“For an investor whose story was featured in a best-selling book and an Oscar-winning movie, Michael Burry has kept a surprisingly low profile in recent years. But it turns out the hero of ‘The Big Short’ has plenty to say about everything from central bank fueled distortions in credit markets to opportunities in small-cap value stocks and the ‘bubble’ in passive investing.”
USAGOLD note: Burry lays out his take on the markets. His analysis cuts through the haze to the core issues in the stock and bond markets.
Repost from 9-5-2019
“Gold has had two monster moves over the past 30 years. Both of them came amid rising uncertainty in the economy and stock market. However, 10-year Treasury yields were closer to 4% or 5%, not less than half that, as they are today. To me, THIS is what is different this time.
USAGOLD note: Gold rising above the fray seems to be the theme of the day. . . . .
Image courtesy of Visual Capitalist
Repost from 9-5-2019
Gold – Past, present and future
Dr. Moneywise says: Gold has a past. I suspect it has a future. We live in a time when currencies and financial markets have become political enterprises – creations of the world’s governments and central banks. Since we have never seen times like these, when so much depends on the monetary largesse of the policy-makers, no one really knows where the future might lead us. Uncertainty reigns and, when that is the case, history teaches us that gold demand rises proportionally and at times impressively so.
“Why is it,” asks Nathan Lewis in a Forbes magazine article, “that the collective intelligence (let’s be generous) of today’s central bankers, and indeed all the central bankers since 1971, cannot outperform a yellow rock? This probably strikes some as bizarre, but it has always been thus. Way back in 1928, in a book called The Intelligent Woman’s Guide to Socialism and Capitalism, George Bernard Shaw declared: “You have to choose … between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”
Whether or not gold is the best basis for money may be a moot point. On the other hand, whether or not private investors should own it because the money is not gold-backed remains a vital question. The gift of gold – the one passed from generation to generation from ancient times to present – is the protection it offers against profligate government, an unpredictable economy, unstable financial markets and a myriad of additional threats to private wealth. The gift of gold, in short, is peace of mind.
“Some US investors are girding themselves for the once-inconceivable prospect that the 10-year Treasury yield could be headed towards zero, as this year’s giant rally in bonds shows few signs of easing.”
USAGOLD note: In this follow-up to this morning’s Bloomberg report (scroll below), the consensus is that the U.S. will not follow Germany and Japan into the black hole below zero. Who would have thought five years ago, though, that Germany would have tumbled into the nether depths?
Repost from 9-4-2019
(USAGOLD – 9/10/2019) – Gold dipped below the $1500 mark early in the Asian trading session. It fell to a low of $1490 at one juncture as traders booked profits and the safe-haven trade took a breather. That weakness dissipated at the COMEX open, though, where the precious metal is now trading level on the day at $1496.50. Silver is trading at $17.99 – up 3¢ on the day.
A number of technical analysts have warned that a short-term correction in the gold price is overdue. “Gold bulls,” says Market Pulse in an Investing.com report, “may finally be conceding defeat after repeated tests of the $1,520-1,560 range failed to produce a breakout. This has historically been a major area of support and resistance for the yellow metal so when momentum started to slip on approach to it again, it was clear it was in for a tough test.” Repeatedly during this rally, which began last May at $1275-1285 per ounce, the gold market has encountered overhead resistance that required more than one attempt to crack.
As Market Pulse points out, $1550 is a big test but so were $1400 and $1500. In the current environment, the right combination of news and central bank maneuvers can exert a more pronounced influence on day-to-day pricing than arbitrary technical targets. In the recent past those markers have been pushed aside with little more than a presidential tweet or some casual remark from the Fed chairman.
Quote of the Day
“The problem is… the global bond market is now in excess of $115 trillion (a very very big number) and its grown dramatically since the 2008 crisis. It’s just about tripled according to one set of numbers I looked at. When the bond market crunch comes, let’s assume there will be some very very large losses – and all the systemic bad consequences that will go with that. Worry less about how index funds, or ETFs will trigger the next crisis, but what happens when bond markets collapse on a few points of interest rate rises, triggering massive defaults, while chronic illiquidity creates the biggest value trap of all time. – Bill Blain, Blain’s Morning Porridge
Chart of the Day
Chart note: For those exploring the virtues of gold ownership, today’s Chart of the Day is illustrative. Gold has provided a positive return in 15 of the last 19 years. It is up 18.5% thus far in 2019 (through August 30).
