Powell dodging a taper tantrum may have been the easy part

Bloomberg/John Authers

Repost from 9-3-2021

graphic image of walking a tightrope between night and day

“Stock and bond markets endorsed the Fed chairman’s approach to tapering asset purchases. Inflation may still prove a real test of resolve.”

USAGOLD note: As is often the case in a John Authers’ essay, the evidence and arguments are presented and the reader is left to draw his or her own conclusions. In “Fixing a (Jackson) hole,” he centers his analysis around Powell’s speech, concludes that he “cheered the markets,” but suggests that, in reality, what the Fed is really worried about remains open to interpretation. He offers much for the thinking investor to contemplate, but ends ultimately by rekindling the inflation-deflation debate. Inflation, he says, is what preoccupies Wall Street, but “there is continuing real risk of the opposite.” He then quotes Mizuho Securities’ Steven Ricchiuto who resurrects some troubling longer-term trends that have been pushed to the back burner by recent economic data.

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Chinese gold jewellery sales shine amid demand for traditional designs and national pride among young consumers

South China Morning Post-Reuters/Staff

Repost from 9-3-2021

cartoon showing gold filled Chinese take home containers Ed Stein

“An e-commerce boom and national pride are fuelling the rise in demand for what is known as heritage gold jewellery, which requires intricate craftsmanship and can command premiums of 20 percent or more over conventional gold jewellery, industry executives say.”

USAGOLD note: Gratifying to know that younger buyers are carrying on China’s cultural attachment to the metal. In the East, gold jewelry is accumulated for both saving and personal adornment purposes. Coin and bullion demand is also on the rise in China –  up 41% year over year for the second quarter, according to the World Gold Council.

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President Biden pushes more spending to boost economic recovery

Newsy/Lauren Stephenson

Repost from 7-22-2021

“The president argued the nearly $1 trillion bipartisan infrastructure bill and Democrats’ more than $3 trillion human infrastructure plan will drive down prices and bring more Americans back to work.”

USAGOLD note:  As we have said so often in the past, few on Wall Street will quarrel with the print and spend policies of the Biden administration given the situation in which we find ourselves. At the same time, those in the know are moving to protect themselves from its consequences, both intended and unintended.

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Opinion: Money printing is a flawed experiment that’s done America more harm than good

MarketWatch/Satyajit Das

Repost from 7-21-2021

graphic image of piggy bank in gun sight“Investors are captive to Modern Monetary Theory (MMT) and its convenient non-answers to the vexed issues of economic stagnation, unsustainable public finances and debt.  People’s savings are underwritten by high asset prices, courtesy of this novel brand of economics.”

USAGOLD note: According to Modern Monetary Theory, governments cannot go bankrupt because they can print money. At the same time, when money printing leads to inflation, it is the citizenry that is harmed. By a continuing process of inflation,” wrote John Maynard Keynes in The Economic Consequences of Peace (1919), “governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” Mr. Das article is highly recommended.

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Get rich with crypto, stay rich with gold

Atlas Pulse/Charlie Morris

Repost from 9-3-2021

graphic image of gold bar chart with line chart overlays

“I can’t help but think the next decade will belong to gold. After all, the S&P 500 trades at a lofty valuation by historic standards, while gold doesn’t. The main reason I have confidence that gold will win the 2020s is that this almighty asset bubble all around us will implode, and the crowded trades will disappoint the most. Gold is far from being crowded.”

USAGOLD note: Though Charlie Morris’ thought processes are held in high regard, we continue to counsel caution when it comes to cryptocurrencies. Many harbor a lingering suspicion that crypto has as much chance of rapid decline as rapid advance. In the end, though, we all need to find our own way on the matter. As for the second half of Morris’ mantra (as expressed in the title), there is a great deal of merit and historical support for preserving one’s gains, wherever they might occur, through conversion to gold. For those who have made significant profits in the crypto arena, perhaps preserving some of those gains is an option worth considering. After all, the crypto space has tracked the S&P more closely than it has gold. Morris’ latest is well worth the time spent no matter where you come down on the crypto controversy.

