THE NEW GOLDEN AGE: THE AGE OF GOLD

If this is a GOLDEN AGE I would think that term should be taken most literally, the one asset everone should hold is gold:

A Trade War is bad news for  everyone in the global economy.  I know there a many who would wish that it were otherwise.  But trade wars slow global growth and raise global prices.  That is true for every economy.  Especially the United States because so many of our companies are multinational.  And so many of our products of choice are imported.

Every dollar raised by Tarrifs are raised from the American Consumer.  This makes everyone who is not a billionaire poorer.  Billionaires are excepted because it makes no difference to them if a car is 40 or 50 or 60 or 150,000 dollars.  It's just not an amount large enough to matter.

If you are not in that catagory, you need to protect yourself now.

If you don't believe me look at the data:

ISM: The new orders index fell to 48.6 from 55.1 in January. The prices index jumped to 62.4, up from 54.9 in January.

Atlanta Fed GDP revision; Last wednesday Atlanta Fed GDP estimate stood at %2.5.  Friday it was revised to NEGATIVE %1.5.  

Unit Sales for consumers have been decreasing for the last year.

Consumer sentiment has fallen sharply the last 2 months:

Bloomberg: Consumer Sentiment Plummets to 15-Month Low Amid Tariff, Inflation Worries

Inflation expectation has increased sharply the last 2 months.

Bloomberg: US Consumers Long-Run Inflation Views Rise to Highest Since 1995

US consumers' long-term inflation expectations rose to the highest level in almost three decades on concerns President Donald Trump's economic agenda.

Annualized CPI currently stands at 4.8 percent.  (not close to the 2 percent the Fed needs to start easing)

Credit spreads have started to widen noticeably:

Bloomberg: "Global corporate bond spreads have widened for eight trading sessions in a row, ending a period of remarkable tranquility, as investors start to turn defensive amid fears about the impact of tariffs."

And today the ADP employment report which is much more reliable than the BLS report showed 77,000 new jobs created in Feb.  That is against an estimate of 140,000.

It's early days in this Trade War.  The effects are only just beginning to be felt. Wait until the tax cuts blow a massive hole in the budget.  Then our debt requirements will blow out at the exact same time our economy is slowing and prices are rising.

That's when you'll really need gold.  But by then it may be difficult to find.

ISM GIVES FIRST CONFIRMATION OF STAGFLATION:

 

Institute for Supply Management’s Purchasing Mangers Index slipped to a reading of 50.3 in February, below economists' expectations at 50.5, according to FactSet. The new orders index fell to 48.6 from 55.1 in January. The prices index jumped to 62.4, up from 54.9 in January.

This if the first real confirmation that the regime of firing, deportations, and Tarrifs are creating an environment of slow growth and high prices.

Throw in an extra 5 trillion dollars of new debt from tax cuts for the top 1 percent and you get the perfect storm.

This is otherwise called STAGFLATION.

It is impossible for the Fed to combat stagfation.  If they attack the slow growth by loosening monetary conditions,  inflation carreens out of control

If they attack inflation by tightening monetary conditions, the economy could spin into a depression.

This wound is entirely self inflicted.

Yet once the geers are in motion it is very difficult to stop them from griding on into oblivion.

Of course, there seems to be no interest in turning things around.  According to the current administration there is no inflation except that which was caused by the previous administration, and growth is entering into a GOLDEN AGE.

Sounds good.  If you're holding a cellar full of gold.

WHERE DOES GOLD GO FROM HERE?

 

POSTIVE MACRO FOR GOLD:

a) Deficits.  Deficits drive inflation and slow growth.  Great for Gold.  

5 TRILLION DOLLARS IN ADDITIONAL DEFICITS have been promised through tax cuts on the wealthy.  This will pass and no amount of cutting pennies off government salaries or aid to the needy will even begin to offset this.  Neither will increased GDP.  

When Reagan cut taxes in 1980 the top marginal tax rate was 90 percent and the US was a surplus nation.  Each dollar of resultant debt could expect to produce 2 and a half dollars of GDP.  That was supply side economics.

Today the top marginal tax rate is 37 percent (And with loopholes closer to 17 percent) and the US is one of the world's largest debtor nations.  It now takes 4 dollars of addtional debt to create 1 dollar of GDP.  If you have 6th grade math you could figure out the efficacy of that plan.

