Bloomberg/Justina Vasquez/1-12-2020
“A volatile week ended in favor of gold investors, with geopolitical tensions reigniting haven demand for the metal.”
USAGOLD note: This Bloomberg piece reinforces the point made in the USAGOLD note to the post immediately below. It is not really a matter of ‘sticking to one’s guns’ as it is a deeper understanding of the ever-present need to hedge uncertainties of which geopolitical tensions are just one.
Credit Bubble Bulletin/Doug Noland/1-11-2020
“When I began posting the CBB in 1999, I expected ‘Bubble’ to be in the title for no longer than a year or two. It was to be the ‘Credit Bulletin,’ inspired by Benjamin Anderson’s ‘Economic Bulletin’ from the 1920’s. Yet here we are in 2020 with Bubbles everywhere, including in my blog title. In 1999, I would have said that was an impossibility.”
USAGOLD note: “The probability of a global crisis during 2020 is the highest since 2008,” says Noland. In the modern-day financial system, bubbles are a way of life, so to speak, and something that needs to be accounted for and managed in the overall portfolio. That, in our view, is where gold’s safe-haven attributes come into play. If you are among those who believe, like Noland, that the current stock market bubble is destined to burst, you will want to have your hedge in place before it happens. We got a good idea in the early part of January how quickly gold can rise once danger is recognized. And sometimes the gains stick. . . . . . .
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‘No one questions its value. . .’
“No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counter-party. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.” – Alan Greenspan, former chairman of the Federal Reserve
Image courtesy of the British Museum Collection/Lydia, croesid, ca 550 BC
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We also treat millionaires . . . well. . . like millionaires – whether they admit to being millionaires or not [smile].
We receive unsolicited testimonials like L.W.’s routinely. Please see our Client Testimonials page for more feedback, and be sure to visit the Better Business Bureau for even more in the way of FIVE-STAR reviews. Don’t do business with any gold company until you have checked it out.
KingWorldNews/James Turk/1-6-2020
“Currency debasement – or currency destruction in the case of Venezuela and dozens of other countries – means higher gold prices. The Iranian situation is just the trigger causing this latest jump in the gold price. And when people seek protection of their wealth from geopolitical events, they don’t want paper gold, they want the real thing – physical metal.
USAGOLD note: Turk says gold is in a bull market and sheds light on the ‘whale versus whale’ confrontation developing in the gold futures market.
On October 24, 2019, I posted a bullish flag pattern, wherein gold appeared ready to break out to new highs, above the $1500 level. It did not. Prices fell from there. However, as prices fell, they did not violate the flag pattern. They merely extended the pattern.
Recently, though, gold prices did break out of the flag pattern to the upside, as can be seen in the graph . As noted in the prior post, “This pattern is especially bullish because gold has been moving up since 2015, meaning a continuation move to the upside.”
As I also noted in the October 24 post, “It will be interesting to follow the price of gold over the next few months.” Not only interesting, but quite profitable to investors who added to their gold holdings. In the recent move, gold touched $1600 intraday.
To “save the world’s economy” in the 2008 World Financial Crisis (WFC), the Federal Reserve led the world’s central banks in printing money, hiking its holdings of T-bills and other bonds – some quite specious – from $900 billion to $4.5 trillion, a five-fold increase.Fed spokespersons repeatedly said that its Quantitative Easing (QE) was only an emergency, and that the Fed would later “normalize” its balance sheet by selling off some of its holdings.
And, starting in early 2018, the Fed did sell, as indicated in the chart above.
However, in September 2019, the Fed reversed its position and again fed (pun intended) money into the system. But it wasn’t another QE, we were assured. The Fed was only using repo agreements to bring down the fed funds rate from 10%, which it had spiked to.
Not much talked about, though, is that the Fed is now buying $60 billion a month and will continue to do so into the second quarter of 2020. It’s objective: to rebuild the level of reserves in the system to nearly $1.5 trillion that prevailed in early September. Not QE, though, according to the Fed.
Money printing is the mother’s milk of precious metals bull markets. While it took the US’s killing of a top Iranian general to propel gold to a new five-year high, recognition of renewed money printing will keep it well above $1500 in my opinion. This is a bull market that started in December 2015.
As can be seen in the graph, the world’s central banks were sellers of gold up until the 2008 World Financial Crisis (WFC). After which, they became strong buyers, with the last six quarters seeing significant buying.
Canada’s CB sold all its gold, despite being the 5th largest producer of the yellow metal. The Bank of England sold about 395 tons of gold over 17 auctions from 1999 to 2002 at an average of price of $275.
