“I’ve been saying for years that central banks can never step away from this. They can threaten to. And they can bluff, and they can do some probing bets like they did last year, and the market may fall for that, or call that bluff in the short term. But yes I think we’re in a position now where central banks can never back away, which sort of begs the question how can this ever end. Can asset markets get inflated forever?”
“And companies have been reporting that they’re able to pass on those surging costs. So here we go with inflation.”
USAGOLD note: It doesn’t happen until it happens and when it happens nobody wants to believe it happened until it hits us between the eyes. Investors and consumers will worry that the spike in producer prices (See chart below) might ultimately translate to consumer prices. That, in turn, could translate to the real rate of return on Treasury paper going deeply into the negative. Though gold did not go positive on Friday when the PPI was released, it did attempt a turnaround cutting its losses on the day by one-half.
Sources: St. Louis Federal Reserve, Bureau of Labor Statistices • • • Click to enlarge
“US real short-term yields, calculated on the basis of CPI, averaged minus 0.40 percent in the period January 2000 to February 2021. From August 2008 until today, the average was minus 1.2 percent. Given the grave problems in the international financial architecture and economic system, chances are that short-term interest rates in real terms will remain negative or fall even further into negative territory. This, in turn, is a strong argument for holding physical gold and silver as part of your portfolio. At current prices, holding physical gold and silver is a great way to reduce your portfolio risks while contributing to a higher portfolio return.”
USAGOLD note: Polleit argues, as we do, that the thing investors should watch is not just the direction of yields, but the actual real rate of return. When doing that, however, we should keep in mind that the inflation rate posted by the Bureau of Labor Statistics does not necessarily square with the real, on the ground cost of living experienced by most Americans. As such the current real rate of return generally referenced in economic circles is probably understated and lends even more credibility to Polleit’s argument for holding gold and silver in one’s portfolio.
Repost from 4-3-2021
“Three blow-ups in three months: Archegos, Greensill, and Melvin Capital. What do they have in common? Insane leverage employed to maximize private gain, provided by lenders that can socialize losses.”
USAGOLD note: So……What else is out there? Hunt and Guinn dig into cause, effect and commonality in the Melvin Capital, Greensill and Archegos blow-ups. When banks like Credit Suisse and Nomura takes losses in the billions on a single failure, questions of systemic risk naturally arise. The notional value of the derivatives market is over $1 quadrillion – all of it leveraged and all of it subject to counterparty risk.
Reuters/Rajendra Jadhav and Aftab Ahmed
Repost from 4-6-2021
“India’s gold imports in March surged 471% from a year earlier to a record 160 tonnes, a government source told Reuters on Thursday, as a reduction in import taxes and a correction in prices from record highs drew retail buyers and jewellers.”
USAGOLD note: The east buys gold on weakness; the west on strength. Not to be overlooked, a sustained decline in the rupee over the past five years has also contributed to surging demand.
Chart courtesy of TradingView.com
Repost from 2-22-2021
“As the reflation theme dominates markets, investment strategists are picking commodities as some of their favorite trades.”
USAGOLD note: And commodity prices are ratcheting higher as shown in the S&P GSCI chart immediately below……This is one of the developing big stories in financial media. Silver could be a major beneficiary given the Biden green energy program.
Chart courtesy of TradingEconomics. com • • • Click to enlarge
Repost from 2-24-2021
“After a while, investing will go from being easy to being hard again, and then everyone will go back to pipefitting or whatever else they do to earn a check. But now we have pipefitters who are contemplating leaving their jobs to stay home and day trade because it is just that easy. You buy something, and it goes up. You can be your own hedge fund. There was a study of day traders in South Korea some years ago. The researchers observed the behavior of a few thousand of them. After six months, 90% of them had given up. After a year, the 1% who were left barely had enough money to cover their daily expenses.”
USAGOLD note: Ran into this Dillian assessment while researching another topic. As always, he cuts to the nitty-gritty. This time his subject is the current speculative mania and how it might be affected down the road by Fed tapering. One drinks and dances until the music stops. The next day’s hangover is the price paid, but for many, as Dillian points out, it can be considerably worse than the average morning-after headache.
