Think you know what’s inside Fort Knox?

Yahoo!Finance/Doug Whiteman/9-12-2022

artist rendering of Fort Knox Gold Depository

“You may have learned about Fort Knox from the James Bond movie Goldfinger, or from the old cartoon where Bugs Bunny tricks Yosemite Sam into digging up some of the gold bars and getting arrested. But what do you really know about the U.S. bullion bunker in Kentucky?”

USAGOLD note: Ten little-known factoids about the U.S. gold reserve stored at Fort Knox……

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Running out of options on oil

Barchart/Phil Lynn/9-12-2022

“Oil prices are coming back as the dollar pulls back and markets start to realize the world is running out of options. The Biden administration is already warning that they’re preparing for a December price spike and there is a big debate as to whether they should extend releases from the Strategic Petroleum Reserve that they’ve already drained to the lowest level since 1983. And the bigger issue is how are they going to replenish those supplies in the future.”

USAGOLD note: Prices in the energy sector dropped last week, but Flynn says the trend is unlikely to continue. Treasury Secretary Yellen warned early in the week that G-7 proposed price caps on oil could have the effect of spiking prices higher. Goldman says oil will go to $125 in 2023 despite the caps saying they’re “bearish in theory, bullish in practice.”

line chart showing the price of oil 2012 to present
Chart courtesy of TradingEconomics.com

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Portfolio managers are ‘super bearish’ with cash holdings highest since 9/11, Bank of America says

MarketWatch/Barbara Kollmeyer/9-13-2022

graphic image-icon of bear stepping through round portal“Global fund managers have been piling into the U.S. dollar and out of stocks lately, and by one measure have become the most bearish since Sept. 11, 2001. That’s according to Bank of America’s September survey of global fund managers, whose unrelenting gloom is perhaps justified by a disappointing report on U.S. August inflation along with a looming energy crisis in Europe. Average cash balances for global managers hit 6.1%, according to the latest survey, the highest level since the deadly terrorist attacks on U.S. soil 21 years ago.”

USAGOLD note: And all in the absence of a major geopolitical event…… With yesterday’s plunge taken into account, the S&P 500 is down just under 18% year to date which happens to coincide with its peak in late December. A 20% decline, you might recall, is considered a bear market.

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Short and Sweet
‘No one questions its value. . .’

image of a Croesus Lydia stater“No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counter-party. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.” – Alan Greenspan, former chairman of the Federal Reserve


Image courtesy of the British Museum Collection/Lydia, croesid, ca 550 BC


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Inflation peaks during recessions

PentoPortfolioStrategies/Michael Pento/9-6-2022

cartoon image of an ostrich with its head buried in the sandPeople tend to hear what they want to hear and believe what they need to believe. In no place is this more true than on Wall Street. The Fed has made abundantly clear that it will tighten monetary policy until inflation is virtually vanquished. And yet, those who have no choice but to be nearly fully invested at all times have completely ignored this fact and were left trying to convince the investing public not to believe their own ears. That was a huge mistake going into the start of this year, and that is even more true today. The entire FOMC is promising that rates are going to increase to about 4% by early 2023, but the cheerleaders still say they are bluffing.”

USAGOLD note: Pento takes Wall Street’s stock market perma-bulls to task in this analysis as having their head in the sand. He says we are “heading in the exact opposite direction.”

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Gold drifts lower as Fed convenes rate-setting meeting
Dwindling LBMA, COMEX silver stockpiles going to India at record-setting pace

(USAGOLD – 9/20/2022)  – Gold drifted lower in early trading as the yield on the 10-year Treasury pushed over 3.5%, and the dollar index neared the 110 mark. It is down $8 at $1670. Silver is down 24¢ at $1939. The FOMC begins rate deliberations today, with its decision due tomorrow and a press conference to follow. Despite silver’s Fed-driven struggles of late, Money Week’s David J. Stevenson believes the longer-term outlook for the metal “remains auspicious” and that a future Fed course correction would likely instigate a price rebound like “a coiled spring.”

There has been considerable discussion about the recent drain on global silver bullion inventories as investors load up on the metal at cyclically low prices. Analyst David Heller reports LBMA physical silver stockpiles are now at their lowest level since 2016. Likewise, COMEX inventories are currently running at about one-third of what they were in 2020. “Where is the physical silver going that is leaving the LBMA and COMEX?” he asks in an article published in Numismatic News. “Metals Focus India reports that silver demand in that country, perhaps the world’s top silver consuming nation, is now so strong that the silver price in India is trading at a premium to the world silver spot price. In July 2022, almost 58 million ounces of physical silver was imported into India. This was at least 50 percent higher than in any month in the previous four years and may be an all-time high record amount of imports into India in any month.”

