“A less innocent — but all too plausible — alternative reading is that investors now believe central banks will exercise complete control over asset prices for the foreseeable future. In other words, the categorical imperative of policymakers doing ‘whatever it takes’ to counter the current crisis could ensure a lasting decoupling of equity prices from ailing economies.
USAGOLD note: Plender thoughtfully lays out the possible scenarios if and when the Fed moves to yield control Including those he describes as “morally hazardous.” The short answer to FT’s headline question? Helicopter money and its economic cousin, MMT, come to mind.
Repost from 7-1-2020
“… [P]olicymakers now see their primary task as staving off downturns and boosting growth and inflation. Central bankers have come out and said governments need to do more to stimulate growth with fiscal policy. The way to invest for unexpected bursts of fiscal stimulus might be assets that have largely been out of favor in recent years, such as value stocks of financial and non-U.S. companies, and perhaps commodities.”
USAGOLD note: First, we disagree with the notion that the baby boomer investing era is coming to an end. To the contrary, we see it as being in its formative years. Generally speaking, investors do not suddenly stop being investors arbitrarily at 70 years of age. Second, the headline to this article, in all fairness, belies the content. What it is really about is the changing investment landscape from one dominated by disinflation to one potentially featuring inflation (perhaps even runaway inflation) – a paradigm change that, should it occur, will need to be taken into account in the investment portfolio.
Repost from 6-19-2020
“Speaking at a Schroders breakfast briefing yesterday (January 22), Janet Mui, global economist at Cazenove Capital, said she thought investing in gold was the best way for advisers and fund managers to hedge the risks in their portfolios. She said: ‘Gold has the feature of portfolio hedging and diversification. Gold should be in your portfolio.’”
USAGOLD note: More and more, it is becoming a mainstay in the financial business that the wise investor and/or financial advisor embrace gold as a means to capital preservation in a rapidly changing and increasingly dangerous investment climate. In Cazenove’s case, it is emphasizing gold as a hedge against geopolitical turbulence.
Related, please see:
Precious metals for financial planners and advisors
We will work with you to offer your clients a strong, service-based
presence in the gold coin and bullion market
Repost from 1-24-2020
“‘If you don’t have a tail hedge, I suggest not being in the market [as] we’re facing a huge amount of uncertainty.’ That’s “Black Swan: The Impact of the Highly Improbable” author Nassim Nicholas Taleb offering his view on the risks swirling in the market and a growing lack of clarity about the future in the era of a deadly pandemic that has created a public health and economic crisis.”
USAGOLD note: Taleb goes on to say “we are printing money like there’s no tomorrow.”
Repost from 7-2-2020
Repost from 6-29-2020
When the United States owned
most of the gold on Earth
Chart courtesy of GoldChartsRUs
Few Americans know that just after World War II the United States owned most of the official sector gold bullion on earth – about 22,000 metric tonnes or 80% of the world total. As part of the 1944 Bretton Woods Agreement, though, the United States allowed unrestricted redemptions from its reserves at the benchmark rate of $35 per ounce. In the 1960s, a group of European countries, led by Germany and France, got the idea that U.S. trade and fiscal deficits had undermined the dollar, making gold a bargain at the $35 benchmark price. Steadily over the next decade, they exchanged dollars for gold at the U.S. Treasury’s gold window. By the early 1970s, 14,000 tonnes of gold – or 64% of the stockpile – had departed the U.S. Treasury never to return (See the chart above).
The transfer of gold finally ended in 1971 when President Nixon halted redemptions, devalued the dollar and freed the greenback to float against other currencies. The era of global fiat money with the dollar as its centerpiece had begun. Gold transformed from its official role as backing the dollar to serving as a hedge against its depreciation. Since that role reversal, gold has risen in fits and starts from the $35 official benchmark in 1971 to a peak of over $1900 in 2011. It is trading now in the $1750 range. For the central banks and private investors who redeemed their dollars for gold at $35 per ounce, the gains have been extraordinary – over 4800% at current prices or 8.25% annually compounded over the 49-year period. Simultaneously, the 1971 dollar has lost more than 84% of its purchasing power.
