Gold pushes higher in follow-up to yesterday’s solid advance
Sharp upside in silver was yesterday’s biggest surprise

(USAGOLD – 10/4/2022) – Gold pushed higher this morning in the follow-up to yesterday’s solid (nearly $40) advance. It is up $10.50 at $1711. Silver is up 16¢ at $20.92 after yesterday’s surprise 9% (+$1.75) single-day gain. The sharp upside for both metals looks to have been a delayed reaction to last week’s Bank of England’s abrupt return to quantitative easing – a not-so-subtle reminder of how quickly a central bank can change direction when faced with the prospect of a financial panic. We would not rule out a healthy dose of short-covering contributing to yesterday’s upside.

The Silver Institute displayed impeccably good timing by publishing a study recommending a 6% portfolio allocation to silver on a day it happens to gain over 9%. “While silver’s price movements,” reads the report, “are often closely correlated with gold, Oxford Economics’ analysis suggests that silver’s return characteristics are sufficiently different from gold to make it a valuable diversification tool that deserves its own portfolio commitment. With over half of global silver demand used in industrial applications, the price of silver tends to be more sensitive than gold to trends in the global industrial cycle, contributing to its higher volatility. Moreover, silver is likely to benefit from an increasingly positive structural demand outlook over the medium term, given its use in many green technologies, indicating that we may be entering a period where the gold-silver price ratio shifts back in favor of silver.”

Silver average annual prices
(1971- 2022)
bar chart showing the average annual price of silver 1971-2022
Chart by USAGOLD • • • Data courtesy of MacroTrends.net

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The Wizard of Oz is a story about the dangers of the gold standard

BigThink/Marianne Hayes/9-29-2022

photograph of original cover for the wonderful wizard of oz book“The Wizard of Oz film was actually based on an L. Frank Baum novel, which was published in 1900 amid  political tension in the U.S. Previously, the Coinage Act of 1873 had effectively stomped out the policy of bimetallism in the U.S. As a result, if you held silver bullion, you could no longer use it to make U.S. coins. This was followed by an economic depression and a rallying cry from many Americans to bring back bimetallism.”

USAGOLD note: In short, removing silver as a source of minted money sharply reduced the money supply creating an economic depression. Those who advocated a bimetallic standard were the “easy money” faction while those who advocated a gold-only standard represented a tight monetary policy. Many years ago, we posted professor Quentin P Taylor’s interpretation of L. Frank Baum’s beloved book at our Gold Classic’s Library. “Money and politics in the Land of Oz” was an instant hit and continues to receive a steady stream of visitors to this day.

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Notable Quotable

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“I’m no insect. Gold is a great way to make a lot of money.”

Thomas Kaplan
Electrum Group

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Lessons from the UK pension fund shock

Financial Times/Robin Wigglesworth/9-29-2022

graphic image of a red flag flying over a bank“The UK’s wounds are to a large extent self-inflicted, from longtime issues like the yawning current account and budget deficit, to recent “own goals” like last week’s “fiscal event”. But it was unquestionably more vulnerable because of the Fed — the entire world’s de facto central bank — ratcheting monetary policy tighter and tighter.”

USAGOLD note: As has been the case repeatedly over the last couple of decades, the markets were completely taken by surprise when the source of UK’s systemic problems was identified. Wigglesworth digs deep into the UK’s crisis for those who want the details. Inevitably, it gets down to derivatives, leverage, and margin calls. When one considers where the blame lies as he outlines in the snippet above, it would be foolhardy to believe that there aren’t other, similar stress points pulsating out there.

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How to choose a gold firm
It may be the most important choice you make as a gold owner

photo shows choosing a king on the chessboard

It is surprising how many prospective investors simply dive into gold and silver investing without much in the way of a consumer inquiry. That lack of simple due diligence has ended up costing a good many investors thousands of dollars, and sometimes even hundreds of thousands before the damage is detected.

Here you will find some brief but useful guidelines
to help
you choose the right gold and silver company.


To end right, start right.
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The latest tweets from Fred Hickey on gold

Twitter/Fred Hickey/9-24-2022

graphic image of group of green flags“This Western investor derivatives shorting clearly is not sustainable (especially with strong Eastern physical gold buying and widening premiums) & eventually the futures traders will be forced to cover their shorts, leading to a massive rally in gold. Could happen at any time. While there have been steady outflows from the GLD ETF during this gold selloff, the daily declines have been relatively light. Not much long futures selling either. Gold’s declines have been driven primarily by Western trader shorting, meanwhile, the East continues to accumulate. The Managed Money (MM) net short position is also the highest since the (record high) in 2018-2019 from whence gold soared from around $1180 to 2060 over the next 2 yrs.”

