“Paul Tudor Jones, founder at Tudor Investment Corporation, explains why he views gold as the best trade over the next year to two years.”
USAGOLD note: “Gold,” he says, “has everything going for it.” A very interesting interview, Tudor Jones joins a long list of billionaires who have come out in recent weeks advocating gold ownership.
Repost from 6-13-2019
“Sound familiar? It fairly describes market and economic conditions in the U.S. over the past couple of months. Except that this paragraph would be as true for the U.S. economy and stock market in September 2007 as it is today. Consider that 12 years ago the yield curve was inverted and U.S. economic growth was markedly slower than it had been in 2006. Yet the Standard & Poor’s 500 made a new high in July 2007 (same as 2019), there was an August correction (same as 2019), and then the Fed cut rates on September 18 (ditto — same day even).”
USAGOLD note: As we watch the analysts and pundits fumble around for an explanation as to what is going on in the credit markets at the present, we are reminded that there was similar confusion in 2007-2008 as Wall Street began its descent into chaos. Nobody had a good explanation for what was happening. If you remember the confusion evolved to the prevailing mantra: “We didn’t see it coming.”
Repost from 9-21-2019
“This MMT sounds like a recipe for immense inflation, even hyperinflation. You are spending all this money directly into the economy. It will drive consumer prices through the attic roof, you say. This is crackpot. A witch’s sabbath of inflation would surely result. Yes, but here the MMT crowd meets you head on… They agree with you. They agree MMT could cause a general inflation, possibly even a hyperinflation.”
USAGOLD note: Modern Monetary Theory (MMT) is neither modern nor a theory. John Law, the Scottish financier, tried a version of it exactly 300 years ago (1717-18) in France.* He did so with the blessing of the French monarchy and with a rationale very similar to MMT’s proponents today. In the end, Law’s theories (to his surprise if we are to believe the historical account) bankrupted the French people and the government, reduced the economy to ashes, and created such a distaste for paper scrip among the citizenry that it took 80 years for France to reintroduce paper money as a circulating medium.
“The shrewder speculators* became alarmed. They began to sell their shares of stock, and hoard in gold the enormous wealth they had acquired. This resulted in a demand on the government for metal in exchange for its paper, and soon the government had no metal to give. Then the crash came. Those who had the government paper could buy nothing with it. Those who held the Mississippi stock could scarce give it away. It was worthless. The government itself refused to accept its own paper for taxes. A few lucky speculators had made vast fortunes; but thousands of families, especially among the wealthier classes, were ruined.” – Edward S. Ellis and Charles F. Home, The Story of the Greatest Nations (1900)
* Please see this link for a summary of Law’s Mississippi Company land scheme.
Image by Internet Archive Book Images [No restrictions], via Wikimedia Commons/The Mississippi Bubble, Street of Speculators/The Story of the Greatest Nations/Edward S. Ellis and Charles F. Home (1900)
Repost from 2-4-2019
“What people do not understand is that we are in a full-scale war with Iran today and have been for the past two years, but it is not a kinetic war except from their side. On our side, it’s a financial war. People need to stop thinking about financial sanctions as an extension of trade policy. This is warfare. It’s just a different form. . . . We may be getting close to regime change without firing a shot.”
USAGOLD note: Catch up with the knowledgeable Mr. Ricards via this Jim Puplava interview. The most interesting part of the interview? Why printing money hasn’t worked. And interestingly that’s where gold comes into the picture. . . . .And leads to a revealing discussion on why billionaires own gold – personally and in their funds.
Image courtesy of Visual Capitalist
Repost from 9-30-2019
(USAGOLD – 10/3/2019) – Gold is taking a breather this morning after the two-day over $40 reversal begun at $1460. It is trading at $1501 – up $1 on the day. Silver is down 5¢ at $17.52. The market is still driven by the same quintet of concerns present since the late May price turnaround: the U.S.-China trade war, associated recession concerns, global easy money policies, geopolitical instability and depreciating local currencies. As reported here last week, much of last week’s sell-off had to do with technical selling and profit-taking. The gold market overall seems to be recalibrating – biding its time while keeping a wary eye on the aforementioned concerns.
