“’What we are seeing now is fast and violent,’ unlike the gradual sell-off in the 2007 and 2008 crisis, said Phil Brendel, a senior distressed credit analyst at Bloomberg Intelligence. If the virus isn’t suppressed, even more distress is possible, according to Brendel. ‘The worst is yet to come,’ he said.”
USAGOLD note: You get the sense that something is brewing under the surface that when it bubbles up it is going be another black swan (or even flock of black swans) on top of the black swan that’s already landed on the financial pond. Yesterday, Financial Times reported the Dutch bank ABN Amro taking a $200 million loss the equivalent of 10% of its annual profits from one trader going bust and leaving the bank holding the bag.
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!
“Over 40 years the authors have watched the bright optimism of a new, rigorous approach to economics — which they shared — dissolve into the failures of prediction, [former Bank of England governor Mervyn King and former Financial Times columnist John Kay] write, arguing that the modern community of economists and policymakers needs to accept radical uncertainty and rethink its models.”
USAGOLD note: And radical uncertainty ought to be a psychological underpinning for any rational, modern day investment portfolio. As Nicholas Taleb of black swan fame once said: It is just as important to prepare for what we cannot foresee as for what we can. One short cut to achieving that goal, in our view, is to own gold – and enough of it to make a difference.
“Having been mugged too often by reality, forecasters now express less confidence about our abilities to look beyond the immediate horizon. We will forever need to reach beyond our equations to apply economic judgment. Forecasters may never approach the fantasy success of the Oracle of Delphi or Nostradamus, but we can surely improve on the discouraging performance of the past. – Alan Greenspan, The Map and the Territory, 2013
Repost from 3-24-2020
“In short, the shock from the COVID-19 spread will blow a fiscal hole through Washington, D.C., that could take years if not decades to patch.”
USAGOLD note: Though the virus might fade, the mega-deficits – we take no pleasure in saying – are probably here to stay. In this article, Cox theorizes that we might see a federal deficit yet this year in excess of $1.5 trillion. That would push the aggregate national debt over $25 trillion. The U.S. government has added $17 trillion to the national debt since the turn of the century.
Repost from 3-24-2020
“The new downswing results from more than the 2010 financial crisis. There has been a wave of Chinese and Asian working-class resistance to exploitation, which has eroded profits. In the West, paradoxically, the historic defeat of the unions has flatlined wages. As a result, goods can be sold (and profits maintained) only by bolstering consumption through easy personal debt. That makes the Western capitalist model unsustainable and prone to endemic bank failure. The banks and their tame accounting firms are busy covering up this chronic instability via wholesale fraud. As a result, we are nowhere near the bottom of this K-wave.”
USAGOLD note: The link above takes you to an excellent overview of the various stages of the Kondratieff Wave when applied to recent history and includes the author’s opinion as to where we are now. . . . . . The chart above provides a simplified template of the Kondratieff Wave since 1800. We allow you to draw your own conclusions and only mention that gold is not just an historically proven inflation hedge, it has performed equally as well in modern times under disinflationary, stagflationary and deflationary circumstances.
Image: Kondratieff_Wave.gif: Internaszonalderivative work: Agmen [Copyrighted free use]
Repost from 4-9-2019
“Scientists have just discovered something new about gold. When extreme crushing pressure is applied quickly, over mere nanoseconds, the element’s atomic structure changes, becoming more similar to metals harder than gold.”
Dr. Moneywise says: History teaches that under the crushing pressure of a financial meltdown gold hardens the portfolio, makes it more resilient!
Repost from 8-6-2019
“Yet while the yellow metal has done far better than other assets, it has slipped 2% over the last month. The Goldman analysts, with a 12-month price target of $1800 an ounce, said that is about to change, thanks to the Federal Reserve’s aggressive bond purchase plan unveiled on Monday, in which the U.S. central bank said it would buy as many Treasurys and mortgage-backed securities as needed to keep financial markets running smoothly.”
USAGOLD note: Yesterday’s developments in the gold market certainly buttress Goldman’s outlook. The Wall Street firm sees the announcement of unlimited quantitative easing as a turning point.
Repost from 3-24-2020
“Three of the world’s largest gold refineries said on Monday they had suspended production in Switzerland for at least a week after local authorities ordered the closure of non-essential industry to curtail the spread of the coronavirus.”