Fred Hickey/Twitter feed
“I’d be mighty uncomfortable right now with gold inching ever closer to a major breakout if I was one of those many wise guys who’d sold out their long gold futures positions, sold GDX, & bought DUST in anticipation of a seasonal sell-off that hasn’t occurred. A perfect environment for gold – now breaking out & on its way to new highs, leaving lots of influential gold traders (long-term bulls) on the sidelines & now having to chase gold higher. Only 1 of half-dozen traders (with lots of followers) has thrown in the (bear) towel (last nite) First the smart money guys bought gold (Tudor-Jones, Druckenmiller, Gundlach, Dalio, Zell etc. Now mainstream money’s coming in (see recent Reuters story about 9 major wealth advising firms recommending as much as 10% gold allocations). Public will follow. 30 tons into GLD last 2 days.”
USAGOLD note: There was a time when gold was considered a marginal choice on Wall Street. Over the past several years, it has become increasingly mainstream with a good many fund managers and investment advisors consistently touting it as a necessary inclusion in the well-balanced investment portfolio. Below is a link to the Reuters article Hickey cites above:
Repost from 7-2-2020
(USAGOLD – 7/8/2020) – Gold breached the $1800 this morning for the first time since 2011. It is trading at $1806.50 – up $9 on the day. Silver is up 22¢ at $18.57. Today’s advance follows a strong showing yesterday that coincided with sharp appreciation in China’s yuan and growing investor concern about a resurgence of COVID-19 cases within the United States. Many analysts and investors see the aggressive stimulus policies launched by governments and central banks globally as encouraging inflation down the road – potentially even the runaway variety. The unconventional summer rally in gold and silver that began in early May defies the sluggish market behavior usually associated with this time of year. Gold is up almost 7% and silver over 24% (!) since May 1.
“As of right now,” says markets analyst Frank Holmes in a recent advisory posted at Forbes, “the Fed’s balance sheet stands at $7 trillion, or 33% of US GDP. And earlier this month, the Treasury’s public debt soared past $26 trillion, an incredible 120% of the entire US economy. This isn’t sustainable, obviously, and some analysts now see Dollar-denominated gold hitting a new all-time high in the next 12 months, even in a risk-on environment. Both Morgan Stanley and Citigroup maintain their call for $2000 gold by mid-2021. London-based research firm Edison goes even further. In a note dated June 23, analysts there commented that gold should be near $1900, ‘with the potential for this to rise to in excess of $3000.'”
Chart of the Day
Chart note: The additions to the national debt thus far this year have been nothing short of astonishing – $3.22 trillion since January 1, 2020, and $678 billion over the past 30-days (through June 30 ). One wonders how much debt the U.S. Treasury can place with private and international investors and how much will be financed via the Federal Reserve’s bottomless checkbook. Though few on Wall Street (or Main Street for that matter) would quarrel with the spending decisions governments have made in recent months, a good many are preparing for the potential consequences – whether those policies succeed or fail. That is where gold might come in handy.
“‘We are hearing it more and more as we get more data. People are getting nervous again. Business leaders are getting worried. Consumers are getting worried. And there is a real sense this might go on longer than we have planned for,’ Bostic said in webcast remarks to the Tennessee Business Roundtable.”
USAGOLD note: Some reported this comment from Atlanta Fed President Raphael Bostic Bostic as being the inducement for gold jumping higher yesterday. Generally speaking, comments and observations from regional Fed presidents do not move markets. This comment will raise a few eyebrows, however, in that Bostic is relaying what “business leaders” are telling him.
Cartoon courtesy of MichaelPRamirez.com
“The chaos that engulfed the gold market in March as the global pandemic choked off physical trading routes is rippling through other precious metals, resulting in price dislocations and a surge in exchange inventories for silver and platinum.”
USAGOLD note: From what we can gather, this report indicates that another delivery squeeze might be developing on the commodities exchange – this time involving silver and platinum. The reference to a surge in inventories needs to be put into context. The build-up, if March is the template, has more to do with preparing for heavy delivery demand than it does a sudden surge of metal hitting the market – the opposite of what the explanation above infers. The accompanying chart at the link above, in our view, is far more telling than the text underneath it.
“My studies of the 17 major financial crises since the founding of the Republic reveal that over-optimism is an important driver of the bubbles that eventually become busts. As the legendary investor, Sir John Templeton, once said, ‘The four most dangerous words in investing are ‘This time is different.’ Such was the mind-set that real estate prices could only rise (2008), dot-com companies would forever grow and be profitable (2001), or that the Russian government would never default (1998). “
Robert F. Bruner
“The central bank’s program to buy corporate debt just delays the inevitable collapse and makes it worse, the Bond King contends. … Gundlach, the CEO of DoubleLine Capital, argued that ‘the price of corporate bonds isn’t really real. There’s no price discovery mechanism that’s being pegged. There’s no message; there’s just a target price that the Fed has been doing, and that led to a pop-up in corporate bonds.'”
