“Donald Trump has tapped two economists to the Fed’s board who are both seen as likely to support the president’s call for lower interest rates. . . .’The longer-term picture looks positive for gold,” Georgette Boele, coordinator of FX and precious metals strategy at ABN Amro Bank NV, told Bloomberg Television.”
USAGOLD note: We made reference to this article in this morning’s DMR. Worth a visit. . .
Repost from 7-3-2019
Bloomberg/Craig Stirling and Zoe Schneeweiss
“‘She’s really a political figure, much more so than an economist,’ Alicia Levine, chief strategist at BNY Mellon Investment, said on Bloomberg Television. ‘She’s very political, she’s very wise, and I would assume she has the best economists that can help her with this. It is a little puzzling because she’s not known as one of the leading economic minds out there.’”
USAGOLD note: Our guess though is that the difference will be in style not substance. . .
Repost from 7-3-2019
“WGC market intelligence director Alistair Hewitt on Monday pointed out that central banks in several emerging markets, including Russia, China, Turkey and Kazakhstan, continued to dominate buying, with those banks being ‘the four biggest buyers so far’ this year.”
Related: Poland joins Hungary with Huge Gold Purchase and Repatriation/Ronan Manley/Bullion Star/7-7-2019 –– “Of the 125.7 tonnes, 100 tonnes were purchased in 2019 and 25.7 tonnes in 2018. Notably, the entire 125.7 tonnes was bought ‘in the last 12 months’.”
USAGOLD note: So for 2019 thus far, the World Gold Council’s total of 247.3 metric tonnes, as reported in the article linked above needs to be revised to 347.3 tonnes – a 40% increase. Poland, in addition to open market purchases, will repatriate one-half of the gold it has stored at the Bank of England. Ronan Manley’s Bullion Star article on Poland’s acquisitions and repatriation delves into the details and intricacies of the operation.
Repost from 7-8-2019
(USAGOLD – 7/9/2019) – Gold tracked sideways this morning after a quiet night overseas. It is down $1 at $1394. Silver is down 6¢ at $15.09. Generally speaking, the markets are on hold awaiting the testimony of Fed chairman Powell starting tomorrow before the House. With an FOMC meeting looming at the end of the month, expectations are that Mr. Powell will tread lightly though there is always the chance something might be said to touch off either the White House or Wall Street.
The World Gold Council is out with a report this morning showing a strong 5% gain in gold stockpiled by ETFs and a 15% gain in net dollar value, more than half of which was the result of price appreciation. North American investors led with a 5% gain in tonnes stockpiled. Europe was second at 4.7%. Asia lagged at a 3.3% gain.
“Earlier this year,” says the Council, “we noted that rates related to monetary policy would drive gold prices in the short-run, and that the US dollar would play a less significant role, and this has been the outcome so far. With rates falling, global negative-yielding debt is at all-time highs – above $13 trillion – and the price of gold has moved in tandem with those amounts over the past few years. These are all drivers that could continue to support gold prices in the second half of the year.”
Quote of the Day
“Sir Isaac Newton was asked by the British Treasury officials and financiers of his day why the monetary pound had to be a fixed quantity of precious metal. Why, indeed, must it consist of precious metal, or have any objective reality? Since paper currency was already accepted, why could not notes be issued without ever being redeemed? The reason they put the question supplies the answer; the government was heavily in debt, and they hoped to find a safe way of being dishonest. But Newton was asked as a mathematician, not a moralist. He replied: ‘Gentlemen, in applied mathematics, you must describe your unit.’ Paper currency cannot be described mathematically as money.” – The God of the Machine, Isabel Paterson (1943)
Chart of the Day
Chart note: Gold is up about 12.5% from July 2018 from $1255 to $1414 (7-4-2019).
“At current prices, the minerals contained in asteroid 16 Psyche are said to be worth $700 quintillion — enough to give everyone on the planet $93 billion. We’re all going to be richer than Jeff Bezos! OK, now for the bad news: This isn’t going to happen.”
USAGOLD note: Smith goes on to elaborate on why he believes that an asteroid made of gold is not going to make us all rich. “Wealth,” he says, “doesn’t come from big hunks of metal. It comes from the ability to create things that satisfy human desires.” We’ll go along with that. . . .At the same time, though, “big hunks of metal” in the form of coins and bullion can go a long way in protecting the wealth one has already acquired.
