(USAGOLD – 2/23/2021) – Gold was level this morning at $1811.50 after yesterday’s strong push to the upside and ahead of Jerome Powell’s Congressional testimony later today. Silver is down 22¢ at $28.02. Commodities, the dollar and bond yields are similarly subdued and in a wait and see mode. The consensus is that the Fed chairman will do his utmost not to upset the easy money applecart.
If the Fed is looking for inflation, it will find it in the money supply – something that did not happen with authority in the aftermath of the 2008 credit crisis. From June 2019, the money supply grew by $4.5 trillion – an eight times factor year over year. Recently, the nominal change in dollar volume resumed its uptrend after about six months of moving sideways. (Please see our Chart of the Day and comments below.)
“Every gold bull market over the last 50 years has begun with a catalyst that propelled significant growth in the money supply,” writes Manning & Napier, the money management firm, in a report posted at Seeking Alpha titled The Value of Gold in a Portfolio. “Each of those prior bull markets was proceeded by substantial US dollar money supply growth, making monetary expansion a key indicator. It is important to note that this alone does not guarantee a gold bull market, as there are many other variables at play. … We see the status of each of these economic factors, money supply growth, inflation, and real interest rates, as supportive of higher gold prices ahead. Policymakers have been remarkably forceful in responding to Covid-19, resulting in substantial recent money supply growth in the US, and they appear willing to continue to throw money at the crisis in the year ahead.”
Chart of the Day
Sources: St. Louis Federal Reserve [FRED], ICE Benchmark Administration
Chart note: During the financial crisis that began in 2008, the Fed sterilized its money creation by routing liquidity back to its coffers in the form of commercial bank excess reserves – a strategy that kept the inflation rate from running out of control. As you can see, the rapid growth in the money supply this time around goes beyond anything that occurred during the prior crisis. Whether or not the growth in the money supply will translate to price inflation down the road remains to be seen – though we have begun to see some signs that it might be taking root, including the strong growth in commodity prices reported in yesterday’s DMR. Also, note that MZM growth has begun to accelerate once again.
“If we are lucky, the next Fed-caused downturn will cause only a resurgence of 1970s-style stagflation. The more likely scenario is the type of widespread economic chaos not seen in America since the Great Depression. The growth of cultural Marxism, the widespread entitlement mentality, and the willingness of partisans of various sides to use force against their political opponents suggests that this economic crisis will result in civil unrest that will be used to justify new crackdowns on individual liberty. Those who understand the causes of, and cures for, our current predicament have two responsibilities. First, prepare a plan to protect your family when the crisis occurs. Second, do all you can to spread the truth in hopes the liberty movement reaches critical mass so it can force Congress to make the changes necessary to avert disaster. Since the crisis will result in a rejection of the dollar’s world reserve currency status, individuals should consider alternatives such as gold and other precious metals.”
Dr. Ron Paul
Former Texas Congressman and candidate for president
Ron Paul Institute for Peace and Prosperity
Economic insecurity is becoming the new hallmark of old age
“In the United States,” writes Katherine S. Newman and Rebecca Hayes Jacobs for The Nation, “economic security in old age was seen, for a long time, as both a social issue and a national obligation. From the birth of Social Security to the end of the 20th century, the common assumption has been that we have a shared responsibility to secure a decent retirement for our citizens. Yet that notion is weakening rapidly. Instead, we have started to hear echoes of the mantra of self-reliance that characterized welfare ‘reform’ in the 1990s: You alone are in charge of your retirement; if you wind up in poverty in your old age, you have only your own inability to plan, save, and invest to blame.”
Chart courtesy of MacroTrends.net • • • Click to enlarge
Some compare today’s stock market psychology to the period just before 2008. Others compare it to the 1920s when everything was hunky-dory until suddenly it wasn’t – perhaps a more apt comparison. Too many are “all-in” with respect to stocks in their Individual Retirement Accounts hoping to accumulate as much capital as possible without regard to the potential downside. As the chart above amply illustrates, the stock market did not recover from the losses accumulated between 1929 and 1933 until the mid-1950s, almost 25-years later – a fragment of stock market history lost to time.
Some will rely on the fact that stocks recovered nicely once the Fed launched the 2009 bailout. We should keep in mind though that many prominent Wall Street analysts have warned that the Fed no longer has the firepower it did then. The financial markets and economy are much more vulnerable as a result – all of which brings us back to the notions of self-reliance and taking personal responsibility for our retirement plans. If you find yourself among the group that thinks hedging a stock market downturn to be in your best interest, we can help you effectively structure a gold and silver diversification as part of your retirement plan to hedge that possibility.
