“This is a terrible sign for the condition of the market for anybody who’s experienced a significant number of cycles, which I’ve definitely experienced.” – Jeffrey Gundlach, DoubleLine Capital
USAGOLD note: Anyone can get a margin call. Even a stay-at-home, stock trading Mom …… In early 2010, investors carried about $260 billion in securities’ margin debt, according to the Wall Street Journal. As of the end of last week, that figure stood at almost $615 billion.
Repost from 9-14-2020
Government spending is a tailwind for gold
The problem with monetary stimulus is that it requires takers, i.e., people and businesses willing to borrow and spend. Private borrowers, though, are not as prolific as the Fed or federal government would like at this juncture. Governments, on the other hand, are ready borrowers and big ones at that. In fact, as Manhattan Institute’s Brien Riedl recently pointed out in a National Review article, the Fed has already financed roughly half of government spending to combat the economic hit from COVID-19. How is all of this a ‘tailwind’ for gold? The overlay chart below showing the federal debt and gold tells the story at a glance. With the rest of the world worried about financing its own debt, the buyers of U.S. debt are likely to become scarcer and that is where the Fed steps in by monetizing those obligations. When all is said and done, that is perhaps the most basic reason why gold has behaved as it has since March of this year when it sold for $1470 per ounce.
Sources: ICE Benchmark Administration, U.S. Treasury, St. Louis Federal Reserve
The trendline (graphed quarterly) does not reflect the current $26.5 trillion national debt figure.
Gold continues to bounce around looking for direction, gold demand springs to life in China and India
(USAGOLD –9/18/2020) – Gold continues to bounce around looking for direction as we close the week. The markets remain in a wait and see mode after the Fed’s non-committal policy response on Wednesday and before Congress decides on the next bail-out package. The metal is up $7.50 at $1954. Silver is level at $27.12. The upside for gold, as we pointed out last week, has been capped by diminished interest above the $2000 level and supported with buying under the $1950 level. It is not at all surprising that gold would encounter heavy resistance at the $2000 level. Resistance has come at nearly every big number – $1400, $1500, $1600, etc. – all the way up and since the launch of this uptrend in 2019. Why should $2000 – the biggest number of them all so far – be any different?
We find ourselves in the camp that sees price corrections and consolidation as signs of a healthy market. A stodgy price environment also provides an opportunity for those looking to shore up their portfolios against whatever uncertainties might lie ahead. Along these lines, ForexLive’s Giles Coghlin reports this morning that Swiss exports of gold to China sprang to life in August after a five-month break. India’s gold imports were up 171% in August. Gold buyers in both countries like to take advantage of price weakness. The uptick in demand also signals that the two largest markets for gold might be emerging from the debilitating virus lockdowns earlier this year.
Chart of the Day
Sources: ICE Benchmark Administration, Bureau of Labor Statistics, St. Louis Federal Reserve [FRED]
Click to enlarge
Chart note: A ten-dollar bill stuck under the mattress in 1971 would have the purchasing power of roughly $1.60 today. The equivalent of $10 in gold (.286 troy ounces) put under the mattress in 1971 would have the purchasing power of almost $565 today (at $1975 per ounce). Over the long term, cash is cold comfort to the saver …… if its comfort at all. That is why Ray Dalio, manager of the largest hedge fund in the world, recently said ‘cash is trash’ and recommended a long term holding in the yellow metal instead. It is not difficult to understand, at the same time, why someone might want to keep a fairly substantial emergency stash of the green stuff nearby under current circumstances.
“As the Federal Reserve this week gears up to maintain its dovish stance, a chorus on Wall Street is calling time on the greenback’s multi-year bull cycle.”
USAGOLD note: Gold gets a mention in this article as a beneficiary of capitlal flows from the “dethroning of the dollar.” We are not as attached to the “dethroning of the dollar” argument as we are to the “dethroning of fiat currencies” – an ongoing process occurring in an economy near you, and a process, by the way, that corresponds simultaneously with the ‘enthroning” of gold as the ultimate repository of wealth.
“I do not think that we will see the time when either of those two great economic powers, the United States and the European Union, will ever again fix their respective currencies to gold as they have in the past. More likely, gold will be used at some point, maybe in 10 or 15 years when it has been banalized among central bankers, and they are not so timid to speak about its use as an asset that can circulate between central banks. Not necessarily at a fixed price, but a market price. . .Gold is going to be a part of the structure of the international monetary system for the 21st century, but not in the way it has been in the past. We can look upon the period of the gold standard, the free coinage gold standard, as being a period that was unique in history, when there was a balance among the powers and no single superpower dominated.”