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Short and Sweet

Central banks are buying the dip in gold prices

map showing central bank gold demand first half 2021

Map courtesy of the World Gold Council

A Bloomberg report in July on burgeoning official sector gold demand received scant attention among gold analysts. What makes it a matter of better than casual interest, though, is that the central banks appear to be buying the dip in prices this year – a preference that, if it continues, could carry longer-term implications for gold market fundamentals. Most notably, Brazil – the world’s ninth-largest economy – announced purchasing a hefty 41.8 tonnes of the metal last week. Similarly, Poland has made plans to add 100-tonnes of the metal to its coffers “over the course of a few years.”

Credit Suisse’s global equity analyst Andrew Garthwaite takes note of the trend in a recent report reviewed at ZeroHedge and offers a glimpse of the rationale behind the purchases. “Gold is a hedge against extreme financial deleveraging,” he says. “The level of government debt, deficit, and corporate debt is extreme. We continue to believe that if the TIPS yield gets much above zero, that would start to cause the markets to worry about a debt trap and that in turn could lead to a major risk-off trade. This could then prompt a Fed response driving down real yields (and debasing money).… We think this will also cause central banks to buy more gold (as currencies are being debased). Central banks account for 12% of gold demand. If all central banks had a minimum of 10% in gold, then gold demand would increase 1.6x, on our calculations.”

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Swiss stock up on gold – OpEd

Eurasia Review/Claudio Grass

Repost from 9-3-2021

photo of pile of Swiss 20 franc gold coins

“Over the last couple of months, it has become clear from conversations with friends and partners from the gold industry that there is a marked increase in retail demand for physical gold from Swiss investors. The most interesting thing about this development is that the bulk of new orders is coming from smaller accounts, showing that it’s ordinary savers and citizens that are driving this trend, rather than professionals, speculators or larger investors.”

USAGOLD note: The United States is experiencing a similar surge in demand from private investors who tend to gravitate towards coin and bullion acquisitions. The big institutions and funds favor gold ETF acquisitions for ease of holding and liquidating very large positions. “It is essential,” says Grass, “to think for oneself and to plan for the future, regardless of what the majority may think at the time or what any centralized authority might promise.”

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Gold turns to the upside as outcomes remain unsettled on a number of concerns

(USAGOLD –9/9/2021) – Gold turned to the upside this morning as outcomes remained unsettled on a number of concerns – future monetary policy, a resurgent pandemic, disruptions in China’s economy, signs of stagflation, just to name a few. Confusion at the top (governments and their central banks), it seems, is fostering confusion in the ranks (financial markets). The yellow metal is up $6 on the day at $1796.50. Silver, always a bit more volatile these days, is up 26¢ at $24.25. Market analyst James Ricards recently reminded his readers of gold’s role as a long-term store of value in times of uncertainty – even among the world’s central banks.

“…[G]old,” he says in a piece posted at the Daily Reckoning website, “is always lurking in the background. I consider gold a form of money rather than a commodity. Central banks and finance ministries around the world still hold 35,000 metric tonnes of gold in their vaults, about 17.5% of all the aboveground gold in the world. Why would they hold onto all that gold if gold was just a barbarous relic? Looking at the price of gold in any major currency tells you as much about the strength or weakness of that currency as any cross-rate. Gold still has a powerful role to play in the international monetary system with or without a gold standard.”

Chart of the Day

Gold in key currencies
(2019 to present)

gold in key currencies 2019 to present

Chart courtesy of TradingView.com • • • Click to enlarge

Chart note: Gold’s strong, synchronous performance in the world’s top currencies since January 2019 makes Ricard’s point. It is up 41% in U.S. dollars, 49.5% in India rupee, 28.1% in British pounds, 33% in Chinese yuan, 35.2% in European euros, and 41.9% in Japanese yen. (All data as of 8-13-2021)

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Notable Quotable

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“For we have reached a critical point. In a sense, it is true that the mists are lifting. We can, at least, see clearly the gulf to which our present path is leading. Few of us doubt that we must, without much more delay, find an effective means to raise world prices; or we must expect the progressive breakdown of the existing structure of contract and instruments of indebtedness, accompanied by the utter discredit of orthodox leadership in finance and government, with what outcome we cannot predict.”

