Editor’s Note: The US government has unleashed trillions of dollars of stimulus with no signs of stopping, while governments around the world have instituted restrictions on travel, businesses, and more. These trends are favorable for the price of gold. But why hasn’t gold responded?
Today, we turn to Doug Casey’s long-time friend and gold expert Adrian Day to answer the questions precious metals investors and prudent savers are asking about gold and gold mining stocks.
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International Man: In a time of unprecedented worldwide money printing, it would seem to be the perfect environment for gold to soar. But instead, gold has stagnated recently. Why hasn’t gold responded to what should be an incredibly favorable atmosphere?
Adrian Day: Correct. Massive excess liquidity is a positive for gold, other things being equal. Unfortunately, other things are not equal. In particular, this year has seen both long-term interest rates move up and the dollar rally, both of which are negative for gold.
The result was that gold had its worst start to a year in three decades, and for the quarter, it was down almost exactly 10%; silver fell 7.5%. This is unusual for what is traditionally a seasonally strong period. It has rallied strongly so far this month, however.
This should be put in context. The gold price is back to where it was last June and remains up a reasonably healthy 14% since the beginning of last year.
I think we are simply seeing normal market action. After an incredibly strong move in the first half of last year—over 40% from the low in March to early August—gold is simply taking time to consolidate. The more dynamic the move, the longer the correction. In fact, I would argue that gold holding above $1,700 in the face of dollar strength and rising yields is actually quite positive and a sign of a slow shift in sentiment and coming turn in the gold price. The negative sentiment, evidenced by the outflows from gold ETFs, means that gold increasingly is held in strong hands. When the move comes, it could be a strong rebound.
International Man: Interest rates have been rising recently. What is the relationship between gold and rising interest rates?
Adrian Day: Rising interest rates are negative for gold; since gold has no yield, higher rates elsewhere make it comparatively less attractive. It is real yields that make for the nominal rate less the rate of inflation are important, however. And despite a very strong move up in long-term yields—on the 10-year Treasury, they have tripled to the current 1.7%—real yields remain at zero. With inflation rising in recent months, rates at this level are likely to be negative for the period ahead. Input costs are up across the board, and companies, from General Mills to Kimberly-Clark, have warned of higher prices ahead. It is also worth noting that while yields at the long end have moved up, they remain down at the short end. If the bond vigilantes push yields up too much, the Fed is willing and able to follow other central banks around the world and suppress long-term rates.
International Man: If we see a meltdown in the stock market, how will gold and gold mining stocks fare?
Adrian Day: A lot depends on what kind of market decline we experience. If the stock market has a sharp drop, such as in 1987, 2008 or March of last year, then everything drops, and often gold stocks initially fall more than the overall market does. But equally, gold stocks can be the first to recover and among the strongest. Certainly, we saw this last year. After a 33% drop in six days (basis XAU Index), gold stocks were at new highs within a month and had rallied 130% within four months. In 2008, the gold stocks had doubled from the October sell-off before the S&P had even bottomed.
The extent to which gold stocks fall with the market depends to a large degree on how much they participated in the previous market rally as well as their valuations. In 1987, 2008 and last year, they had been strong leading up to the market crashes, though valuations last year, in particular, were not high.
Typically, also, after a market crash, central banks pump liquidity into the system, and that is positive for gold.
International Man: What is your outlook for gold for the rest of 2021?
Adrian Day: I am bullish. The central factor affecting the gold price is liquidity, and there is no question that that is positive and unlikely to change. The concern about rising interest rates is overdone, as discussed above.
The biggest headwind for gold right now is the rising dollar. The widely touted dollar rally has recovered about two-thirds of the decline since Biden was elected president. Because the U.S. economy looks set to reopen sooner than many other countries, and because the yield differential with other major economies has widened, the dollar could rally more in the near term. But massive unfunded spending will widen the budget deficit, while a U.S. economy recovering before other economies will mean increased demand from the U.S. for foreign goods, widening the trade deficit. These twin deficits will likely see the dollar resume its trend downwards over the course of the year.
Sentiment has been extremely weak, with large, consistent outflows from bullion ETFs. Generalists have exited gold-stock positions as quickly as they jumped on board last spring. This is a positive, since it means that gold is now largely in strong hands, and when a turn comes, the price action could be very strong.
Editor’s Note: In this rare message, legendary gold investor Doug Casey shows you the secret to how he invests and the most lucrative “insider” way of multiplying your gold mining stock returns.
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Six things to consider:
1. There are no markets, they are all controlled and or manipulated. Everything is in a bubble.
2. The fraudulent paper market establishes pricing for physical gold and silver.
3. The US (if you can believe this) is most likely lying about the 8133 mt of gold it claims to have, it could be zero. When the little munchkin fellow with his gloved wife were at Ft. Knox, he gave no indication about quantity of gold, he said gold is good.