USAGOLD note: Hickey is the editor of High Tech Strategist and a widely followed markets analyst with a soft spot for gold. We thought this quick overview worth passing along – especially for our newcomers.

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Wharton’s Jeremy Siegel accuses Fed of making one of the biggest policy mistakes in its 110-year history

MarketWatch/Joseph Adinolfi/9-24-2022

cartoon image of man flipping a gold coin“When we had all commodities going up at rapid rates, Chairman Powell and the Fed said, ‘We don’t see any inflation. We see no need to raise interest rates in 2022.’ Now when all those very same commodities and asset prices are going down, he says, ‘Stubborn inflation that requires the Fed to stay tight all the way through 2023.’ It makes absolutely no sense to me whatsoever.’” – Jeremy Siegel

USAGOLD note: This is what happens when the Fed becomes too immersed in the politics of the day rather than tending to the business of keeping the economy stable. One mistake leads to another until markets begin to lose confidence. From the outside, it begins to look like policy direction is reduced to a mere flip of the coin. “I think the Fed is just way too tight,” says the unhappy professor Siegel. “They’re making exactly the same mistake on the other side that they made a year ago.”

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John Paulson’s views on gold

Bloomberg/Michael P. Reagan/9-25-2022

cartoon on sticking with gold over stocks
“One thing about gold is that it’s down this year, more or less 8%. It’s down a lot less than stocks or bonds. So it has proven to be a source of protecting wealth.”

USAGOLD note: Paulson’s latest views on gold are included in a more expansive interview at the link. We cited this interview in yesterday’s DMR and repost it here for those who may have missed it. He explains how the positive real rate of return has kept a lid on gold and outlines a technical scenario under which all that could change.

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Short and Sweet
When the United States owned most of the gold on Earth

bar chart showing U.S. gold reserves 1870 to present

Chart courtesy of GoldChartsRUs

Few Americans know that the United States owned most of the official sector gold bullion on Earth just after World War II – 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. Then, 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 $1700-1800 range. For the central banks and private investors who redeemed their dollars for gold at $35 per ounce, the gains have been extraordinary – over 5000% at current prices or 8.2% annually compounded over the 49-year period.  Simultaneously, the 1971 dollar has lost more than 84% of its purchasing power.

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Central bankers fighting inflation need good political fortune as well as skill

Financial Times/Merryn Somerset Webb/9-20-2022

photographs of Paul Volcker and Jerome Powell“It is hard not to feel sorry for Arthur Burns, chair of the US Federal Reserve, when you look back at the unpleasant inflationary years of the 1970s. He clearly felt his failure deeply (and it was a failure — inflation ran at an average of 6.5 per cent a year during his tenure) if the title of a lecture he gave in 1979 in Belgrade is anything to go by. He called it ‘The Anguish of Central Banking.'”

USAGOLD  note: Webb says success as a central banker in slaying the inflation beast depends more on luck than skill. Volcker had it in the 1980s, but will Powell in the 2020s? Webb has her doubts.

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Gold edges higher; silver moves with conviction to start critical month
London dealers report a rush for gold as investors scramble to protect their assets

(USAGOLD – 10/3/2022) – Gold edged higher to start what many see as a critical month for financial markets. It is up $5 at $1668. Silver moved higher with significantly more conviction than its brethren – up 40¢ (+2%) at $19.52. The British government backed off its ill-received tax-cut pledge, but the market response has been muted at best. The lingering uncertainty signals there is much more to what ails Britain than a proposed tax cut.

London gold dealers are reporting a rush for gold as investors scramble to protect their assets against mounting uncertainty, according to a Bloomberg report over the weekend. “Buying has increased exponentially,” gold dealer J Blundell & Sons Ash Kundra told Bloomberg. “I keep running out of coins, I keep running out of bars.” Also interviewed, Bullion Vault’s Adrian Ash says that though the inflation crisis is global in scope, Britain “has put itself right in the eye of the storm.” Pound sterling is plumbing historic depths against the dollar, and gold is trading near record highs when priced in the currency.