Quote of the Day
“My time horizon is that I usually measure moves like these in terms of decades,” he said at the time (gold was trading just below $1300 per ounce). “So let’s look at it like this: The first move, the first leg, in gold took it from $250 per ounce to $1900. . .We’ve now been in a correction that has taken gold from $1900 back to where we are today. You could easily see gold fall a couple of hundred dollars before you see it go up a couple of thousand dollars, but each move has been a decade or more which means that when gold embarks upon its next move, I believe that you will see that long wave will take gold relatively quickly to the $3000 to $5000 target that I believe is fundamentally justified based on the facts we have today.” – Thomas Kaplan, Electrum Group Bloomberg interview (Late May 2019, just before gold began its climb from the $1280 level)
Chart of the Day
Chart courtesy of the St. Louis Federal Reserve [FRED]
Source: Board of Governors Federal Reserve System [US]
Chart note: This chart of U.S. Treasury securities held by the Federal Reserve shows an abrupt reversal of the quantitative tightening program begun in early 2018. Current repo rescue operations, or QE Lite as it has been dubbed, is likely to further boost the Fed’s stockpile of U.S. Treasuries.
“What we have witnessed so far this week, from a technical perspective, has been a weak correction within a strong uptrend. While the first key level of support at $1450/oz was not challenged a quick return above $1485/oz could now attract additional buying from those who had been holding out for a bigger correction.”
USAGOLD note: A quick rundown on current gold market conditions – worth a visit. . . . .
“The World Trade Organization gave President Donald Trump the go-ahead to impose tariffs on as much as $7.5 billion worth of European exports annually in retaliation for illegal government aid to Airbus SE. The award is the largest in WTO history — nearly twice as large as the previous record of $4.04 billion set in 2002.”
USAGOLD note: The markets are likely to take note not just of the direct implications of this ruling with respect to the EU and Airbus, but the indirect as well – including its public relations value. The Trump administration is likely to build on the WTO ruling as justification for criticism in other areas of the import-export mix including, at some point, the big one – automobiles.
• Politico/Doug Palmer and Jakob Hanke/10-2-2019/Cheese, Scotch and coffee: A big win for Trump on tariffs
• CNBC/Yen Nee Lee/10-2-2019/US-EU trade fight could drag on after ‘big victory’ at the WTO, says ex-Trump official
“Investors are betting a weak September Institute for Supply Management manufacturing report, published Tuesday, will make it more likely the Federal Reserve will cut interest rates for the third straight policy meeting at the end of October.”
USAGOLD note: The question becomes “How big a rate cut would it take to cause a weaker dollar?” One would think that another quarter-point cut is not going to make much of a difference.
“His main worry: The U.S. is too tight for the world economy. ‘The country with the world’s reserve currency has the highest policy rate out there in the developed world,’ Muir wrote, pointing to the chart above. ‘If we look back over time, this has often coincided with market crises.’”
USAGOLD note: The chart that accompanies these comments is an eye-opener – worth the visit.
Repost from 9-25-2019
“The most important component for near-term price performance, however, will be linked to the activity of investors – whether driven by strategic or tactical reasons. These investment flows, stemming primarily from the US and European markets, and with China becoming increasingly important, will likely be driven by macroeconomic factors such as perceptions of risk and the direction of interest rates, as well as by momentum and the positioning in the gold market – especially in the US.”
USAGOLD note: That quote is from the World Gold Council’s John Reade who sees a continuation of trends in the second half of 2018 carrying over to the new year.
Repost from 12-5-2018
“China, having let the yuan cross the once sacred red line of 7 per dollar, will allow its currency to fall further and may even risk U.S. anger by using it as a bargaining chip in already thorny trade talks, market participants believe.”
USAGOLD note: Initially it was thought that a weak yuan translated to lower gold price. Instead gold and the dollar rose in tandem.
Repost from 9-27-2019
“The Federal Reserve’s asset purchases likely will total $315 billion over the next six months as it seeks to stabilize overnight funding markets and contain the movements of its target interest rate, according to projections from Morgan Stanley.”
USAGOLD note: This article is a companion piece to the one posted just below. Morgan Stanley’s take on the repo funding problem no one seems to completely understand. We only know now, as reports filter in, that the problem is unlikely to go away anytime soon.
Repost from 9-27-2019
Why the U.S. needs to encourage
Americans to hold gold
We have always believed that citizen ownership of physical gold is in the national best interest, not just the best interest of its accumulators. In the event of a worldwide economic breakdown or a realignment of the global monetary system, it would be good for the country to have a storehouse of gold held by the populace. China encourages citizen gold ownership for precisely that reason.
