‘Real wealth destruction’: This Deutsche Bank chart shows what could happen to assets in a repeat of the stagflationary 1970s.

real-wealth-destruction-this-deutsche-bank-chart-shows-what-could-happen-to-assets-in-a-repeat-of-the-stagflationary-1970s

MarketWatch/Barbara Kollmeyer/5-24-2022

graphic image of stacks of gold and silver coins“While history never exactly repeats, Deutsche Bank strategists were aiming to offer a framework to clients on how to think about the next few years if inflation stays high even after a Fed-induced recession.”

USAGOLD note: Deutsche Bank confirms a point we’ve made repeatedly here about gold and silver with respect to stagflation. During the 1970s, it was the best option in terms of convenience and liquidity while offering a direct positive response to market uncertainties in its pricing. The link above will take you to the chart mentioned in the headline.

 

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The US is on the cusp of stagflation and markets are yet to fully realize, hedge fund giant Bridgewater says

the-us-is-on-the-cusp-of-stagflation-and-markets-are-yet-to-fully-realize-hedge-fund-giant-bridgewater-says

MarketsInsider/Harry Robertson/3-24-2022

graphic showing wolf in the middle of a flock of sheep all with their backs turned to the danger

“The US economy is on the cusp of stagflation and markets are yet to fully respond, according to the co-chief investment officer of Bridgewater Associates, the world’s biggest hedge fund. Bob Prince told Bloomberg TV on Tuesday investors are being too optimistic about the path for inflation and rates.”

USAGOLD note: Prince implies plenty of downside to come for financial markets. We recall that investors were slow to react to stagflation in the 1970s as well believing that the Fed would bring it under control. It took a decade for the Fed to introduce the measures required to get the job done and the 1970s turned out to be a lost decade for the stock market.

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America, China, Russia and the avalanche of history

america-china-russia-and-the-avalanche-of-history

Bloomberg/Niall Ferguson/5-19-2022

“In the same way, a belated tightening of monetary policy by the world’s most important central bank, the Federal Reserve, inflicts a sort of regime change not only on US households and businesses, but on the rest of the world, too. All the consequences of these two shocks — one geopolitical, the other economic — are very hard indeed to predict, but I am confident that we have seen only a small proportion of them so far.”

USAGOLD note 1: Ferguson goes on to say that “owning gold has preserved capital, but owning dollars has been a superior strategy.” That logic applies to investors in countries outside the United States but not to Americans who already own dollars by default.

USAGOLD note 2: Gold has held up well in response to the financial shocks of 2022 while other assets covered in the Ferguson analysis – most notably stocks, bonds, and bitcoin – have declined sharply, as shown in the chart below. Historically, Ferguson identifies the 1970s as the closest comparison to the present period but says “the analogy is far from perfect.” Like the 1970s, he says, we should not “expect a rapid return to stability, whether in macroeconomic or geopolitical terms.” The full analysis is highly recommended at the link.

Investment performances 2022
(%, year to date)
overlay line chart showing the performance of various investment categories year to date commodities, the dollar, gold, stocks, bonds and bitcoin
(SPGSCI = Standard & Poors Goldman Sachs Commodity Index; TLT = Bond ETF; SPX = S&P 500; BTCUSD = Bitcoin)
Chart courtesy of TradingView.com

 

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The Fed’s 15 minutes: Plan to offload mortgage-backed securities could push interest rates even higher

the-feds-15-minutes-plan-to-offload-mortgage-backed-securities-could-push-interest-rates-even-higher

The New York Sun/Scott Norvell/5-20-2022

“The plan is to simply let the securities — bundles of home mortgages purchased from the banks that initially lent the money to homeowners — roll off its balance sheet as they mature. If the bank can’t meet its reduction targets through attrition, however, it may have to resort to selling those securities on the open market, which could nudge mortgage rates up even higher than they already are and put home buying out of reach for more Americans.”

