– One for the history buffs –
730 years of a strong British pound ends in 1931
with gold standard exit
The St. Louis Federal Reserve recently released this interesting chart on consumer prices from 1209 to present. We added the price of gold to the chart to show the direct relationship between declining purchasing power in the British pound and the sterling price of gold after 1931, the year Britain departed the gold standard. Prior to 1931, there was an occasional minor bump higher in the price of gold, but for the most part, it followed along the same flat line as consumer prices. It was only after Britain separated the pound from gold in 1931 that the price began to move radically higher in terms of the currency. It gained significant momentum after 1971 when the Bretton Woods agreement was abolished. Currencies and gold were then allowed to move freely in international markets. Though interesting from a historical perspective, the real lesson in this chart is that when a nation-state goes from gold-backed to fiat money, gold coins and bullion become a logical and worthwhile alternative for citizen-investors – even after 730 years of relative price stability.
Sources: Bank of England, ICE Benchmark Administration Limited, St. Louis Federal Reserve [FRED]
“Initially, ultra-low market interest rates can be a boost to economic activity, encouraging consumption and investment spending. However, over time, an artificially lowered market interest rate causes over-consumption and malinvestment . . .”
USAGOLD note: Degussa’s Dr. Polleit delves into the distortions in asset values created by artificially negative rates and why it makes sense “to take some risk off the table by adding portfolio insurance in the form of gold.” His concise analysis and supporting charts are worth a visit. . . .
Repost from 11-24-2019
“This will be IBV’s sixth location, and it’s hardly the only such firm fielding queries from the wealthy. From London to Switzerland to parts of the U.S., the rich are looking to store precious metals, cash and cryptocurrency. For some, it’s the threat of a global recession. Others are avoiding bank deposits as negative interest rates force lenders to charge for holding cash. Many are concerned about natural disasters.”
USAGOLD note: The move to safety has become a flood of activity among the very wealthy, according to this Bloomberg article.
Image courtesy of Visual Capitalist
Repost from 11-20-2019
(USAGOLD – 12/2/2019) – Gold continued its push south to open the week – down $5 at $1459. Silver is down 11¢ at $16.94. For the most part, gold market traders are attempting to sort out just where the trade talks stand and the impact of Fed interventions to keep money markets liquid. ANZ analyst David Hines summed up the prevailing sentiment in the gold market at present in a Business Day article. “Nothing particularly has really changed [on the trade front] from last week,” he said, “the market remains in the dark about how things will progress. Investor appetite for gold is just waning a little bit on lack of direction.” He went on to say that “the fundamentals [for gold] are still quite supportive” and that perhaps by year-end “we will see gold prices recommit to the uptrend we saw earlier this year.” At the moment, the metals remain stuck in the wait-and-see mode we described mid-last week, but it would not take much, it seems, to jar it loose and push prices one direction or the other.
Chart of the Day
Image courtesy of HowMuch.net
Chart note: “Broad money,” says howmuch.net, “refers to the amount of currency in circulation in a given economy. It includes paper money, funds in a bank account and basically any other financial instrument that you can use to make payments. We plotted the most recent estimates from the CIA’s World Factbook on a map, where one dot equals $10B of broad money. For the sake of simplicity, we grouped every country with less than $100B in a gray category for ‘other.’ This lets you quickly and easily see which ones have the most loot in circulation.”
“Global central banks are approaching the end of the year with a collective shudder at the risky behavior that their low interest-rate policies are encouraging.”
USAGOLD note: All of course in pursuit of gains in a very low to negative yield world. . . . . .An important article that has not received a great deal of attention at the link above.
“It is likely not a coincidence that most people living today have lived most of their lives in a world dominated by fiat money. It has now been nearly fifty years since the United States broke all ties between the dollar and gold. It’s been even longer since other major currencies were tied to gold at all. Consequently we now live in a world where the creation of wealth is seen by many as requiring little more than the creation of more money.”
USAGOLD note: “Those who do not learn from history are doomed to repeat it” (George Santayana) while the prudent saver scrambles to protect whatever wealth he or she has managed to accumulate.
“Over the past few months, 8,000 gold bars – 100 tonnes – were carefully transported from the Bank of England’s vaults in London to Poland. How did G4S’s International Logistics division (G4Si) manage one of the biggest movements of gold between banks in the world?”
USAGOLD note: The inside story on the shipments from the company that made it happen – “We’re humbled to play a part in gold history with this operation.”
This week’s Commitment of Traders report is delayed until Monday due to the Thanksgiving holiday.
“More than two-thirds of retail investors believe that gold is a good safeguard against inflation and currency fluctuations. Almost as many (65%) believe it won’t lose its value over the long-term and report that it makes them feel secure (62%). It is no surprise then, that with so much global economic uncertainty, 61% of retail investors trust gold more than fiat currencies. Because of this, gold is typically used as a strategic asset by retail investors, with the majority using it either to protect their wealth or to generate returns over the long-term.”
USAGOLD note: Some surprising and very positive findings from the World Gold Council on the global public’s affinity for gold – a survey of 18,000 investors worldwide.
Repost from 11-14-2019
Will 2019 be the year of the big breakout for gold?