The growing challenges for monetary policy in the current international monetary and fiancial system
“Moreover, history teaches that the transition to a new global reserve currency may not proceed smoothly. Consider the rare example of the shift from sterling to the dollar in the early 20th Century – a shift prompted by changes in trade and reinforced by developments in finance. The disruption wrought by the First World War allowed the US to expand its presence in markets previously dominated by European producers. Trade that was priced in sterling switched to being priced in dollars; and demand for dollar-denominated assets followed. In addition, the US became a net creditor, lending to other countries in dollar-denominated bonds.”
USAGOLD note: This is the Mark Carney speech at the Jackson Hole conference referenced in News & Views‘ lead article this month for those who might have an interest in the full rendition.
Catch up with the September edition
“Think 2019 has been hectic? You ain’t seen nothing yet. According to our call of the day from John Mauldin of Mauldin Economics, 2020 ‘will be the most volatile year in history’ for investors. The last few weeks marked a turning point in the global economy. It’s more than the trade war. A sense of vulnerability is replacing the previous confidence — and with good reason,’ he wrote in his latest market update. ‘We are vulnerable, and we’ll be lucky to get through the 2020s without major damage.'”
USAGOLD note: Always appreciate what John Mauldin has to say – a top grade analyst over the years. This interview is worth a visit. . . .
“Total potential debt for the U.S. by one all-encompassing measure is running close to 2,000% of GDP, according to an analysis that suggests danger but also cautions against reading too much into the level.”
USAGOLD note: The author of the report says that some paint a dire picture about debt. The situation is “dire,” he says, but the numbers “don’t prove we are doomed.” We post it. You decide.
“White House economic adviser Larry Kudlow said on Friday the United States wants “near term” results from U.S.-China trade talks in September and October but cautioned that the trade conflict could take years to resolve. . . .’A deal of this size and scope and central global importance, I don’t think 18 months is a very long time,’ Kudlow said.”
USAGOLD note: Can’t remember Kudlow being this negative on resolution of the trade war. Eighteen months is not a long time for negotiating a new trade treaty, but the markets are likely to view it as an eternity.
“A customer of mine who is 55 years old recently asked if it was not too late for him to get into precious metals. The answer is no—it is not too late to invest in gold and make a profit at any age. Quite the contrary, with the market showing the early signs of a correction, it is, in my humble opinion, a perfect time to invest in precious metals.” – Oliver Garret, Forbes
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“Gold would need to rise to $2,764/oz to make new peak in real terms . . .“
USAGOLD note: We have posted versions of the inflation-adjusted price of gold chart over the years. Ritholtz provides an annotated update at the link. Worth a quick visit . . .
“Going forward, there are – and will continue to be – three primary drivers of global physical gold (and silver) demand. During certain times in the past only one or two of these elements provided most of the momentum. However, as we move into 2019, and for possibly the next 5-10 years, all three will be in play. They will operate synergistically to consistently motivate increased precious metals’ buying around the globe. This will happen, even as meeting that demand with sufficient new supply becomes problematic.”
USAGOLD note: In times past central banks stepped-in to fill the supply-demand deficit, but central banks are now net buyers of the metal and that is unlikely to change under current economic circumstances. In addition, filling that gap from the perspective of global mine production could be problematic as well – particularly in the event of another protracted, full-out financial crisis. China (the #1 producer) and Russia (the #3 producer) both channel their production into domestic reserves. South Africa, once the largest producer, has seen their production dwindle in recent years to where it is now the seventh largest producer. That leaves the United States, Canada and Australia as the primary sources for gold metal. Their combined production at 725 tonnes, however, represents only 18% of annual global demand (+/-4100 tonnes). The potential imbalance is the often overlooked elephant in the gold room.
Repost from 12-3-2018
AlhambraInvestments/Jeffrey P. Snider
“In other words, even on the inflation side we have to qualify gold’s value as a hedge. It doesn’t protect against inflation shifting from one moderate level to another; say, from around 1% to 2%. Or even 3% and 4%. As is clear on the chart above, gold skyrocketed when inflation was pitching double digits – meaning an economic situation that had gotten way out of hand despite the ‘best’ efforts of officials.'”
USAGOLD note: Snider digs deeply to find gold’s real role in the portfolio – an article for those looking to more closely identify the longer-term psychological drivers to gold demand.
Image courtesy of VisualCapitalist
Repost from 9-2-2019
Nine lessons from prosperous investors
We first introduced our readers to these nine lessons all the way back in 1999. They were passed along to us by the legendary commodity market analyst R.E. McMaster, formerly editor of The Reaper newsletter. The original source for the nine lessons was a highly regarded money manager who handled accounts for wealthy Greek and Mexican merchant families.