“With a growing number of countries encouraging their central banks and citizens to acquire gold,” writes The Federalist‘s Sean Fieler, “it is increasingly reasonable to assume that gold will be part of the world’s monetary future, not just its past. The U.S. Treasury should embrace policies that will attract more of the world’s gold to America and better position our citizens and our nation for whatever the monetary future may hold.”
“The recent unrest in money markets, which briefly caused short-term interest rates to get out of the Federal Reserve’s control, won’t undermine the central bank’s ability to achieve its longer-term economic goals. That said, it does signal that something’s very wrong with the financial system.”
USAGOLD note: The former president of the Federal Reserve Bank of Minneapolis breaks down the repo problem in straightforward terms and issues a practical warning to policy makers about what might lie ahead.
Repost from 9-25-2019
(USAGOLD – 10/2/2019) – Gold continued its advance begun yesterday in the wake of a government report that factory production had contracted – an indication that “the fallout from the U.S.-China trade war is spreading to the U.S. economy,” according to a Reuters report this morning. The metal is up $11 on the day at $1493. Silver is up 8¢ at 17.40. Adding to the concern about a slowing economy, a report released by ADP and Moody’s Analytics this morning shows signs of a tightening labor market.
“[Fed chair Jay] Powell has admitted that the central bank has no playbook for dealing with a prolonged trade war,” writes Bloomberg opinion columnist Brian Chappatta. “So far, his answer has been to drop interest rates time and again. This time might be trickier: He might have to both announce another cut and reveal that the Fed will increase the size of its balance sheet just a few months after shrinking it — and avoid spooking markets at the same time.”
The 344 point drop in the Dow Jones Industrial Average yesterday and 135 point drop so far today suggests stock investors might already be spooked. On the other hand, “[g]old,” says the UK’s CityIndex, “has been one the main beneficiaries from Tuesday’s publication of a very poor US manufacturing PMI report which caused havoc in the markets. The news hurt stocks and the US dollar, causing bond yields to fall as investors sought the relative safety of government bonds. Dollar-denominated and safe-haven gold thus found itself in unexpected demand after falling noticeably in the previous days. With yields falling again, this also helped to boost the noninterest-bearing metal’s appeal on a relative basis.”
Quote of the Day
“We have a distinctive philosophy around gold. We believe gold has unique risk/reward characteristics that enable it to help preserve real value over the long term. We use gold as a potential hedge and do not speculate on its price over the next six to 12 months. We believe it is not possible to forecast the price of gold or, for that matter, the price of other investment assets. This, in fact, is why we have a potential hedge . . .” – Thomas Kertsos, First Eagle Investment Management*, Gold Hub interview
Chart note: If you sensed an increase in gold volatility, your instincts were correct. Analysts generally associate a rise in gold market volatility with investor concerns about geopolitical, economic and financial insecurity as traders and speculators buy and sell on the basis of unfolding events. Unpredictability with respect to the trade war between the United States and China has been a significant source of gold market volatility over the past several weeks.
*First Eagle is a venerable Wall Street firm that has been in the investment business since the 1860s.
“This lens suggests that prices are being pressured by extremely skewed positioning as the marginal chart signal prompts a herd of gold bulls to reduce their net length. However, our positioning analytics suggest that the weakness in prices is more likely to be driven by a minor shakeout in length than any major changes in positioning, given that most length is still comfortably sitting on hefty profits.”
USAGOLD note: TD Securities unshaken by downside drift . . . .
“Bloomberg investigates how an unexpected diplomatic friendship between Venezuela and Turkey grew into a financial lifeline for Maduro – allowing him to sell off the country’s gold reserves and keep his regime in power.”
USAGOLD note: What happens when well runs dry? An estimated 80 tonnes of gold are left in Venzuela’s treasury, according to this Bloomberg report. Deep background for those wondering what has kept the Madura regime afloat.
“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
Time to diversify?
How to hedge market uncertainty in your
retirement plan with gold and silver
As the ultimate asset preservation vehicles, gold and silver are also important retirement investments especially in these precarious times. Find safe harbor –– and some retirement peace of mind.
To end right, start right.
Choose the right portfolio mix with the right firm at the right price.
Choose USAGOLD serving gold and silver investors since 1973
We have helped hundreds of investors include precious metals in
their IRA and other retirement plans. We can help you.
Coins & bullion since 1973
“U.S.-China trade needs to be ‘closer to reciprocal in a way that’s good for everybody. I hope we get there. I don’t expect it to happen before the election to tell you the truth, but I hope after that we have a fair trade deal,’ Dimon said in reference to the U.S.’s 2020 presidential election.”