John Maynard Keynes
The Means to Prosperity (1933)

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USAGOLD
Quality service & portfolio guidance since 1973

photograph of selection of historic gold coins 2020

USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. The firm’s unblemished, zero-complaints record and solid reviews with the Better Business Bureau testify to the exceptional customer service and professional excellence which sets it apart from the competition.

USAGOLD specializes in gold and silver coins and bullion delivered to our client’s safekeeping. For over 48 years, we have resolutely advocated owning precious metals for asset preservation purposes rather than speculation. Admittedly, this philosophy does not resonate with all prospective gold and silver owners, but if it does with you, we think you will find our firm a kindred spirit.


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AOC and other progressives call for Biden to replace Powell as Fed chair

MarketWatch/Mike Murphy

Repost from 9-3-2021

photo showing Jerome Powell and Lael Brainard during Fed Board of Governors meeting“A group of progressive House Democrats, including Rep. Alexandria Ocasio-Cortez of New York, on Monday called for President Joe Biden to replace Fed Chairman Jerome Powell when his term expires in February.”

USAGOLD note: Powell, a Republican, remains the favorite especially since he has proven himself particularly in tune with the Biden agenda. Lael Brainard, however, lurks in the background as a very dovish alternative. InTouch Capital Markets rates her the second most dovish member of the FOMC behind Neel Kashkari. Powell, though rated a dove, is more toward the middle of the pack. Time will tell if the Biden administration is willing to pass on the opportunity to appoint a lifelong Democrat who leans in the direction of the progressives or stick with the more centrist Mr. Powell.

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How long will the US dollar’s dominance last?

Sovereign Man/Simon Black

Repost from 9-2-2021

graphic image of stacks of hundred dollar bills“It was nearly 1,000 years ago when foreign traders began looking for new options after they lost confidence in the solidus, and in the Byzantine government. Today there are already international banks, multinational businesses, and foreign governments that are starting to diversify out of the US dollar.”

USAGOLD note: Black says diversification out of the dollar will “happen gradually, then suddenly.”

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What triggered the crash?

Hussman Funds/John P. Hussman

Repost from 7-21-2021

Graphic image of a gold king chess piece surrounded by downed pawns

“When the time comes to ask the question – ‘What triggered the crash?’ – remember that this is the least important question. A market crash requires nothing more than a shift in investor psychology from careless speculation to even modest risk-aversion. A market crash requires nothing more than an increase in the risk premium demanded by investors, in an environment where risk premiums have become overly depressed.”

USAGOLD note: Hussman’s latest explores the nature of overpriced financial markets and ends with the premise that “the dogmatic activism of the Federal Reserve [is] at the very center of it all” – for better or worse depending upon your own exit strategy and/or whether or not you put in a hedge.

 

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Brazilian central bank buys 41.8 tonnes of gold to bolster reserves

The Rio Times/Staff

Repost from 7-21-2021

photo of 100 ounce gold bars stacked“After years without substantially changing the amount of gold in its international asset reserves, the Brazilian Central Bank headed by Roberto Campos Neto bought 41.8 tons of the metal in June.”

USAGOLD note: The trend of aggressive central bank gold buying continues……It would be interesting to know if the metal was purchased in the open market or by private arrangement.

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The illusion of control

Alhambra Investments/Joseph Y. Calhoun

Repost from 9-2-2021

graphic image of a wizard in silouette“I understand the desire of the public to believe that there is someone in charge, that we have some control over our economic fate. What baffles me is that the economists at the Fed and elsewhere continue to believe in the Fed’s control over such a wide range of real variables in the economy.”

USAGOLD note: An interesting look at the psychology behind the market action that ends with some proactive comments about YOLO (you only live once) and FOMO (fear of missing out).

