Repost from 12/8/2020
“Many years since I had knowledge, by relation, of that mighty, rich, and beautiful empire of Guiana, and of that great and golden city, which the Spaniards call El Dorado, and the naturals Manoa…” – Sir Water Ralegh
USAGOLD note: Rostron brings to life the ancient quest. El Dorado has never been found.
poem by Edgar Allen Poe, song by Donovan
‘If you seek for Eldorado!’
Repost from 3-21-2021
“There’ve been terribly serious moments in the past, but then macroeconomic policy was trying to stabilize things. Now there’s the real risk that macroeconomic policy will be very much destabilizing things,” [Summers] concluded.
USAGOLD note: The Powell-Yellen tandem will not take kindly to Summers very public warning on a policy both embraced wholeheartedly – Yellen saying its time to “go big” and Powell pushing hard for the stimulus package from the get-go. Coming from the individual many in the Democratic party see as its principal economic guru, the criticism carries a bit more sting than if it had from elsewhere. Summers sees serious “consequences for the dollar and financial stability.”
What if pension funds put 5%of their total asset value into gold?
Last August the Ohio Police and Fire Pension Fund (OP&F) announced it would allocate 5% of its nearly $16 billion investment portfolio to gold as a “strong diversifier” and “effective hedge against inflation.” A 5% allocation to gold for the fund, if achieved, would amount to roughly $800 million at $2,000 per ounce – about 400,000 troy ounces or 12.5 metric tonnes. Even though that commitment amounts to a formidable boost for the annual demand table, OP&F is just a small slice of the $22.4 trillion U.S. pension fund universe.
Pension fund total assets
(United States, 2002-2018)
Chart courtesy of Statista.com • • • Click to enlarge
If by some stretch of the financial imagination, U.S.-based pension funds were to follow the OP&F’s example and allocate 5% to gold across the boards, over $1.12 trillion would suddenly enter the gold market – the equivalent of almost 17,500 metric tonnes at current prices and an amount equal to half central banks’ total gold reserves. That is not a likely outcome but we throw the number out there just to offer an idea of pension funds’ purchasing power. Globally, pension funds have roughly $35 trillion under management. If only 1% were allocated, it would translate to almost 5,5oo tonnes – still a significant number.
Coins & bullion since 1973
Repost from 3-21-2021
“But for all the enthusiasm about the sharp economic acceleration that is starting to unfold, especially in sectors such as travel and hospitality and leisure, the Fed is far less certain of a long-lasting boom in the years to come. That explains why its top officials are so reluctant to even hint at removing monetary support for the recovery.”
USAGOLD note: We post this as an unsettling reminder that while inflation psychology has taken hold on Wall Street, disinflation is still the reality on Main Street. A lost decade in Japan, driven largely by demographic trends, has turned into brick wall extending over nearly a third of a century.
(USAGOLD – 3/26/2021) – Gold looks like it will end this lackluster week about $15 from where it began and under pretty much the same circumstances that have prevailed since Monday – stabilizing bond yields, a stronger dollar, and general economic uncertainty. The yellow metal is down $1 at $1727. Silver is down 5¢ at $25.08. Degussa’s Thorsten Polleit is looking beyond the current quandary in the gold market to what might sustain it in the period ahead.
“Of course, we would not assume that the money stock is the only factor driving gold and stock prices,” he writes in a report issued this morning at the German refiner’s website. “Certainly not! What we are insinuating, however, is that there are good reasons to embrace the idea that in the long-term the money stock can be expected to play a rather important role in the trajectory of gold and stock prices – even if such a relationship might not be discernible in the short-term, that is over months and quarters. In view of the fact that central banks have adopted a ‘crisis policy mode’ from which there is no easy and quick way out, sustained high money stock growth rates – resulting especially from the continued monetization of government debt through the banking system – is a very likely scenario. That said, there should be continued strong price support for gold and stocks in what lies ahead. In other words: Price inflation fueled by monetary inflation is here to stay, and it may even gain momentum.”
Related please see: “Willful blindness, societal rift and the death of the dollar” or scroll below if you are already on Today’s Top Gold News & Opinion page.
Chart of the Day
Additions to the U.S. National Debt
(Quarterly through Q3-2020, in millions of dollars)
Sources: St. Louis Federal Reserve, U.S. Department of Treasury, Fiscal Service
Chart note: This chart cuts off in 2020 and does not include Washington’s $1.9 trillion spending program, which is likely to be fueled largely through further additions to the national debt. We should keep in mind that the national debt – however large – will need to be repaid (with interest), inflated away, or repudiated. One of those options is unlikely. The other two suggest a practical need for portfolio diversification.