Repost from 2-17-2021
“The trend will sap demand for fossil fuels but also will drive a strong cycle for copper, nickel, silver and platinum — important materials for batteries and for the expansion of electrical power grids and charging stations.”
USAGOLD note: FT’s Mackenzie joins a growing list of analysts and commentators contemplating the emergence of a secular bull market in commodities that could last for the next decade. Per the snippet above – more than hopes of Reddit-led short squeeze – USAGOLD clientele have increasingly added silver and platinum to their holdings for two more lasting and fundamental reasons. First, their relatively low prices compared when with other assets – and not just gold, but stocks and bonds as well. Second, a perception that demand will increase for both items in the years to come as a result of the Biden push for a greener economy. The chart below shows the uptrend many see as part of a first leg in the rally.
Chart courtesy of TradingEconomics.com • • • Click to enlarge
Repost from 2-14-2021
“This will end in a currency crisis of some sort perhaps in conjunction with the shooting war Hugo envisions. I am not suggesting the end is near. How long the shrinking middle class will put up with this is a mystery. But when the currency crisis does arrive, expect this global cry: No one could possibly have seen it coming.”
USAGOLD note: Two brief but incisive posts on the current state of global economic affairs from Hugo Salinas Price and Mish Shedlock …………
Repost from 1-4-2020
“What’s holding the boot together is basically zero interest rates. As long as rates remain where they are, unless we have a real dramatic pullback in economic activity, this bubble that we’re in is probably not going to burst any time soon. We have to understand though we are investing in a bubble.” – David Rosenberg, Rosenberg Research [Emphasis added.]
USAGOLD note: The problem with bubbles is no one can know when it is going to burst, but when it does the damage can come swiftly and with a vengeance. The best way to deal with it, as we have said repeatedly, is not necessarily to vacate the market – or try to pick a top – but to build hedges.
Repost from 1-2-2020
“After a spectacular year, precious metals are set for further gains in 2021, with silver tipped to outperform, but analysts are growing more cautious about the prospects for gold as the global economy recovers from the impact of the coronavirus.”
USAGOLD note: Reuters weighs in on the precious metals for 2021 with a mostly bullish appraisal of the future. 2020, as Hobson points out, was a very good year ……
Repost from 2-16-2021
“Deflation stacks additional weight upon the shoulders… further encumbers the back… and buckles the knees. Recall, debt’s real value increases under deflation. Inflation, meantime, eases a man’s load. Debt’s chains weigh lighter upon him. He can get on… and move ahead. Hence the Federal Reserve’s mania for inflation. It quickens the pace of commerce. It eases debt’s burden, public and private.”
USAGOLD note: With that as his premise, Maher lays out what he sees as the likely outcome – the two choices available to the Federal Reserve. “The show,” he concludes, “will continue until it cannot.”
Repost from 2-16-2021
“Former New York Fed President William Dudley last week outlined reasons why the U.S. central bank might have to pull back on stimulus sooner and with greater force than anticipated to keep inflation in check, potentially triggering a new wave of volatility akin to the taper tantrum.”
USAGOLD note: It certainly looks a lot like another taper tantrum. Bond yields are up almost 20% over the past two weeks (from 1.07% to 1.28% as of this afternoon) as investors bail. If bonds are no longer a safe haven, there are alternatives. The problem, Bloomberg points out, is global with bond markets everywhere save China in retreat.
Technical Traders/Chris Vermuellen/2-17-2021
Repost from 2-17-2021
“My research team and I believe the recent downside trend in Gold has reached a support level, near $1765, that will act as a launching pad for a potentially big upside price trend. This support level aligns with previous price highs (May 2020 through June 2020) after the Covid-19 price collapse, which we believe is an indication of a strong support level. As you can see from the Gold Futures Weekly chart below, if Gold price levels hold above $1765 then we feel the next upside rally in metals could prompt a move targeting $2160, then $2400.”
USAGOLD note: A ray of light in an otherwise bleak setting from Mr. Vermuellen …… but first, he points out, $1765 must hold.
USAGOLD note (2-22-2021-AM): Half-hearted no more………Gold and silver staging strong rallies at mid-morning (MT). Gold bouncing off lows indicated by Vermuellen above warranting a repost. With nothing fundamental surfacing as yet, this morning’s upside appears to be the result of a technical rally and short-covering touched off by strong pricing in the commodities sector – oil up +3%, copper up +1.5%. LME Index up 2.96%……
(USAGOLD – 2/22/2021) – Gold is making a half-hearted attempt to break its deep winter funk this morning as the dollar, the bond market, and stocks all showed signs of stress. It is up $14 at $1800. Silver is up 21¢ at $27.58. This morning, in concert with our Chart of the Day, we thought it might be worthwhile to revisit famed Wall Streeter Jeremy Grantham’s recent forecast in which he warned his clients that the “long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.… Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives.”