USAGOLD note: Gundlach’s complaint has become a common one among knowledgeable money men. Ray Dalio recently told Bloomberg that after the 2008 financial crisis, the Fed applied its largesse to a small coterie of banks and financial institutions that it deemed systemically important. “Now,” he says, “the whole economy has become systemically important.” …… To what end no one knows.
“The CRB-index has increased by almost 6% over the past month. The recovery was led by a robust uplift in oil prices. China is partly responsible for the recovery in prices, since the country has a strong foothold in the imports of many commodities.”
USAGOLD note: Something that has escaped the notice among market analysts: the beginnings of a rebound in commodities, according to ABN Amro, as shown in the chart below.
“If capital begins to abandon the U.S. and the dollar in large amounts, the currency will crash and Americans will find themselves paying much more for everything from cars to televisions to gasoline to imported food. Interest rates will be raised in an attempt to lure back investment capital, and the country might undergo a period of stagflation worse than the 1970s. Large-scale unrest would undoubtedly result and — in the worst-case scenario — the U.S. could collapse like Venezuela.”
USAGOLD note: Smith starts this opinion piece with the idea that the United States is already in a decline but that it has occurred slowly, barely noticed. He ends with the assessment posted above.
“Talk about an ideological coup. This was the real thing. Fiat money meant there was no fixed value to the dollar, neither in gold nor silver. If one were to present a piece of Federal Reserve scrip — a sawbuck, say — at the Treasury, one could exchange it for neither gold nor silver but for merely more scrip, maybe ten singles, or slugs that, owing to the Coinage Act of 1965, are made of base metal dolled up to look like silver or copper.”
USAGOLD note: Every once in awhile the New York Sun publishes a gem of an editorial on monetary economics. Most simultaneously embrace and transcend party politics. The link above takes you to the latest …… Bad money drives good into hiding, as Gresham taught us and Ed Stein so effectively illustrated in the cartoon above.
“More hedge funds went out of business during the first three months of 2020 than at any other time since 2015 as the coronavirus led to heavy losses and investors pulled out billions in assets.”
USAGOLD note: Huh? Didn’t the stock market just wind up the best quarter in years? Looks like some folks didn’t get the memo.
Repost from 7-2-2020
- What about inflation? Well, money printing inflates what it is aimed at. If money is electronically printed and poured into stock, bond, and real estate markets, that’s what gets inflated.
- As the rich versus poor net worth and income spreads widen dramatically, social unrest usually begins, and of course that’s in play now on the streets of America.
- The government will eventually demand the Fed aim much more of its printed money at Main Street, rather than just at the rich. That’s when serious inflation can happen.
USAGOLD note: The latest bullet points from Stewart Thomson at the link above …… We would add gold to that first bullet. It can benefit from asset inflation too as it did post-2008 (and some say it is now).
Repost from 7-1-2020
“While people tend to think that a currency is pretty much a permanent thing and believe that ‘cash’ is the safe asset to hold, that’s not true because all currencies devalue or die and when they do cash and bonds (which are promises to receive currency) are devalued or wiped out. That is because printing a lot of currency and devaluing debt is the most expedient way of reducing or wiping out debt burdens. When the debt burdens are sufficiently reduced or eliminated, the credit/debt expansion cycles can begin all over again … “
USAGOLD note: Dalio goes on to offer a well-structured history lesson that begins with an observation: “Of the roughly 750 currencies that have existed since 1700, ” he says, “only about 20% remain, and of those that remain all have been devalued.” From there, he addresses the historical benefits of gold ownership. As most who frequent this page already know, Mr. Dalio, who heads up the world’s largest hedge fund, recommends gold ownership as a safe haven and store of wealth.
Chart courtesy of VisualCapitalist
Repost from 5-12-2020
Opinion: Don’t even think of owning stocks unless you’re willing to buy and hold for at least 10 years
“In fact, some brokers are now enticing investors with visions of another bull market run like the one that began in March 2009, the longest in U.S. market history. Those visions may come to pass, but you’re in for a long wait. In fact, only if you’re willing not to touch your money for 10 years — until 2030 — should you even think of putting new money into the stock market right now.”
USAGOLD note: Not a market for short-term traders, says Hulbert.
Repost from 5-20-2020