“At these levels, why own gold in a portfolio? The combination of low-to-negative government bond yields plus a weakening US dollar, and, most importantly, massive central bank accommodation, supports financial demand. This relationship between gold and real yields has held for the last decade and recent central bank interventions have reinforced the case for holding gold as a portfolio diversification tool. In addition, as investors consider the pandemic’s longer-term implications, they are likely to look harder at their exposure to sovereign debt and the solvency of indebted governments. This further increases the attractiveness of gold, which, even if it produces no income and is costly to store, carries no credit risk.”
USAGOLD note: Lombard Odier, founded in 1796, is a private Swiss banking firm that manages about $250 billion in assets for private individuals and other institutions. It is now recommending gold ownership to its clientele.
Repost from 7-22-2020
“The tweet was born out of several ideas I had for articles to write. One, on the relationship between the gold price, inflation expectations, and the inflation needed to lower the debt burden. Two, on the accounting structure of central banks’ balance sheets, and the ability of using gains in the price of gold to absorb losses on other assets. Three, on restoring financial stability through a new equitable monetary system that incorporates gold. In aggregate, I think gold will be used to get out of the current financial mess.”
USAGOLD note: There is significant reportage on gold being purchased by central banks, but it really is not the major players in the official sector who are doing the buying but the smaller players – led by Turkey and Russia. There has been considerable speculation that China has been a major buyer with Nieuwenthuijs among the researchers advancing the theory. It will be a profoundly different story for the gold market, however, if major central banks begin adding gold to their coffers as a policy maneuver to hedge their overall balance sheets. Competition for available supplies would intensify. The price would likely respond.
Repost from 10-22-2020
“In a week when several major oil and gas reports were released, most notably the IEA World Energy Outlook 2020 and OPEC’s World Oil Outlook, a regional conflict is now on the brink of spiraling out of control. The toxic combination of a military confrontation between Azerbaijan and Armenia, supported by Turkey and Russia respectively, and the confrontational stance that Ankara is taking in the East Med conflict are threatening to upend European energy supplies.”
USAGOLD note: It’s the one that sneaks up on global financial markets that can end up being the most unsettling.
Repost from 10-21-2020
“As I have explained above, fiat currencies are devalued. It does not necessarily mean we will face hyperinflation. After all, we did not face that problem during the Great Recession after the Fed eased its monetary policy. However, the very expectation of high inflation and a deep economic crisis might make investors quite skeptical of the fiat currencies. What’s more, many investors will also probably be reluctant to buy stocks and corporate bonds. After all, economic hardships put significant pressure on many companies’ earnings. So, where should people invest? The most obvious answer is precious metals.”
USAGOLD note: We concur. In fact, we took pretty much the same tack in this analysis first published in March of this year: Gold’s Century – While stocks dominated headlines, gold quietly performed
Repost from 10-24-2020
(USAGOLD – 10/27/2020) – Gold continues to tread water in the run-up to next Tuesday’s election. It is up $2 at $1906. Silver is up 16¢ at $24.60. With the Senate now adjourned, it looks like hopes for a stimulus package will go on hold until after the election. While gold remains in a pre-election muddle, some are predicting a strong post-election rally. Standard Chartered’s Suki Cooper thinks gold could still reach $2000 by the end of the year and $2100 early in 2021. “Negative real rates, expectations of a weaker USD and stimulus packages continue to paint a favourable backdrop for gold, but lighter positioning suggests caution ahead of the election,” she said in comments featured at the Kitco website this morning. Gold could get an unexpected lift going into the end of the year from China where demand for the metal was up 28.7% in the third quarter, according to a Reuters report.
Chart of the Day
Chart note: As you can see, the drop in the Weekly Economic Index from early March through mid-April was the worse since the 2008 financial crisis. Since then we have had something of a recovery but the index remains deeply below the zero line. As a matter of interest, we added the price of gold. At the moment, the index is in recovery mode though it still appears a bit weak at this juncture, as it did the first time we ran this chart a month ago. Stay tuned. We will repost this chart at from time to time to see if we get a “V”, “W”, “Nike swish” or “lightning bolt” – and gold’s response. (The Weekly Economic Index incorporates a long list of economic indicators including retail activity, unemployment claims, even railroad traffic and wholesale fuel sales (to name a few) using “timely high-frequency data.”)
“The authorities will remove existing obstacles for the yuan’s internationalization, with a steady liberalization of the capital account, increasing the yuan exchange-rate flexibility and improving liquidity in the bond market, Zhu said.
USAGOLD note: A greater role for the yuan as a reserve currency could translate to important implications for the gold market in the coming years – particularly insofar as it impacts the dollar’s role as the world’s primary reserve currency. Zhu Jun is the director-general of the People’s Bank of China international division.