British pound-US dollar / Gold-British pound
(2009-present)
overlay chart showing the pound priced in USD and the price of gold in pound sterling
Chart courtesy of Trading View.com • • • Click to enlarge

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Notable Quotable

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“Perhaps we slow investors should adopt a mascot. I suggest the sloth. Hanging upside-down, moving at a few metres a minute, is much like trading infrequently: it saves the costs of doing things more quickly. Sloths take almost two months fully to digest each meal — which is handy, given that they eat mildly toxic leaves that would poison them if absorbed too quickly. Investors are reminded, all too often, that the financial world is lush with toxic get-rich quick products. A slower approach to finance makes market movements a great deal more digestible.”

Tim Hartford
Financial Times/The Undercover Economist

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Graphic to link the calendar of reports and events for the week ahead

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Sunday In-Depth
A market edict from Mount Sinai, or a repeat of the 1970s?
MarshMcClennan urges wealth managers, banks, and family offices to think gold

“[O]ver the long run the Fed will most likely chart a middle course that will take the form of stagflation.” – Ray Dalio, Bridgewater Associates

cartoon illustration of Moses delivering the ten commandments

In a recent interview with Financial Times, Henry Kaufman, the original “Dr. Doom” who spent most of his career as an economist at Salomon Brothers, expressed his fears that the current Fed under Jerome Powell is failing to combat inflation as Paul Volcker did in the 1980s. “I am still waiting for him to act boldly,” says Kaufman. “Today, the inflation rate is higher than interest rates. Back then, interest rates were higher than inflation rates. It’s quite a juxtaposition. We have a long way to go. Inflation has to come down or interest rates will go higher.” However, this kind of old-world thinking is not what moves Wall Street or other financial centers around the world. The new-world thinking is attached firmly to the notion of a pivot, but what if the Fed never really pivots? Or never really tightens? What if it simply continues to raise rates but never achieves full lift-off?

Perhaps it’s time we developed definitions for the terms dovish and hawkish more suitable for the times. Is it hawkish or dovish to raise rates but keep them a considerable distance from the inflation rate? In our view, it is simplistic to call the Fed hawkish simply because it raises rates. The central banks of Argentina, Venezuela, and Zimbabwe have been raising rates for years, yet their inflation rates are now 70%, 167%, and 257%, respectively, and climbing. No one would be so foolish as to characterize their central banks as hawkish – nor their stock and bond markets as stable. Yet, Wall Street reacts to the act of raising rates as if it were a market edict delivered from atop Mount Sinai when the real effect on inflation might be to moderate rather than throttle it. In short, we may be headed back to the 1970s and a time when central bankers talked the talk on taming inflation but never really walked the walk.

MarshMcClennan, which advises top wealth managers, private banks, and family offices, says it used to be that portfolios were geared to a disinflationary climate well-suited for stock and bond ownership. Now, for the “first time in a generation,” it says in a recently-issued report, investment managers need to seriously consider persistent inflation and stagflation in their planning. “Inflationary scenarios, especially stagflation,” it advises, “leave most portfolios vulnerable. Here, commodity-oriented strategies and gold may prove valuable additions to portfolios.” (Please see chart below.)

“Gold,” it concludes, “is a special case commodity. Historically, it has done well when fear of inflation is high, specifically inflation driven by monetary expansion, having a high sensitivity to inflation when inflation is on a runaway trajectory. Gold may outperform broader commodities in a stagflation scenario (high inflation during a period of stagnating growth), being largely decoupled from industrial demand, and, typically, it has underperformed broader commodities in an inflationary environment that comes with economic growth. That gold often comes into its own in higher inflation scenarios is related to its close relationship to currency debasement.”

Gold, Stocks, and the Misery Index during the Stagflationary 1970s
(% change, annual; Misery Index = Inflation + Unemployment)
bar chart showing gold, stocks and the Misery Index during the stagflationary 1970s
Data sources: St. Louis Federal Reserve [FRED], MacroTrends.net • • • Click to enlarge

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Favorite Web Pages
Gold Charts in Various Timelines and Currencies
map with currency symbols–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Euro, Chinese yuan, British pound, Japanese yen, Swiss franc, Indian rupee, Australian dollar, Canadian dollar, U.S. dollar

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USAGOLD was among the first to offer charts that tracked gold in various currencies and timelines. These live charts have always attracted a steady stream of U.S. and international visitors. As a result, we recently streamlined and upgraded the page to make it more user-friendly and included more currencies in the mix.

