Behind highest U.S. inflation rate in 31 years lurks fear that Federal Reserve has `lost control’ of consumer prices

MarketWatch/Vivien Lou Chen/111-10-2021

grpahic image of a red inflation sign with arrow higher and rising percentages“After months of complacency in financial markets, the highest U.S. inflation rate in almost 31 years is now raising fears that it may keep accelerating and that the Federal Reserve may have already missed its best chance at keeping prices stable.”

USAGOLD note: Does it seem like a theme is emerging here? It will be a long time, in our view, before the policymakers get around to anything resembling a program to tame inflation. Just last week Treasury Secretary Yellen said inflation would come down in the near future and the president said his massive spending programs would cure inflation.

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Biden picks Jerome Powell to lead the Fed for a second term as the U.S. battles Covid and inflation

CNBC/Jeff Cox and Thomas Franck/11-22-2021

photo of jerome powell deliver testimony before Congress“President Joe Biden announced Monday that he is renominating Jerome Powell for a second term as Federal Reserve chair and will put forth Fed Governor Lael Brainard as vice chairman. The move comes after weeks of speculation that Brainard might get the nod. In making the move, Biden praised Powell for “decisive” leadership during the Covid crisis.”

USASGOLD note: Gold made an abrupt turn to the south after this announcement. Brainard was the ultra-dovish choice. Powell was the dovish choice. Biden went dovish, staying the course with Powell.

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Gold lower in quiet pre-holiday trading
McClellan says safe haven currencies buying sends ‘bullish message’ for gold

(USAGOLD – 11/22/2021) – Gold is lower in quiet pre-holiday trading as it takes a breather after the gains since early November. It is down $5 at $1842.50. Silver is up 19¢ at $24.86. Market analyst Tom McClellan reminds us that gold, the Japanese yen, and the Swiss franc are all “fellow travelers correlating very strongly most of the time.” He goes on to say that peculative positioning in those currencies now underway in the futures markets might be pointing to a bullish scenario for gold.

“A sentiment indication that is useful for the yen can also be useful for gold prices,” he says in a report posted at the 321Gold website, “Right now, [commercial traders, i.e., smart money] are net long the yen in a big huge way, meaning that they are betting on the yen going up in value versus the dollar. We can also see that when these commercial traders are net long the yen futures in a big way like this, that tends to be a bullish condition for gold prices in the weeks that follow. … The Swiss franc also shows a very strong correlation to the dollar price of gold, and so its COT Report data can be used in the same way as the yen’s, as a sentiment proxy for gold prices. Here too, the commercial traders are net long the Swiss franc in a big way, and that tends to be a bullish message for gold prices.”

Chart of the Day

overlay line chart showing gold and world money supply 2000 to present
Chart courtesy of Merk Investments • • • Click to enlarge

Chart note: Though gold does not necessarily rise with price inflation, it is heavily influenced by growth in the money supply no matter where that stimulus ends up. Charts showing growth of the U.S. money supply and gold are fairly common. This chart is the first we have seen combining the price of gold with growth in the global money supply.

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Notable Quotable

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“Rome fell because the dictators ruined the Roman economy and the institutions that had made it prosperous. Rome was falling apart before the barbarian invasions. How did the Caesars do that? They were profligate spenders. As emperors with absolute power usually do, they thought big: infrastructure (roads, temples, palaces), a huge bureaucracy, and, as the key to maintaining their power they had a very large, loyal, and well-paid army. As a consequence, massive government spending far outstripped revenue. They had what today we call a deficit problem.”

Jeffrey Harding
Mises Institute

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Favorite web pages

What you need to know before you invest in gold
Initial guidelines for first-time investors from one of America’s top gold experts

image showing stack of gold coins and chart indicating analytical approach to the investment
New to the idea of including gold in your investment portfolio?
If so, this is the page for you.

If you are new to the idea of gold ownership, you might be looking for a little guidance. We, at USAGOLD, have been in the gold business for a good many years, and the one thing that stands out to us in working with so many over the years is how often investors, for one reason or another, get off to a bad start.

