Gold looks tempted to go positive for eighth straight trading session
Silver setting up for ‘massive move higher’ says M&T Research
(USAGOLD – 11/15/2021) – Gold looks tempted to go positive in today’s early going after a run of seven straight winning sessions that took it deep into the $1800s. It is down $2 at $1864. Silver is down 11¢ at $25.25. M&T Research Group believes silver supply and demand dynamics are setting up for a big move in prices. The current trading range, it says, offers an “excellent buying opportunity” for long-term investors.
“The ‘poor man’s gold’ is setting up for a massive move higher on the back of market fundamentals and price action technicals,” it says in a detailed analysis posted at the Seeking Alpha website. “Supply and demand dynamics in the silver market are already indicating a deficit building in the market with inflows in ETFs amidst industrial and investment demand building on the back on inflationary pressures and other fundamentals similar to the experiences of the gold market. … Amidst these developments, inflationary pressures caused by money supply increases that have only begun to rear its ugly head in the organic economy only serve to fuel the bullish case for silver.”
Chart of the Day
(1971 to present)
Chart courtesy of TradingView.com • • • Click to enlarge
“They’ll print money until we run out of trees.”
“We’re also seeing a pattern of lower highs and higher lows [on the gold chart] as compression continues. That’s a technical pattern called a pennant because it looks like a sports pennant if you draw converging lines through the highs and lows. A pennant is a setup for a breakout. The breakout can occur in either direction, but it’s more common for the breakout to continue the trend that existed before the consolidation.”
USAGOLD note: Rickards goes on to say that Russia has once again begun to buy gold deploying “the world’s most sophisticated hedging operation.” Other central banks are also adding gold to their reserves. “These central bank purchases were in anticipation of a declining dollar and higher dollar inflation,” he says. “The central banks are buying gold to stay ahead of the curve. Shouldn’t you do the same?”
“GAM Investments’ Julian Howard told CNBC’s ‘Squawk Box Europe’ last week that he believed it was ‘entirely consistent historically to talk about low rates forever.'”
USAGOLD note: The article goes on to quote economic historian Paul Schmelzing predicting that “real rates could soon enter permanently negative territory.” Under such circumstances, including a forever portfolio hedge in one’s financial plan might be a logical alternative.
‘Many explanations were offered for that conundrum, which contributed in a big way to the credit implosion that took place three years later. A quiescent 10-year rate enabled the disastrously over-ambitious structured credit monstrosities that would bring down the economy.”
USAGOLD note 1: Bond yields remain stubbornly low. Authers goes through a list of possible “suspects” for holding rates down and concludes that the final candidate is one many readers will have tapped from the outset – central banks. Though tapering is much on Wall Street’s mind, Deutsche Bank’s Jim Reid, an “indefatigable historian” as Auther’s describes him, believes that “real yields will stay negative for the rest of his career, and that this unenticing option is superior to the alternatives.”
USAGOLD note 2: Reid’s conclusions on the real rate, in our view, offer a powerful incentive for owning precious metals as a means to long–term asset preservation. Reid, in fact, is a gold advocate. “I’m a gold bug,” he once said, “I think fiat money will be a passing fad in the long-term history of money.”
“President Joe Biden acknowledged that Americans are feeling the pressures of inflation and goods shortages, promising that his soon-to-be-signed infrastructure legislation is part of his plan to overcome the extended effects of the coronavirus pandemic.”
USAGOLD note: Normally, we stay away from the political humdrum in Washington, but this statement from Biden is too egregious to leave alone. The president, it would seem, has a curious view of cause and effect. If the prevailing view in the White House is that massive spending is the cure for inflation, then nothing – save possibly the Fed – stands in the way of runaway inflation. Removing Powell from the chairmanship in favor of Lael Brainard, under such circumstances, seems the most logical next checkoff on the Biden agenda. Nothing, then, would stand in the way of wanton money printing. If the comments featured above are not a strong endorsement of Modern Monetary Theory (and by proxy gold ownership), we do not know what is.
“Like an unusually compliant toddler, the bond market’s lack of reaction should be regarded as a cause for alarm.”
USAGOLD note 1: Authers draws attention to something largely overlooked in the wake of Wednesday’s Fed results – the markets’ non-reaction. We mentioned it in Thursday’s DMR as “notably benign.” In making an analogy to toddlers’ temper tantrums, he goes on to ask: “Is this a sign that they are in bad spirits? Are they ill? or could it be that they’re up to something and their suspiciously calm behavior is because they have something to hide?”