USAGOLD note: Mortgage rates have already gone from 3% to 5.25% since the beginning of the year pushing a good many out of the housing market.

line chart showing the increase in mortgage rates over the past year
Sources: St. Louis Federal Reserve [FRED], Freddie Mac

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Jeremy Grantham and Ray Dalio discuss the stock-market plunge, ring the inflation alarm, and share investing tips.

jeremy-grantham-and-ray-dalio-discuss-the-stock-market-plunge-ring-the-inflation-alarm-and-share-investing-tips

Markets Insider/Theron Mohammed/5-20-2022

cartoon showing gold as something to be used in times of uncertainty“Grantham, the cofounder and chief investment strategist of GMO, predicted a sweeping crash in asset prices, blasted the Federal Reserve, and touted natural resources and clean energy as shrewd bets. Dalio, Bridgewater’s cofounder and co-chief investor, warned against holding cash or bonds, trumpeted gold and emerging markets, and touched on Tesla CEO Elon Musk’s deal to buy Twitter.”

USAGOLD notes: This article shares 15 quotes from two of the financial world’s most highly respected money managers. Dalio’s pro-gold stance is well-known, but Grantham’s thinking on the subject is not. This past January, he recommended both gold and silver as “good safe harbors to counter inflation,” in remarks posted at the Chief Investment Officer website.

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350688

Short and Sweet
The Great Financial Shock of 2022
Today’s headlines serve as a constant reminder of why we own gold

cartoon image of an investor experiencing headline shock

Inflation, it has been said, comes as a thief in the night, and that it has. The famed British economist John Maynard Keynes warned of the dangers impressed upon an economy by inflation in his 1919 classic, The Economic Consequences of Peace. “Lenin was certainly right,” he wrote. “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Now we are suddenly faced with what could very well go down in history as the great financial shock of 2022 – an inflation rate approaching double digits in just a few short months and a steady stream of headlines that serve as a constant reminder of why we own gold.

“The nature of inflation is widely misunderstood and misinterpreted,” writes former Wall Streeter Dave Kranzler in an analysis posted at Investing.com.  “‘Inflation’ and ‘currency devaluation’ are tautological — they are two phrases that mean the same thing.…Dollar devaluation has been occurring since the early 1970s. The value of the dollar relative to gold (real money) has declined 98%. In 1971, $40,000 would buy a 4,000-square-foot home in a good suburb. Now it takes $700,000 on average to buy that same home. Price inflation is evidence of currency devaluation.”

Though the dollar has been in an uptrend against other currencies of late (recently hitting a twenty-year high and pushing the gold price sharply lower), its purchasing power in terms of goods and services is in sharp decline – and that, in the end, is the real reason why gold is now in such high demand. Kranzler says that the inflation wildfires are just getting started and to “hold onto gold and silver.” Similarly, veteran market analyst James Turk recently made some insightful comments during an Epoch Times interview on why gold has long served as a hedge against currency debasement.

“[Gold] does not suffer from entropy,” he said,  “It cannot be destroyed. All the gold mined throughout history still exists in its aboveground stock, which if formed in a cube could slide under the arches of the Eiffel Tower.…A gram of gold buys essentially the same amount of crude oil as it did in 1950. This result occurs because the aboveground stock of gold grows by approximately the same rate as world population, causing the supply and demand for gold to remain in balance with the supply and demand of the goods and services humanity needs. Nature provides everything humanity needs to advance, including money.”

Below, we offer two charts supporting the Kranzler/Turk argument. The first shows the performance of gold against the long-term decline of the dollar. The second shows the sharp acceleration in that decline over the past 12 months – a period during which the dollar has lost a stiff 8% of its purchasing power.

overlay line chart showing gold and the purchasing power of the dollar in log scale 1971-jan22

line chart showing purchasing power of the US dollar in percent 2017-present
Sources: St. Louis Federal Reserve [FRED], U.S. Bureau of Labor Statistics


