Author: david@goldsilverdesk.com

Neils Christensen – Friday December 10, 2021

in November, after a 0.9% rise in October. The data beat consensus forecasts as economists were forecasting a 0.7% rise.

For the year, the report said that headline inflation rose 6.8%. The report said this is the “largest 12-month increase since the period ending June 1982.”

Annual inflation rose in line with expectations. Some economists were bracing for inflation to rise above 7%.

Meanwhile, core CPI, which strips out food and energy costs, increased 0.5% last month, up from a 0.6% increase in October. The data was in line with expectations. For the year, core CPI is up 4.9%.

The gold market moved into positive territory in an initial reaction to the firm headline number. February gold futures last traded at $1,779.50 an ounce, up 0.18% on the day.

Looking at some of the components of the report, consumers continue to feel the pinch of rising energy prices. The report said that the gasoline index increased 6.1% last month, pushing the energy index up 3.5%. For the year, energy prices are up 33.3%.

Food prices also increased, rising 0.7%. For the year, the food index is up 6.1%.

The report said that the rise in food and energy prices is the most in 13 years.

Katherine Judge, senior economist at CIBC, said that with inflation hitting another multi-decade high, the Federal Reserve could be on track to raise interest rates by June 2022.

“While December will see some relief from lower energy prices on omicron, causing total inflation to decelerate, there is scope for supply chain issues to prop up core goods prices again as omicron spreads globally and disrupts production,” she said. With inflation at a lofty pace, the Fed is set to accelerate its QE tapering timeline at the December meeting, to finish in the early spring, and to allow for a rate hike in Q2 2022, when the winter wave of Covid could be behind us.”

Neils Christensen

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Rajan Dhall Monday December 13, 2021

Russian nationals have bought a record amount of gold since 2014, the Russian media has reported (Sputnik). They bought four tonnes of gold bullion and coins in the past nine months, which is around 8% more when compared to the previous year, the reports specified.

Traditional gold investments have become very popular in other countries as well, with Americans having purchased 91.3 tonnes of the yellow metal in the past nine months (+79%), while in China and India gold buying has surged by 54% and 24% respectively.

The large difference between the amount of purchased gold can be put down to a 20% value-added tax (VAT) rate on gold bullion in Russia, which is the highest in the world. The Russian authorities have been considering a bill to cancel VAT on gold investments recently as part of a broader program to support domestic gold demand. According to the latest reports, they will go ahead with this plan starting 2022. Yet, some experts and officials have been sounding alarms regarding potential budget losses for Russia once this bill is approved, and about the risks of the country running out of gold.

Gold is currently stuck in a very heavy consolidation pattern. The price is 0.30% higher on the session but has been hovering around $1787/oz for around 14 sessions. There are some key central bank events that could get the markets moving this week. The market is looking to gather information about how the new omicron COVID-19 variant could hinder plans. The Fed has been aggressive in comparison to the ECB, some Fed members are looking for a further reduction in QE, and even interest rate rises by the summer of next year (2022). This week could give us some more information about the trajectory of this plan. The next FOMC meeting will be on Wednesday 15th

By Rajan Dhall

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Neils Christensen Thursday December 09, 2021

The first quarter of 2022 could represent the high water mark for gold prices next year, according to commodity analysts at Société Générale.

In a report published Thursday, the analysts said they see gold prices trading around $1,900 an ounce by the second quarter. Last month the French bank said that they see gold prices pushing to $1,945 in the first quarter of 2022.

The bank reiterated that although gold prices have struggled through 2021, it remains optimistic on the precious metal as low real interest rates will continue to support prices.

“Despite Powell’s renomination and his hawkish stance, our rates strategists do not expect interest rates hikes before 2Q22. This, combined with our economists’ above-consensus inflation forecast, points to negative real rates; a perfect mix of for gold,” the analysts said.

The analysts also said that the critical element for higher gold prices remains investors’ demand for gold-backed exchange-traded products. They noted limited scope for investment demand to push prices higher than $1,900 an ounce.

“ETF holdings are only 11.6% below their recent record, and still much higher than the average for the past decade. This indicates that investors have limited dry powder to allocate large amounts to gold,” the analysts said.