USAGOLD note 2: Or, to take the conspiratorial route, could it be that the Fed and counterparties made sure that there was plenty of liquidity in the bond market to soak up any speculative selling? Authers does not mention (or even hint at) that possibility. Still, it is difficult to pass over the headline without thinking it – even in a situation where the whole intent of the Fed chairman was to prepare markets for the removal of central bank largesse.
“Central banks have rattled bond markets, but fears of a radical new regime are overdone.”
USAGOLD note: Wigglesworth thinks the central banks will be very judicious about unwinding the era of quantitative easing. “Fears of serious, durable inflation, aggressive central bank action and subsequent financial market chaos are still wildly premature,” he says. At the same time, the very act of central bank temperance Wigglesworth foresees could be the catalyst for the runaway inflation he downplays.
“The irony is that being a dowk, and saying tapering is about ‘risk management’ rather than taking away the punch bowl from an aggressive drunk, means the Fed produced its best possible outcome – drunker markets – and yet its worst possible outcome – drunker markets. Indeed, traders continue to act as if we are in the ‘new normal’, where the financial economy does not work, and not the ‘new, new normal’, where the physical economy doesn’t either.”
USAGOLD note: A dowk, we are guessing, is a hybridized species combining dove and hawk. Michael Every offers his view of Fed policy moves on Wednesday at the link. It can also be read in full at the ZeroHedge website. He starts with the Fed and ends with some observations on the geopolitical scene not many are thinking about.
Short and Sweet
The next great monetary experiment
Daily Reckoning’s Brian Maher warns of the potential consequences of modern monetary theory. “This MMT sounds like a recipe for immense inflation, even hyperinflation,” he says. “You are spending all this money directly into the economy. It will drive consumer prices through the attic roof, you say. This is crackpot. A witch’s sabbath of inflation would surely result. Yes, but here the MMT crowd meets you head on… They agree with you. They agree MMT could cause a general inflation, possibly even a hyperinflation.” [Link to full article]
Modern Monetary Theory (MMT), we would add to Maher’s observation, is neither modern nor a theory. John Law, the Scottish financier, tried a version of it almost exactly 300 years ago (1717-18) in France.* He did so with the blessing of the French monarchy and with a rationale very similar to MMT’s proponents today. MMT entails, simply put, a federal government fiscal policy without spending limits coupled with the power to print whatever money is required to finance any deficits. In the end, Law’s theories (to his surprise if we are to believe the historical account) bankrupted the French people and the government, reduced the economy to ashes, and created such a distaste for paper scrip among the citizenry that it took 80 years for France to reintroduce paper money as a circulating medium.
In The Story of the Greatest Nations (1900), Edward S Ellis and Charles F. Home tell of the public mania that engulfed the French people and led to ultimate financial ruin for thousands:
“The shrewder speculators* became alarmed. They began to sell their shares of stock, and hoard in gold the enormous wealth they had acquired. This resulted in a demand on the government for metal in exchange for its paper, and soon the government had no metal to give. Then the crash came. Those who had the government paper could buy nothing with it. Those who held the Mississippi stock could scarce give it away. It was worthless. The government itself refused to accept its own paper for taxes. A few lucky speculators had made vast fortunes; but thousands of families, especially among the wealthier classes, were ruined.”
That snippet provides a hint as to the steps taken by those who survived Law’s version of modern monetary theory. For those to whom all of this has a distinct ring of familiarity, perhaps a judicious hedge makes some sense. A number of analysts have made the argument that we do not have to wait for the formal launch of modern monetary theory. It is already here.
* Please see this link for a summary of Law’s Mississippi Company land scheme.
“I think that that is likely to be eclipse next year. I don’t think it’s going to be a runaway where you’re talking about $4,000 gold, but you know, $2,200, $2,300 or $2,400, somewhere in that range, I think in sort of a corresponding moving silver, I think it is likely on the table. And again, it’s going to come from the release of that fed fear, pressure valve, whatever that’s been keeping people from, getting involved.” – Mike Larson, Weiss Ratings
USAGOLD note: Slowly but surely the gold bulls are beginning to resurface after several months of being out to pasture …… We cited Mr. Larson’s opinion in Tuesday’s DMR and repost it here for those who may have missed it.
“The survey showed 1 in 4 consumers reducing their living standards due to price increases, while half of all families anticipated reduced real income in the year ahead when adjusted for inflation.”