That is why we developed a question and answer page many years ago that delves into the subject of GETTING OFF TO THE RIGHT START. We update it regularly as things can change rapidly in the gold and silver markets. The page is linked above, and we recommend that newcomers spend the few minutes it takes to get through it.…

This page receives considerably high-ranking from Google on a number of important searches, and we like to think it’s because of the cause it serves – providing some positive direction to investors trying to get off to a solid start in their pursuit of gold ownership.


Interested in gold but struggling to find the right firm?
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Gold Classics Library

A Gold Classics Library Selection


Money and politics in the land of Oz
The extraordinary story behind the extraordinary story of
The Wonderful Wizard of Oz

photograph of original cover for the wonderful wizard of oz book

by Professor Quentin Taylor, Rogers State University

Year in, year out, Money and politics in the land of Oz is among our most highly-visited Gold Classics Library selections. Here is the extraordinary story behind the extraordinary story of ‘The Wonderful Wizard of Oz’. Most have seen the movie version of this allegorical tale published in 1900, an election year, but few are aware of what the various characters, places and things represented in the mind of Frank Baum, the tale’s author. Though ‘The Wonderful Wizard of Oz’ was written 120 years ago, the themes will be recognizable to those with an interest in golden matters today. While many today consider gold an instrument of financial and personal freedom, in Baum’s tale, it is painted as a villain — the tool of oppression. So, as you are about to see, we have come full circle, and gold has traveled a yellow brick road of its own.

[LINK]

[Gold Classics Library Index]


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ORDER DESK: 1-800-869-5115 x100/orderdesk@usagold.com

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Bitcoin vs. gold: Two leading authorities on the precious metal unpack the inflation hedge battle

CNBC/Lizzy Gurdus/11-10-2021

Graphic image of a gold king chess piece surrounded by downed pawns

“I think it is quite possible for these two assets to coexist quite happily in the market because they do completely different jobs.”

USAGOLD note: SPDR Gold Trust’s George Milling-Stanley defines the differences between bitcoin and gold. Gold, he says, is the “holy grail of any asset allocator.” Inflation, he says, will draw gold back into favor. Granite Shares’ Will Rhind says investor buying of bitcoin is “highly speculative” while investors purchase gold for “defensive” reasons. The best offense, as the old saying goes, is a good defense.

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Inflation surge fuels negative real interest rates for leading economies

Financial Times/John Paul Rathbone and Valerie Romei/11-8-2021

line chart showing the deteriorating real yield on the 10-year Treasury
Sources: St. Louis Federal Reserve [FRED], Board of Governors of the Federal Reserve System (US)

“The surge in inflation is leaving the world’s leading economies with their lowest real interest rates in decades, as central banks delay any abrupt tightening of the extra-loose monetary policy used to help weather the coronavirus crisis, arguing that the recent rise in prices is transitory.”

graphic image of a book and reading glasses A Good Weekend ReadUSAGOLD note: The real rate of return (shown in the chart above) took an even deeper dive into the negative after Financial Times posted this article. On Wednesday, the Bureau of Labor Statistics reported a 6.2% inflation rate. The yield on the 10-year Treasury is going in the other direction. It stands at roughly 1.5%. That sharp downturn is not as yet reflected in the accompanying chart.

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‘The Big Short’ investor Michael Burry compares the market to the Dutch tulip bubble

MarketsInsider/Theron Mohamed/11-9-2021

antique painting of a fool trading his gold for tulip bulbs

“Burry has painted the immense hype around meme stocks and cryptocurrencies and the frantic buying of Tesla shares and other assets as clear signs of rampant speculation.”

USAGOLD note: From where we sit, it is difficult to find fault in Burry’s historical analogy. The distance between prices on certain assets and their real value defies common sense, and are precisely the kind of numbers that prevailed during the Dutch tulip craze and other financial mania. In the image above, a fool trades gold for tulip bulbs. Burry, as this article reports, predicts a devastating stock market crash.

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Short and Sweet

Only real intrinsic money survives the test of time

photo of stacks of gold and silver coins

Here is 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 1900
Chart courtesy of the World Gold Council


Ready to begin or add to your precious metals holdings?
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ORDER DESK: 1-800-869-5115 x100/orderdesk@usagold.com

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Yellen says Fed wouldn’t allow repeat of 1970s-level inflation

Bloomberg/Christopher Condon/11-9-2021

graphic showing the 1970s do not equal the 2020s“Treasury Secretary Janet Yellen repeated her view that elevated U.S. inflation won’t persist beyond next year and said the Federal Reserve will act if needed to prevent a rerun of 1970s-style price rises.”