“In each of the last three years, gold has gotten off to a strong start only to fizzle as the year moved along. Will 2019 be the year gold finally breaks the pattern? A good many investors, fund managers and analysts think that 2019 might very well be the year when gold breaks the restraints and pushes to higher ground. One of those is Carter Worth of Cornerstone Macro in New York who CNBC’s Melissa Lee refers to as “the chart master.” In a recent interview with Lee, Worth referred to a rendition of the long-term chart below saying that there is “a well-defined set-up and a lot of tension.” He says that combination is going to resolve to the upside – “a breakout to all-time highs.” With respect to gold’s relationship to the dollar, Worth says “Gold’s got its own momentum now. . .It is all setting-up for higher gold prices and trouble for equities, trouble for the economy.”
Repost from 6-5-2019 (!)
“Worse, if Trump gets wind of the fact that China is ignoring him, or even has the perception Beijing is working against him politically, it must surely raise the risk of higher US tariffs–at least on 15 December–rather than the risk-on imminent decrease so many have said so loudly for oh-so long.”
USAGOLD note: This opinion piece from Rabobank’s Michael Every elaborates on a theme mentioned in yesterday’s DMR – China’s ‘talk but wait’ strategy as reported by CNBC’s Eunice Yoon.
Repost from 11-20-2019
“This is the cave in which inflation hides … our Fiat Lifestyle, where we simply declare into existence the manner in which we deserve to live. Declared into existence exactly like everything else in the Fiat World. Pulled into the present from our future selves and our children. Without a second thought.”
USAGOLD note: Quite a statement from Ben Hunt as part of a short article you really should not pass by – even if it is a bit unsettling.
Repost from 3-14-2019
“‘I think we’ll continue doing that because of what we see in which direction the crisis in the world is moving,’ Vucic told reporters in Belgrade on Tuesday. He cited slowing growth in the euro area, Serbia’s top trading partner and main sources of investment.”
USAGOLD note: Though a minor player in the official sector dash for the gold, Vucic’s rationale echoes that of the rest of the group.
Repost from 11-19-2019
“As America’s fiscal deficit nears $1 trillion for the first time since the financial crisis, the House Budget Committee held a hearing on Wednesday seeking answers to a crucial question: Does it pose a clear and present danger to the economy?”
USAGOLD note: Of course not. ‘Deficits don’t matter,’ in case you may have forgotten.
Repost from 11-2019
(USAGOLD – 11/27/2019) – Gold was unable to sustain yesterday’s upward trend in slow, pre-holiday trading this morning. The metal is down $6 at $1455. Silver is down 10¢ at $16.99. The trade issue continues to trump all others when it comes to the precious metals at present. Some though are beginning to factor-in the Fed’s liquidity injections as more than something temporary – an assessment that invokes memories of the post-2008 run to record prices. Along these lines, Gold Newsletter’s Brien Lundin offers this assessment for gold going into the end of 2019 and the beginning of 2020:
“My view is that once the market truly appreciates that this is not a temporary program and is in fact a return to massive QE, the price of gold will soar. And that’s going to happen in the new year. In the meantime, gold remains in the tug-of-war between the buyers and sellers. Any significant sell-off brings physical buyers into the market in size. And any price advance brings the sellers, confident in gold’s seasonality, in to stymie the rally. So, once again, I expect gold (and silver) to trade sideways to down going into roughly mid-December, with the beginnings of a rally showing in the latter half of the month.”
Chart of the Day
Gold Annual Returns
(Year over year for the same month, interactive chart)
Chart note: Thus far in 2019, gold is turning in the best performance year over year for the same month since 2012. For November thus far, it is up 19% from a year earlier.
“Despite two decades of anti-US rhetoric from Venezuela’s ruling socialist party and concerted efforts to move the economy’s axis away from the US and towards China and Russia, the dollar is increasingly part of the fabric of Venezuelan life.”
USAGOLD note: Gold is a popular holding as well, and with the inflation rate running at 39,113.80% annuallized (according to TradingEconomics), it is not difficult to understand why. As the chart shows, Venezuela should count its lucky stars. The current inflation rate is down from 350,555% in February.
Chart courtesy of TradingEconomics.com
(USAGOLD – 11/26/2019) – Gold staged an unexpected late morning rally as “aggressive counter-trend buyers,” according to James Hyerczyk posting at FX Empire, “came in to defend the recent bottom at $1446.20. The headlines are saying that doubts over a U.S.-China trade deal drove investors into gold, but I suspect thin pre-holiday trading conditions had a lot to do with the powerful reversal.” It is up $8 at $1462 per ounce. Silver is up 25¢ at $17.10 – a 1.5% gain on the day. Michael Matousek, head trader at U.S. Global Investors, gave the trade talks more weight in the price reversal. “The talk on the streets,” he told Reuters, “is that the phase one deal is going to be a non-event. People believe that there would be a deal but very little substance in it.”
“The quite sharp drop early this month was on heavy volume, and the feeble rally of the past week or so looks like a countertrend rally—a bear flag—that will lead to another sharp down-leg very soon. This will break gold out of the channel shown and take the price to our downside objective in the $1,380–$1400 area.”
USAGOLD note: Clive’s gotten it right thus far in this downside break. He says this healthy correction “would clean out the excess spec longs and set up gold for another major run.” He also called gold’s move to the upside that preceded the correction we are now experiencing. If he’s right, it could present an excellent buying opportunity for the longer-term investor.