USAGOLD note 1: We first warned that the coronavirus could translate to a supply problem in the gold market in last month’s newsletter. “At the moment,” we wrote, “the supply lines in the precious metals business are still functioning smoothly. There could come a time, though, when they are not – a possibility, by the way, that has received scant attention in the context of the coronavirus contagion”.
USAGOLD note 2: The lead article in that edition of our monthly newsletter, by the way, titled “Hedging the decline and fall of a currency – The baseline case for gold hasn’t changed much in 1700 years” carries special relevance in light of recent events. It reviews Jack Whyte’s latest novel “The Burning Stone” – a prequel to his series on the Arthurian legend. Whyte skillfully tells the story of Rome’s silver denarius debasement and how one Roman patrician guarded, and in fact enhanced, his wealth through ownership of gold coins.
Repost from 3-24-2020
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“Gold suppliers are in talks to use chartered or cargo flights to transport the precious metal, which usually moves around the world in commercial planes and has been left stranded as global travel grinds to a halt.”
USAGOLD note: Brilliant idea! “Let’s call Brinks and see if they can move some metal for us …”
(USAGOLD – 3/27/2020) – Gold is taking a breather this morning after its extraordinary performance of the week now coming to a close. It is down $2 on the day at $1623, but up $122 on the week (+ 8%). Silver is down 10¢ on the day at $14.25, but up $1.74 on the week (+13.8%). “Normalizing liquidity conditions, negative real rates, low cost of carry and concerns surrounding fiat currency debasement,” says TD Securities’ in a recent report summarized at FXStreet, “likely means price could move toward $1,800/oz in the not too distant future. … A move toward $2,000/oz is also a distinct possibility into 2021, as the global economy normalizes, monetary conditions remain loose while fiscal deficits surge. … Any selloff in the near-term should be considered as temporary and will likely serve as an additional catalyst moving the price toward $1,800 before the yellow metal reaches escape velocity toward a $2-handle.”
The chart below showing yesterday’s jobless claims number is a bit of a stunner ……
Chart of the Day
Annotated Gold Chart
2008-2009 – The first years of the financial crisis
Chart courtesy of the St. Louis Federal Reserve [FRED]
Source: ICE Benchmark Administration (IBA)
Annotations by USAGOLD
Graphic courtesy of HowMuch.net
“The specter of a global debt crisis suggests the urgency for new liquidity sources, bigger than those that central banks can provide. The logic leads quickly to one currency for the planet. The task of re-liquefying the world will fall to the IMF because the IMF will have the only clean balance sheet left among official institutions. The IMF will rise to the occasion with a towering issuance of special drawing rights (SDRs), and this monetary operation will effectively end the dollar’s role as the leading reserve currency.”
USAGOLD note: What Ricard’s assessment might mean for Americans is difficult to determine at this stage of the game. He warns of a major dollar devaluation from 50% to 80% under those circumstances and suggests “buying gold – if you can find any.” We emphasize that we offer Mr. Ricards opinion as a matter of interest but do not necessarily agree that a one-world currency is in the offing anytime soon – even with the current crisis taken into consideration. For one thing, it would require an agreement among the primary nation-states at a time when they cannot cooperate on much of anything.
“ABN AMRO leaves gold investors empty-handed, as the bank closes all weight accounts for gold, silver and platinum. Approximately 2,000 customers who have precious metals in their weight account at the bank have to sell them before April 1. If they fail to do so, ABN AMRO will sell their positions at the current market price. The bank cannot guarantee that they will sell the precious metal at a favorable price.”
USAGOLD note: The ABN Amro situation illustrates with a high degree of clarity why it is important to own metal in hand rather than in some paperized version of gold ownership subject to the whim of the institution managing the account. In this particular case, we cannot help but note that ABN Amro’s closure of paper gold fund comes at a time when bullion is in short supply and owners of the fund are likely to have a stronger than average desire to take delivery of the position. Investors of the fund were forced to sell their positions at a time when it is very difficult to acquire a replacement in the open market. A bird in hand, as the old saying goes, is worth two in the bush.