USAGOLD note: Dimon offers what many will see as a realistic assessment of the possibility for a trade agreement before the 2020 election, as well as an accurate reflection of the consensus on Wall Street regarding the upcoming negotiations.
Repost from 9-26-2019
“Gold continues to be the clear winner amidst the surge in safe haven demand. The list of positive drivers for gold is growing. These range from synchronized monetary policy easing, lower global bond yields and increased central bank allocation. We expect further gold strength towards USD 1,650 / oz.”
USAGOLD note: Some optimism amidst yesterday’s pessimism. . . . . .
Repost from 9-25-2019
“Société Générale’s chief executive has dismissed calls for the European Central Bank to buy bank bonds, arguing it would support failing rivals and prevent consolidation.”
USAGOLD note: Societe Generale’s Frederick Oudea makes a case for allowing creative destruction to do its work. I recall the quote from John Maynard Keynes (pictured) made late in life (1946): “I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.”
Repost from 10-7-2019
“That view of the markets is shared by many of the 360 global single- and multi-family offices surveyed for the 2019 UBS Global Family Office Report, which was done in conjunction with Campden Research and released Monday. A majority expect the global economy to enter a recession by 2020, with the highest percentage of gloomy respondents in emerging markets. About 42% of family offices around the world are raising cash reserves.”
USAGOLD note: Cash is the first move on the chessboard but what comes after that? Gold is one option – especially if we take into account that many of the respondents to this survey live in emerging countries where the indigenous currency might be subject to rapid depreciation.
Repost from 9-24-2019
“Gold is real money. When fake money gets debased and inflated, gold shines. Since the beginning of this century, central banks have added some $22 trillion in new, fake money – or 15 times the value of all the gold ever mined from the time of The Flood to 2000 A.D.”
USAGOLD note: Bonner makes the case for gold logically and with some very straightforward numbers . . .
Repost from 9-25-2019
Every once in a while we rummage around USAGOLD’s creaky old attic and dust-off a golden vignette that still has relevance in the here and now. This piece appeared originally on this page in November 2015. It tells the interesting tale of a scrupulous saver from some 1700 years ago attempting to shelter his or her wealth against the process of inflation.
How 4,000 Roman coins found buried in a
Swiss orchard reinforce gold ownership today
“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
by Michael J. Kosares
I was initially at a loss to explain why anyone would go to so much trouble to hoard so many coins with such a low silver content – about 5%. The only rational explanation is that the hoarder had decided that even worse debasement was on its way. And, a quick review of Roman history tells us that this indeed was the case.
In the next generation of the denarius, issued by Emperor Diocletian, bronze coins were simply dipped in silver and passed into circulation. By 294AD, the latest date in the hoard, Diocletian abandoned silver coinage entirely and began issuing bronze coins instead. Prior to that, prices had risen over a roughly twenty year period by 1000%. Value-conscious barbarian troops hired by the emperors demanded to be paid in gold aureus and for good reason as you will discover below. By the end of the third century, the currency was crumbling and along with it the empire.
For a fascinating short course on the connection between the fall of the Empire and inflation, I would recommend this lecture by professor Joseph Peden in 2009, titled “Inflation and the Fall of the Roman Empire” and published at the Mises Institute. Peden quotes a 5th century account of the Roman inflation by a Christian priest named Salvian. Says Peden,
“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.”
It is instructive to note that for Rome, as has been the case in a myriad of episodes through history, inflation was not an event but a process. The ancient Roman version unfolded over a more than a 200 year period. “By the time of Trajan in 117 AD,” says Peden, “the denarius was only about 85 percent silver, down from Augustus’s 95 percent. By the age of Marcus Aurelius, in 180, it was down to about 75 percent silver. In Septimius’ time it had dropped to 60 percent, and Caracalla evened it off at 50/50.”
By the end of the third century, as demonstrated by the Swiss find, the denarius had gone to 5% silver, then, as mentioned above, a thin coating of silver, then no silver at all, only bronze. In short, a chart could have been constructed at the time showing an ounce of silver in a steady upward progression in terms of denarii from 117 AD through 300 AD. One wonders if the pundits at the time would have deemed it to have been in a bubble.
About 1200 years later, Thomas Gresham would draft “Gresham’s Law” stated simply as ‘bad money drives out good.’ Had Gresham the opportunity to visit the British Museum and study ancient Roman coinage, he would have found a ready example of his law in action. One expert told The Guardian newspaper that the original owners hoarded the Roman coins found in Switzerland because “the silver contained in them guaranteed a certain value retention in a time of economic uncertainty.”