Repost from 4-5-2021
“Our economy has entered the twilight zone. Today, economic leaders base policies on a hoped-for utopia with bubbles called ‘growing markets’ and greed termed ‘good valuations’. The twilight zone economy is a place where fundamentals have disappeared. It is a utopian world of no moral hazard for business, financial or economic mistakes.”
USAGOLD note: What are the consequences when financial markets trade on a perception of reality rather than reality itself? Patrick Hill, who has 20 years of experience in the tech sector under his belt, explores that question in this in-depth article and offers some conclusions with which we happen to agree. The reality, however, is that the Federal Reserve and the federal government are not likely to take his advice anytime soon …… A must-read at the link…
How to hedge electronic circuitry run amok
With respect to the growing dominance of machines on Wall Street, I recall the old Star Trek episode that involves a visit to a planet where the inhabitants seem to be living in a state of perfect bliss. Captain Kirk knows that this cannot be right. There is no such thing as perfect happiness. As it turns out, the population is controlled not by a loathsome dictator who has drugged the population into compliance, but by a computer that has evolved sufficiently to somehow gain control of their minds. Something must be done, concludes Kirk, to break its hold. Spock comes up with the solution by instructing the computer “to resolve the value of pi” – an impossibility because its resolution, as we all remember from high school math class, is infinite. The computer spends all of its time and devotes all of its resources trying to achieve the impossible and the dictatorial hold it has on the population is released – a trick we might want to keep in mind for the day computers complete their mastery of Wall Street.
Similarly, Financial Times once told the story of the textbook, The Making of a Fly: The Genetics of Animal Design. It started out selling for $113 per copy at Amazon – that is, until the governing algorithm misfired between two third-party sellers. The price then skyrocketed to $23 million before someone took note and fixed the problem. We forget that computer software, and this applies to Wall Street’s trading apparatus as readily as it does the Amazon pricing platform, is only as reliable and intelligent as the code by which it is instructed to operate. The practical equivalent to Mr. Spock’s solution in the financial realm is to store sufficient capital in the form of gold and silver coins detached from electronic circuitry that might run amok.
Repost from 4-5-2021
“The slide came in a quarter when a gauge of the greenback fell the most since 2010, and amid questions about how long the dollar can maintain its status as the pre-eminent reserve currency. The Chinese renminbi is transforming into a force to be reckoned with in currency markets…”
USAGOLD note: This Bloomberg article is a timely follow-up to the Kenneth Rogoff analysis referenced on Friday in which he cited the U.S. dollar’s “fragile hegemony” and warned of the potential for “a significant shift in the international monetary order.” A chart posted with this article shows that the dollar’s share of global reserves was 85% in the early 1970s. It is 59% now.
(USAGOLD – 4/9/2021) – Gold is giving back a significant portion of yesterday’s gains as bond yields firmed and the dollar pushed higher. It is down $17 at $1741. Silver is down 37¢ at $25.16. Hungary’s central bank issued a press release on Wednesday announcing that it had substantially increased the country’s gold reserves and offered the following rationale for the decision: “Taking into account the country’s long-term national and economic policy strategy objectives, the Magyar Nemzeti Bank decided to triple its gold reserves. Managing new risks arising from the coronavirus pandemic also played a key role in the decision. The appearance of global spikes in government debts or inflation concerns further increase the importance of gold in national strategy as a safe-haven asset and as a store of value. As a result of this decision, the country’s gold reserves have been raised from 31.5 tons to 94.5 tons, which sends Hungary from the 56th position to the 36th position in the international rankings based on the size of gold reserves.”
Chart of the Day
Sources: St. Louis Federal Reserve [FRED], Board of Governors Federal Reserve, ICE Benchmark Administration
Chart note: Gold and the monetary base have been traveling partners since the early 1970s. The Fed is expected to add significantly to its balance sheet in the months to come. In fact, Fed Chairman Powell recently reiterated the central bank’s commitment to supporting the bond market with direct purchases – acquisitions that end up on the Fed balance sheet and part of the monetary base. As you can see, gold has anticipated that growth in the past and risen accordingly – consistently leading the monetary base higher.