Consumer Sentiment Index
(University of Michigan, 2012-2021)
Chart courtesy of TradingEconomics.com
USAGOLD note: Not a very comforting scenario …… This article emphasizes inflation as the reason for plunging consumer confidence, but we see it as a warning shot across the Fed’s bow on anything resembling tighter monetary policy.
Gold slips in early trading, giving back some of its recent gains
London-based analyst sees gold as a kind of bond with some very alluring characteristics
(USAGOLD – 11/12/2021) – Gold slipped in early trading, giving back some of the strong gains of the past several days. It is down $6 at $1857.50. Silver is down 19¢ at $25.11. Investors appear to be coming around to the notion that inflation might be a bigger problem than advertised, and the precious metals have been among the beneficiaries. Gold has gained 4.2% over the past seven trading sessions. Silver is up 5% during the period. It is with gold’s constancy in mind (Please see our Chart of the Day) that London-based analyst Charlie Morris says we should view gold as a kind of bond.
“In asking what kind of bond it is,” he says in the November edition of Atlas Plus, “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. That means gold is simply a zero-coupon, long-duration inflation-linked bond. It compensates you against past debasement and is impacted by the expectation of how rates and inflation will change in the future. It works.”
To explain gold’s recent restraint in the face of sharply rising inflation, Morris turns to investment analyst Russell Napier, who he calls the guru of gurus. “I’m very bullish on gold,” says Napier. “The problem for gold in the last year was that interest rates have gone up, because people still believe there will be a link between inflation and interest rates. If people believe there will be inflation at 4%, they will say interest rates will ultimately be at 5 or 6%, hence they don’t want to own gold. It’s only when they begin to realize that that link is broken, that the gold price will lift off.”
Chart of the Day
Chart note: This chart is central to understanding why gold continues to make sense as a long-term portfolio holding. When the United States abandoned the gold standard in 1971 and freed currencies to float against the dollar, the fiat money era began. We are still in that era today. This chart shows gold’s performance from the early 1900s to 1971 when gold backed the dollar and the era from 1971 to present when it did not. Of course, gold has had its ups and downs since 1971, but clearly, over the long run, in the absence of an official gold standard, individual investors have been well-served by putting themselves on a private gold standard.
“If you look at the history of currency, gold has a unique role and I don’t think it’s accidental. Some people say that if gold hadn’t been selected as a currency thousands of years ago, it would not have a role today. I don’t agree. Gold has a lot of useful properties and unique features so I don’t think its status is in any way accidental. It’s a monetary asset and I think if you replayed history another way, you would come out with gold again.”
“The raptness of the attention Grant’s audience gave to Ms. Shelton brings us to a broader point. The Republicans have a chance to make monetary policy a powerful issue in the coming campaign. The dollar is having trouble fetching an 1,800th of an ounce of gold, gasoline is at $7 a gallon in some parts of the country, and grocery prices, if groceries can be found at all, are soaring. CPI inflation is running above 5%. The opportunity knocks to take the issue of fiat money to the hustings.”
USAGOLD note: While any political movement to rein in the overproduction of paper money would be welcome, it would be judicious for citizen/investors to act on their own in case efforts, like that of Mr. Lipsky, continue to fall on deaf ears. This editorial offers more background on the failed attempt to get gold-standard advocate Judy Shelton approved as a Fed governor.
“BlackRock Inc.’s Rick Rieder and Allianz SE’s Mohamed El-Erian are among those warning that systemic risks will only multiply, unless monetary officials take more decisive measures to pare extraordinary pandemic stimulus.”
USAGOLD note: Yet, over the past week, central banks, including the Federal Reserve, have signaled the opposite. The thing about financial bubbles is that sooner or later, they find a pin – recriminations fly as assets dissolve in a down market.
“It’s not temporary. If you see money supply going up by 30 percent or more, this is not temporary. In the inflation numbers, as you know how I feel about inflation numbers, are not telling the full story.”
USAGOLD note: We recall that Mobius has been a vocal advocate of gold ownership for the last couple of years. The comment on inflation numbers suggests that he sees the “real” negative real rate of return as even deeper than the headline data indicate.
“Investors drawn to cryptocurrencies can be forgiven for having an expectation of high returns, especially lately. After all, even as the S&P 500 Index more than doubled in the past five years, Bitcoin rocketed more than 80-fold — albeit with much of the rally occurring in the past year. ‘Memecoins’ such as Dogecoin and Shiba Inu have also surged, often for no particular reason.”
USAGOLD note: These are the sorts of things that happen historically at the end of super mania financed by funny money ……This now worthless token sold for $2681.80 last week at the top. On Monday, it was trading at one-half cent.