USAGOLD note: Judging from the heavy demand for gold and silver coins and bullion globally, the public is not in complete agreement with policymakers like Yellen on the subject of inflation. “That isn’t happening now,” she says referring to a1970s-style inflation, “and the Federal Reserve wouldn’t permit that to happen.” Financial authorities repeatedly made similar claims during the 1970s runaway inflation she references.

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Gold inches cautiously higher to close sideways week
Noland says central banks ‘coddle speculative markets at the system’s peril’

(USAGOLD – 11/19/2021) – Gold inched cautiously higher in early trading as it looks to close out the week about where it started. It is up $5 at $1865 after starting the week at $1867. Silver is down 3¢ at $24.84 after starting the week at $25.15. With inflation concerns now dominating market psychology, systemic credit issues have made their way to the backburner. However, long-time credit market analyst Doug Noland warns that instability in the highly leveraged global credit market could be the catalyst for the next monetary crisis.

“I believe it matters that China’s Bubble is faltering in a backdrop of powerful global inflationary dynamics,” he explains in his most recent Credit Bubble Bulletin newsletter. “At least in the near-term, the likelihood of the bond-pleasing deflationary scenario appears much reduced compared to a year or even six months ago. Perhaps that’s part of what has lately lit a fire under the ‘breakeven rates.’ Up another $46 dollars this week gold prices have also heated up.”

“It appears global central bankers have begun to lose control of bond yields,” he continues. “And if yields begin reflecting inflation realities, bond markets have an arduous adjustment period ahead. Returning to the Fed’s worst inflation call in decades. The developing global financial crisis has been decades in the making. Contemporary central bank doctrine is fundamentally flawed. Using the securities markets as the primary mechanism for system stimulus – for Credit growth and financial conditions more generally – ensures speculative excess, over-leveraging and Bubbles. Coddle speculative markets at the system’s peril.”

Chart of the Day

Gold and the national debt
(1970-2021Q2)
overlay line chart showing the correlation between gold and rising national debt
Chart courtesy of the St. Louis Federal Reserve [FRED], U.S. Treasury Department, ICE Benchmark Administration

Chart note: As the national debt has increased, so has the well-documented damage associated with it – to the dollar, financial markets, and the economy in general. Simultaneously, gold’s role as an inversely correlated portfolio hedge grew, as you can see from the chart above. Few correlations in the financial markets ring truer and more consistently than the one between the federal debt, now nearlng $29 trillion, and the price of gold. As for the future, we should keep in mind that the very same conditions that created the long-term secular trend for both the national debt and gold are still in place today.

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‘Stop worrying about return on capital, start worrying about return of capital.’ – Mohamed El-Erian

ZeroHedge/Tyler Durden/11-18-2021

traffic sign warning of a tsunami hazard zone, showing individual about to be overcome by a very big wave“But investors need to respect that they’re riding a huge liquidity wave thanks to the Fed, and that wave will eventually break as monetary stimulus winds down. So investors should keep an eye on the risk of an abrupt shift from a relative valuation market mindset to an absolute valuation one, or an environment in which you stop worrying about the return on your capital and start worrying about the return of your capital. That’s a risk to watch because not only would it mean higher volatility, but also, and most critically, an undue hit to the real economy.

USAGOLD note: El-Erian’s warnings become more strident by the day ……

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Posted in Gold and Silver Price Predictions from Prominent Players, Today's top gold news and opinion |

Why markets are like a duck: ‘calm above the surface, but furious churning below’

MarketWatch/William Watts/11-8-2021

graphic image of title To Duck or not To Duck“Mario Draghi famously likened the euro to a bumblebee; Morgan Stanley analysts say global financial markets remind them of a duck floating on a pond: ‘calm above the surface, but furious churning below.'”

USAGOLD note: Expect the unexpected. “Many of the markets with the largest recent moves,” says Morgan Stanley, “were those priced for the calmest environments.”

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Are investors doomed?