4. The price of gold (and silver) is being manipulated down not to keep the price of gold down but to prop the dollar.
5. China/Russia are probably lying about their gold holdings; they have many multiples of what they claim and probably eventually will establish gold and silver pricing.
6. The physical silver market is so small, that that is the market they must defend, if they lose the silver market they lose it all.
Regarding #3. There have been rumors that around the same time of “Brown’s Bottom” when the Keynesian shithead Gordon Brown dumped the UK’s Gold reserve @$260 per ounce, that Clinton and his Treasury henchmen did something nefarious with the Ft. Knox Gold. There have been reports of large numbers of “melt bars” landing in China. A melt bar is one of those 400 ounce bars consisting of melted down US Gold coins from FDR’s confiscation of citizen’s Gold in ’33. They are no more than 93% pure. I have heard some claim only 80%. This is because Gold is soft and when used in circulating coinage it has alloys such as copper or bronze added to harden it.
My understanding is that the US gold holdings have not been audited since 1954, and I am not certain that that was a real audit. The US claims 8133 mt which oddly has never increased or decreased over the years. I don’t believe that anyone has been allowed to actually view the gold and confirm that it is ‘there’. The US gold is held at Ft. Knox, New York Fed and a facility in Denver. Several years ago, I believe it was Denmark (not certain, but a Scandinavian country) requested repatriation of their gold and the US said no. Eventually they did get it after the stuff that occurred in Ukraine. The first thing the US did in Ukraine was take their gold (which was about the amount owed Denmark) and then shortly after that Denmark received their gold back.
FDR didn’t actually confiscate gold, he requested through EO that people turn it in and they were compensated $20.67/oz, he then revalued gold at $35/oz. The US was on a type of gold standard and so this allowed the US to print more dollars. A lot of the FDR confiscated gold went to fund the Exchange Stabilization Fund. It’s the ESF that is (along with the Plunge Protection Team) which is purchasing US bonds (monitizing US debt) and probably purchasing directly in the stock markets.
“FDR didn’t actually confiscate gold, he requested through EO that people turn it in and they were compensated $20.67/oz, he then revalued gold at $35/oz”.
Here is a good recap: http://www.coloradogold.com/post.php
ROOSEVELT’S GOLD?
Author: Don Stott | Publish Date: 08/26/2019
« Back to Don’s Column
“Well, suppose they confiscate my gold just like Roosevelt did 75 years ago?” If I have heard that once, I must have heard it a hundred times. Did Roosevelt confiscate everyone’s gold back in 1933? If he did, how come there’s still a lot of it for sale in a thousand coin shops and numismatic dealers?
Let’s start at the beginning and see what really did happen. The first thing we must remember, is that America was in the midst of a severe depression, caused by loose money issued by the Federal Reserve, which they still are doing. There was such an enormous amount of “liquidity” floating around, as today, that everyone was buying stocks on margin of over 90% at times, which is not happening today. The stock market was on everyone’s lips and minds. Bootblacks and janitors were buying stocks. Stocks would supposedly go up forever, and there was no risk. Ha Ha. The market crumbled and crashed, leaving everyone out on the well known limb, owing for stocks which often times weren’t worth not much more than the paper on which they were printed. The result was that in fairly quick order, over 25% of the American work force was on the street selling apples, on the dole, or in bad shape in one way or another. Times were tough, to make it sound kind!
Roosevelt wanted to pull America out of the depression. He thought up all sorts of make-work schemes, and anything to put people to work. But he didn’t have any money. Remember, unlike now, the dollar was BACKED BY GOLD. He therefore needed all the gold he could get, so he could print more dollars to spend in placing more people in those make-work jobs. Everyone knew that gold and dollars were synonymous. Americans were carrying gold coins in their pockets just like they were money, which they were. Small, dime size gold coins were a dollar, and there were $5, $10 (Eagles) and $20 (double Eagles) coins in general circulation everywhere. Gold was money, dollars were money, and the two were the same. How could FDR get gold, so he could print more dollars to spend, to get us out of the depression?
He also had the farmers on his neck. They wanted higher prices for their crops, and there wasn’t any money around to give to them. On March 9th, 1933, FDR declared a “Bank Holiday,” with all the banks closed. Bank “runs” had posed another problem for the “New Deal,” as Roosevelt called his massive move towards abject socialism. People were closing their savings accounts and bouncing checks by the millions, just to survive in some cases. Today, we have millions of credit cards maxed out for the same reason. There was no FDIC then, so no savings account was insured. (Today, the FDIC has less than a nickel in its accounts for every $100 worth of insurance). Banks had made huge margin loans on now worthless stocks, and they had no money to pay for savings account closures. FDR allowed they could close for a ‘holiday,” so they could get their troops in order. Many didn’t, and never re-opened again. My Parents lost money in a bank which never re-opened.