“Gold prices can continue to climb even after they hit a multi-year high last week, a global investment strategist said Monday. In fact, prices are set to ‘reach $2,000 by the end of the year,’ predicted David Roche, president and global strategist at London-based Independent Strategy.”
USAGOLD note: Something major would need to happen for gold to reach $2000 by the end of the year. Roche thinks he knows what that something might be. Financial markets, he says, “are are now poised to crumble like a sand pile.”
“China’s foreign exchanges reserve rose to $3.12 trillion in June, a rise of $18.23 billion from May, the highest since April last year, data from the central bank revealed on Monday. Meanwhile, gold holdings have also increased to 61.94 million ounces with a value of $87.28 billion as of the end of June, up 330,000 ounces from the previous month, central bank data showed. This represents increases for seven straight months.”
USAGOLD note: The gold portion of China’s reserves shows a gain of 10 tonnes. This report also mentions “China’s holdings of US Treasury bonds and notes for April fell to their lowest level since May 2017 . . .” China, in short, remains on course reducing its U.S. Treasury holdings and increasing its gold stockpile – at least with respect to what it is willing to reveal.
“In fact, Hayek said, central planning led, via cumulative attempts to mend its inevitable failures, to ‘a servile state’ (he recalled Hilaire Belloc’s 1913 book of that name). It led to serfdom, to a condition ‘scarcely distinguishable from slavery.’ Moreover, any attempt at getting a little bit pregnant in this domain, by toying with moderate planning and a ‘middle way’ between capitalism and socialism, would set the democracies on a slippery slope that would end, more slowly but just as surely, in that same serfdom. The free market was not only more efficient economically but indispensable for political and cultural freedom. Its enemies were intellectuals, meddling politicians–and unbridled democracy, which is to say, oppression and spoilation by demagogues invoking the unrestricted will of the majority.”
USAGOLD note: Given the developments in American politics over the past several months, including the left’s sudden embrace of Modern Monetary Theory, it might be worthwhile to revisit the thinking of Frederich von Hayek and, in particular, his book, The Road to Serfdom. Von Hayek was awarded the Nobel Prize for Economics in 1974. The article linked is a review of that book and highlights many of von Hayek’s principles. He memorably dedicated the book to “The socialists of all parties”.
Repost from 4-23-2019, article publication date = 3-1-1998
“President Trump has never been a fan of the strong dollar. And after beating around the bush for months by demanding a 50 bp rate cut and more QE from the Fed, it seems the president is now explicitly calling on the US to artificially weaken the greenback by any means necessary.”
USAGOLD note: Durden ends this short piece with a “for everybody who bought the dip in gold the other day. . . .well done.” We are likely to see a lot more dip buying in the days and weeks ahead.
“Insanely bullish for gold.” – Kevin Smith, CFA
Repost from 7-3-2019
“It’s all systems go for gold investors. The bullion market is stirring from a multiyear slumber and looks set to enter a sustained rally, experts say. Double-digit increases within the next 18 months may be only the start of the price surge. ‘[W]e believe there is a very good chance that this marks the beginning of a new gold bull market,’ says gold market veteran Joe Foster, portfolio manager for the VanEck International Investors Gold Fund. Foster says the run is ‘likely to last several years.'”
USAGOLD note: A review of the developing strong bullish sentiment among market professionals. . . . . .
Repost from 7-2-2019
“Economist Nouriel Roubini, who earned the appellation ‘Dr. Doom’ a decade ago for his predictions of a global financial crisis sparked by the bursting of the U.S. real estate bubble, is once again warning of a dire economic outlook, this time sparked by the U.S.-China trade policy conflict. ‘It’s a bit of a scary time for the global economy,’ the NYU professor and head of Roubini Macro Associates told Bloomberg Television Tuesday. ‘There is a risk of a global recession and financial crisis by next year.’”
USAGOLD note: Roubini sees the trade war getting worse not better. Given the sudden run to gold, it seems investors are in full agreement with his assessment.
Image courtesy of Visual Capitalist/Jeff Desjardins
Repost from 7-3-2019
(USAGOLD – 7/8/2019) – Gold found support once again late Friday at just under $1390 level returning to $1400 by the end of the day. It then gained momenturm in Asia and Europe overnight and is trading now at $1403 – up $3 over Friday’s close. Silver is up 10¢ on the day at $15.09.Though recession worries and the potential for lower U.S. interest rates still head a longer list of concerns, the problems at Deutsche Bank have also begun to weigh on financial markets.