Nobel Laureate in Economics (1999)
From a lecture at St. Vincent College (1997)
Every once in a while we rummage around USAGOLD’s creaky old attic and dust-off a golden vignette from our storied past. Most first appeared in our monthly client letter, but this one comes from the first chapter of The ABCs of Gold Investing – How To Protect and Build Your Wealth With Gold by USAGOLD’s founder Michael J. Kosares. First published in 1996, it is a timeless story about gold’s ultimate value ……
Why Americans need gold
“The possession of gold has ruined fewer men than the lack of it.”
Thomas Bailey Aldrich
The incident is one of the most memorable of my career. Never before or since has the value of gold in preserving assets been made so abundantly clear to me. It was the mid-1970s. The United States was finally extricating itself from the conflict in South Vietnam. Thousands of South Vietnamese had fled their embattled homeland rather than face the vengeance of the rapidly advancing Communist forces.
A couple from South Vietnam who had been part of that exodus sat across from me in my Denver office. They had come to sell their gold. In broken English, the man told me the story of how he and his wife had escaped the fall of Saigon and certain reprisal by North Vietnamese troops. They got out with nothing more than a few personal belongings and the small cache of gold he now spread before me on my desk. His eyes widened as he explained why they were lucky to have survived those last fearful days of the South Vietnamese Republic. They had scrambled onto a fishing boat and had sailed into the South China Sea, where the U.S. Navy rescued them. These were Vietnamese “boat people,” survivors of the final chapter in the tragedy of Indochina. Now they were about to redeem their life savings in gold so that they could start a new business in the United States.
Their gold wrapped in rice paper was a type called Kim Thanh. These are the commonly traded units in Hong Kong and throughout the Far East. Kim Thanh weigh about 1.2 troy ounces, or a tael, as it is called in the Orient. They look like thick gold leaf rectangles 3 to 4 inches long, 11⁄2 to 2 inches wide, and a few millimeters deep. Kim Thanh are embossed with Oriental characters describing weight and purity. As a gesture to the Occident, they are stamped in the center with the words OR PUR, “pure gold.”
It wasn’t much gold—about 30 ounces—but it might as well have been a ton. The couple considered themselves very fortunate to have escaped with this small hoard of gold. They thanked me profusely for buying it. As we talked about Vietnam and their future in the United States, I couldn’t help but become caught up in their enthusiasm for the future. These resilient, hardworking, thrifty people now had a new lease on life. When they left my office that day, there was little doubt in my mind that they would be successful in their new life. It was rewarding to know that gold could do this for them. It was satisfying to know that I had helped them in this small way.
I kept those golden Kim Thanh for many years. They became something of a symbol for me—a reminder of the power and importance of gold. Today, when economic and financial problems have begun to signal deeper, more fundamental concerns for the United States, I still remember that Vietnamese couple and how important gold can be to a family’s future. Had the couple escaped with South Vietnamese paper money instead of gold, I could have done nothing for them. There was no exchange rate for the South Vietnamese currency because there was no longer a South Vietnam! Wisely, they had converted their savings to gold long before the helicopters lifted U.S. diplomats off the roof of the American Embassy in 1975.
Over the years, I have come to understand and appreciate the many important uses of gold—artistic, cultural, economic, and industrial. Gold is unsurpassed for jewelry and as a high-tech conductor of electricity. Gold has medical applications in dentistry and in treating diseases from arthritis to cancer. Gold plating is used in computers and in many other information-age technologies. In nanotechnology, it is used in a variety of cutting-edge medical diagnostic devices. As for its engineering uses, gold can be found in automobile anti-pollution devices, in jet engines, in architectural glass, and in a number of space applications. All of these pale, though, when compared to gold’s ancient function as money, as an asset of last resort and an unequaled store of value.
– Michael J. Kosares
“While equities and gold benefited from the trillions of dollars in fiscal spending and monetary injections, those efforts are debasing the currency and have raised the possibility that the U.S. will go too far in testing the limits of government stimulus, Dalio said Tuesday in an interview with Bloomberg Television.”
USAGOLD note: Dalio, as many of you already know, advocates gold ownership as a hedge against the possibilities he raises in this interview. He is the founder of the world’s largest hedge fund – Bridgewater Associates.