“Meanwhile, unprecedented supply chain disruptions pushed price gauges higher once again. The overall rate of input cost inflation accelerated to the fastest on record as raw material, PPE and fuel prices reportedly soared. Stronger demand conditions allowed for the partial pass-through of costs to clients, with the overall pace of selling price inflation also hitting the sharpest on record.”
USAGOLD note: The report goes on to say that producers have been unable to keep up with demand, “due mainly to supply chain disruptions. Higher prices have ensued.” (This report was released before the problem at the Suez Canal became a major issue and oil prices broke sharply higher.) So, we certainly do have a situation developing that has the appearance of inflation beginning to take hold. Wall Street will take note.
“Cash over the long run is the worst-performing asset class and therefore the riskiest asset class. So where do you go? To me, going to any one asset increases risk. So the best way to deal with the challenging environment I foresee is by diversifying well. . . [G]old is just an alternative currency to fiat paper currencies. If your portfolio is likely to perform poorly in the adverse environment I’ve been describing – less effective monetary policy, the need to run larger fiscal deficits and monetize them, and challenging politics – the behavior of gold as alternative cash has some diversifying merit.”
Repost from 3-21-2021
“A battered Treasuries market faces another trying week as it will have to absorb a massive slate of auctions focused in maturities that have gotten pummeled amid a brightening outlook for growth and inflation.”
USAGOLD note: As one trader explains this is the week we find out if that poorly bid auction of a few weeks ago was a one-off or part of a new trend. Treasury auctions are scheduled to begin Monday with shorter-term maturities and extend through Wednesday when the 7-year note will be offered.
Repost from 3-21-2021
“Recency bias is a funny thing. It’s human nature to expect the near future to look like the recent past. But we all know that’s not how things always play out. And that can be costly, even dangerous, for investors.”
USAGOLD note: Krauth explains why 2021 might be different from 2009 on the matter of inflation ………
Chart courtesy of TradingEconomics.com
Repost from 2-4-2021
“Reddit might be ‘coming for silver,’ Reuters reports this morning, but the wire reckons a short squeeze is ‘unlikely’ — never mind Thursday’s headline on Reddit that blared silver could be the ‘biggest short squeeze in the world.’ We’re not here to make any predictions. The news, though, certainly takes us back — to the early 1980s, when we found ourselves at breakfast with Nelson Bunker Hunt.”
USAGOLD note: The New York Sun takes us back to the late 1970s and the Hunt family’s attempt to corner the silver market. This is one for the precious metals history buffs – an interesting breakfast meeting between Seth Lipsky and Bunker Hunt.
Repost from 2-10-2021
“These are dangerous times, though many investors have adopted ‘new era’ thinking just as they typically do at every market top. What is generally referred to as ‘liquidity’ is really more about ‘momentum’ and ‘speculation.'”
USAGOLD note: Rosenberg, a highly respected Wall Street analyst, sees a stock market full of “false hope” and worries that the $77.4 trillion in debt added to the total national debt burden over the last three quarters – $620,000 per household – will result in persistent deflationary pressures. That addition to the debt burden, by the way, is the equivalent to what was added over the previous three decades, says Rosenberg. An important overview of where the country stands economically at the link ……
Repost from 3-19-2021
“Mobius, the longtime executive chairman of Templeton Emerging Markets Group and founder of Mobius Capital Partners, says he views these particular metals as a form of ‘currency,’ and outlined just how much of your portfolio should be allocated to them in an exclusive interview with CNBC Pro Talks on Wednesday.”
USAGOLD note: Mobius goes on to name gold and silver as topping his list of commodity investments saying he is a “big fan of these precious metals.”
Do not take your eye off the prize
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?
Repost from 3-19-2021
“If you want my opinion, I suspect that a near-vertical market plunge on the order of 25-35% is coming, probably quite shortly, most likely out of the blue, as in 1987, driven by nothing more than the sudden concerted effort of overextended investors to sell, and the need for a large price adjustment in order to induce scarce buyers to take the other side. As usual, no forecasts are necessary. … This dysfunctional behavior isn’t about any particular video game retailer. I suspect it’s actually about some sort of fragility or segmentation in order-flow mechanisms, possibly coupled with poorly managed derivatives exposure. As I used to teach my students, show me a financial debacle, and I’ll show you someone who had a leveraged, mismatched position that they were suddenly forced to close into an illiquid market. Though my concerns run far beyond the amount of leverage in the system, it isn’t helpful that the amount of leverage in the U.S. equity markets is now easily the highest in history.”