1. It is easier to make a fortune than keep it.
2. Intelligence is an inadequate substitute for wisdom. Wisdom fears, respects the unknown and fosters humility. Intelligence can lead to self-destructive arrogance and ultimate failure.
3. Risk must have premium, and we must understand it well.
4. There is no order. There is no formula. There is no equation that works all of the time. It works just long enough to fool just a few more of us just a little longer.
5. What we fail to remember is that a paper gain is just that. Paper. Worth nothing. Not until we say sell, and not until we get cash. Anything less is just that.
6. When the Bass Brothers in Texas write a check for real money, their money, to buy 25% of the Freeport McMoran Gold Series II, we take notice. When the Fidelity Magellan Fund buys a fifty-million in Dell computer, we yawn. So, should you. It is other people’s money.
7. Slick advertising budgets, powerful computers and few slabs of marble do not, by themselves, make a great financial institution.
8. Never invest in anything you do not feel comfortable with or understand well.
9. When a thousand people say a foolish thing, it is still a foolish thing.
(USAGOLD – 9/9/2019) – Gold is on the mend this morning after once again finding support near the $1500 level. It is now up $7.50 on the day at $1514. Silver is level on the day at $18.20. Both metals, which were on a tear through the usually slow summer months, corrected from highs at $1555 and $19.60 respectively. Thus far, though, speculators short the market and investors looking for a clear point of entry have embraced any weakness as a buying opportunity – particularly when gold trades near the $1500 mark. Four pressing concerns continue to drive demand for the metals in both paper and physical forms – recession fears, plunging interest rates, the U.S.-China trade war, and competitive currency devaluations.
Mark Mobius, the widely-followed market analyst, has been very vocal of late on the merits of gold ownership recommending that investors allocate 10% of their portfolios to the metal. “Physical gold is the way to go, in my view, because of the incredible increase in money supply,” he told CNBC’s “Street Signs” on Friday. “All the central banks are trying to get interest rates down, they are pumping money into the system. Then, you have all of the cryptocurrencies coming in, so nobody really knows how much currency is out there.”
Quote of the Day
“Bull markets can be classified as either secular (long term) or cyclical (bull phases within an overall bear market). Before its $1,400 per ounce breakout in June, gold appeared to be tracking, on a technical basis, similar to its 36-month cyclical bull market from 1993 to 1996. However, its current $1,500 price level hints at a potentially longer, sustained rally—perhaps more similar to the secular gold bull market of 2001 to 2008.” – Joe Foster, Van Eck Securities
Chart of the Day
Chart note: Historically, gold and the dollar have travelled in opposite directions. Since this past July, though, as a consequence of the U.S.–China trade war, the two have risen in tandem as investors adjust their portfolios to a more defensive posture. Gold, silver and bonds, likewise, have been beneficiaries of the trend. Gold is up 18.5% through August. Silver is up 18.8% over the same period and the 10-year Treasury yield has gone from 2.66% to 1.5%. The Dollar Index, a measure of the greenback’s value against a basket of currencies, has risen from 92 to 99 – up 7.6%.
“China’s exports fell unexpectedly in August, as the trade war with the United States continued to hit the world’s second-largest economy. Shipments fell by 1 per cent in the month after growing 3.3 per cent in July in dollar terms, and below the 2.1 per cent growth expected by analysts in a Bloomberg poll.”
USAGOLD note: Economist will be watching in the coming months to see if the other side of the trade coin is price inflation in the United States.
“Some economists are sounding the alarm. Excessively low interest rates decimate the profits of banks, forcing them to cut back on lending with negative effects on the economy, warned Markus Brunnermeier, an economics professor at Princeton University.”
USAGOLD note: This article explains in straight-forward language the potential effects of negative interest rates or ordinary citizens and the economy. Worth a read for those who would like to get ahead of the curve on the potential ramifications of current interest rate trends. . . . .
Financial Times/Brendan Greeley/9-6-2019
“When a central bank undershoots its inflation target, Mr Powell explained, it can promise to the public that it will overshoot in the future. As it makes up for lost inflation, the bank would also be making up for lost growth. ‘If the public understands and acts up on that, we limit the damage from the recession,’ he said. ‘It’s a great idea.’”
USAGOLD note: The article goes to say that Fed officials, including we presume Mr. Powell himself, will “speak in English to people.” Not a bad idea. . . .