Chart of the Day
Chart courtesy of VisualCapitalist.com • • • Click to enlarge
Chart note: “In 2001,” writes Visual Capitalist in the notes accompanying this chart, “Warren Buffett famously described the stock market capitalization-to-GDP ratio as ‘the best single measure of where valuations stand at any given moment.’ This ratio, now commonly known as the Buffett Indicator, compares the size of the stock market to that of the economy. A high ratio indicates an overvalued market—and as of February 11, 2021, the ratio has reached all-time highs, indicating that the U.S. stock market is currently strongly overvalued.” Other instances of extreme valuation, as you can see, were followed by extended periods of stock market decline.
“Spot prices touched a seven-month low on Friday, deepening a slump and breaching through a support level that analysts say could portend further losses. Bullion pared some of Friday’s losses as the dollar moved lower, though is already down more than 6% this year.”
USAGOLD note: Shocking reversal? Does a 6% drop thus far this year qualify as “shocking”? Market leaders – like gold with respect to the commodities complex – often correct while the rest of the field plays catch-up. Nothing new about that. The one thing I’ve learned about gold over my many years in the business is that just when you think you’ve got it pegged, it turns around and does precisely the opposite. It has a mind of its own on the upside……and on the downside, by the way. While the media continues to bash gold at every opportunity, it is still up almost 11% over the past 12 months, while the DJIA, the financial media’s darling, is up 8%.
Gold and Dow Jones Industrial Average
(Percent gain through 2/19/2021)
Chart courtesy of TradingView.com • • • Click to enlarge
“The decline of Rome was the natural and inevitable effect of immoderate greatness. Prosperity ripened the principle of decay; the causes of destruction multiplied with the extent of conquest; and as soon as time or accident removed the artificial supports, the stupendous fabric yielded to the pressure of its own weight.”
The Decline and Fall of the Roman Empire
Courtesy of HowMuch.net • • • Click to enlarge
“In 2020, the United States imported $11.1 trillion worth of goods and services while exporting $8.5 trillion,” says HowMuch.net. “Breaking this down into the various product types draws a picture of the American economy. Looking at the value of the different categories, we get a sense of what products the U.S. relies heavily on other countries for, and which they produce in excess.
- America exports $2.84 trillion in services, nearly twice the $1.85 trillion it imports.
- Imports of goods stood at $9.23 trillion in 2020, nearly twice the $5.67 trillion it exports.
- The difference between imports and exports of consumer goods, except food and automotive is $1.85 trillion, the largest imbalance favoring imports.
- On the flip side, the gap between imports and exports in the other business services category came in at $570 billion favoring exports.
- Total exports dropped by $1.55 trillion and imports by $1.41 trillion in 2020 compared to 2019.”
“The nightmare only got worse on Monday, when she realized her bill had increased by another $2,500. In comparison, Scott-Amos paid $33.93 last year for the entire month of February. ‘I don’t have that type of money,’ she said. ‘I now owe Griddy $2,869.11. This is going to put me in debt, this is going to mess up my credit. Are they going to cut me off? In the middle of this ongoing crisis?’”
USAGOLD note: Not a joke by any stretch, but the Ramirez cartoon reflects what a good many trapped in this polar vortex “disruption” are thinking ……
Cartoon courtesy of MichaelPRamirez.com
“We believe that the tide on yields and inflation is turning, which will pose a major risk to multiasset portfolios.” – Marko Kolanovic, JP Morgan
USAGOLD note: Marko Kolanovic echoes Steve Hanke’s call from a few days ago that we have now entered the initial stages of a commodity supercycle driven by “ultraloose monetary and fiscal policies.”
Repost from 2-16-2021
USAGOLD note: If not 2021, then when……if ever? NewsMax relays a Wall Street Journal report on Daly’s comments. We would add that the chairman of the Federal Reserve appears to be on the same page – along with most other policymakers at the Fed. Round and round we go. Where it stops, nobody knows. The chart below illustrates the massive acquisitions made by the Fed in this “bond-buying spree” the vast majority of which has been federal government debt.
Sources: St. Louis Federal Reserve [FRED], Board of Governors Federal Reserve System
Click to enlarge
Repost from 2-16-2021
“But this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives. Speaking as an old student and historian of markets, it is intellectually exciting and terrifying at the same time. It is a privilege to ride through a market like this one more time.”
USAGOLD note: Grantham doesn’t pull any punches in this assessment. “I believe this event,” he warns, “will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.” Grantham has a strong record of predicting the deflation of market bubbles.
Repost from 1-7-2020