Silver annual gain or loss
(%, 2000 to present)
bar chart showing silver gains and losses as a percent 2000-2022
All Rights Reserved USAGOLD 2022 • • • Data source: MacroTrends.net

Editor’s note: Although we do not see a Fed course correction coming anytime soon, we believe that the Fed will be hard-pressed to push interest rates above the inflation rate – the circumstance many economists see as necessary for containing inflation. In short, the Fed will continue raising rates but fail, in our view, to bring inflation anywhere near its 2% target level anytime soon. This prospect – stagflation – has yet to be fully factored into asset pricing, though it cannot be long ignored. The stagflation scenario, as forecasted by several prominent economists from Roubini, to Greenspan, to El-Erian and Hanke (among others), was very friendly to precious metals during the 1970s. At the time, investors generally saw their accumulation as a defensive strategy, which we believe is the strongest argument for their accumulation now.

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Notable Quotable

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“. . .[I]f you go down the line of currencies around the world, you don’t find many attractive opportunities. And that’s why I say if the world were to give up on dollars and give up on euros, they’d probably go back to the old standby, which is gold. And I don’t mean by gold, government run gold standard, like we had in the late 19th century. That’s politically impossible. Governments will never be willing to subordinate their policies to the constraints of a hard commodity ever again… So how could gold make a revival as a sort of international money? Well, we don’t actually need a government run gold standard anymore…since people have always had confidence in gold as a long-term store of value, there’s no reason why it couldn’t play that role.”

Benn Steil
Director of International Economics
Council on Foreign Relations

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USAGOLD
Quality service & portfolio guidance since 1973

photo of stacks of gold coins American Eagles and Sourth African Krugerrands

USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the gold industry’s oldest and most respected names. The firm’s unblemished, zero-complaints record and solid reviews with the Better Business Bureau testify to the exceptional customer service and professional excellence which sets it apart from the competition.

USAGOLD specializes in gold and silver coins and bullion delivered to our client’s safekeeping. For over 49 years, we have resolutely advocated owning precious metals for asset preservation purposes rather than speculation. Admittedly, this philosophy does not resonate with all prospective gold and silver owners, but if it does with you, we think you will find our firm a kindred spirit.

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Fed will need ‘great skill’ and ‘good luck’ to bring down inflation without crashing the economy, Yellen says

MarketWatch/Greg Robb/9-11-2022

photo of Powell and Yellen shaking hands“The Biden administration has been supportive of the Fed’s rate hikes this year. Harvard Professor Jason Furman said Biden is a rare president for his support for a deliberate attempt to slow the economy.”

USAGOLD note: Not a confidence builder to think that the fumbling Fed will require good luck to keep the economy afloat…… If the Treasury Secretary is right on this she will not take a great deal of comfort knowing that it will cost the Fed and the Biden government dearly. It has not been a good year for Janet Yellen thus far.

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Will Liz Truss as PM mark a turning point for the pound?

MoneyWeek/Dominic Frisby/9-8-2022

photograph of British pound notes“It’s not just the pound, even if it is one of the worst offenders. It’s all fiat money. I’ve been banging on about it for 20 years but I may as well bang on some more: fiat money and its devaluation is the greatest and most pernicious intergenerational theft in history.”

USAGOLD note: Frisby says we might finally be in the “end game” for fiat money in general, not just the British pound. That aside, he is hoping the Truss government will lead a turnaround for UK’s currency – once the world’s top reserve currency.

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Brussels ignores derivatives at its peril amid energy crisis

Financial Times/Gillian Tett/9-8-2022

cartoon showing the massive influence of derivatives on financial markets

“However, investors should keep an eye on another item on the agenda: their approach to energy derivatives markets, clearing houses and exchanges. This might seem arcane but the issues now bubbling in the derivatives sphere represent another potential time bomb for Europe — one that needs to be urgently addressed.”

USAGOLD note: More detail on Europe’s €1.5 trillion energy margin call. Utility companies do not have the capital to meet the call, says Tett, and governments have failed to prepare the accompanying shock. She calls it the “€1.5 trillion derivatives time bomb.” As we have noted previously, it is odd that European financial markets have not registered a deeper, more visceral concern about the problem which is unlikely to simply disappear.