Banks were in deep trouble. People were demanding their money, and the banks didn’t have any. There was no FDIC, and dollars were backed by gold. The treasury had to have gold to print more dollars to make everyone happy, banks whole, and to fund make-work projects. What to do? Get some gold! How? The mines were producing all they could, but more was needed. More dollars were needed for stuff that didn’t help get us out of the depression at all. Nothing Roosevelt did, got us out of the depression, or even help a bit. As a final effort, he outraged the Japanese enough that they bombed Pearl Harbor, and we were at war. The depression was over.
Roosevelt had the brilliant idea that he would order everyone to turn in their gold in exchange for paper dollars, which were backed by gold. On April 5, 1933, Roosevelt issued Executive Order # 6012, which ordered Americans to surrender their gold to the government by May 1st, 1933. Violations were to be subjected to a $1,000 fine and as much as ten years in prison. First of all, an Executive Order is not in the Constitution, and an Executive Order could never levy a $1,000 fine or ten years in the slammer! But Americans were broke, miserable, and that $20 gold piece they had squirreled away would buy a lot of food, with bread at less than a dime a loaf. Those who couldn’t afford to hold their gold, turned theirs in and received brand new paper dollars for their gold.
The gold allowed more dollars to be printed, which were foolishly used for nutty things, and none were of help in fighting the depression. A couple of days later, on May 7th, FDR had one of his “Fireside Chats” over radio, to soothe the American outrage. He said that if Americans continued to ‘hoard’ gold, there wouldn’t be any left, and therefore in the interest of fairness, government should own all of it, and use it wisely. Ever hear of such claptrap? Gold markets have existed for thousands of years, and gold has endlessly changed hands around the world! Smugglers and black markets in gold have flourished in times of war, peace, or dictatorships. FDR also persuaded Congress to wipe out the gold clause in existing contracts, which specified payments to be made in gold. In a Joint Resolution of June 5, 1933, all gold payments in existing contracts were made null and void. Even Congress, stupidly went along.
On January 31, 1934, Roosevelt signed into law the “Gold Reserve Act,” which set the gold price at $35 per ounce, as opposed to the former $20.67 In other words, he had stolen hundreds of millions of dollars from Americans by raising the price of gold by about 70%! What in reality he had done, was to lower the value of the dollar by 70%, in relation to gold. It is estimated that Roosevelt hauled in $7 billion worth of gold from submissive Americans, and still the depression kept right on going.. My Dad was a corner druggist in Washington D.C. for 36 years, and I grew up in that drug store. I’ll always remember those days as being educational, and lots of fun. I can still hear my Dad calling Eleanor Roosevelt “Old Horseface,” and bellowing about Roosevelt, calling him every name in the book. He hated the Roosevelts, as did all businessmen, and anyone with a farthing of sense.
Did Roosevelt’s Executive Order # 6012 “seize” everyone’s gold? No! How could anyone know who had it? Gold coins have no serial numbers, and practically everyone had them. Could government seize socket wrench sets if it passed a law saying that everyone had to turn theirs in? Could government ever know how many people had bought socket wrenches from hardware stores, auto supply stores, Sears Roebuck, Montgomery Ward, et al? Socket wrenches have no serial numbers, and they certainly don’t have to be ‘registered’ when you buy a set. Both have uses, and both may be about the same size I suppose. Those who didn’t need the dollars, undoubtedly said to themselves, “Me? Give you my gold? “Hell no!” Those who were living at the edge of starvation, having lost their jobs, having lost their savings in closed banks, and seen their stocks go to virtual zero, naturally gave their gold to the government in exchange for bread money. No one was ever fined, and no one ever went to jail for an Executive Order which could never have been enforced. There are actual laws against prostitution and drugs, but they flourish on a daily basis. Hookers and drugs have no serial numbers either, and aren’t registered like car titles, real estate deeds or stocks.
How could government “seize” your gold, when no one knows you have it? Registered guns have possibilities for seizure, because of their registration, but when they come to get yours, as I am certain they will, you “had it stolen,” “sold it at a yard sale,” or “gave it away,” hopefully. No gold coin is “registered,” and no gold coin has serial numbers other than the Credit Suisse 1 oz gold bars. A decade ago, in Silverton, Colorado, a miner was accused of stealing gold from a mine, after lots of it was found under his bed. It went to court, and Henry Kolego’s lawyer asked the prosecution if the supposed stolen gold looked different if it came from one mine or another? “No.’ Does the supposedly stolen gold have serial numbers for identification? “NO.” Henry K. went free. Did he steal it? Probably, but it was totally un-provable.