We invite your visit and bookmark.

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US is inflating its debt away after unprecedented spending binge

Bloomberg/Ye Xie/9-23-2022

graphic showing cash as trash“This is a big break for the government and taxpayers. It makes the debt more manageable and easier to pay back. It’s lousy for bondholders. The money they’ll be repaid by the government will be worth a lot less than the money they put up.”

USAGOLD note: It’s not just bondholders who suffer – from Tokyo to Beijing to Berlin and beyond. Ordinary citizens with money in CDs, money market accounts, and the like, also suffer as their purchasing power slowly goes up in smoke…… As many thoughtful commentators have suggested, we are in a whole new financial era. We get the feeling that the real reaction to all of this hasn’t even begun.

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A great copper squeeze is coming for the global economy

Bloomberg/James Atwood/9-21-2022

“You wouldn’t know it from looking at the market today, but some of the largest miners and metals traders are warning that in just a couple of years’ time, a massive shortfall will emerge for the world’s most critical metal — one that could itself hold back global growth, stoke inflation by raising manufacturing costs and throw global climate goals off course.”

USAGOLD note: Over 25% of the silver supply comes as a byproduct of copper mining. A copper squeeze, as a result, would also greatly affect the supply of silver at a time when above-ground stockpiles have been depleted. As you can see from the chart below, copper and silver have been traveling companions over the past decade.


overlay chart showing silver and copper prices
Chart courtesy of TradingEconomics.com

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From the Fed to Europe’s currency crisis, here’s what’s behind this selloff in financial markets

CNBC/Patti Domm/9-24-2022

graphic illustration of a crowded exit“‘By basically endorsing the idea of a recession, Powell set off the emotional phase of the bear market,’ said Julian Emanuel, head of equity, derivatives and quantitative strategy at Evercore ISI.”

USAGOLD note: In the financial world, October, not April, is the cruelest month. The month nature retreats – goes into hiding, and prepares for the winter. And at the end of September 2022, the prevailing mood in markets suggests the beginnings of just such a full retreat. “The bad news is you are seeing and you will continue to see it in the near term in indiscriminate selling of virtually every asset,” says Evercore’s Emanuel, “The good news is that tends to be that the end game of virtually every bear market we’ve ever witnessed, and it’s coming in September and October, where that has historically been the normal state of affairs.”

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Short and Sweet
China’s monetary tradition and the origins of money

Artist rendering ancient Chinese spade money 1558-1050 BC

“The first step in theorizing correctly about money,” writes Mises Institute‘s Joseph T. Salerno, “is to understand that the value of money, like that of commodities, is never fixed and unchanging. Chinese philosophers who published the earlier Mohist Canons (468 B.C.~376 B.C.) grasped this crucial point. They recognized that metallic money, such as the ‘knife coins’ (pictured above) then in wide circulation, was valued and exchanged by weight and argued that the real value of money, despite its fixed face value, was not stable but fluctuated inversely with the prices of commodities. When commodity prices were high, money was ‘light’ or its purchasing power low; when prices were low, money was ‘heavy’ or its purchasing power high. Thus, if monetary conditions were such that the nominal prices of commodities were abnormally high, the real prices of commodities were not high, but rather money was ‘light’ or depreciated.”

According to Salerno, much of what we understand about sound money was first explored in ancient China, where metallic coinage was first introduced in the 12th century BC or earlier. Salerno’s article serves as an interesting introduction to Chinese monetary theory and philosophy. We recall that China was also the first country to experiment with paper money as an alternative to coins made from precious metals.  As might be expected, those experiments led to several instances of runaway inflation.

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“Does the deployment of helicopter money not entail some meaningful risk of the loss of confidence in a currency that is, after all, undefined, uncollateralized and infinitely replicable at exactly zero cost? Might trust be shattered by the visible act of infusing the government with invisible monetary pixels and by the subsequent exchange of those images for real goods and services? . . .  To us, it is the great question. Pondering it, as we say, we are bearish on the money of overextended governments. We are bullish on the alternatives enumerated in the Periodic table. It would be nice to know when the rest of the world will come around to the gold-friendly view that central bankers have lost their marbles. We have no such timetable. The road to confetti is long and winding.” – James Grant, Grant’s Interest Rate Observer

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