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Congress has a stake in the dollar’s integrity

congress-has-a-stake-in-the-dollars-integrity

Wall Street Journal/Judy Shelton/5-17-2022

graphic overlay showing a 100 dollar bill and stacks of gold coins

USAGOLD note: In this editorial, Judy Shelton explores two interrelated questions. First, who is responsible for a sound dollar, Congress or the Fed? And second, who is to blame if the currency crumbles? She then attacks the political process in Washington for essentially defending inflation rather than producing a sound currency. She ends by calling for a commission “to carefully consider how best to secure the integrity of the American currency.” Much could be said about Shelton’s proposal to make the dollar a sound currency via the political process. While we are waiting for that to happen, though, the best alternative for those who share her concerns is to confront the issue by owning sound money outright in the form of gold and silver coins and bullion.

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350724

Gold holds gains after inflation report
Real Clear Markets’ Tamny says gold is a constant and a ‘signal of inflation’

(USAGOLD – 5/27/2022) – Gold held on to overnight gains as the April PCE Index indicated inflation at 6.3%, slightly below March’s 6.6% –  a not too hot-not too cool number likely to play to mixed reviews in markets today. It is up $5 at 1858. Silver is up 16¢ at $22.25. Though markets now see inflation as a clear and present danger, John Tamny, the editor of Real Clear Markets, says they still do not fully understand its relationship to gold. Gold doesn’t track; it anticipates.

“Inflation is a decline in the value of a currency, period,” he says in an analysis posted at Forbes, “Rising prices are a consequence of inflation, or better yet, can be a consequence. But they’re not inflation itself. To presume that rising prices cause inflation is the equivalent of asserting that wet sidewalks cause rain. Causation is reversed.…To be clear, gold doesn’t rise as a result of inflation; rather gold’s rise is the signal of inflation. When the dollar weakens, gold reflects this weakness. Gold’s rise IS the inflation.” (Editor’s note: The World Gold Council recently argued that money supply is a better indicator of future gold price trends than the Consumer Price Index.)

Gold and the money supply (M1)

line chart showing gold and M1 since 1971
Chart courtesy of TradingEconomics.com

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A surprising benefit to owning gold – especially now

a-surprising-benefit-to-owning-gold-especially-now

Sovereign Man/Simon Black/5-23-2022

“We saw this quite recently in the early days of the pandemic: in early March 2020, major gold ETFs actually fell by around 10%. But the price of physical gold bars and coins went through the roof. So, in my opinion, physical is always better than paper.”

USAGOLD note: Simon Black covers considerable territory in this primer on the benefits of physical gold ownership, i.e., coins and bullion, and throws in some interesting Roman history as a backdrop.

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Retail investors reach for gold to counter crypto risk, says WGC survey

retail-investors-reach-for-gold-to-counter-crypto-risk

World Gold Council/Louise Street/5-25-2022

“Attitudes towards gold among these investors are contrastingly different – they recognise its safe-haven, inflation hedging qualities. One third of investors view their gold investment as either ‘a store of value (to protect my wealth)’, a way to ‘protect against inflation’ or as ‘a safe investment that I don’t have to worry about’. Which may explain why even more investors bought gold than crypto last year. According to the research, 44% invested in gold in the first 10 months of 2021, with bars and coins among the most popular options.”

USAGOLD note: In that same survey, 31%  of respondents invested in cryptocurrencies (compared to 44% in gold), and 32% viewed crypto as “high risk with the potential for high returns or as a purely speculative bet.”

Retail investors recognize the different risk profiles of gold and cryptos
% assigning top ranking to each statement

bar chart showing the results of gold crypto survey 2022

Chart courtesy of the World Gold Council, Hall & Partners

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Notable Quotable

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“I don’t buy gold, I own it. I don’t buy gold at $1,100 because I think it’s going to go to $1,200. I buy it for what it does, not what the price is, the price is the last consideration for me. I think the way the picture has been developing over the last eight years, it’s like when you take a polaroid, you take a picture and you sit there and you watch this thing and it slowly comes into focus, and that’s what it’s been like for me watching gold, we’re watching this picture slowly develop. We’re getting to the point where people are going to be able to see the picture, and at that point gold is the answer. It’s not just an asset anymore. It’s the answer to a lot of people’s questions. . .The picture is becoming clearer, and everything the central banks are doing is bringing that day forward a little bit.”