GREAT FOR GOLD.

B) TARIFFS.  Tarrifs are highly inflationary.  First they make goods more expensive.  Second they destroy supply chains.  Third, they induce retalliatory tarrifs. Fourth: They immediately increase INFLATION EXPECTATIONS.

You can argue that applied with precision within a grand master plan they eventually will help onshore businesses and add jobs.  You can argue that.  This is a long term prospect that may or may not occur.  In the short run in an environment where most middle class families are deeply underwater - those families can expect much harder times ahead.  And they do expect that - just look at the inflation expectation component of consumer confidence.   It's through the

And inflation expectation causes inflation.

GREAT FOR GOLD.

c) GEOPOLOTICAL CONFUSION AND PANIC.

Most people don't realize that gold is a STABILITY HEDGE.  The more unstable events appear to be the higher the price of gold.  Right now we are in an historically unstable period.  Who are our allies?  Not Europe,   Not other democracies.  Not Nato.  Not Canada.  Russia?  The Nazi Party in Germany?  The fascists in Yoguslavia?  Not China.  Though China is the major ally of our new allies.  When Russia buddies up to us are they doing so on behalf of China?  What does that mean?  Does it mean anything?  What about Saudi Arabia?  They're settling oil with China outside the dollar.  What about the Belt Road initiative?  Trump's threatened tarrifs on anyone involved but nobody seems to care.  In fact the Belt Road Initiative exists to combat just such threats.  So what does the mean over time?

Nobody F-ing knows!  All we know if the situation is entirely unstable.

GREAT FOR GOLD

MASSIVE CENTRAL BANK BUYING.  Central bank buying all around the globe in response to the massively unstable economic and political environment in the US is accelerating.  Most central banks are selling US debt and  buying gold to use as their principle Tier 1 Reserve Asset.  The more unstable the US appears to them the more this trend continues.  (I know - to some of us here the US appears to be in great shape.  Exceptional.  Incredible.  But we don't run the other centtral banks for the world.  It's only really relevant as to what they think.)

GREAT FOR GOLD

NEGATIVES FOR GOLD:  A massive price run up without much of a breather from months and month.  Everything, no matter how big the bull market, must take a breather now and then.  When it comes don't let it knock you out of your position.  This is an historic bull.  Hang on for dear life.

The other negative for gold: the US public just doesn't see any of the above.  They think everything is just fine,  Better than fine.  They think Gold has a plan for us and we will prosper with HIS BLESSING.

At some point they may want to suplement HIS BLESSING with a little gold.

Then gold will really take off in dollar terms.

COMEX CRISIS: GOLD THROWS THE FED A CURVE

 

The unfolding drama of the comex being forced to deliver gold: something it was never meant to do, is creating the first crack in the Fed's Global Financial Dominance.

Ther comex was created expressly to control the price of gold.  As long as Fed-financed JP Morgan et alii were able to drop unlimited sell order on a paper market, the gold price was forever under the cotrol of the US Central Bank.

Since every other Central Bank has gold as its principal Basel Teir 1 reserve asset along with the US dollar - The Fed has tremendous power over the Global Economy - as it controls to a considerable extent the value of the US dollar and the value of Gold.

But everyone who followed the Gold market has wondered for some time: What happens when other central banks decide to take DELIVERY of the Comex contracts?

What happens to the price of gold?

We are in the prcoess of  seeing that unfold day to day right now.

Friday the Fed knocked the gold price down $50 in a day with a classic raid.  Monday and Tuesday - in stead of creaiting a short squeeze panic (something that has occured with regularity the last 40 years) - the price recovered.

But the other most intriguing question: What happens to the dollar - and the US hegemonic position as the only country to fund its own debt with a reserve currency - when other central banks drop US dominated debt in favor of uncontrolled GOLD as the Tier 1 reserve asset of choice?

That is something that is also playing out.  But at a slower pace and far behind the scenes with no real time measurement of the rate of change.

But one thing is for sure: despite the global move towards  protectionism and mercantalism: it is still a GLOBAL ECONOMY.

That genie is out of the bottle.  All comodity markets are now GLOBAL and are being settled outside the US dollar.