In ‘The Story of Money for Understanding Economics” researcher Vincent Lannoye tells us that during the Roman inflation, “The less debased gold coins had been stashed under the mattress for decades, maybe centuries. These precious and valuable coins hardly circulated, as it can be deduced from their high concentrations in hoards discovered by archaeologists.” Peden puts a finer point on the role of gold during the Roman inflationary period:
“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.”
In 1700 years, as you can see in the chart above, not much has changed. Since 1971, when the United States detached the dollar from gold and ushered in the era of fiat money, the dollar has lost 84% of its purchasing power. The 1971 dollar is now worth 16¢. Gold in the meanwhile has risen from $35/oz. then to roughly the $1480 level today (with a stop at $1900/oz in 2011.) Over the long run, gold in the modern era has maintained its purchasing power as it did in Roman times, while the dollar, like the denarius, has been steadily debased. So it is by the circuitous route just taken, you now know why 4000 Roman coins recently found buried in a Swiss orchard reinforce gold ownership today.
Final Note 1: We should not become desensitized to the prospects of future inflation as a result of the lull we have encountered in recent years. Even though price inflation is relatively subdued of late, monetary inflation continues unabated with consequences yet to be determined. In the inflationary process, it should be remembered that the line between cause and effect is not always a straight one. History teaches us that when inflation does arrive, it comes suddenly without notice and with a vengeance.
Final note 2: I should add that at any point along the way in the Roman inflationary period, the hoarder who had stashed away earlier silver coinage would have effectively hedged the event, as this article illustrates. In the modern era, though more volatile than gold, silver has functioned effectively as a safe-haven asset in the portfolio. A chart like the one above could be drawn with silver as the overlay instead of gold.
Image by The Portable Antiquities Scheme/ The Trustees of the British Museum [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons [Edited]
(USAGOLD – 10/1/2019) – The ISM (Industry for Supply Management) report released this morning registered its worst reading in a decade and came in well below market expectations. Gold rallied almost $15 soon after the report’s release on strong volumes (Please see chart below.) The gauge, used to measure the health of U.S. manufacturing, came in below 50% for the second straight month – an indication of contraction in the sector.
Chart courtesy of TradingView.com
(USAGOLD – 10/1/2019) – Gold plunged further in overnight markets after yesterday’s sharp sell-off, at one point trading below the $1460 level. The precious metal is now trading at $1466.50 – down $7 on the day. Silver is faring better – up 7¢ on the day at $17.11. Underpinning gold’s weakness has been a steady surge in the greenback against other currencies. As pointed out yesterday in this report, we see technical selling as the more dominant influence at this juncture.
“The preference among international investors for the greenback,” writes Clif Droke at Seeking Alpha, “doesn’t mean that gold’s thunder has been completely stolen, however. Although the metal’s currency component is obviously weaker when the dollar is rising, gold’s fear component is also an important consideration. With geopolitical and economic uncertainties abounding right now, gold isn’t likely to be liquidated anytime soon. Gold’s September price dip was likely the result of profit taking among individuals and investment funds in recognition of gold’s ‘overbought’ condition.”
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.”
“’If the world does not take a strong and firm action to deter Iran, we will see further escalations that will threaten world interests. Oil supplies will be disrupted and oil prices will jump to unimaginably high numbers that we haven’t seen in our lifetimes,’ Prince Mohammed said in an interview with CBS on Sunday evening.”
USAGOLD note: At the risk of sounding overly pessimistic, what Saudi Arabia’s king outlines is pretty much a ‘no win situation’ for the MidEast and those who dependent upon it as a source of crude oil. The takeaway here is that we should probably prepare for oil prices to reach “unimaginably high numbers.”
Gold drops below the key $1,500 mark to post lowest finish in 2 months
“Yellow metal loses 3.7% for the month, pares quarterly gain to 3.4% . . .’Naturally, a strong U.S. dollar is a headwind for gold priced in U.S. dollars,’ said Michael Armbruster, managing partner at Altavest. ‘However, technical considerations may be more influential on today’s action in the gold market,’ he said.”
USAGOLD note: This MarketWatch report echoes this morning’s DMR. The downside was more significant than most anticipated. We should keep in mind, though, the strong long position amassed at COMEX and the related overall gold market volatility (as chronicled here last week).