Total Pageviews

Saturday, April 20, 2024

Is Gold really being driven by "GEOPOLITICAL RISK?"

 


The pundit class always has to say something to make it sound like it knows something.  With gold, the new fad is to say that it is being driven by "Geopolitical Risk."

Is that really any different from economic risk?  

Let's look at the various risks:

1) The US election.  Sure that has "geopolitical" consequences.  But there are only two possible outcomes.  

First, Trump wins.  That means tarrif wars which are highly inflationary: excellent for Gold.  And it mean a new Fed Head who will be instructed to drop rates back to Zero and he will comply.  That mean hyperinflation.  Excellent for gold.  (How do I know?  Trump has promised this.)

Second Biden wins,  Trump doesn't concede.  The republican congress suppports his opposition government, the country splits and economic activity grinds to a halt.  This is a recipe for recession or depression - which would appear bad for gold (and every other asset), but then the Fed would be forced to print money like crazy to bail everything out and that means Stagflation.  Also great for gold.

2)  The Ukraine Russia War.  The pundits act as if the possibility of a tactical nuclear weapon scares the public into buying gold.  The reality is that the economic effects of this war are profoundly supportive of Gold.

A) the American weaponization of the dollar and the swift system has caused many central banks - especially China - to dedollarize - stop using their trade surplus money to buy US Treasuries and instead buy gold.  This not only directly supports the price of gold but is highly inflationary in the US as the Fed has to print money to buy the Treasuries other central banks won't buy.

B) All the oil and grain that once flowed from this war torn region to the West now flows to China.  THis is inflationary for evnergy costs and food costs in the West.   Sounds like that is economically supportive of Gold.

3) The War between Israel and Hamas/Hezbollah/Iran.  The US is on the side of Isreal.  Russia is on the side of Iran, and since Russia is now an economic client state of China as Reussia depends on China to buy all its commodities that it can't sell to the West, we can surmise that China is also on the side of Iran,

Sound like a Geopolitical Mess but it's really not the threat of nuclear war that's driving the gold price.  IF there's a nuclear war, gold won't keep you from getting incinerated.  This war is being fought in the region that supplies most of the world's energy.  And it controls the most important shipping lanes for energy delivery - and the delivery of many other goods.  Energy costs are the major input cost for almost every industry.  This is highly inflationary and thus ecxcellent for gold.

So this fastening on "Geopolitics" as opposed to "Economics" which we are assured are in excellent condition - is really a distinction without a difference.  If Geopolitics suffer - so do economic conditions.

The unusual thing about both the geopolitics and the economic conditions they support is that there is very little guess work involved this time around..  Our candidates have told us what they will do.  Compromise is not on the table.  In fact it is despised as weakness.  The combatants in the various wars have made clear their completely intransigiant positions.  None of them want peace, unless it involves unconditional surrender of the other side.  

Only those looking on the outside through fantasy tinted glasses can see "two state Solutions" or "coaltion governments."  This time around that's just not on the table.

So this is a rare case where the effets of the future on the price of gold a known.  

THis is why gold is moving as it is.

Tuesday, April 16, 2024

GOLD MAKE A NEW CLOSING HIGH AS BULLION CLOSES OVER $2500 AN OUNCE - AND STILL NO US RETAIL BUYING:


This chart illustrates is the most dramatic shift in the gold market since the world shifted from Britain having the world reserve currency status pre World War II where gold was priced in brtish pounds to the US having the world reserve currency status post WWII where gold is priced in dollars.

The next seizmic shift in the gold market came in 1973 as Richard Nixon closes the gold window when certain European countries demanded to repatriate their gold and we didn't want to (or couldn't) pay.  This took the world off the gold standard for the first time since - well, sometime before 3000 BCE.  We don't know when because there is no surviving written language before then.

This also launched an era of unprecedented global debt accumulation as the debt no longer had to be converted into gold.

THen in 2004 the GLD ETF is launched and ever since every gold rally was led by US speculative interest in purchasing gold.