All suply chains are GLOBAL.

Every country can try to reverse this - but they will only succeed at the margins.

If China can supply a cheaper AI or a better Electric Car - no amount of Tarrifs or Sanctions will make a difference OVER TIME.  The best products will eventually dominate the market.

The only thing holding the US hegemony in tact (And the US inflation rate) was the Rerserve Status of the US dollar.

As that goes - so does our control over the Global Economy as well as our conrol over the Domestic Inflation rate.

Nobody's suggesing trends that has been in place for over 50 years will reverse over night.

But they are reversing.

Invest accordingly.

GOLD FLOWS EAST

 

While the Stand for Delivery Comex problem  has begun to receive attention in the financial press, there is an important aspect to it that is being largely ignored but which is crucial: the Stand for Delivery Contracts are from the East.

There is a steady flow of Gold now out of Western vaults into ther Vaults of China and the South-east Asian countries, Russia and the East European countries, and the Oil Rich Mid Eastern countries.

And this defines the entire move in the Gold Price thus far.

It used to be an adage that if you follow the flow of gold in the world you follow the flow of Political and Ecnomic power.  From Rome to Constantinople to Spain to France to Holland to England and then to the United States.

Now it is flowing East.  This is a very uncomfortable fact for those who are touting a new Golden Age for the United States, wherein China and Russia and their sattelites cower and kneel in awe of our might.  

Today, most Americans would argue that the flow of gold is no longer relevant in a financialized world wherein Currency is a form of Debt.  Wherein stock prices float ever higher on debt financed stock buy-back programs.  Wherein structural deficits grow ever larger as the billionaire class is subsidized by tax cuts and bailouts, and goverment sponsored contracts, while inflation destroys the purchasing power of the middle class.  

But it is worth wondering where this leads as the countries that are buying gold are doing so expressly in order to dump US debt out of their reserves and replace it with Gold.  

One place it leads is obvious: As our trading partners dump our debt, we will have to buy more and more of our own debt with printed dollars.  We will have to spend more and more to service our debt.  And we will have to exercise control of the long end of the yeild curve.  All of which is highly inflationary.

Meanwhile, we will be engaged in financial warfare with ever greater swathes of the globe, an exercise that is also highly inflationary.

At the same time both of these challenges are a major drag on growth.  Which is highly deflationary.

Over time, this will be a challenge to the New Golden Age.  

And these type of challenges tend to be structural and tend to last decades.

Once gold begins to flow in earnest from one are of the world to another - that trend tends to play out over long periods of time.

And remember: we have only been in this highly financialized world for a few decades.  

Another question to ask is what happens in a highly financialize world as global liquidity dries up and all the liquidity has to come from printed dollars injected by our own central bank?

That is exactly what we are about to find out.

It might be good to own some gold when we get our answer.  At least that's what the East seems to think.

COMEX IS BEING FORCED TO DELIVER GOLD: A CRISIS UNFOLDING

 

The comex has traditionally been a futures/credit market where contracts are settled before the delivery date, and large players like JP Morgan, financed by the Fed, could manipulate the gold and silver price simply by dropping huge quantities of contracts (especially shorts) that forced smaller players to cover their positions.  Then all the contracts would settle before delivery.

But since 2021 large players (unspecified) but many seeming to be from well financed Asian positions, have been taking delivery of the comex contracts.

Since 2021 these "Stand for Delivery" positions have steadily increased, and so far a total of over 2,100 TONNES of gold have been delivered.

But, since the beginning of this year there has been a considerable acceleration in the rate of stand for delivery contracts of gold, that has put a strain on the comex, and they have had to arrange for transatlantic flights from the London Bullion market to fulfill their delivery obligations.

This is true in both Silver and Gold.

These deliveries are supposed to be fulfilled in days.  Some contracts are not being delivered.  And there is a tremendous backlog of delivery contracts.

If the accerleration continues at this rate over 2,200 tonnes of gold will have to be delivered this year.  This is the total of the last three years.  The strain on the comex is at a point where a systemic crisis is in the making.  

If they cannot get the gold for delivery and contracts back up for months and months - which is happening now - the price of gold will skyrocket as sellers of physical will simply hold out for higher prices.

This delivery crisis is unfolding right now.