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Short & Sweet
Gold’s secular bull market: 2003-2022
‘Each price correction and consolidation period has been a buying opportunity’

Veteran commodity analyst  Andrew Hecht recently revisited an instructive chapter of gold history to point up the metal’s long-term value as a portfolio inclusion for both governments and private investors. “The last government to doubt gold’s value got burned,” he says in a report posted at Seeking Alpha. “At the turn of this century, the United Kingdom decided to part with one-half of its gold reserves. Ironically, London is the hub of the international gold market, so the UK sent a signal that gold had seen better days. In a series of auctions, the UK sold around 300 metric tons at prices mainly below the $300 per ounce level. Since 2003, gold never traded below $300 per ounce. Since 2010, the price has not ventured below $1,000, and since 2020, the price has remained above $1450 per ounce. … In 1999, gold reached a bottom at $252.50 per ounce. Since then, each price correction and consolidation period has been a buying opportunity in gold. The over two-decade-long bullish trend continues to take gold to higher highs.”

Gold price
(Weekly prices, 2000-2022)
line chart showing the gold price 2000 through July 23 2022
Chart courtesy of TradingView.com

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The Fed is not and was never meant to be independent

Real Clear Markets/CJ Maloney/9-9-2022

photo of flag Federal Reserve Board of Governors“It is true that during the 1836 to 1913 period, when our nation was bereft of a central bank, the intellectuals and bankers who advocated for its reestablishment were overwhelmingly of the opinion that it had to be kept free of politics — but they were never able to explain how such a thing was possible for a bank that was to be birthed from and sustained by politics. On the other hand, the Founders of our Federal Reserve were clear-eyed about the matter. They understood that the central banking question was about power — about politics — and that was a turbulent ocean they were deeply experienced in navigating. They made sure to stamp the Federal Reserve Act to reflect their view of the issue.”

USAGOLD note: Contary to the widely held belief that the Fed is immune to politics, Maloney says the “idea is a noble one” but that the Fed was founded on the notion of “strong political control.” Maloney is a Wall Street veteran working on a book on the origins of the Federal Reserve System.

 

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Gold turns south as we head into Fed Week
Economic pessimism and the outlook for real rates, not inflation, drive the price of gold

(USAGOLD – 9/19/2022) – Gold and the rest of the markets turned south this morning as we head into Fed week with a rate decision and press conference scheduled for Wednesday. It is down $10 at $1667. Silver is down 22¢ at $19.46. We hear a great deal these days about inflation as the chief influence on the price of gold, but a study recently published by the JP Morgan Center for Commodities at the University of Colorado finds that since 2001 it has taken a back seat to two other important concerns.

“Gold is regarded as protective against bad economic times,” reads the study. “…In the early part of the sample [i.e., 1971-2000], variation in inflation or inflationary expectations was the single most important consideration for the real price of gold. From 2001 on, however, long-term real interest rates and pessimism about future economic activity appear as the dominant factors. While disinflation since 2001 might have been expected to result in low gold prices, any effect of low inflation was more than compensated for by unprecedentedly low long-term real interest rates and by pessimism about future economic activity.”

Editor’s note: In this context, the log chart posted below might be one of the more relevant included in these reports over the past several months. The University of Michigan Consumer Sentiment Index is now at its lowest level since 1971, as shown in the chart below (and, in fact, at a record low), a development that market analysts have largely overlooked.

University of Michigan Consumer Sentiment Index and the price of gold
(log scale, 1971 to present)
overlay line chart showing the University of Michigan Consumer Sentiment Index and the price of goldsince 1971
Chart courtesy of TradingView.com

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Sunday In Depth
Socialist mousetopia regresses to dystopia and finally, extinction

artist rendering of a well-cared for mouse

In a piece written for IFL Science, James Felton offers a riveting account of what exactly happened in the mousetopia of Universe 25. John B Calhoun, a medical doctor at the National Institute of Health, says Felton, “set about creating a series of experiments [in 1973] that would essentially cater to every need of rodents, and then track the effect on the population over time.” It yielded some very unexpected results. Calhoun’s socialist utopia (or, in this case, mousetopia) evolved to a chaotic dystopia and finally an apocalypse, as the norms of mice behavior in the wild completely broke down in what can only be called social chaos. “Soon,” writes Felton, “the entire colony was extinct.” In the opening paragraph to the study, Dr. Calhoun says, “I shall largely speak of mice, but my thoughts are on man, on healing, on life and its evolution. Threatening life and evolution are the two deaths, death of the spirit and death of the body.”