And each time gold was about to break out, the Fed and the bullion banks were able to manage the gold breakout by dropping untold throusands of futures sell orders on a thin market.

UNTIL NOW.

The great gold breakout rally has finally occured after years of the most talked about Cup and Handle technical pattern perhaps ever as gold formed this massive pattern that suggested a breakout the next time the US public got excited about gold.

But, instead, the breakout has come - without any particiapation of the US public.

And without the Fed having the ability to cap it.

How has this happened? 

Eastern Central Banks.  Led by China. And also led by the retail public in the Eastern countries where the central banks are both buying and promoting  private ownership of gold.

This has overwhelmed a basically thin market, taken the US retail buyer totally by surprise and overwhelmed the Fed's ability to control the market.

Clearly there is a massive divergence of views between East and West as to the ultimate - and near term - safety concerning the mountain of Paper Assets denominated in US dollars.  Largely because the debt component of these assets as roughly 35 trillion government, 20 trillion corportate, 17 trillion private, and additional 120 trillion in unfunded liabilities and a dollar denominated derivative debt market or about 4 qudrillion dollars (over the counter and unregulated).

The concern in the East is also very much caused by the recent weaponization of the dollar and the US swift system along with violent anti global rhetoric coming out of our political system.  And the coming election is most likely to intensify this violent rhetoric, and produce equally financially violent policy.

The altenative has been chosen.  And it is Gold.

Nobody here wants to see that yet.  And Americans are very good at burying their heads in Internet Nonsense.  We've become a country of internet ostriches looking for scapegoats, conspiracies and fastening on code words as outlets for frustration and hatred.

None of that will help us though.

What will help is seeing what is going on and finding a way to participate positively to protect yourself.

If we can't do it as a country it is up to each of us as individuals to make smart choices.

ANd the sooner we start the better.

Thursday, April 11, 2024

GOLD FLOWS EAST: US INVESTORS REMAIN CLUELESS

 


GLD, the major US stock tracking the price of gold has been rising steadily, to new highs week after week.  And week after week US gold investors have been pulling money out of the fund.  So accordingly the fund divests gold holdings. 

CEF the Sprott gold and silver fund most favored by US investors is trading at a 5 perent discount to NAV.  When US investors are bullish on gold the fund can trade at a 15 percent premium or higher.

At the same time gold funds in China are selling at a 30 percent premium to NAV.  This reflects the Chinese public appetite for gold purchases.

And the Eastern Central Banks are buying hand over fist.

I track gold purchases of all sorts of semi-bullion collector coins: Limited central mint runs of coins that were either circultion coins like French 100 franc gold angels or Peruvian 100 soles gold coins, or coins intended primarily as limited run bullion like certain Chinese Pandas or British Mint collector bullion, and many pieces that have interest for Asian collectors have gone crazy in price in the last year.

Gold is flowing from West to East.

And US traders and technical analysts are bewildered.  Gold keeps going up in spite of the fact that yields are also going up, stocks are going up, and nominal inflation is coming down.  And the charts have gone hyperbolic.

Nobody here gets it.

Yet.

The fact is everybody in the world can see that the US is spinning out of control in terms of debt, debt service, debt refinancing, and there is no Political Will to do anything about it.

The whole world can see that either outcome in this election will lead to more debt and less Poltical resolve to address it.  Because the both candidates have already pledged to increase the debt.  Biden through massive social spending and Trump through tax cuts, tarrif wars, and dropping rates back to zero.

Both are a recipe for greater inflation.  Though one leads to stagflation and the other leads to hyperinflation.  

So a death by a thousand cuts.  Or death by a massive blow to the head.

Nobody in the world is waiting to find out which, because it doesn't matter.

The Fed is in a box.  They can't raise rates without provoking a debt crisis.  They can't drop rates without stoking inflation.  Meanwhile, they're losing control of the long end of the rate curve.

The billionaire class doesn't care.  They get richer either way, because inflation leads to asset inflation.

If you're not a billionaire and you care, think about protecting yourself the way the rest of the world is doing.

Sooner or later you'll have to.

Sooner is probably better.