“Gold remains an attractive investment, as the recent price setback is likely to be short-lived. Ample money supply, lower interest rates and macro uncertainty should support gold investment. Physical demand is recovering, so we see the gold price reaching $2,300/oz next year.”
USAGOLD note: Australia’s ANZ Bank joins the $2300 Club.
Repost from 9-12-2020
“Quincy Krosby, chief investment strategist at Prudential Financial, said the stock market could easily be disappointed because the Fed is unlikely to offer more clarity on monetary policy, such as plans for bond buying.”
USAGOLD note: The markets may be looking for way more than the Fed is capable of delivering …… A market that depends on monetary largesse for upward mobility is one built on a flimsy foundation. We should keep in mind that, after all is said and done and all the ballyhoo over the stock market’s strength since March, it is still down about 4% year to date – when using the broad DJIA as a measuring stick – and up only 2% over the past twelve months.
Repost from 9-11-2020
‘Will the Fed spend trillion of dollars, every year, forever to support the market?’ asks billionaire Howard Marks
“How do people feel about buying securities that are high only because the Fed is buying?”
USAGOLD note: His first question begets another question: What happens if it doesn’t? As for the second question, who said anything about investing in the stock market for value, or based on the fundamentals. Most are simply along for the ride.
Repost from 6-24-2020
“In a bull market those who look for bullish sentiment to get excessive too early, they’re wasting their time. Contrary opinion is an unreliable indicator. Sometimes near a major top the contrary opinion guys will be right. But quite often in the middle of a trend they will find too many bulls and yet the price will still drive north (head higher). … So I think people who use the traditional methods of analysis like looking at short-term charts or contrary opinion, they’re wasting their time. This is a fresh new bull market, it is a crisis situation, and gold is part of a much bigger picture that’s going on here…”
USAGOLD note: Nothing in the investment game is foolproof including contrary opinion. Oliver has been making the right calls for quite some time now. This is a crisis, he says, and “it is not going to be incremental anymore.” He touts gold and silver saying the yellow metal is headed for the high $2000s. Oliver is a man of conviction as you will find in the interview at the link above. He also carries some credentials having worked directly with COMEX chairman and EF Hutton commodities division head, David Johnston, during the 1970s.
Repost from 8-3-2020
“This isn’t appealing. Betting on a return to inflation might be a good idea. And indeed, the only period in which commodities outperformed was the stagflationary 1970s. As commodities (excluding precious metals) have been mired in a bear market for more than a decade, and have a historical tendency to move in long waves …”
USAGOLD note: Running out of room at the end of the rainbow …… A stagflationary outcome is one that keeps cropping up among thinkers we happen to respect. The thing about gold and silver is that they will likely participate in a commodity boom and be at the ready for safe-haven purposes even if it doesn’t. Auther’s latest draws from the thinking of Deutsche Bank’s “veteran financial historian” Jim Reid who says we are entering the Age of Disorder – the sixth economic era since the American Civil War – and one, as its name implies, likely to be fraught with danger.
Repost from 9-11-2020
Recent Better Business Bureau Five-Star Client Review
Scorecard: 30 five-star reviews. Zero complaints.
A+ rating. Accredited since 1991.
USAGOLD Recommendation: The precious metals industry is unique in the financial industry in that it is not subject to oversight or regulation by third-party government entities like the SEC or CFTC. As such, marketplace forums and feedback sites often serve as a replacement for investors attempting due diligence. While several options can be found, by far the most impartial and least susceptible to vested influence is the Better Business Bureau. When looking at a company’s BBB profile, don’t focus solely on the rating. To be honest, pretty much everybody has an ‘A’ or ‘A+’ rating. What is far more important to assess is the number and nature of complaints, number and caliber of positive and negative reviews, longevity with the BBB, as well as the number of ‘stars’ given a company through the actual customer review system.
Reliably serving physical gold and silver investors since 1973
“Alan Greenspan told CNBC on Thursday that the critical issues facing the US are inflation, the unknowns surrounding the coronavirus, and the budget deficit. … While much about another critical issue, the coronavirus, remains unknown, Greenspan said he is certain there will be an ‘extraordinary increase in retirement’ ahead.”