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Short and Sweet

Gold’s relativity
Do not take your eye off the prize

blindfolded seeker can't see lighted room

Gold’s value is relative. It doesn’t really matter how many digits it takes to express the price. Its true value lies in what those digits represent in terms of purchasing power. During the post-World War I hyperinflation in Germany, for example, a 20-mark gold coin in 1918 purchased the equivalent of twenty marks worth of goods and services in the marketplace. By 1924 that same 20-mark gold coin (weighing roughly one-quarter troy ounces) provided the purchasing power of nearly 25 billion paper marks.

By pointing out this example of gold’s constancy, we do not intend to imply that the United States is headed the way of the Weimar Republic.  What we do mean to say, though, is that those who track the nominal value of gold by itself without taking into account the current and future value of the currency in which it is measured take their eye off the prize.

What are the intentions of the central bank and federal government, we should ask ourselves, and what will be the likely effect on the currency?

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Billionaire Paulson says crypto ‘worthless’ bubble, gold poised to surge

Bloomberg/Steven Crabill

Repost from 9-1-2021

graphic image of a golden bull preparing to charge“Ever since John Paulson bet against the U.S. housing market more than a decade ago, people keep asking him about his next big trade.”

USAGOLD note: Paulson believes that because of inflation people will try to get out of cash and fixed income. The amount of cash that becomes available, he says, “dwarfs the amount of investable gold.” The yellow metal, he says, is “primed for its moment.”

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Gold edges higher after yesterday’s abrupt fall
Some thoughts on what it might take to shake gold out of its lethargy

(USAGOLD – 9/8/2021) – Gold edged higher this morning after yesterday’s abrupt fall below the $1800 mark. It is up $7 at $1802. Silver is up 5¢ at $24.43. The yellow metal has seesawed around the $1800 mark since mid-August raising questions about what it might take to shake it out of its lethargy. Analyst Brien Lundin offered some interesting thoughts in that regard in the most recent issue of Gold Newsletter. “In 2015,” he writes, “it took an actual Fed rate hike to get the paper gold traders to move on from their short positions. Today, I think the simple announcement of a QE taper timeline may be enough. That’s because there’s some doubt that the markets will allow the Fed to progress very far along with tapering, much less ever begin to tighten. The markets’ addition to ever-easier money is one of the primary roadblocks to tightening, while the massive and growing Federal debt load, with its associated servicing costs, is the other.”

Chart of the Day

Gold real rate of return
(2000-2021)

bar chart showing gold real rate of return 2000-21

Sources: St. Louis Federal Reserve [FRED], Bureau of Labor Statistics, ICE Benchmark Administration

Chart note: Gold’s real rate of return is the difference between the gold bars representing the appreciation or depreciation in the gold and adjacent black bars representing the year-over-year percent change in the consumer price index. As you can see, gold has logged a real return in thirteen of the last twenty years. In some years, that return has been significant and speaks to gold’s value as a long-term savings instrument.

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Notable Quotable

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“I grew up in a purely urban family. We had no relatives in the country. I’m born in 1944. When I was a baby, my mother could only buy food because she still had some gold coins. Without gold, I would have starved. She always told me that. Therefore, this generation already has a certain gold affinity. In extreme times of crisis, this is one of the few things left to be accepted. Gold was the only thing left to the people of the city at that time. Before the silver cutlery was also traded at the farmer.”

Ewald Nowotny
Former European Central Bank governor

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Thoughts from the front line

Mauldin Economics/John Mauldin

Repost from 9-1-2021

“Investors face hurricanes, too, with even more uncertainty. The storm could hit someone else, or go back out to sea and dissipate. Do you bet everything that it will? I don’t. Right now, several potentially big storms are brewing. They could be minor annoyances or catastrophic disasters, or anywhere in between. I truly hope they all resolve with minimal fuss. But they may not. They could even combine into a perfect storm of even greater magnitude… so now is the time to prepare.”

USAGOLD note: Mauldin goes on to provide much detail on the storms building in the background – their political and economic underpinnings. He ends by predicting the Fed balance sheet will reach $25 trillion by the end of the decade. It is now $8.2 trillion and was a little over $4 trillion when the pandemic hit in early 2020.

 

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