risk asset prices (stocks, high yield bonds, private equity, real estate) and at worst, minus signs at year’s end that force investors to abandon hope for future returns compared to historic examples. Worry for now about the return of your money, not the return on it. Our Monopoly-based economy requires credit creation and if it stays low, the future losers will grow in number.”

Bond-fund guru Bill Gross posted that piece of advice in his Investment Outlook column back in 2016.  It still applies today – maybe even more so now than it did then. In the wealth game, emphasize defense when you need to, offense when it makes sense. At all times, remain diversified. And by that, we mean real diversification in the form of physical gold and silver coins and/or bullion outside the current fiat money system. There is nothing wrong with owning stocks and bonds. Realize though that these assets are denominated in the domestic currency.  If it erodes in value, the underlying value of those assets erodes along with it.  A proper diversification addresses that problem now and in the future.  Bill Gross, by the way, has recommended buying gold on a number of occasions over the years.

Ignoring America’s abyss of debt

“The United States isn’t Greece,” says The American Conservative‘s Barbara Boland, “but its fiscal condition is worsening and right now there’s no willpower to make it any better. This was expressed with brutal honesty by President Trump, who admitted in December that the prospect of a debt crisis doesn’t bother him because ‘I won’t be here’ when it blows up.” Unfortunately, that has been the attitude among politicians since most of us can remember and precisely why we are in the position in which we find ourselves today.  There is a direct long-term correlation between the federal debt and gold expressed in the chart above.  There might not be a political remedy at the moment to deficit financing and the dangers it imposes, but happily, there are defensive measures one can apply within his or her personal finances.

“Silver, not gold, is the portfolio insurance to buy now”

 

photo of pile of American Eagle silver bullion coins

So read the headline for a recent MarketWatch article on silver.  We at USAGOLD have long advocated adding silver to the mix for portfolio insurance purposes especially at times like the present when the silver-gold ratio is high (now 85 to 1).  At the same time, we do not advocate silver to the exclusion of gold, but more as an adjunct through which the investor conceivably can get more bang for his or her buck, if silver outperforms gold to the upside.

Meanwhile, the U.S. Mint has once again shut down production of the popular silver American Eagles after a surge of demand since the start of the year. Coin World reports that “Market fluctuations have resulted in a temporary sellout of 2018 and 2019 silver bullion. Production at the Mint’s West Point facility continues, and when sales resume, silver bullion will be offered under allocation. The Mint is working closely with its suppliers in order to meet the demand of its authorized purchasers.”

Posted sales for February are 2,157,500 one-ounce American Silver Eagles after 4,017,500 in sales for January. The combined months surpass the first two months of 2018 by a substantial margin and indicate rising interest among investors.  As of this writing, USAGOLD has ample supply and our pricing has not yet been affected. That, though, is subject to change without notice.  In the past instances of U.S. Mint suspensions and allocation programs, premiums have moved higher – sometimes overnight and without any prior warning.

Graphic of USAGOLD client portal connection. Ready to invest. Start here.

A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)


Graphic of Online Order Desk Connection: Great prices. Quick delivery. All the time.

ORDER DESK
1-800-869-5115 Ext#100
[email protected]


Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.


Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing – How to Protect and Build Your Wealth With Gold [Third Edition]. He is also editor and commentator for USAGOLD’s Live Daily Newsletter and editor of the News & Views monthly newsletter.

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NV#1002-FEB19

NEWS &VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 46th year in the gold business

February 2019


Will 2019 be the year of the big breakout for gold?

In each of the last three years, gold has gotten off to a strong start only to fizzle as the year moved along.  Will 2019 be the year gold finally breaks the pattern? A good many investors, fund managers and analysts think that 2019 might very well be the year when gold breaks the restraints and pushes to higher ground.  One of those is Carter Worth of Cornerstone Macro in New York who CNBC’s Melissa Lee refers to as “the chart master.”  In a recent interview with Lee, Worth referred to the long-term chart below saying that there is “a well-defined set-up and a lot of tension” which he says is going to resolve to the upside – “a breakout to all-time highs.”  With respect to gold’s relationship to the dollar, Worth says “Gold’s got its own momentum now. . .It is all setting-up for higher gold prices and trouble for equities, trouble for the economy.”