“But the real answer explaining the huge price difference goes back to what you and I were discussing just a few weeks ago when I said that the London Gold Pool II is close to collapse. We are no longer ‘close to collapse.’ It is collapsing. There is no announcement from central banks like there was back in March 1968 when the first London Gold Pool collapsed. But we don’t need an announcement. The markets are telling us what is happening.”
USAGOLD note: Turk brings a great deal of historical perspective and insight to the table and this interview is a prime example. “All the markets are in turmoil,” he says, “so our number one focus should be on safety for both our health and wealth.”
“His choice of venue – a network morning show when many Americans are homebound and paying close attention – was itself part of a message that seemed meant to prepare people for the dismal economic data to come, counsel patience in any rush back to work, and reassure that the Fed would act “aggressively” to keep firms and families afloat.”
USAGOLD note: Thought it would be a good idea to post a link to the Fed chairman’s current thinking ……
“Gold hasn’t been a cross-cultural monetary standard for millennia just because it is pretty to look at. It has a job – one that it is exceedingly qualified for – and that is to be accepted as money when other financial instruments that were thought to be money are revealed to be credit. That is when gold is sold. Sacrificed.… If this general economic deterioration crosses over into an outright, interbanking liquidity panic, it should not surprise anyone that gold will be sold.”
USAGOLD note: The gold sold, as we are finding out, is paper gold, and there is a fundamental difference between gold represented on paper and gold as represented by itself. One is eminently more preferrable than the other and as we get deeper into the present crisis it is not difficult to know which is which. As Alan Greenspan famously put it: “Gold does not require any form of endorsement.”
“JN: How can people best prepare for the coming financial turmoil?
TM: Hold physical cash and physical gold. All through history, gold has been the best crisis hedge.
JN: What do you see the gold price doing going forward?
TM: We did an analysis of the historical prices of different asset classes, and it seems that gold first—when the crisis starts—goes down like the rest of the assets, but then it starts to rise very fast.”
USAGOLD note: Malinen paints a very bleak picture for the European economy saying that he at first viewed the coronavirus as a trigger and now he sees it as a driving force of its own. In one captivating section, he talks about the possibility of central banks failing – a subject few economists have addressed, although we do recall, James Grant recently raising the prospect.
“Perhaps scarred by their experience, or perhaps due to the distressing human tragedy that is currently unfolding, they (i.e., analysts concerned about inflation) have been notably quiet this time around. That is unfortunate because, as the saying goes, policymakers always solve for the last crisis. We are worried that the real pain trade for markets – and the economy – is the long awaited return of inflation. A good hedge would be to buy gold, as well as inflation linked bonds in the US and Euro Area, which are currently trading at all time lows.” – Oliver Harvey, DeutscheBank
USAGOLD note: Gold would have to trade at more than $2200 per ounce to match the early 1980s high when adjusted for inflation. That figure does not take into account any future inflation. We should keep in mind too that fewer analysts worry about inflation these days than disinflation or deflation. The beauty of gold as a portfolio item is that history has shown it to protect against either or both no matter in which order they arrive.
Adjusted for Inflation (1970- present)
“Confidence has been shattered. Faith that central banks have everything well under control has been broken. Myriad fallacies have been exposed. Central banks can’t guarantee liquid markets, especially in a Bubble-induced highly levered speculative environment. The entire derivatives universe has been operating on the specious assumption of liquid and continuous markets. History is unambiguous: markets experience bouts of illiquidity, dislocation and panicked crashes. The fantasy that contemporary central bank monetary management abrogates illiquidity and market discontinuity risks is being debunked. The mania in finance has, finally, run its course.”
USAGOLD note: Noland goes on to describe a great unraveling not unlike what Strauss and Howe warned about in The Fourth Turning (and Howe continued to warn about after its publication). “Covid-19,” says Noland, “has let the genie out of the bottle.”
Repost from 3-22-2020
John Rubino/Dollar Collapse
“Two points about Mobius’ suggestion that most portfolios should be 10% allocated to gold: First, the idea of replacing dollar cash with a historically better-performing store of wealth seems like a no-brainer in a world of soaring fiat currency debt and plunging interest rates. Second and vastly more interesting, the current allocation to gold in the financial world is about 1% of total investable capital, so moving from here to 10% would produce spectacular price gains for gold.”
Image courtesy of Visual Capitalist/Jeff Desjardins
Repost from 7-11-2019