Money Week/Max King/11-3-2021

“Bearish sentiment is rife in the equity markets. And there are plenty of good reasons for that. But the biggest risk of all may be of a bond market crash.”

USAGOLD note: King, a 30-year veteran in money management at top investment houses, is not the first to register concern about a meltdown encompassing both stocks and bonds, i.e., the 60-40 portfolio. “[T]he sword of Damocles,” he says, “will hang over markets until borrowers, especially governments, are dissuaded and savers rewarded.”

 

 

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Kiyosaki: The US stock market is headed for ‘giant crash’ followed by a new depression

Yahoo!Finance/Jing Pan/11-6-2021

people line up at failed bank 1931

“Expert predictions for a U.S. stock market correction are common these days. But thanks to high inflation rates, Rich Dad Poor Dad author Robert Kiyosaki is calling for something much worse.”

USAGOLD note: The ‘something much worse’ is the giant crash mentioned in the headline. Kiyosaki recommends gold, silver and bitcoin to weather the storm – the three “smart” investments, he says, to buy right now.

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Posted in Gold and Silver Price Predictions from Prominent Players, Today's top gold news and opinion |

Kicking the gold valuation models

Atlas Plus Gold Report/Charle Morris/11-5-2021

graphic image of the all-seeing eye on the U.S. dollar“To recap, this model is based on the idea that gold is a bond. In asking what kind of bond it is, I came up with five answers: It is a zero-coupon because it pays no interest. It has a long duration because it lasts forever. It is inflation-linked, as historic purchasing power has demonstrated. It has zero credit risk, assuming it is held in physical form. It was issued by God.”

USAGOLD note: With respect to that final point, i.e. ‘issued by God’, the superior status of the issuer clearly ensures that its current AAA credit rating is unlikely to be challenged by any of the rating services. [smile]

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Posted in Gold and Silver Price Predictions from Prominent Players, Today's top gold news and opinion |

Gold off marginally in early trading
Analyst Grummes sees silver accumulation as ‘prudent measure to protect your wealth’

(USAGOLD – 11/18/2021) – Gold is off marginally in early trading as it continues to bounce in a range between $1850 and $1870. It is down $2 at $1867. Silver is down 6¢ at $25.08. Investors remain worried about inflation while uncertainty prevails over what the Fed intends to do about it – if anything. Though the price of silver is down year-to-date, investment demand, according to a report released by the Silver Institute yesterday, is up a strong 32% as investors pour capital into what they perceive to be one of the few remaining underpriced assets.

“In market movement, we see expansion and compression, much like an oscillator,” writes EU-based analyst Florian Grummes at the Seeking Alpha website. “At certain times though, may it be a natural or man-made disaster, we can find ourselves in a stretched or amplified move. These times of abnormality from a time perspective require being well-prepared. Swift, disciplined actions following a clear planned roadmap are advised. An anticipated roadmap is strictly followed. It is first a waiting game followed by quick action, both psychologically challenging environments. With physical acquisitions of metals, perfectionism in timing is paralysis. Not necessary to come out ahead. We find silver accumulation at this time to be a prudent measure to protect your wealth. Like buying insurance against an anticipated market turn.”

Chart of the Day

Silver and the CRB Index
(As a %, year to date, year over year)
Overlay line chart showing silver and the CRB
Chart courtesy of TradingView.com • • • Click to enlarge

Chart note: As you can see in the chart, silver has lagged the CRB Index year to date. Some analysts believe that it might rally at some point to close the gap.

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Notable Quotable

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“I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.”

John Maynard Keynes
1946

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Why the Fed isn’t tightening

Advisor Perspectives/Michael Lebowitz/11-13-2021

graphic illustration promoting QE FOREVER with fireworks

“I can only say: I’m sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed’s first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.”  – Andrew Huszar 2013

USAGOLD note: In short, the Fed expanded its mandate from full employment and stable inflation to include, as stated by Chairman Powell, “our responsibilities to promote the stability of the financial system.” As a result, in Liebowitz’ view, it won’t tighten “because doing so would harm the financial markets, and that trumps everything at the Fed.” We will add that cutting back on quantitative easing now does not prevent policymakers from reverting to the old policy later at the first sign of financial system danger. Lebowitz returns us to the fundamentals with this easy-to-read essay.

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