Saturday, April 6, 2024

Hs the Fed lost control of the gold market?

 



It's been no secret the the Fed and the bullion banks that own the Fed have kept on lid on the gold market for the last 40 years as the value of the dollar has been inflated away.  

It's easy for them to do this simply by dropping thousands of sell orders on the futures market late in the off hours, running everyone's stops, and setting off a flight out of speculative long positions by small investors which generally follows through into the opening and right through the next trading session.  Then when everyone has sold the bullion banks cover their shorts and go long, making money both ways.

They've done with with clockwork-like regularity for the last 40 years.  Everyone sees it.  And even the regulators (SEC and CFTC) have slapped JP Morgan with nearly a billion dollars worth of fines for manipulating the gold market, yet the trades are so luctrative the billion in fines is like a gentle slap on the wrist.

But a funny thing has happened.  Not so funny maybe to the Fed and JP Morgan but really funny to those of us that have longed for the day that a big enough player enters the market that everytime the bullion banks pull a raid, this new Big Player steps in and hands them their heads by simply taking the other side and buying after gold drops a bit.

And then as gold starts to rise, JP Morgan has to cover and gold ends up rising 40 dollars instead of dropping 40 dollars.

This is the Chinese Central Bank.  They are buying hand over fist.  But they have company: the Turkish Central Bank, and the Polish Central Bank and the Czech Central Bank and the Jordanian Central Bank and many others.  

But the Chinese have decided it is time to take control of the price.  You can speculate as to why.  Perhaps they will eventually launch a gold backed currency.  Perhaps they simply want out of the US dollar/swift system before they are kicked out by an agressive anti Chinese regiem.  So they are replacing US Treasury reserves with gold.

It really doesn't matter why.  It will eventually.  But right now what matters is that they've taken over.  Which means that every time the Fed wants to knock down the gold price in order to solidify their claim that inflation is essentially under control and the US banking sysemt is essentially sound, and the US economy is on firm footing - there's a buyer on the other side waiting to take advantage of every artificial dip.

And all this is happening without any significatnt US retail participation.

Nobody in the US is in this gold trade. Institutions here don't support it, because they can't monetize this trade.  The government doesn't support it because it is difficult to tax and regulate and it sends the wrong message.

Other countries are encouraging their populations to buy gold.  The Eastern and Mid Eastern countries all have a long tradition of gold buying and preserving wealth through gold.  Europe has a tradition of protecting private wealth through gold as the two world wars were fought there.  And only those with gold were able to preserve their wealth.

But the US public seems to have become the very last to realize what's going on,

Eventually they'll catch on.

Or not.

It doesn't really matter to this global market anymore.

Wednesday, April 3, 2024

gold prepares for the election

 



I've never believed the stock market discounts the future.  Because it relies on the psychology of the masses.  And the masses are usually wrong.

Gold, however is excellent at looking into the future, because its movement is ultimately decided by the the global central banks that conrol the economic and political future.

And Gold, right now, has its eye firmly on the US coming election.

Because Gold thrives on chaos, strife, and most of all Gold thrives on War.

There are already two hot wars, one involving Europe and Russia, one involving Israel and Hamss/Iran/Hesbollah.  And both wars have an enormous impact on the all importan US-China relationship.  

And the coming election will be key in what happens to those two hot wars.  

Gold sees an outcome in the coming election that will cause the wars to boil over and spread.

And as the war spreads international trade dies and commodity prices are driven up and up and up.  At the same time war kills demand for discretionary purchases.

Gold also thrives on trade war.  Trade war is highly inflationary globally.  Tarrifs are a tax on the consumers of the country that imposes the tarrifs.  At the same time it drives up prices in the exporting countries that seek to recoup lost profits.  Global GDP dives as global costs rise.  Trade war is wonderful for Gold - if nothing else.

Gold sees an outcome in the coming election that will mean massive Trade War.

Gold thrives on civil war.  It doesn't have to be declared war.  Just violent tension between various citizen groups tends to eventually kill the animal spirits that drives discretionary spending.  Eventually people start hoarding essentials that they belive to be scarce or that they believe will become scarce.  This is highly inflationary.