This doesn't mean the crisis won't be delayed as gold exchanges coordinate to resolve immediate delivery issues.

But the problem is being exacerbated by the fact that major Central Banks (China, Russia etc) and large oil backed sovereign wealth funds are buying most of the fresh supply of gold so that the western exchanges are having a difficult time of finding fresh supply.

And over  time, as more as more Stand for Delivery contracts are exercised, the potential for a delivery crisis accelerates.

A PROBLEM TOO BIG TO SEE

 

We have a problem.  And it is so big nobody can see it.  

We like to talk about American Exceptionalism.  We're better,  we works harder, we innovate better, we out negotiate, out manoever, out hustle our enemies and our freinds in every deal.

But really American exceptionalism is due to our performance in World War II.  We came through that war with the world's victorious military, and with the only intact economy because the war was not fought on our soil. So we ended up with the world's RESERVE CURRENCY.

When you have the world's reserve currency you have the privilege of printing money to buy your own debt.  And, at first, everyone buys your debt because it is the safest and most stable investment, and it is needed to settle large international commidity trades like oil.  And so that is the instrument of exceptionlism - as long as you prudently manage your economy..  And as long is you prudently resist the urge to WEAPONIZE your currency.

That is American Exceptionalism.  Before that it was British Exceptionalism.  Before that it was Dutch Exceptionalism.  All the way back to Roman Exceptionalism and Athenian Exceptionalism.  

And America did manage its economy prudently and resisted the urge to weaponize its currency - Until Nixon took America off the gold standard in 1971.  What ensued was a steady increase of debt that culminated in a massive inflation,  But Volker and Carter raised rates to over %20 and broke inflation.

Then the 1980's came and we began to amass debt in unprecedented quantities.  And when anything bad happened all we had to do was lower rates back below the cost of money, bail out the bad actors with printed dollars, and the debt orgy continued.  And we turned from a surplus economy to the world's biggest debtor economy. 

Then Clinton did away with Glass Steagel and we discovered financialization.  And that allowed for debt to become an instrument for gaining tremendous wealth if you were able to borrow deeply below the real cost of money to buy up real assets.  Wealth became increasingly concentrated in fewer and fewer hands of those with access to cheap debt, and inflation became embedded.

This weakened our reserve currency position but only marginally.  But eventually the debt bomb exploded in 2008 and rates went to zero and the we printed trillions and trillions to bail out the bad actors.

Then covid.  And rates stayed at zero and we printed 9 trillion dollars to bail out everyone.  Meanwhile we began to to toy with tarrifs.  Now tarrifs have a place in a Mercantilist economy.  And many of our trading partners were acting in a Mercantilist manner.  So it can be argued tarrifs were a proper response.   However, we are the only party with a reserve currency.  And you have to resist the urge to weaponize the reserve currency or risk other countries trying to de-dollarize in response to the weaponization.

Then Biden committed the ultimate transgression for a reserve currency.  He kicked Russia out of Swift (a system to clear dollar denominated transactions) and he confiscated their Dollar denominated debt instruments.

The dollar was suddenly the ultimate financial weapon.  

This works as long as there is no alternative to the reserve currency.

But what it does is incentivize other powers to aggressively de-dollarize and set up atlternatives for settling and clearing tranactions.  China, Russia, Middles Eastern oil powers, India, Brazil, and many other sattelite countries have begun to aggressively de-dollarize.

And the first step is shoring up your resereves by replacing dollars with GOLD,

That is the drive of the Gold trade, and it is irreversible until a new global equalibrium is established with new clearing and settling currencies that aren't weaponized or laden with debt.

This will take time.  The dollar and Eurodollat debt markets are massive.  But so is the impetus for other powers to get out from  under the weight of a weaponized dollar.

Meanwhile, what nobody seems to see is that the continued weaponization of the dollar through ever more aggressive Tarrifs is forcing all of our trading parners to ever more aggresively de-dollarize.

So nobody is buying our debt now.  While the debt sprials out of control.  

Therefor we have to buy our own debt with printed dollars.  But this causes inflation to spiral out of control.  And it causes the long end of the yeild curve to spiral out of control.

And here we are.  Racing towards an end game where yeild curve contorl and hyperinflation destroys the economy.

And somehow nobody seems to see it coming.