It is difficult to read Felton’s account of what happened in Universe 25 without thinking about the still-developing response to the crisis-related government support programs on all levels of our society, i.e., the distressing social, psychological, economic, and political upheaval it has induced. Calhoun, according to Felton, “believed that the mouse experiment may also apply to humans, and warned of a day where – god forbid – all our needs are met.” Moreover, Calhoun wrote, “For an animal so complex as man, there is no logical reason why a comparable sequence of events should not also lead to species extinction. If opportunities for role fulfillment fall far short of the demand by those capable of filling roles, and having expectancies to do so, only violence and disruption of social organization can follow.”

By all of this, we do not mean to suggest that contemporary society is headed for a dystopia – though some troubling signs are already present. On the other hand, it would be foolhardy to believe that there will not be modifications to the way our society operates, unintended consequences, and renegotiation (perhaps even radical alteration) of the standing social contract. The general effects on the economy – and ultimately financial markets – are likely to be ongoing with the ultimate results still to be determined. The wise will prepare for the unexpected.

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NEWS &VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals

Archive

symbolic representation of wisdom as an owl perched on a golden key

“Wisdom is not a product of schooling but of the lifelong attempt to acquire it.”
Albert Einstein

We invite you to review past issues of our monthly newsletter. It’s worth the visit.

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The USAGOLD Website
A guiding light for our current and would-be clientele since 1997

graphic image of light house beaming
Welcome newcomers!

When the USAGOLD website was established in 1997, there was no Google, no Facebook, no I-Tunes, no Amazon. Instead there was just a handful of scattered websites trying to figure what this new technology was all about and how it could be used to some advantage.  We were among that group.  Our idea of innovation in those early days was two spinning globes on either side of the USAGOLD logo.  We marveled at it; considered it state of the art.

But being among the first on the internet to have spinning globes was not our only achievement. We were also among the first to sponsor a Daily Market Report (1997), a Discussion Group (1997), Live Prices and Charts (2007) and a Mobile Website (2011) – to mention just a few of our ground-breaking internet ventures.  We await the next wave of innovation so that we can offer even more value to our regular visitors.

Through our 26-year presence on the world wide web, the philosophy underlying our website has always been a simple one – to act as a guiding light for our current and prospective clientele by providing a state of the art information portal coupled with a reliable and competitive brokerage service.  We had and still have no aspirations beyond that, and that pinpoint focus has paid dividends beyond anything we would have imagined in 1996.

From a humble beginning, we have grown to almost 800,000 visitors per month currently and there have been times when that count has been significantly higher. USAGOLD today remains one of the most highly referenced and visited web portals in the gold business. We once had a client tell us of visiting the Gold Souk in Dubai and being surprised that so many merchant stalls had USAGOLD on their computer screens. 

If you would like to gain a better understanding of what USAGOLD has to offer to you as a current or prospective client, the menu at the top of the page is a good place to start. 

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The period of abundance is over

TheMarketNZZ/Christoph Gisiger/9-5-2022

graphic illustration of decling US dollar

“The dollar is in the very late stages of its strength. The dollar will go up until the next recession, and then it will drop precipitously. I have been bullish on the dollar for over a year, but I’m extremely bearish on the dollar for the next ten years.”

graphic image of a book and reading glasses A Good Weekend ReadUSAGOLD note: Gundlach says it’s a “capital preservation market” and that Powell should slow down on rate increases. “My guess,” he says, “is that we will end up creating momentum that’s more deflationary than a lot of people believe is even possible.” He does not mention gold in this interview but has recommended it consistently as a long-term portfolio holding over the years.

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Guggenheim’s Minerd says stocks should fall another 20% by mid-October. Here’s why.

Barron’s/Angela Palumbo/9-9-2022

cartoon image of stock market bear watching ticker“Minerd added that August through October is usually the worst time for stocks, and ‘given the recent strength over the last few days, it just appears that people are ignoring the macro backdrop, monetary policy backdrop, which would basically indicate that the bear market is intact and given where seasonals are and how far out of line we are historically with where the P/E is, we should see a really sharp adjustment in prices very fast.’”

USAGOLD note: For stocks, October is the cruellest month…… 1907, 1929, 1987. September has its own ugly history of crashes…… 1869, 1992, 2001, 2008. Earnings, where Minerd puts the emphasis, are the composite resolution to a whole host of problems gathering on the horizon.

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US may need 7.5% unemployment to curb inflation – research

Reuters/Howard Schneider/9-7-2022

idyllic artist representation of Main Street America“The U.S. unemployment rate may need to reach as high as 7.5%, double its current level, to end the country’s outbreak of high inflation, according to new estimates from a team of researchers including two staff economists from the International Monetary Fund.”

USAGOLD note: A unemployment number that high signals that getting inflation under control might be considerably more painful on Main Street than most are contemplating.

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