Gold in six easy lessons
1. Don’t buy it because you need to make money; buy it to protect the money you already made.
2. Don’t look at price as a barrier; look at it as an incentive.
3. Don’t buy the paper pretenders; buy the real thing in the form of coins and bullion.
4. Don’t fall prey to glitzy TV ads; do your due diligence instead.
5. Don’t allow naysayers to divert your interest; allow yourself the right to protect your interests as you see fit.
6. Don’t forget the golden rule: Those who own the gold make the rules!
“This is the year that mounting hammer blows to the Western alliance system and the edifice of global governance threaten to bring the old order tumbling down. . .Pax Americana is unravelling. The transatlantic concord underpinning the West since the Fifties is dying. Nato, the G7, the G20, the WTO and the EU are all in varying degrees of crisis. Vladimir Putin’s Russia has an open goal. ‘Every single one of these is trending negatively. And most in a way that hasn’t been in evidence since the Second World War,’ it said.”
USAGOLD note: Joseph Schumpeter referred to the process Evans-Pritchard outlines as ‘creative destruction.’ In replacing the old with the new, though, businesses and financial markets are going to be hurt – whole economies potentially tossed against the rocks. One cannot have read yesterday’s reports of the $1 trillion in possible capital flight from London without becoming concerned.
Repost from 1-8-2019
“Investors are going for gold in a big way. Inflows into bullion-backed exchange-traded funds topped 100 tons in August to hit the highest since February 2013 as the trade war worsened, risk assets took a knock, and central banks signaled looser monetary policy.”
USAGOLD note: Professional money, as evidenced by the flow of capital into gold ETFs, is still on the march – 24% growth in stockpiles since May 2019.
Chart courtesy of Gold Charts R Us
Repost from 9-2-2019
“Bull markets can be classified as either secular (long term) or cyclical (bull phases within an overall bear market). Before its $1,400 per ounce breakout in June, gold appeared to be tracking, on a technical basis, similar to its 36-month cyclical bull market from 1993 to 1996. However, its current $1,500 price level hints at a potentially longer, sustained rally—perhaps more similar to the secular gold bull market of 2001 to 2008.”
USAGOLD note: An interesting look at previous gold markets and how stocks and physical gold compare in seven secular and/or cyclical bull markets since 1971.
Repost from 9-1-2019
Gold mine production by country
Divergent paths among the major global producers tell an important tale
When you take in the table to the left, it inspires little beyond a shrug until you consider the policies toward gold of the countries involved. China, for example, is the world’s top gold producer, but its production is essentially sequestered, i.e., it stays in the country and winds up at the central bank as part of its monetary reserves. Russia, the world’s third largest producer, also channels its production into central bank reserves. Thus, 23% (700+ tonnes) of the world’s gold production in 2017 did not see the light of day on international markets. Of the top-ten producers that still make their production available to the rest of the world, production is level for two – the United States and Australia. Of the three countries experiencing production growth – Canada, Russia and China – only one, Canada, makes its production available in international markets.
In short, the world is a different place now than it was prior to the 2008 financial crisis in terms of gold production. Should physical demand soar once again as it did in the 2009-2013 period, we could get the same price response we did then. Even as it is, substantially less metal is reaching the marketplace at a time when central banks have become net buyers of the metal and investor demand, though presently in a lull, is generally on the rise.
The trends now favor “strong-handed” long-term gold investors holding for asset preservation purposes and capable of weathering the market’s ups and downs. As for the official sector, the trend toward building gold reserves is likely to continue. More and more emerging countries are likely to see diversification as in their best interest while established states are likely to hold close the gold reserves they already own.
Map courtesy of the World Gold Council/Gold Hub
(USAGOLD – 9/6/2019) – Gold retreated another $13 in overseas markets last night but then regained its footing at the COMEX open. It is now priced at $1518 – down just $1 on the day. Silver is up 3¢ at $18.72. This morning’s weaker-than-expected jobs report helped to reverse gold’s overnight downtrend. It looks, at least for the moment, like the trend we have seen in place over the past several weeks of buyers coming into the market on the dips remains intact. Many market analysts see central bank demand as the psychological bulwark underpinning the market. It keeps domestic production at home in the number one and number three producers – China and Russia. It also diverts available physical supply to other, mostly emerging countries making an effort to build their reserves.
Writing for the South China Morning Post, Joshua Rotbart, managing director of Hong Kong’s J. Rotbart & Co. says: “Gold provides stable insurance against a weaponised US dollar. By hedging their portfolios with gold, Russia and China – especially China, given current events – can manoeuvre with wider geopolitical freedom. As the ‘de-dollarisation’ continues, expect more purchases by central banks, especially considering that gold consists of only 2.5 per cent of China’s foreign reserves, but over 75 per cent of US foreign reserves. How the currency war, in conjunction with the trade war, will unfold remains unclear. What is clear is that gold bullion – physical gold – is back in fashion among many central banks as a suitable substitute for fiat currencies that wield too much geopolitical muscle.”