USGOLD note: These days spotting the bubble is about as difficult as spotting the elephant in the room. Hussman attacks Wall Street’s new rationalization of buying into the bubble, i.e., extreme valuations are justified by low interest rates. Those who are all in for the fear of missing out – blindly walking on air – are obviously the most vulnerable. When investing becomes a matter of faith, that faith will be tested. A solid diversification, we will add, would blunt the downside. Though investor margin debt is small compared to the leverage funds and institutions deploy in the market, it does serve as a bellwether for analysts looking for what might trigger a market crash. SentimenTrader’s Jason Goepfert recently posted a warning to his readers that at $831 billion we are fast approaching a “year-over-year growth rate in [margin] debt – on both an absolute scale and relative to the change in stock prices – will compare with some of the most egregious extremes in 90 years.”
(USAGOLD – 3/25/2021) – Gold pushed marginally lower with continuing dollar strength and stable bond yields the key influences in today’s early going. It is down $6 at $1730. Silver is down 45¢ at $24.73 as part of a stiff, across-the-board commodities market sell-off. Traders will be watching today’s Treasury auction of seven-year notes for signs of where bond market sentiment might be headed. “Last month,” reports Trading Economics,” the poor 7-year auction demand resulted in an aggressive sell-off in bonds. Early in the week, both the 2-year and 5-year auctions saw solid demand while a sale of benchmark 10-year notes earlier in the month drew solid international demand.” In short, another surprise sell-off at this point seems unlikely given the week’s track record, but then again, last month’s poor auction result came without warning.
Chart of the Day
Chart note: “The U.S. federal debt burden will double over the next 30 years,” reads a report from Thomson Reuters posted at NewsMax, “reaching 202% of economic output in 2051, as deficits grow and interest rates eventually rise, the Congressional Budget Office said on Thursday in its latest long-term budget projections.” The deficit and debt problem, in short, is going to be with us for a very long time to come. Since economists consider anything over 100% excessive, questions about the current financial system’s sustainability naturally arise.
“When you think of the color gold, images of grandeur and extravagance are likely to come to mind. For millennia, the metal has adorned crowns and hilts of swords. It has been used to enhance paintings and ornaments to increase their value. In some cultures, gold is a predominant feature of festivals and celebrations. In Eastern cultures, the metal is an integral part of auspicious occasions like marriages and festivals by way of gifts and sacred rituals. Gold also features heavily on the attires of brides and grooms throughout South Asia. Humans’ fascination with gold is as old as time itself. The scarce material has a certain appeal to it. Empires have flourished by possessing gold, wars have been fought to control regions harboring rich deposits of the metal and treasure hunters and explorers have spent a lifetime in search of it.”
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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.
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Repost from 3-18-2021
“Consumers are Googling ‘inflation’ more often than at any time since at least 2008, setting financial markets up for a volatile reaction to a Federal Reserve that is likely to sound unperturbed by the specter of rising prices.”
USAGOLD note: Chairman Powell did indeed make an effort Wednesday to tone down concerns about inflation or better put reassure markets that the Fed would not overreact to any future reports of inflation materializing in the economy. In our view, investors have not gone all-in on inflation – not by any stretch. They are simply blending it into the analysis as a possibility. At the same time, as the uptick in Google searches indicates, the sudden price increases at the gas pump and grocery checkout counter are getting consumers’ attention.
Repost from 3-19-2021
“‘There’s no reason to expect that inflation at least, not necessarily treasuries, but inflation at least will be screaming higher over the next several months and that’s what some investors are anticipating,’ Gross said.”
USAGOLD note: From the looks of things, he is not the only big-time player shorting U.S. Treasury’s. At some point, you would think that the Fed will be forced to respond. It is providing massive capital at near-zero rates that is being used to short the bond market. Gold is not mentioned in this short article.
Repost from 10-18-2020
“[Carmen] Reinhart, who took her new role in June, is best known for her work with then-Harvard colleague Kenneth Rogoff on the last financial crisis in their 2009 book ‘This Time Is Different: Eight Centuries of Financial Folly.’ It made the pair the go-to resource on the history of government defaults, recessions, bank runs, currency selloffs, and inflationary spikes.”
USAGOLD note: This warning from one of the world’s top authorities on the history of economic breakdowns will carry significant weight in the financial community. Rogoff has issued similar warnings of late particularly with respect to how the dollar might fare through all of it. He thinks the greenback could relinquish much of its status as the world’s reserve currency.