Gold sees an outcome in the coming election that bodes well for civil war.

Gold thrives on poltical warfare.  The less civil an election cycle the more gold likes it.  The more the various branches of government appear to be at war amongst themselves the better it is for gold.  The stronger the Centralized government becomes the better for gold.  This is because an economy thrives on Trust.  The belief in its institurions in crucial for that trust.  As trust erodes people stop spending and start hoarding.  In the early stages of trust erosion you may well get YOLO - you only live once - spending.  But as the erosion of trust continues you get Survivalism.

Gold sees an outcome in the coming election that will lead to a survivalist mentality.

Gold particularly loves Autocracy.  The more likely the election is to result in Autocracy the better for gold.  Look at Turkey - or Hungary - for democracies that have moved towards Autocracy.  The inflation rate in Hungary is 30 percent.  The inflation rate in Turkey is 65 percent.  

Gold sees an election outcome that will lead towards Autocracy.

It's not as if Gold is omniscient.  But Gold is the reflects the collective vision of the global central banks.  Ands this is what gold sees.  



Monday, April 1, 2024

GOLD AND THE CRASH

 


Nobody knows when a crash is coming.  A lot of people see it coming.  But if it's 5 years away you look like a fool waiting for it while everyone else is cashing in on the precrash mania.

Because without the mania there wouldn't be a crash.

And manias can go on and on and on.

Right now, however, we are in an unprecedented period where rates were kept at ZERO year after year so that everything from Governments to Real Estate to Companies were funded with DEBT issued at or near ZERO.

This wan't because there was no  inflation.  It was because globalization was a heavily deflationary force that kept the inflation of the massive money printing/debt regiem in check.

Now globalization has reversed.  Hot war in Europe and the Middle East , nascent trade war, East vs West cold war that could morph into hot war over Taiwan or Poland or Iran or wherever, at any moment has crushed the old supply lines, regarding commodity inputs, labor, and international cooperation, so that the inflationary forces of money printing/debt are now being pressured mightily by higher rates.

And the wars themselves are highly infaltionary.

And the central banks only control short term rates.  So they will start to cut short rates as the burden of underwater bonds start to impact Governments, Real Estate, Corporations, and especially the BANKS that own alot of the debt.  Most of the banks, including the central banks are dead broke if they had to mark all their bonds to market.

They don't.

But as the bonds mature they do have to either realize the losses or try to refinance at much higher rates - or both.

And even if the Fed cuts short rates, it doesn't mean the long rates will follow.

That's the catch.  That's when the Fed loses control. And that's inevitable with debt load of this size.

This debt problem is imminent.  Just because we've been able to keep it under control so far doesn't mean we'll never discover the breaking point.  TWO TRILLION dollars of corporate debt finaced at Zero comes due over the next two years.  The Commercial - and multi family home  - Real Estate business is dead broke. And the every central bank is carrying massive balance sheets comprised of underwater debt.,  The US Fed still has 8 trillion dollars of it (despite supposed QT).  Other central banks are in the same boat. 

And all the commercial banks - even the big ones - are in the same boat.

There is no out.  There is no soft landing.  There is no  way to resolve this except hyper inflation or default - or both.

Evey Central banker knows this.  That's why central banks are buying gold.

And in the Eastern governments are heavily encouraging their citizens to buy gold - because they know when the debt crash comes gold will get you through it.  They're not worried about people using gold to evade taxes because if you evade taxes there they'll just kill you.  Even if you're rich.

Here in the West Governemnts won't do that because they need money to stay in the local currencies - Dollar or Euro so they can keep control of the Tax structure.  Here if everyone had gold and stopped spending so much on useless crap the goverment tax collecting would implode,  And here they can't even prosecute rich people for avoiding taxes because they own the legistlators and have already put in so many loopholes they don't pay much tax anyway.  If Government lost any revenue from the middle class it would be a disater.  Or even more of a disaster.

So here it's up to you to figure this out and buy gold on your own initiative.

Before it's too late.