Looking past the first half of 2022, SocGen said it sees growing headwinds for gold as inflation is likely to have peaked and the Federal Reserve starts to raise interest rates.

“We expect rising real rates to become a strong headwind for gold only in 2H22,” the bank said.

One saving grace for the gold market could be further central bank diversification. The bank said that central bank gold purchases should help support prices next year.

“As the economic world becomes more multipolar, it is less important for central banks to hold USD. Central banks, especially in EM countries such as China and India, keep a low share of reserves in gold compared to western economies, and a partial catch-up would greatly support demand for the precious metal,” the analysts said.

While $1,900 an ounce is SocGen’s base-case scenario, the analysts said they see a 25% chance of prices falling to $1,700 an ounce or rising to $2,100 an ounce. They said that these two outlooks depend on the growth trajectory for the global economy that continues to be impacted by the COVID-19 pandemic.

“Our upside economic scenario would be bearish for gold as it assumes new COVID strains are effectively combatted via high vaccination rates and drug treatments. This would reduce risk-off sentiment, which is detrimental for gold, but more importantly would lead to easing of restrictions and thus higher services consumption,” the analysts said. “Our downside economic scenario would be bullish for gold as central banks around the world would have to keep monetary policies highly accommodative for their economies to cope with renewed COVID restrictions.”

By Neils Christensen

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Jim Rickards – 9-3-2021

Dear Reader,    The greatest paradox in foreign exchange markets today is the U.S. dollar (USD).   U.S. fiscal responsibility is in ruins. In the past two years, the U.S. has authorized $11.5 trillion of new deficit spending and increased its base money supply by over $4 trillion. The U.S. debt-to-GDP ratio now stands at 130%, comparable to Lebanon, Italy and Greece, among the most profligate countries in the world. Meanwhile, U.S. growth is slowing rapidly. The Atlanta Fed GDP Now forecasting tool showed projected annualized growth slowing from 13% in April to 11% in May to 7.5% in June. The actual GDP growth figure for the second quarter of 2021 was 6.5%. Third-quarter growth is now projected at 5.1%. Actual growth will come in even lower because those projections do not take into account the full extent of new lockdowns, mask mandates and vaccine mandates, which are damaging travel, entertainment, resorts, restaurants and retail sales. Consumer confidence just recorded the steepest one-month drop in the history of that data. So the U.S. is experiencing soaring debt, reckless money printing, slowing growth and a new wave of COVID. That sounds like a recipe for full-scale flight from the U.S. dollar. But that’s not happening. The dollar has been getting progressively stronger. The U.S. dollar index (DXY) has rallied from 89.64 on May 25, 2021, to 93.57 as recently as Aug. 19. Other dollar indexes show comparable gains. How does the dollar soar in the face of fiscal and monetary failure and slowing growth? The Dollar Isn’t Just a National Currency The answer is that the U.S. dollar is more than just a national currency. It is the global reserve currency. It is used worldwide for trade, investment and payments, and it is created outside the U.S. in the form of eurodollars by U.S. and foreign banks operating in London, Frankfurt and Tokyo, among other money centers.    The eurodollar market relies on dollar-denominated securities such as U.S. Treasury bills and notes for collateral in leveraged transactions. In short, the dollar has a life of its own independent of the Federal Reserve, the White House and the U.S. Congress. It’s the lifeblood of the international monetary system regardless of whether U.S. policymakers are reckless in fiscal and monetary policy or not. Banks need dollars to buy Treasury bills to pledge as collateral and keep the system afloat whether U.S. domestic policies are sound or not. How will the paradox of profligate fiscal and monetary policy by the U.S. and increased demand for U.S. dollars by international banks be resolved? In the short run, the paradox will not be resolved. I expect continued record deficits from the U.S. Congress and continued demand for dollars by highly leveraged international banks. Still, that condition is non-sustainable. Possible remedies include a new dose of fiscal responsibility in Congress (unlikely before 2023 if ever), direct Treasury intervention in foreign exchange markets to weaken the dollar (unlikely until it’s too late) or a global financial crisis that leads to major reforms in the international monetary system, possibly including a new Bretton Woods-style agreement. That kind of collapse followed by reform is the most likely outcome. It’ll happen because policymakers will have no other choice.