Grant Williams
Vulpes Investment Management
June 2016

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NY Fed sees three year balance sheet rundown to $5.9 trillion

ny-fed-sees-three-year-balance-sheet-rundown-to-5-9-trillion

NewsMaxFinance-Reuters/Staff/5-24-2022

“The Fed’s stock of Treasury bonds and mortgage backed securities is projected to decline by roughly $2.5 trillion by mid-2025, to about $5.9 trillion, when the central bank’s run-off of assets is likely to be halted to maintain an adequate level of bank reserves, the New York Fed said on Tuesday.”

USAGOLD note: These numbers appear to be a projection rather than an actual schedule of reductions. The great debate at the moment is whether or not the Fed can stay the course on quantitative tightening or if it will be forced to throw in the towel if and when the economy tightens and financial markets register a negative response. The most interesting revelation comes at the end of the article when Reuters reports that the Fed intends to hold its Treasuries portfolio until maturity. In other words, the Fed will reduce its balance sheet through natural attrition. If that turns out to be the case, it will temper the impact on rates from the sell-side of the equation. The most consequential impact, though, will come from the buy-side of the equation as the Fed withdraws its bond market support as the buyer of last resort.

(Chart note: Some years ago we constructed the interactive chart above at the St. Louis Fed’s FRED portal. You can track it at our Monetary Trends and Indicators page, along with several other charts of interest to precious metals owners.)

 

 

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Market Overview

market-overview2

Landscape mode is recommended for mobile phone viewing.

Market Data by TradingView
Delayed data except FOREX

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In Gold We Trust 2022: Of wolves and bears

in-gold-we-trust-2022-of-wolves-and-bears

Incrementum/Ronald-Peter Stoferle and Mark J. Valek/May 2022

photo of wolf looking into camera“Now the wolf is here – and it dominates the headlines. But many investors are still unaware of the threats it poses to their portfolios. In many cases, people hide behind the naïve illusion that the wolf will disappear again after a short time – just like that, and without having feasted on any prey. Now the next danger is already lurking: sneaking up behind the wolf is a bear. This bear symbolizes a striking economic downturn, pushing prices down with its paw. Once again, the majority of economists and investors will be caught on the wrong foot.”

USAGOLD note: The widely read, always anticipated In Gold We Trust annual report on gold’s prospects is now available for download at the link. Highly recommended!

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Goldman, BoA agree: Only a Fed panic will end this crash

goldman-boa-agree-only-a-fed-panic-will-end-this-crash

ZeroHedge/Tyler Durden/5-22-4-2022

graphic image of bank with red warning flag waving above“This morning, strategists at both Goldman and Bank of America agreed that the only thing that will push stocks higher is a capitulation by the Biden Fed. In a note from BofA’s Benajmin Bowler, the derivatives guru writes that “the Fed has offered no help to risk assets and appears far from stepping in,” and adds that market stress indicators, such as credit spreads and liquidity in S&P 500 futures, are now at levels seen during previous Fed interventions. And, channeling Zero Hedge, he next says that ‘markets will continue to test the Fed put, but that it will take more market panic for the Fed to start panicking.'”

USAGOLD note: We are all aware of how quickly things can change in The Digital Age, but to think that some are already contemplating a Fed retreat seems a bit surreal. However, that is precisely what ZH is suggesting. “To be sure,” it says, “it will be extremely embarrassing – if not outright humiliating – for the Fed to be forced to pause tightening before it has even done any real QT but it no longer has a choice.”

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the-usagold-website-a-guiding-light-for-current-and-would-be-clientele-since-1997

The USAGOLD Website
A guiding light for our current and would-be clientele since 1997

graphic image of light house beaming
Welcome newcomers!