“The Swiss franc, a currency with more reasonable debt loads, is up 90% against the dollar since 2000. It may take a combination of measures to ascertain the dollar’s true value, and the metals market, particularly gold, should be front and center. Gold is often a market worth watching. With the uncertainties seen in 2020 and the policy responses to that uncertainty, that remains especially true now.”
USAGOLD note: A roundtable discussion on the tailwind building behind the price of gold ……
“John Locke, the British philosopher whose ideas fuelled the American Revolution, had a theory of knowledge and perception, which I always found annoying. Asked if we have an idea of the substance behind our perceptions, he said we had ‘no such clear idea at all, and therefore signify nothing by the word substance but only an uncertain supposition of we know not what’. The philosophical debate has moved on in the centuries since Locke wrote. But his idea captures well the uneasy state of the world’s financial markets. They are driven in the short run by perceptions, not reality. If many have the wrong impression, markets will move on that. But in the long run, markets move on matters of substance. And at present the economic substance is a ‘something we know not what.'”
“The world reels from the economic aftershocks of the coronavirus pandemic but for the Swiss bankers shepherding the fortunes of the world’s super-rich, it is boom time.”
USAGOLD note: This saga about the rich getting richer the result of the pandemic has a surprise ending: The very rich are putting a lot of those newly gained riches into gold at the advice of their Swiss-based financial advisors – UBS among them. The advice, says FT, was to stay in the stock market but build hedges. “One hedge in particular,” it says, “was pushed by many Swiss bankers and wealth advisers to their clients with great success this year — gold. … Buying it was the corollary to the huge governmental stimuli that buoyed equity markets.”
Image courtesy of VisualCapitlist.com
“‘During the next presidential administration, I don’t see why it should not increase another 50% or maybe more,’ McGlone said. Following the 2020 election, McGlone sees gold’s $2,000 an ounce level transition from resistance to support. ‘I view gold similarly to 2001 when the gold bull market got started. The metal is currently resuming the bull market that started 20 years ago,’ he said.”
USAGOLD note: Interesting take on where we are and where we are going from Bloomberg commodity analyst Mike McGlone. McGlone thinks we are going to get a Democratic sweep and that the Fed is going to buy [monetize] most of the stimulus a blue-wave federal government will create.
“Amor fati was Nietzsche’s famous expression. It is a Latin phrase with connections to the Stoic writings of Epictetus and Marcus Aurelius. Literally translated, it means ‘love of fate. It is a white shoe yearning for mud. It is a turkey looking forward to Thanksgiving. Or an investor stoically preparing for a bear market. We use the term to describe the grace and courage you need to meet a complex, unknowable, and uncontrollable future.”
USAGOLD note: Highly recommended deep thinking from Bill Bonner …… As for the unknowable and uncontrollable when it comes to markets, a little gold and silver in the portfolio will go a long way in keeping the wolf from the door.
Repost from 10-20-2020
“On gold’s latest 13-year chart we can see that the giant Bowl pattern has already driven a breakout to new highs in recent months and in this context the minor reaction of recent weeks is a perfectly normal development that unwinds the overbought condition somewhat and rebalances sentiment. The Bowl pattern can also be described as a Cup, and very often a “Handle” forms to complement the Cup before further significant gains are made, which is a period of consolidation that proportion suggests could last a year or two. Should such a Handle now form it would clearly be a source of major annoyance and frustration to investors in the sector as it would mean their holdings would generally go nowhere for a year or two. However, things are deteriorating at such a rapid rate that it is considered most unlikely that gold would get bogged down in this manner. The ongoing exponential rise in money creation to support a collapsing economy that has been made worse by the virus hysteria and disproportionate reaction of governments around the world means that the purchasing power of fiat most everywhere will decline at an accelerating rate, and since gold is “real money” that holds its value no matter what, it must therefore gain in price to compensate. What could therefore happen instead is that, rather than meander around for ages making a Handle, the steeply rising Bowl boundary generates a dramatic slingshot move higher in gold, which the current setup certainly makes possible, especially as it has just broken out to new highs.”
USAGOLD note: The latest from Clive Maund who says “If gold does react back as shown on the chart [to the $1850 level] it will be viewed as presenting a “back up the truck” buying opportunity. The bullishly aligned moving averages and strong Accumulation line certainly bode well for the medium and long-term.”
Chart courtesy of Clive Maund Technical Analysis
Repost from 10-19-2020
“China is a market of active retail investors with a strong affinity to gold. And there is a sizable pool of potential new investors. Our unique insights reveal opportunities for the gold investment industry to reach this audience, grab their interest and expand the market.”