“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.”
Repost from 4-2-2021
“During a mostly positive quarter for stocks (depending on the sector), other major markets got hit hard. For both gold and bonds, it was among the worst ever. For gold, a 10% quarterly loss is unusual. In nearly 50 years, there had only been 9 other quarters with a loss this large. In terms of what it meant going forward, the answer was ‘not much.’ That’s mostly thanks to the huge volatility in the years surrounding 1980, though – after that, all four of the quarters with massive losses ended up leading to gains for gold during the months ahead.”
USAGOLD note: A bad news, good news kind of situation. One might read ‘buying opportunity’ between the lines – particularly for long-term asset preservation investors who like to own unencumbered, physical metal and have the patience to wait for the market to turn in their favor.
Chart courtesy of SentimenTrader.com • • • Click to enlarge
Repost from 4-5-2021
Cartoon courtesy of MichaelPRamirez.com
USAGOLD note: On October 1, the national debt was at $27 trillion. So it took six months to add $1 trillion to the total. As of April 1, the aggregate national debt stood at $28,081,128,042,930.95. We haven’t even gotten around to fully shelling out the $1.9 trillion stimulus package as yet, and Congress is just getting started on the infrastructure legislation – another black hole indeed.
Chart courtesy of TradingEconomics.com
Repost from 2-19-2021
“In plain English, the SLV sponsor is candidly admitting that there may not be enough silver to support the issuance of new ETF shares, in which case, new share issuance may be suspended. This would come as a shock to markets and could cause outright panic buying in silver. The short-squeeze would reach a critical stage. Given a shortage of silver in the London market and increased attention from both professional traders and the Bros, what are the prospects for the price of silver in the near future?”
USAGOLD note: If the price is set too low via the commodity markets price discovery mechanism then supply will be stymied. Demand, on the other hand is consistent…… and strong with the Biden administration’s push for green energy, in fact, energizing even more demand. Rickards offers details in this article how a squeeze on physical supplies could develop using Ronan Manly’s findings on the silver supply in London as a launchpad.
Repost from 2-21-2021
“I know that Paul Volcker did, but Paul Volcker was a man of the moment and he managed to fight and swat away inflation through two recessions that increased unemployment. I just don’t see any willingness to impose pain on the median voter at this point. And so I think that we will look through inflation longer than most investors probably think.” – Marko Papic, Clocktower Group
USAGOLD note: As we noted previously on this subject, what Paul Volcker was to disinflation-deflation, Jerome Powell could be to stagflation-runaway inflation. Papic offers historical context at the link above and stresses that there are significant differences between post-2008 and now.
Repost from 4-5-2021
“March brought the strongest manufacturing growth in more than 37 years, and with it increasing indications about inflation pressures in the months ahead.”
USAGOLD note: Of late, the anecdotal evidence of rapidly building inflation is being recorded almost everyday via press reports – even if it has yet to show up convincingly in the monthly consumer price index.
Repost from 4-2-2021
“If we account for inflation, and that’s massively understated ‘official inflation’, then silver prices peaked at $120 in 1980 and around $57 in 2011. (Please see our Chart of the Day below.) Today’s price near $24 is still well below those levels, suggesting a lot of upside remains ahead. In fact at $24 today versus the inflation-adjusted $120 in 1980, silver is currently about 80% below that peak. … Looking at silver from a technical perspective, in my view we are either at or near a final bottom for this correction. …It’s time to be a silver contrarian. History has rewarded us repeatedly. $100 silver is well within reach.”
USAGOLD note: We referenced this analysis from Peter Krauth in yesterday’s DMR and repost it here for those who may have missed it. The silver price, as Krauth points out is 80% below its 1980 inflation-adjusted high. As a matter of interest, the current gold price is 25% below its 1980 inflation-adjusted high.
Chart courtesy of MacroTrends.net • • • Click to enlarge