Prior to that, in the late 1970s, the US Treasury and the IMF coordinated auctions. The US excuse was that it would ameliorate the balance of payment problem; the IMF said it was going to use the proceeds to provide relief to poor nations.
That was at a time when balance of payments was an issue of concern. That is no longer the case, but the sales did suppress the price of gold.
The BoE announced before-hand that the auctions would take place, which put huge pressure on the price of gold. The IMF and US Treasury sales were widely publicized. In actuality, Establishment central banks were attempting to “manage” (suppress) the price of gold.
Now, though, non-Establishment CBs are big buyers of gold.
Russia is the 3rd largest gold producer and the 5th largest holder. And, it is a regular buyer. A Russian central bank executive has noted that gold is a “100% guarantee from legal and political risks.” The US has imposed economic sanctions on Russia and many of its oligarchs, sanctions that make it difficult to do business anywhere in the world.
Consequently, Russian holdings of US debt are declining as Russia’s central bank sells T-bills to buy gold.
Turkey, Poland, United Arab Emirates, Qatar, Kazakhstan, Kenya, and the Kyrgyz Republic were other countries adding to their gold reserves.
As for China, the #1 gold producer, there is no way of knowing exactly how much gold it holds, despite their reporting (from time to time) how much gold the Bank of China has purchased. China, the largest gold producing country, prohibits the exportation of gold, which means that the nearly 400 tons it produces annually remains in China.
Here are the largest gold producing countries:
Only bars with hallmarks approved by the London Bullion Market Association (LBMA), stamped 99.5% purity or higher, and weigh 350 to 430 troy ounces are eligible to be counted as reserves. It is suspected that China holds much gold that has not yet been refined to “good delivery” standards or that it has chosen not to update its holdings.
Further, there is speculation that the reason the US’s gold has not been audited since the Eisenhower administration is that much of its gold does not meet good delivery standards. This is a reasonable speculation in that millions of ounces in 90% gold coin were turned in during the Franklin Roosevelt “gold call-in.” At the time, the US hinted that it would someday return to the gold standard, under which paper dollars could again be redeemed in gold coins. But, as we know, that did not happen.
If another World Financial Crisis hits, China could announce its updated holdings, which would result in the renminbi (yuan) increasing in valuation while the dollar drops. Such an announcement could result on the renminbi competing with the dollar as the world’s reserve currency, which would definitely weaken the dollar on world markets and make US debt less desirable.
Such developments, of course, would result in gold (and silver) appreciating in price.
I read many articles and newsletters about topics that may affect the gold/silver markets. The one I never miss is David Stockman’s Contra Corner. Stockman was Budget Director during Ronald Reagan’s first term. Below is the start of his blog post for Thursday, December 19, 2019.
“The Turbulent Twenties begin 13 days from now. It will be the decade when the chickens come home to roost and a time when the can of denial and delay can no longer be kicked down the road to tomorrow.
“Instead, the 2020s will mark an era when today’s economic and political fantasies give way to:
“These baleful developments are not just possibilities—they are well-nigh certainties.”
The post goes on for six pages. His website: David Stockman’s Contra Corner. Cost is $39 a month.
2019 was a solid year for precious metals, with gold up $231 (18.5%) and silver up $2.40 (16.4%) since this time last year. Still, not much attention has been paid to the metals on the financial networks.
Boosting gold’s price was massive central bank buying of the physical metals. Also, stimulating interest in gold were announcements that some really successful hedge fund managers who ordinarily don’t buy gold recently started buying gold.
With the US (and the world) facing economic slowdowns, central bank easing is a given. The Fed is pumping billions of dollars into the money markets via repurchase agreements (repos) and is outright buying $60 billion a month in Treasury bills to finance fedgov’s deficit spending.
However, the Fed denies that it has begun QE4 despite the fact that the Fed balance sheet will increase over the next month by $365 billion (1/3 trillion dollars) to a level of over $4.5 trillion, an all-time high for the Fed’s balance sheet. The Congressional Budget Office projects budget deficits in excess of $1 trillion annually over the next ten years.
Once starting down the road of monetary easing, it must be continued to avert market failure. By market failure, I mean collapsing stocks and skyrocketing interest rates.
However, the bad news is that eventually the money printing must end. It will end either by hyperinflation that results in the money being worthless and not worth printing (as during Germany’s Weimar Republic 1919-1923) or by the Fed slamming on the brakes and calling an end to money printing. Do not look for the latter to happen.
Gold and silver should do very well in the years ahead. While many readers have positions in the metals, if you do not you need an insurance policy against the insanity in that reigns at the Fed, in Washington, and on Wall Street.