When the USAGOLD website was established in 1997, there was no Google, no Facebook, no I-Tunes, no Amazon. Instead there was just a handful of scattered websites trying to figure what this new technology was all about and how it could be used to some advantage.  We were among that group.  Our idea of innovation in those early days was two spinning globes on either side of the USAGOLD logo.  We marveled at it; considered it state of the art.

But being among the first on the internet to have spinning globes was not our only achievement. We were also among the first to sponsor a Daily Market Report (1997), a Discussion Group (1997), Live Prices and Charts (2007) and a Mobile Website (2011) – to mention just a few of our ground-breaking internet ventures.  We await the next wave of innovation so that we can offer even more value to our regular visitors.

Through our 26-year presence on the world wide web, the philosophy underlying our website has always been a simple one – to act as a guiding light for our current and prospective clientele by providing a state of the art information portal coupled with a reliable and competitive brokerage service.  We had and still have no aspirations beyond that, and that pinpoint focus has paid dividends beyond anything we would have imagined in 1996.

From a humble beginning, we have grown to almost 800,000 visitors per month currently and there have been times when that count has been significantly higher. USAGOLD today remains one of the most highly referenced and visited web portals in the gold business. We once had a client tell us of visiting the Gold Souk in Dubai and being surprised that so many merchant stalls had USAGOLD on their computer screens. 

If you would like to gain a better understanding of what USAGOLD has to offer to you as a current or prospective client, the menu at the top of the page is a good place to start. 


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Surging dollar stirs markets buzz of 1980s-style Plaza Accord

surging-dollar-stirs-markets-buzz-of-1980s-style-plaza-accord

Bloomberg/Ruth Carson and Amelia Pollard/5-18-2022

graphic image of a digitalized crypto dollar zeroes and ones“Through that agreement which France, Japan, the UK, US and West Germany agreed to weaken the dollar — a stance taken out of a belief that the dollar’s huge move higher was damaging the global economy.”

USAGOLD note: In 1985 there was general agreement among industrialized nations that the dollar needed to be throttled. If that were not the case, the Plaza Accord never would have gotten off the launch pad. Which nation-states today would be interested in elevating their currencies, as was the case in 1985? Not many, we will venture. That said, a new accord to weaken the dollar, should it happen, would likely stimulate demand for precious metals.

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Ghana starts gold purchase programme to strengthen currency

ghana-starts-gold-purchase-programme-to-strengthen-currency

Reuters/Cooper Inveen/5-17/2022

photo of two gold miners' bars

“Ghana has started a bulk purchase programme to buy gold locally to raise the gold component of its reserves, Central Bank Governor Ernest Addison said on Tuesday, in a bid to strengthen the cedi currency without increasing inflation.”

USAGOLD note: Ghana joins Russia and China as a top-ten global gold producer now channeling the bulk of its production into national reserves. it is the world’s sixth-largest gold producer. China is number one and Russia is number three.

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Nasdaq could plunge 75% from peak, SP 500 45%, warns Guggenheim’s Minerd

a-summer-of-pain-the-nasdaq-composite-could-plunge-75-from-peak-sp-500-skid-45-from-its-top-warns-guggenheims-scott-minerd

MarketWatch/Mark DeCambre/5-18-2022

Graphic of sitting bull and sitting bear

“[Guggenheim’s Scott Minerd] said attendees at that Hoover conference estimated that the Fed would need to take interest rates to 3.5% to 8% to hit neutral, which suggested to him that the central bank might need to dial-up rates until something in the economy or markets, or both, breaks. The Fed appears to have ‘very little concern about the continuation of what I think now is a bear market,’ Minerd said. If that is the case, ‘we are probably going to have a pretty severe selloff,’ he said.”

graphic image of a book and reading glasses A Good Weekend ReadUSAGOLD note: Minerd says we are headed for a summer of pain. About a year ago, he predicted gold would eventually rise to between $5,000 and $10,000 per ounce and that silver would outperform it. In short, he foresees a major bear market for stocks and, on the flip side, a major bull market for gold.

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