As posted at our live daily newsletter page this morning, gold ownership among Germany’s citizenry already rivals that of Japan and China – nearly 9000 tonnes in private hands. That figure is likely to grow in the wake of the now-exposed depth of the problem at Germany’s largest bank and the associated risk it imposes on the rest of Europe’s financial system. To many, the problems at the bank, including the massive layoffs beginning this week, are reminiscent of the problems at Lehman Brothers in 2008 just before it collapsed.
In an interview at CNBC on Friday, Standard Chartered Bank’s Suki Cooper weighed in on gold’s future prospects following last week’s correction from the $1435 level. “There are a number of macro factors that have turned very positive for gold, and even though we’ve seen a little bit of a pullback, we think this is actually a healthy correction. Those key drivers of a weaker dollar, falling yields and the continued uncertainty and potential risk that we might see a widespread recession are spurring investors to turn to gold once again as a safe haven asset.” She added that the nomination of Christine Lagarde to head up the European Central Bank “created an even more bullish environment for gold.” [Emphasis added]
Quote of the Day
“For we have reached a critical point. In a sense, it is true that the mists are lifting. We can, at least, see clearly the gulf to which our present path is leading. Few of us doubt that we must, without much more delay, find an effective means to raise world prices; or we must expect the progressive breakdown of the existing structure of contract and instruments of indebtedness, accompanied by the utter discredit of orthodox leadership in finance and government, with what outcome we cannot predict.” – John Maynard Keynes, The Means to Prosperity (1933)
Chart of the Day
Chart note: This chart shows the gains or losses in gold from the same month a year earlier. From 2002 through 2011 those gains were consistent. After a down period beginning in 2012, and running through 2015, gold’s performance became less consistent. It then swung back to a more positive trend beginning from early 2016 to present. In June 2019, gold posted one of its strongest returns by this measure in some time – 12.67%. Throughout the period, the gold price was reacting to disinflationary circumstances when its value as a safe-haven store of value captured investors’ attention.
“Chinese people are starting to feel the pressure of economic slowdown. As China’s yuan continues to devalue, and several small and medium-sized banks have filed for bankruptcy recently, many Chinese choose to buy gold or take their money out of the bank, to protect their assets.”
USAGOLD note: In several past posts, we have raised the possibility of ramped-up demand in China based on a depreciating currency and problems in its banking system. The cultural attachment to gold always permanently represents latent demand quickly triggered at the first signs of problems in the economy or financial system, cleverly illustrated in the Ed Stein cartoon below.
“Deutsche Bank announced Sunday that it will pull out of its global equities sales and trading business as part of a sweeping restructuring plan to improve profitability. The bank will also slash 18,000 jobs for a global headcount of around 74,000 employees by 2022. The bank aims to reduce costs by 6 billion euros to 17 billion euros in coming years.”
USAGOLD note: The merger option is closed. No bailout is in the offing. Deutsche Bank is on its own now. Is this Europe’s Lehman moment? As we reported here last week, gold ownership among Germany’s citizenry rivals that of Japan and China – nearly 9000 tonnes in private hands. That figure is likely to grow in the wake of the now-exposed depth of the problem at Germany’s largest bank.
“Federal Reserve Chairman Jerome Powell returns the spotlight this week as he testifies before lawmakers in appearances set to grip financial markets. In the wake of Friday’s news that U.S. hiring outpaced forecasts in June, Powell will offer the latest outlook for monetary policy just three weeks before he convenes policy makers to set interest rates. He speaks before congressional panels on Wednesday and Thursday.”
USAGOLD note: A big week for markets as the Fed chairman will deliver either clarity or a muddle. . . .Ahead of an important FOMC, we come down on the side of muddle.
When in Rome. . .