Chart showing triangle pattern breakout possibility

The far Left’s next great monetary experiment – MMT

“This MMT sounds like a recipe for immense inflation, even hyperinflation, says Daily Reckoning’s, Bill Maher. “You are spending all this money directly into the economy. It will drive consumer prices through the attic roof, you say. This is crackpot. A witch’s sabbath of inflation would surely result. Yes, but here the MMT crowd meets you head on… They agree with you. They agree MMT could cause a general inflation, possibly even a hyperinflation.”

Modern Monetary Theory (MMT) is neither modern nor a theory. John Law, the Scottish financier, tried a version of it exactly 300 years ago (1717-18) in France.* He did so with the blessing of the French monarchy and with a rationale very similar to MMT’s proponents today. In the end, Law’s theories (to his surprise if we are to believe the historical account) bankrupted the French people and the government, reduced the economy to ashes, and created such a distaste for paper scrip among the citizenry that it took 80 years for France to reintroduce paper money as a circulating medium.

“The shrewder speculators* became alarmed. They began to sell their shares of stock, and hoard in gold the enormous wealth they had acquired. This resulted in a demand on the government for metal in exchange for its paper, and soon the government had no metal to give. Then the crash came. Those who had the government paper could buy nothing with it. Those who held the Mississippi stock could scarce give it away. It was worthless. The government itself refused to accept its own paper for taxes. A few lucky speculators had made vast fortunes; but thousands of families, especially among the wealthier classes, were ruined.” – Edward S. Ellis and Charles F. Home, The Story of the Greatest Nations (1900)

* Please see this link for a summary of  Law’s Mississippi Company land scheme.

Funds, institutions push gold ETF stockpiles to the highest level in five years

When this year’s Davos conference attendees boarded their private jets for the long ride home, they left the Swiss mountain resort with a sense that all is not well in the global economy and that financial markets might be in for some unpleasant times.  That sense of foreboding has big money, led by some of the top names in the money management business, paring its exposure to stock and bond markets and deploying that capital in the gold market.  Gold ETFs, the favorite haunt for funds and institutions taking a stake in the gold market, have started the year by adding 72 tonnes of gold to their stockpiles. The influx has pushed the combined ETF total to 2,513 tonnes, the highest level since 2013. 

China builds up gold reserves in shift away from dollar

photo of elaborate Chinese gold bar
As reported in the South China Morning Post:

“Yi Gang, the current central bank governor, said in 2013 when he headed the State Administration of Foreign Exchange (SAFE) that Beijing was unable to diversify significantly into gold because the gold market is too small for China’s US$3 trillion foreign reserves. But things may start to change – though it remained to be seen whether the modest gold purchases in the last two months represented a fundamental shift in China’s attitude towards the precious metal, analysts said.”

I mentioned this South China Morning Post article in a recent Daily Market Report, but I did not pass along or comment on the portion highlighted above, which may be the most interesting aspect of Xin and Yeung’s report. To give you an idea of China’s dilemma with respect to gold, and perhaps an inkling of just how undervalued gold is at current prices, consider that all the gold ever mined, according to World Gold Council data, is worth about $7.5 trillion at a $1250 gold price. China, in other words, could buy 40% of all the world’s gold with its $3 trillion in reserves.

The market value of the 8,133.5 tonne U.S. gold reserve at $1250 per ounce is $335 billion. Thus, China could buy America’s gold reserve almost ten times over, or put another way, could swap its entire dollar reserves for the stockpile at $12,500 per ounce. 

If by this time you have come to the conclusion that something is critically out of joint in this mathematical construct, you are correct.  It is the price of gold.

Silver forecast: Shortage to send silver prices soaring above $20 in 2019

Surprisingly, since gold and silver started their uptrend late last summer, both are up the same number – roughly 13%.  In other words, silver has not outperformed gold as many thought it would. – at least so far.  That doesn’t mean it won’t in the future. The gold-silver ratio is still nearly 83 to one and still bumping along near its highs since 1970. “That could all be changing now,” writes Jason Hamlin in a Silver Phoenix article, “as silver has become increasingly attractive to investors looking for undervalued asset classes or safe-haven investments. Silver is benefiting from the persistent trade war, government shutdown, weakening dollar and a more dovish Federal Reserve.”

Venezuela’s hyperinflation by the charts and numbers

When a combination of currency debasement and inflation strikes an economy, the effects can be sudden and severe, as indicated in the two charts shown below. I had to smile when I read this matter-of-fact summation of the situation from Trading Economics (not that I fail to empathize with how these numbers translate to everyday life for Venezuela’s average citizen).