USAGOLD note: This survey is aimed at the gold industry itself as an encouragement to pursue latent gold demand in China, but it carries implications for current and would be Western investors as well. Tapping this huge market could lead to stronger demand, higher prices. “24% of retail investors,” says the WGC, “have never invested in gold but say they would now consider doing so.”
Graphic image courtesy of World Gold Council
Repost from 9-9-2020
The stock market is in a mania fueled by the Federal Reserve and investor speculation that will end badly in coming years, longtime hedge fund manager Stanley Druckenmiller told CNBC on Wednesday. ‘Everybody loves a party … but, inevitably, after a big party there’s a hangover,’ the billionaire CEO of the Duquesne Family Office said in a “Squawk Box” interview. ‘Right now, we’re in an absolute raging mania. We’ve got commentators encouraging companies to do stock splits. Companies then go up 50%, 30%, 40% on stock splits. That brings no value, but the stocks go up.’”
USAGOLD note: Druckenmiller’s surprising assessment brought to mind a quote from another stock market speculator who warned off market mania a long time ago:
“Have you ever seen in some wood, on a sunny quiet day, a cloud of flying midges — thousands of them — hovering, apparently motionless, in a sunbeam? …Yes? …Well, did you ever see the whole flight — each mite apparently preserving its distance from all others — suddenly move, say three feet, to one side or the other? Well, what made them do that? A breeze? I said a quiet day. But try to recall — did you ever see them move directly back again in the same unison? Well, what made them do that? Great human mass movements are slower of inception but much more effective.” – Bernard Baruch, Wall Street financier (1870-1965)
Repost from 9-9-2020
“Investors sought security in silver-backed Exchange-Traded Products (ETPs) in the first nine months of 2020, nearly tripling the amount amassed compared to the comparable period in 2019. Investors have also had a strong appetitite for investment in silver bullion coins and bars during the first three quarters of this year. Overall, this reflects both silver’s role as a safe haven asset and as a leveraged play on gold, as some investors expect silver to outperform the yellow metal.”
USAGOLD note: Silver demand has been strong and steady at USAGOLD in 2020. Most of the volume is in the American Eagle bullion coin with the Canadian Maple Leaf in the number two position.
Repost from 10-18-2020
Rainy day investment
“In an economy buffeted by the ups and downs of farming and fishing, the people [of India] are used to buying gold after bumper harvests or fishing seasons and selling it after lean ones.” –– Vivek Kaul, Live Mint
Dr. MoneyWise says: “It’s all very simple. Own gold for a rainy day. Use it if and when that day arrives.”
“The answers here are speculative. We lack good data over multiple inflation spells to know for sure how different assets perform as inflation hedges, and of course plenty has changed since the early inflation episodes, such as Egypt under Ptolemy IV (221-204 BC), Rome (from Nero through Claudius II) or China during the Song Dynasty (960-1279). But history tells us that inflation can happen anywhere, typically where rulers choose to spend more than they take in from tax revenue.”
USAGOLD note: Conerly’s point that inflation occurs where rulers’ i.e., governments’ spending exceeds revenue spend fits in nicely with the rest of this morning’s board. As the chart further down the page illustrates that gap is now radially askew. “Gold,” he says, “is the classic inflation hedge……During America’s worst inflationary period, 1968-1982, the Consumer Price Index rose an average of 7.3% per year, while gold gained 17.1% per year.”
Repost from 10-18-2020
(USAGOLD – 10/26/2020) – Gold managed to eke out a small gain in early trading as markets generally weighed a surge in coronavirus cases, the lack of progress in relief negotiations, and uncertainty over the upcoming presidential election. It is up $4 at $1908. Silver is down 36¢ at $24.33. Gold Newsletter‘s Brien Lundin sees the choppy market for gold continuing “perhaps until mid-December.” “10-Year Treasury yields have been trending higher since early August,” he says, “which corresponds neatly with gold’s correction. Along with the 10-year yield, we’ve also seen real rates trace out a similar rise. This has been a headwind for gold and, combined with some uncertainty in the upcoming U.S. presidential election and a fiscal stimulus package, has helped to keep the yellow metal at bay.”
Chart[s] of the Day
Gold, silver and the DJIA – Year to Date
Chart courtesy of TradingView.com • • • Click to enlarge.
Gold, silver and the DJIA – One Year
Chart courtesy of TradingView.com • • • Click to enlarge.
Chart note: As of last Friday (10/23/2020), gold is up 27.56% over the past 12 months. Silver – now outperforming gold on a 12-month basis – is up 40.39% and the Dow Jones Industrial Average is up 5.60%. Year to date, gold is up 24.48%. Silver is up 36.69% and the DJIA is down 1.85%.