Long Overdue for a New Monetary System

My research has led me to one conclusion — we’re going to see the collapse of the international monetary system. When I say that, I specifically mean a collapse in confidence in paper currencies around the world. It’s not just the death of the dollar or the demise of the euro. It’s a collapse in confidence of all paper currencies.   

Over the past century, monetary systems have changed about every 30–40 years on average. The existing monetary system is 50 years old, so the world is long overdue for a new monetary system.

When confidence is lost, central banks may have to revert to gold either as a benchmark or an actual gold standard to restore confidence. That wouldn’t be by choice. No central banker would ever willingly choose to go back on a gold standard.

But in a scenario where there’s a total loss of confidence, they’ll likely have to go back to some form of a gold standard.

Few remember that Nixon explicitly said that the suspension of gold convertibility by trading partners was being done “temporarily.”

I spoke to two members of the Nixon administration, Paul Volcker and Kenneth Dam, who were with the president at Camp David the weekend the suspension was announced. They both confirmed to me that the intention was for the suspension to be temporary.

The plan was to convene a new international monetary conference, devalue the dollar against gold and other currencies, primarily the Deutsche mark, Swiss franc and the Japanese yen and then return to the gold standard at the new exchange rates.

The first part did happen. There was an international monetary conference in Washington, D.C., in December 1971. The dollar was devalued against gold (from $35.00 per ounce to $42.22 per ounce in stages) and other major currencies by about 10–17%, depending on the currency.

Yet the second part never happened. There was never a return to a gold standard. While countries were negotiating the new official exchange rates, they also moved to floating exchange rates on international currency markets.

The cat was out of the bag.    

Why Do Central Banks Cling to a “Barbarous Relic”?

We’ve been living with floating exchange rates ever since. The creation of the euro in 1999 was a way to end currency wars among the European nations, but the EUR/USD currency wars continue.

The temporary closing of the gold window by Nixon has become permanent, though it was only intended to be temporary…

Still, gold 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.

The timing of any financial crisis is always uncertain, but the probability of an eventual crisis is high. New signs of liquidity stress are emerging every day.

No investor should be surprised if the crisis happens sooner rather than later.

Regards,  
Jim Rickards  

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Anna Golubova – Wednesday August 25, 2021

Billionaire “Bond King” Jeffrey Gundlach sees the U.S. dollar on the decline and gold going a lot higher after the precious metal leaves its hibernation mode.

“My number one conviction looking forward a number of years — I’m not talking about the next few months at all, I’m talking about several years — is that the dollar is going to go down,” DoubleLine CEO Jeffrey Gundlach told Yahoo Finance. “The dollar going down is another reason why we touched on gold. I think ultimately gold is going to go a lot higher, but it’s really in hibernation right now.”

The dollar’s decline is inevitable because of the economic policies implemented by the U.S., Gundlach said, adding that it is all about the debt levels.

“We have debt-to-GDP that is fueling the majority of our so-called economic growth. So, is it really economic growth when you borrow money or print money, send checks to people who turn around and buy goods on Amazon in addition to maybe paying down debt and speculating and these goods come in from China?” Gundlach said. “A lot of that consumption is going to China … That’s one of the reasons why China has such a strong economy. So, what we’re seeing in the United States is starting to fall behind in economic growth. That’s not a new thing. That’s been going on for a generation, the U.S. falling behind.”

This is also why the dollar’s global reserve currency status is under threat.

“We’re running our economy in a way that is almost like we’re not interested in maintaining global reserve currency status or the largest military or global call it superiority or control. As long as we continue to run these policies, and we’re running them more and more aggressively, we’re not pulling back on them in any way, we are looking at a road map that is clearly headed towards the U.S. losing its sole reserve currency status.”

How low with the U.S. dollar drop? Gundlach said that the greenback could take out the lows of the past bearish cycle.

“The dollar has been in a series of declining highs for decades — it goes back to the ’80s. For that reason, I think when we get to the next break to the lower level, the dollar will go past the most recent low of around 80 and even take out the low of 70. So, I think there’s easily 25% downside in the U.S. dollar,” he stated.

Gundlach sees good future opportunities in European equities and emerging markets but noted that it is still too early to “aggressively rotate into emerging markets.”

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