“Consumer prices in Venezuela jumped 1,300,000 percent year-on-year in November of 2018, up from a 833,997 climb in October, according to estimates from Venezuela’s opposition-led congress. Inflation rate in Venezuela averaged 3,268.55 percent from 1973 until 2018, reaching an all time high of 833,997 percent in October of 2018 and a record low of 3.22 percent in February of 1973. The USDVEB traded at 248,520.9000 on Wednesday January 23. Historically, the Venezuelan Bolivar reached an all time high of 248,520.90 in August of 2018 and a record low of 0.05 in January of 1989.”

It does not take a great deal of imagination to contemplate what the effects might have been on the price of gold in Bolivars.  The charts below tell the tale of hyperinflation in Venezuela.

Gold and silver price predictions from prominent players for 2019

photo of Viking runesNEW USAGOLD WEBPAGE
During the month of January, pundits and prognosticators cast the runes on gold and silver prices for the upcoming year. We collected their predictions and accompanying analysis at the page linked below and invite your visit. Though the early-in-the-year prediction frenzy is now pretty much over, we will update the page as new entries surface.

[LINK]
We invite you to bookmark. We invite your return visit.

Gold sentiment reading on the mend, climbing “pretty steadily”

Recently, we touched base with Sentiment Trader’s Jason Goepfert to ask about his latest reading on gold market sentiment.  We thought it might be a good time to check to see if there were any changes now that the price is approaching the $1300 level. He graciously sent over the chart posted below along with the following comment: “Our measure reached a point of maximum pessimism in August and has been climbing pretty steadily ever since. It reached the upper end of neutral recently before falling off a bit. Bull markets tend to see optimism stay above 40 during the pullbacks so the next one will be interesting to watch. We got the surge off of the extreme pessimism, and now if it can hold above 40ish and starting bouncing again, it would argue strongly that the longer-term trend has changed for the better.”

U.S. Mint posts strongest American Eagle bullion gold coin sales in two years

photo of gold and silver American Eagle bullion coinsGold and silver bullion coin sales rebounded in January with the strongest monthly sales in two years.  The U.S. Mint sold 65,500 troy ounces of the gold American Eagle and 4,017,500 troy ounces of the silver American Eagle in January 2019 – 12% and 24% increases respectively over the same month last year. In January 2018, investors purchased 58,500 troy ounces in gold bullion coins and 3,235,000 in silver bullion coins.

Last month, the mint sold a low 3000 troy ounces in gold Eagles and 490,000 in silver Eagles. Sales typically slow down in December as the Mint and market wholesalers gear up for the new year. The solid gains over January of last year indicate growing interest among investors as we head into the new year. January is typically a strong month for sales in both the gold and silver categories as collectors and investors step-up purchases of coins bearing the new year’s date.

Central bank gold demand highest in 50 years

Many analysts credit the Washington Gold Agreement of 1999 as the seminal document at the heart of gold’s secular bull market.  In it the top central banks agreed to gradually curtail the sale and lease of gold reserves – two activities that kept the price rangebound for much of the 1990s.  At the time, gold was stuck in the $270 to $300 price range.  From there, it never looked back.  Fast forward to 2011 and we begin to see central banks moving from the net seller side of the gold fundamentals ledger to become net buyers.  Some analysts applauded the simple retreat from sales and leases as a major victory for gold bulls.  The move to becoming net buyers was icing on the cake.  In 2018, central bank gold purchases reached their highest level in fifty years according to World Gold Council data – a profound development the machinations of which have yet to be fully digested in the marketplace.

bar chart showing central bank purchases and sales with abrupt change to buyers in 2011

Graphic of USAGOLD client portal connection. Ready to invest. Start here.
A word on USAGOLD
– USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)


Graphic of Online Order Desk Connection: Great prices. Quick delivery. All the time.

ORDER DESK
1-800-869-5115 Ext#100
[email protected]


Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing – How to Protect and Build Your Wealth With Gold [Third Edition]. He is also editor and commentator for USAGOLD’s Live Daily Newsletter and editor of the News & Views monthly newsletter.

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NV#1001SPECRPT-FEB19

NEWS &VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 46th year in the gold business

SPECIAL REPORT
February, 2019


The $12 trillion federal debt bombshell
“Who on earth, or in global finance, will buy this looming mountain of Treasuries?”

“Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection. I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counter-party signature. Gold, however, has always been far more valuable per ounce than silver. No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counter-party. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.” – Alan Greenspan, former Fed chairman

In a recent Financial Times editorial, Gillian Tett, who rose to prominence for her coverage of the 2008 financial crisis, raised the question of financing the U.S. debt. Headlined America faces a battle to find buyers for its bonds, her article begins by referencing a letter to Secretary Mnuchin from Beth Hammack, a Goldman Sachs banker who also chairs the Treasury Bond Advisory Committee. The letter, she says, contains a bombshell:

“According to TBAC calculations, America will need to sell an eye-popping $12 trillion of bonds in the coming decade, sharply more than it did in the past 10 years.  This will ‘post a unique challenge for the Treasury, Ms. Hammack warned, even ‘without the possibility of a recession’. In plain English, the Wall Street luminaries on the committee were asking who on earth – or in global finance – will buy this looming mountain of Treasuries.” [LINK]

When Jerome Powell and the president sat down for dinner at the White House in early February one wonders what was on the agenda. Treasury Secretary Steven Mnuchin, who also attended the dinner along with Fed vice-chair Richard Clarida, joked that having the Fed chairman over to dinner was “somewhat of a covert operation … so it didn’t create speculation.” The Fed press statement that followed went to great lengths to assure Wall Street and the rest of the world that nothing of consequence happened. Individuals at this level of government, though, do not have hastily-called, high-profile meetings at the White House simply to socialize and attend to their friendship. 

Scott Stantis cartoon showing rhinoceros national debt lifting dome to capitol building

The rhinoceros in the room could very well have been how the federal government will go about financing the $12 trillion in debt Goldman’s Beth Hammack earlier brought to the Treasury Secretary’s attention and what role the Federal Reserve intends to play in the process. China and Japan, America’s two largest financiers by far, have withdrawn from the market and there is no certainty as to when they might return. That leaves domestic U.S. private investors and financial institutions to fill the yawning gap and, failing that, the Federal Reserve with a new round of quantitative easing.

How the $12 trillion debt bombshell is handled will carry very large implications for the stock and bond markets, the value of the dollar and consequently the price of gold. Some would say we are a long way from another round of quantitative easing, but we will remind our readers it was only a few months ago that we were assured of at least two additional rate hikes in 2019 and stepped-up quantitative tightening. Circumstances and response, as we have seen over the past few weeks, can change in a heartbeat.  Ominously, San Francisco Federal Reserve president Mary Daly told reporters last week that the Fed is considering quantitative easing as a permanent option in the monetary toolkit and not, as Bloomberg put it, “just as a last-ditch measure to deploy in emergencies.” (Please see Balance Sheet Could Be in Regular Fed Toolkit/Bloomberg/2-8-2019)

We end with a timeless observation from the now-deceased Richard Russell (Dow Theory Letter):

“Paper money is now being created wholesale throughout the world. Stated simply, all paper currency is now valued against each other. But more important, ultimately ALL paper is ultimately valued against the only true, intrinsic money – gold. In world history, no irredeemable paper currency has ever survived. Since all the world’s currency is now irredeemable (in gold), this means that in the end, the only form of money that will survive is real intrinsic money – gold. It’s not a question of whether gold will survive, it’s a question of when the world’s current paper money will deteriorate and finally die. I can tell you that irredeemable paper will not survive – but obviously I can’t tell you when it will die. The timing is the only uncertainty.”

The chart below from the World Gold Council speaks to Russell’s point. It shows the performance of various currencies – past and present – against gold over the long term.  When the end comes, as the chart illustrates, it can come abruptly and without warning. For those who stick to the proposition that gold is not really an inflation hedge, or that it is not really a safe-haven against currency debasement, the chart offers instruction. For those who already own gold as a safe-haven, it provides justification. For those who do not own gold, it serves as an incentive.  As the old saying goes:  All is well until it isn’t.

Chart showing gold outperforming all major currencies since 1900Chart courtesy of the World Gold Council

–– Michael J. Kosares


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– USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)


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Scott Stantis cartoon published with permission. All rights reserved.

Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing – How to Protect and Build Your Wealth With Gold [Third Edition]. He is also editor and commentator for USAGOLD’s Live Daily Newsletter and editor of the News & Views monthly newsletter.

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NEWS & VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals


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The $12 trillion federal debt bombshell
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Editor:  Michael J. Kosares, founder of USAGOLD and author of The ABCs of Gold Investing – How To Protect and Build Your Wealth With Gold (Three editions)


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A word on USAGOLD
– USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)


Graphic of Online Order Desk Connection: Great prices. Quick delivery. All the time.

ORDER DESK
1-800-869-5115 Ext#100
[email protected]


Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

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