“The coins’ excellent condition indicated that the owner systematically stashed them away shortly after they were made, the archaeologists said. For some reason that person had buried them shortly after 294 and never retrieved them. Some of the coins, made mainly of bronze but with a 5% silver content were buried in small leather pouches. The archaeologists said it was impossible to determine the original value of the money due to rampant inflation at the time, but said they would have been worth at least a year or two of wages.” – The Guardian (11-19-2015) on a find of 4000 Roman silver coins buried in a Swiss orchard
“Salvian tells us, and I don’t think he’s exaggerating, that one of the reasons why the Roman state collapsed in the 5th century was that the Roman people, the mass of the population, had but one wish after being captured by the barbarians: to never again fall under the rule of the Roman bureaucracy. In other words, the Roman state was the enemy; the barbarians were the liberators. And this undoubtedly was due to the inflation of the 3rd century.” – Joseph Peden, Inflation and the Fall of the Roman Empire
“Now one interesting thing with all this inflation should be a great comfort to us: historians of prices in the Roman Empire have come to the conclusion that despite all of this inflation — or perhaps we should say, because of all of this inflation — the price of gold, in terms of its purchasing power, remained stable from the first through the fourth century. In other words, gold remained, in terms of its purchasing power, a stable value whereas all this other coinage just became increasingly worthless.” – Joseph Peden, Inflation and the Fall of the Roman Empire
Dr. MoneyWise says. . . .”In the wealth game, emphasize defense when you need to and offense when it makes sense. At all times, though, no matter how tempting the prospects for speculative gain, remain fully and judiciously diversified.
Chart image courtesy of Nicolas Perrault III [CC0], from Wikimedia Commons
“China continues to stress that the U.S. must remove all the tariffs placed on Chinese goods as a condition for reaching a trade deal. On Friday, an influential blog connected to state media said the talks will “go backward again” without that step, echoing the line from Ministry of Commerce’s weekly briefing on Thursday.”
USAGOLD note: It does not look like China is making the lifting of tariffs a pre-condition to talks. At the same time, as Bloomberg mentions in this article “some U.S. have insisted that some tariffs will stay even after a deal, as a means to enforce it.”
“Start then with inflationary fire. Much of what is going on right now recalls the early 1970s: an amoral US president (then Richard Nixon) determined to achieve re-election, pressured the Federal Reserve chairman (then Arthur Burns) to deliver an economic boom. He also launched a trade war, via devaluation and protection. A decade of global disorder ensued. This sounds rather familiar, does it not? In the late 1960s, few expected the inflation of the 1970s.”
USAGOLD note: True, “in the late 1960s, few expected the inflation of the 1970s.” But the few who did profited enormously by purchasing gold at $35 per ounce just before the United States devalued the dollar and holding it through the following highly inflationary decade. It rose nearly 25 times. What the current president is attempting to do today de facto is what Nixon had the luxury of doing de jure by simply raising the official dollar price of gold. The current president given his proclivity for easy money must envy the way it was in 1971. That aside, the subheadline to this article is the one that caught my attention: Some fear the fire of inflation; others the ice of deflation. Either way, as we have said many times here, gold historically has been an effective hedge against either – fire or ice.
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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
“The global economy is likely heading toward a “significant market downturn,” according to billionaire Paul Singer. ‘The global financial system is very much toward the risky end of the spectrum,’ Singer said during a panel Thursday at the Aspen Ideas Festival. ‘Global debt is at an all-time high. Derivatives are at an all-time high.’ The co-founder and chief executive officer of Elliott Management Corp. estimated that there will be a market correction of 30% to 40% when the downturn hits. He said he couldn’t predict the timing.”
USAGOLD note: With all the talk about the many dangers lurking in the financial markets, we forget the presence of derivatives’ risk – the one risk that could amplify all else. Singer, for one, does not overlook it.
Repost from 6-30-2019
“I find that for me, being a history buff makes it almost impossible not to be a believer in the metal that has been a fixture and sign of value and wealth since ancient times. I am a gold bug and have been since I first started in the commodities business in the early 1980s. There is no other asset that gives a person the same feeling than gold. Holding a kilo bar of the yellow metal is a feeling that no other investment can elicit.”
USAGOLD note: One of the first memories I have of my years in the gold business is holding twenty Austrian Coronna gold pieces in my hand and thinking – “This is only $2,000?” That was in 1973. Of course, now that same twenty coins is worth almost fourteen times that and it still seems too few dollars for so much gold.
Repost from 6-30-2019
“Geopolitical and trade frictions aside, there is a rationale for why foreigners may want to pare back on U.S. debt. That’s because the fiscal deficit is projected to explode higher in the coming years. A perfect way to fund a gold investment might be selling down your bond exposure.”
USAGOLD note: Why bonds might not be the “safe” alternative in this rapidly changing investment environment.