Can anyone from the government, seize your gold like Roosevelt did? How could they? Gold is not radio-active, so a Geiger Counter wouldn’t work. “Well, they’ll check your supplier or seize your records.” If you had gold at one time, how could anyone prove you still had it if you had given it away, sold it, or had it stolen? Like registered guns, if you please. The thought of government going through a million court cases, violating the Fourth Amendment, trying to “seize” your hoard of Krugerrands, borders on the insane and, at least is laughable. As a refresher, the Fourth Amendment says in part, “The right of the people to be secure in their persons, houses, papers and effects, against unreasonable searches and seizures shall not be violated.” Is it illegal for you to purchase gold or silver? No. Is it illegal for you to own them? No. Ever hear of the legal term “ex post facto law?” Just forget the “seizure” nonsense, and protect yourself.
Excellent recap Mark. It is an important distinction to understand that FDR raised the price of gold, thus decreasing the value of the dollar.
Talking about gold not having a serial number, gold and silver have no counter party risk. All of the energy, labor and capital has been expended, there is nothing else due, it is yours and nobody else has a claim to it.
The article also spoke about people having coins in their pocket, I found it very interesting when I learned why they were the size they were. The silver dollar was on ounce of silver, the half dollar was one-half ounce, and therefore half the size of a dollar. The quarter was one-quarter ounce of silver, and therefore one-quarter the size of a dollar or one-half the size of a half dollar. The dime of course was of course one-tenth the size of a dollar. So if you had ten silver dollars, or ten ounces of silver, that would be the same silver weight as having one hundred silver dimes.
You bet guys,
Long time macro stacker (early 80s’ 0n)…and just recently (built a house) sold some Gold I bought in 99 well under $300 an ounce, and some I bought fairly recently at $1,200 during the 2020 March dip…sold both at last summer’s peak to close out paying the builder the last 25%.
Less than 10% of my stash…but I had gotten 95% out of the Bankster system, 100% out of stocks, bonds, short term treasuries, have kept some serious cash (in my control) and hunkered down with all the prep and hard assets I can stash.
Thanks Mark.
For #6 I am always baffled by the intrigues in that market. Everyone has heard the story of the Hunt Bros. ill fated adventure attempting to corner the Silver market which indeed demonstrates the small size that one could imagine taking it over.
From there I believe Bear Stearns got the Hunt Silver and they went bust while today JPM supposedly still holds Bear Stearns Silver shorts and have accumulated large amounts of physical metal.
Warren Buffet always decries the foolishness of PM’s yet he somehow got hold of 400,000,000 ounces of Silver from the Hunt escapade. That 400 million ounces of Ag was sold or provided by Buffet to seed the SLV etf.
I believe that the Hunt brothers were accumulating physical silver, and then at some point they began to leverage and they got caught big time in a squeeze. They had to liquidate in order to cover their costs.
Last year would have changed things, but prior to that only 800 million ounces of silver were mined a year, and yet the Comex traded that per day. Remember that right after the Reddit guys short squeezed GameStop, they attempted the same thing with silver, it was probably too ambitious, but they knew how small the silver market was.
I don’t remember where the Hunt brothers silver went, but I understand that JPM holds in physical, 25 million oz. of gold and 1 billion oz. of silver.
As far as Buffet goes, he was really big into silver and then went 180 degrees. Interestingly, his father Howard Buffet was a congressman, and a huge gold advocate. Below I have attached a letter he put out regarding the sanctity of gold. The last line says : “There is no more important challenge facing us than this issue — the restoration of your freedom to secure gold in exchange for the fruits of your labors”.
https://www.fgmr.com/wp-content/uploads/2017/02/Howard-Buffett-explains-sound-money-4-May-1948.pdf
This is a decent overview of the corrupt intrigues by Craig Hemke…and the building pressure on supply by John Adams.
Neither one of these two pull any punches.
Of all the hard assets with no country party risk, that you can keep in your control/possession, with the wisdom/means to hide and defend yourself/them, PMs are at the top of my list.
5) since both are major producers, it has to be assumed they do not report it all.
A couple of people I respect in the precious metals market believe that China has going on 30,000 mt. It’s going to be quite an event should China say to the US, we will show you ours, you show us yours.
I don’t have any numbers but I imagine the cryptos must bleed off a lot of pm investment.
Total crypto market is right at 2 trillion dollars. Total gold market is (so I have heard) about 10 trillion.