USAGOLD note: It is not difficult to imagine that “increase in retirement” accelerating the result of the virus. Those of you who frequent these pages know that we still put a great deal of stock in Mr. Greenspan’s thinking. With a long list of dangers now preoccupying investors, the national debt and budget deficits have been pushed toward the bottom of the list. While some spikes in the statistical mix might have already moderated (unemployment. volatility and stress indices come to mind), this is one that will not. In fact, as Greenspan point outs, it will get considerably worse over time based on demographic trends. Ramirez’ cartoon alluding to the recent discovery of a collision of two black holes is an eye-catcher that drives home the point.
Cartoon courtesy of MichaelPRamirez.com
Repost from 9-11-2020
(USAGOLD –9/17/2020) – Gold took a moderate turn to the south in the aftermath of an uneventful Fed meeting and press conference. The markets, it seems, were hoping for a pleasant surprise but got more of the same instead. Gold is down $17 at $1945. Silver is down 37¢ at $26.88. In the end, what matters most is the trend in Fed policy and how it is manifesting itself in the numbers. Today’s Charts of the Day are instructive in that regard [Please see below.]. The Federal Reserve Open Market Committee, Chairman Powell tells us, remains fully committed to staying the course on interest rates and its bond market purchases. We have begun to see some direct inflationary results from that policy. Consumer prices, we should remember, are up 1.6% over the last three months. After all is said and done, the FOMC appears content, at least for now, to let the tincture of time do its work.
It is with those policies in mind that Bloomberg commodity strategist Mike McGlone sees gold as stronger now than at the outset of the 2001-2011 leg in the bull market. He sees the yellow metal as gathering itself for a “rhyming rally” in the years ahead that could “nudge gold to $4,000 an ounce in 2023.” In a recent post at his Twitter account, he goes even further saying gold is “set for $7000 per ounce by 2025 if trends stay friendly.” He concludes that “rising gold prices despite declining managed-money net-longs and an advancing dollar, are a sign of the strengthening foundation under the metal. Less speculation vs. more organic demand forces are at play for the store of value, which indicates a healthy bull market.”
Chart[s] of the Day
Chart note: During the financial crisis that began in 2008, the Fed sterilized its money creation by routing money 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 in the first chart, the current level of sterilization, at least in the short term, is greater than what occurred in the 2008-2014 period. At the same time, as you can see in the second chart, 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 as noted above that it might be taking root. (Please also take note that the growth in the money supply began roughly a year ago – well before the onslaught of the coronavirus pandemic.) As you can see in our third chart, gold has tracked MZM higher since early 2019.
“There are certainly forms of instability that have been introduced by algorithmic trading that will increase as we put more and more faith in these algorithms. The February 2018 flash crash was instructive. The culprit was a slightly esoteric exchange-traded product that has a rebalancing mechanism inside of it. And that rebalancing mechanism ended up destroying the product on one specific day when the market moved a little bit more than the product was designed to handle. The product was required to trade a lot of instruments in response to that move. But then those trades exaggerated a small move and it became a big move, which required more rebalancing—and everything spiraled out of control.”
“The rapid accumulation of gold by investors as the coronavirus crisis erupted earlier this year has slowed, threatening the record-breaking rally in prices of the precious metal.”
USAGOLD note: Is it not understandable – perhaps even a sign of good health – that a market might take pause after rising 33% over a six month period? We agree with the last analyst quoted in this article that “after the election, if gold starts making new highs, you will see fresh and sizable inflows back into gold ETFs” (the favored vehicle among funds and financial institutions). In fact, that flow could begin well before the first Tuesday in Novermber.
Chart courtesy of TradingView.com • • • Click to enlarge
USAGOLD note: Rotbart says gold is the only asset that protects against the problems that most concern investors – a global recession, a pandemic, massive stimulus, zero percent interest rates, the elections, the dollar weakening, etc. It sees continuing demand for the metal globally and a price in the $2200-2300 range by mid-year 2021.
Repost from 9-9-2020
“Bullion, which reached a record high last month, has stumbled in recent weeks, hampered by signs of stabilizing economies and a surge in equities. The election may renew investor focus on inflation, government debt and the need for stimulus, [Sprott’s Peter] Grosskopf said. Gold could get an added lift from a win by Democratic presidential candidate Joe Biden, who is seen as likely to raise taxes and increase spending, he said.”
USAGOLD note: And then you have the possibility of turmoil if the election outcome goes into some form of suspended animation because the losing party refuses to gracefully concede.
Repost from 9-11-2020