Repost from 6-30-2019
(USAGOLD – 7/5/2019) – Gold dropped $30 this morning upon release of the Labor Department’s payroll report showing a larger than expected gain in employment in June. The TradingView chart (shown below as our Chart of the Day) records massive paper sales of the metal over a less than two-hour period that dropped the price from $1420 to $1390. Silver is down 32¢ at $15.02. To end what has been a volatile week for gold, we revisit a couple of quotes from a Financial Times article that serve as a reminder why many investors own gold in the first place. On a day like today, it helps to keep one’s perspective.
“You’d be surprised,” says Laurie Kamhi, managing director of a fund that serves entrepreneurs and executives, “at how many of them invest in bars as a way to store money.” Brent Armstrong, a partner at Weatherly Asset Management which caters to clients $2 million to $25 million in assets, says gold is a unique commodity. “We can look at its use in jewelry and electronic products,” he says, “but it’s also been a human emotional store of value for thousands of years.”
Money managers, by and large, tend to focus on the bottom line, i.e., the tangible return on investment. With gold, though, there is also an intangible reward – peace of mind. In the end, there is much to be said for that quality of the precious metals which addresses the basic need for a reliable store of wealth in financially challenging and uncertain times – even on days less rewarding than others. Even with today’s downside factored into the equation, gold is still up $102, or 8%, since the late May turnaround at $1288 per ounce.
Quote of the Day
“The moral of the story is that nobody should be complacent in these times when recession risk is so high, especially because the coming recession is likely to set off a global cluster bomb of dangerous bubbles and debt. The current probability of a recession is the same as it was during the Big Short heyday of 2007 when subprime was blowing up – just let that sink in for a minute. Do you think ‘this time will be different’? How can it be different when we didn’t learn from our mistakes and have continued binging on debt and inflating new bubbles?! Anyone who believes that ‘this time will be different’ is seriously delusional and will be taught a very tough lesson in the not-too-distant future.” – Jesse Colombo, Real Investment Advice
Chart of the Day
“‘Accusations of Eurozone currency manipulation are … flying from the White House with talk of tariffs on the EU and European countermeasures heating up trade tension between the two regions,’ said Robert Carnell, chief economist at Dutch bank ING.”
USAGOLD note: The tweet in question, it seems, was directed more at the Federal Reserve to enlist its aid in driving the dollar lower – in itself an important development for current and would-be gold owners. Concerns about tariffs on Europe seem a stretch at this juncture, but not out of the realm of possibility. At the same time, given the White House’s penchant for surprises in the tariff realm, It is not difficult to understand the elevated concern.
“Government bonds held near multi-year lows on Thursday on bets the U.S. Federal Reserve would cut interest rates this month and that other major central banks would embrace looser monetary policy, pushing world stocks to new 18-month highs.”
USAGOLD note: Not mentioned in this article, such dovishness also translates to strong demand for physical gold. Those who track the gold market closely know of the strong price moves of late in Asian and European markets overnight. That is something we do not see normally as those markets traditionally are content to allow U.S. traders to set the tone. That departure from the long-established norm, though, is worth noting.
“The problem is centralization causes deficits. You can pretty much take that as a rule. Centralization lowers skin in the game… Whereas when you have decentralized communities, like in Switzerland, people are much more fiscally responsible because those who make decisions live in the community… We have a problem of agency between us and those supposed to represent our interests. They do not represent our interests, so they run deficits… So we need to have some kind of laws banning the government from deficits.”
USAGOLD note: An interesting take on the modus operandi behind the national debt tying into his theories on having skin in the game. He is right, of course, about centralization being at the core of the deficit problem. We do not suspect that his remedy will be introduced in Congress anytime soon.
Repost from 5-20-2019
“There’s a standard explanation when gold prices spike, as with their 10% appreciation over the past month: Uncertainty is driving haven demand. People are worried about war in Iran, or a trans-Pacific trade war, or Brexit. In times of crisis, people instinctively cling to bullion. There’s certainly something to that. But an overlooked factor is what’s been happening in the other haven trade, government bonds.”
USAGOLD note: In a negative yielding world, gold becomes very attractive not only as a safe-haven store of value, but as an asset that can also appreciate in value as it has since the end of May (+10%).
Repost from 6-28-2019
“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
Repost from 10/15/2018
“Although we have not had a Fed rate cut exactly yet, we have expectations that rates are going to go lower particularly real interest rates (the nominal interest rate minus inflation) and so that typically means gold’s price is on the rise and I think this move is here to stay.” – Will Rhind, Graniteshares
USAGOLD note: Rhind goes to say “right now it’s all about interest rates” not fear of an economic breakdown.
Repost from 6-27-2019