Quote of the Day
“Bear markets are sneaky beasts and they like to do their damage as secretly and as unobtrusively as possible. I hate to say it but somewhere ahead, the bears going to get it all together and the innocent little stream is going to turn into a waterfall. What can you do about it? Stay out of the market? Protect yourself by remaining in pure wealth, gold. For thousands of years, silver and gold have been treated as pure wealth. As the standard measures of wealth (stocks and bonds) have deteriorated, veteran investors have forgone profits and moved their assets into pure wealth.” – Richard Russell, Dow Theory Letters
Chart of the Day
Chart courtesy of HowMuch.net
Chart note: “It’s no secret,” says HowMuch, “that $1 now will get you less than it would 100 years ago, but just how much has the purchasing power of the U.S. Dollar decreased over the years? To illustrate this, we created a visualization that demonstrates the rise and fall of the dollar since 1913. Using this graphic, we can see how inflation and changes in the Consumer Price Index have decreased the dollar’s purchasing power over the last century.
• $100 in 1913 would only be worth about $3.87 today.
• While the purchasing power of the dollar has gone up and down since 1913, it has never surpassed the purchasing power it had in 1913.
• The purchasing power of U.S. citizens has always topped the charts, but that could be changing in the future.
• Inflation impacts nearly all variables of macroeconomics, and many believe that current U.S. inflation levels are too low.”
“In 2018, central banks bought more gold than at any time under the existing international monetary system. The vast majority of demand has come from emerging and developing country central banks. 19 individual central banks bought more than one tonne of gold in 2018, giving rise to total purchases of 651 tonnes. Even the European Union re-emerged as a net buyer, due to substantial purchases from Poland and Hungary.”
USAGOLD note: A recap of the year thus far with respect to central bank buying, this report concludes that “[g]old is the only reserve asset that is free from political and counterpary risk. Has that notion become too true to ignore?
Chart courtesy of the World Gold Council
(USAGOLD – 9/5/2019) – As suggested in this morning DMR, both metals appeared poised for some corrective action. Gold is now trading at $1518.50 – down $33. Silver is down 84¢ at $18.73. Pent-up selling pressure made its presence known today. As has been the case historically with gold, it took the stairs up and is taking the elevator down. Investing.com cites Saxo Bank’s Ole Hansen as saying that a “bearish double-top” had formed around $1,555. He sees $1517 as the “key support level near in the near term, but said it was “unlikely to be breached unless the 10-year Treasury yield rose back above 1.55%.” We got to that $1517 level in a hurry. Whether or not it will hold, remains to be seen.
(Posted for information purposes only with the usual caveat that anything can happen and that we are not offering investment advice.)
When you are climbing the steepest of mountains, especially at high altitudes, it can be tiring. If you start getting a nosebleed, you are simply working too hard and need a break.
The DSI on gold hit 97 four weeks ago and while it has struggled to keep up with its fellow climbers with their burst of speed, both silver and platinum are starting to look shaky.
On September 4th the DSI for silver hit 95 for the 2nd day in a row while platinum vaulted to 94.
Those are nosebleed readings.
With $17 trillion in sovereign debt around the world showing negative interest rates the old saw of “gold doesn’t have a return” has changed to “gold doesn’t lose money for holding it.” Indeed Central Banks around the world have been net buyers of gold for the last ten years.
I suppose I will have to change my tune as clearly the Central Banks have been manipulating gold and I never even noticed. I wonder why no one warned us they were forcing gold higher. Good for them, guys, keep it up.
Gold, silver and platinum will rest for a while but we haven’t seen a top. The upcoming bubble in real money is going to surprise everyone.
Well, almost everyone.
–– Bob Moriarity, 321Gold
“Hopes that the US and China were about to sign a deal ending in May proved overly optimistic. With little sign of either side backing down, the stand-off could well become ‘the largest trade war in economic history to date’ — a warning issued by the Chinese Ministry of Commerce.”
USAGOLD note: With that comment Financial Times offers an interesting graphic-timeline on the U.S. trade war – beginning, escalation, standoff. It ends ominously: “Businesses are starting to feel the squeeze and consumers may be next.” Worth the visit. . . .and retaining for future reference.
Repost from 6-1-2019
“DESPITE a resiliently strong & compressed US$, Gold makes a statement breakout – RESPECT”
USAGOLD note: One has to appreciate the straight-forward, no-nonsense approach ScotiaBank uses in this bullish forecast. The chart it labels “Respect gold’s technical break” is worth the visit.
Repost from 9-2-2019