Let's talk about the gold market

[Techdread]

Re: Let's talk about the gold market

Hmmm. iTulip is most renowned for being a macro economic site.

As the chart attached will show the Euro has been in a consistent downtrend (lower lows and lower highs) against the US$ for the last 12 years.

You may be expecting inflation, but I haven't seen a cogent argument from you as to why. The declining Euro is inflationary - but you argue it hasn't really declined. The COVID induced disruption to global supply chains is certainly inflationary...but only in the short term. Food costs have gone up in Canada, one of Her Majesty's colonies and where I happen to live. But the Canadian economy is most definitely not experiencing inflation - not with one-third of the labour force out of work or underemployed.

So if you already know everything about what I wrote, pray tell what exactly is your logical case for inflation in the face of the growing likelihood of a global solvency crisis?

And where on earth did you get the idea the US would even contemplate "turn(ing) off the flow of dollars to the world..."?

I think we have a reasonable probability of a couple of years of mild global deflation (higher structural unemployment, insolvencies, slow economic growth with record sovereign debt acting as a drag on investment and output, the potential for a persistently overvalued US$) before we have to worry about inflation (primarily from supply destruction and de-globalization running head on into accelerating regional growth in Asia, accompanied by a shift in flows out of the $ as the safe haven trade fades). The market will, of course, price in the pending inflation in advance.

I expect deflation for a while especially as people have been forced to save, you can't spend if shops are not open, can't travel, got to a concert, sporting game etc.

Eventually inflation should pick as those stimulus checks are the best way of creating inflation or so Finister has explained to us umpteen times.


It also looks like the public and government our for once being sensible and paying off the higher debt.

Covid relief measures amount to debt jubiless

If only jubilee advocates thought a little smaller, they might find an easier path ahead. With this in mind, look to some of the pandemic relief policies currently on the go around the world.
In the US, there is a relentless programme of ideas to forget about student loans. These may not vanish in their entirety any time soon, but the rise in acceptable loopholes and debt suspensions will amount to much the same thing, eventually.
Look, too, at the cash being doled out in the US. There are the one-off payments of $1,200 per adult and $500 per child. There is also the sharp rise in unemployment payments of a pre-Covid-19 payment plus the pandemic payment of $600 per week. If, a few months ago, you worked in food service, one of the most affected sectors, you now receive more than 150% of your previous income, notes Intertemporal Economics. No wonder demand for credit cards has fallen sharply and consumers have been cutting their credit card debt at an annualised 31% rate.
The US savings rate also hit 13% in March, a 39-year high. Not a formal jubilee but, for those who go back to work after the crisis, definitely an effective one. The UK hasn’t seen quite the same level of generosity. Nonetheless, a large part of the population has been at home with few spending opportunities and, thanks to the furlough scheme, which pays 80% of salaries, they have not suffered significantly reduced income. They’ve also been offered six months’ worth of mortgage holiday.

Divident cuts may be a good thing

Corporate debt levels are also worth thinking about. On the face of it, the last thing most companies need is more debt. But, regardless of the health of your balance sheet, if you can borrow 25% of your turnover at 2.5% with a UK state-backed Bounce Back Loan and, if you have other more expensive debts, why not make the switch?
You may also wonder about the cancellation of dividends. Some will badly need to do it. Others will be pleased that, after too many years of bloated borrowing, they can use the cover of Covid-19 to cancel them with reputational immunity and slash their debts instead.
The same goes for the growing number of equity issues. A year ago, the market might have looked askance at debt-ridden firms suddenly trying to flog more shares. Today it looks sensible: think of this as shareholder-goodwill-financed debt forgiveness.
There may be a real jubilee ahead for all sorts of companies, where state loans are cancelled or converted into equity. But this kind of mini jubilee counts towards stronger balance sheets too.
Much of this has consequences for government finances, as jubilees effectively transfer debt from the private sector to the public. But if central bank-financed Covid-19 stimulus eventually produces inflation, governments will have effectively created their own stealth debt jubilee — because nothing erodes the real value of debt better than inflation. Who needs trumpets?

https://moneyweek.com/economy/uk-eco...s-a-good-thing

[shiny!]

Re: Let's talk about the gold market

FWIW, the silver/gold ratio is finally shrinking after reaching an astronomical 124:1. Last week it was around 99:1. Currently it's 95.8:1.

[Mega]

Re: Let's talk about the gold market

What should it be?
MIke

[shiny!]

Re: Let's talk about the gold market

What should it be?
MIke

Excerpted from Investopedia:

Historically, the gold-silver ratio has only evidenced substantial fluctuation since just before the beginning of the 20th century. For hundreds of years prior to that time, the ratio, often set by governments for purposes of monetary stability, was fairly steady, ranging between 12:1 and 15:1. The Roman Empire officially set the ratio at 12:1, and the U.S. government fixed the ratio at 15:1 with the Mint Act of 1792.

The discovery of massive amounts of silver in the Americas, combined with a number of successive government attempts to manipulate gold or silver prices, led to substantially greater volatility in the ratio throughout the 20th century. When President Roosevelt set the price of gold at $35 an ounce in 1934, the ratio began to climb to new, higher levels, peaking at 98:1 in 1939. Following the end of World War II, and the Breton Woods Agreement of 1944, which pegged foreign exchange rates to the price of gold, the ratio steadily declined, nearing the historical 15:1 level in the 1960s and again in the late 1970s after the abandonment of the gold standard. From there, the ratio rose rapidly through the 1980s, peaking at the 100:1 level in 1991 when silver prices declined to a low of less than $4 an ounce.

For the whole of the 20th century, the average gold-silver ratio was 47:1. In the 21st century, the ratio has ranged mainly between the levels of 50:1 and 70:1. The lowest level for the ratio was 32:1 in 2011.

At the 32:1 they mention, silver peaked at $48.70. That was when EJ made his "time to sell silver" call. I've noticed that the ratio tends to expand during periods of deflation and shrink during periods of inflation.

[llanlad2]

Re: Let's talk about the gold market

Hmmm. iTulip is most renowned for being a macro economic site.

As the chart attached will show the Euro has been in a consistent downtrend (lower lows and lower highs) against the US$ for the last 12 years.

You may be expecting inflation, but I haven't seen a cogent argument from you as to why. The declining Euro is inflationary - but you argue it hasn't really declined. The COVID induced disruption to global supply chains is certainly inflationary...but only in the short term. Food costs have gone up in Canada, one of Her Majesty's colonies and where I happen to live. But the Canadian economy is most definitely not experiencing inflation - not with one-third of the labour force out of work or underemployed.

So if you already know everything about what I wrote, pray tell what exactly is your logical case for inflation in the face of the growing likelihood of a global solvency crisis?

And where on earth did you get the idea the US would even contemplate "turn(ing) off the flow of dollars to the world..."?

I think we have a reasonable probability of a couple of years of mild global deflation (higher structural unemployment, insolvencies, slow economic growth with record sovereign debt acting as a drag on investment and output, the potential for a persistently overvalued US$) before we have to worry about inflation (primarily from supply destruction and de-globalization running head on into accelerating regional growth in Asia, accompanied by a shift in flows out of the $ as the safe haven trade fades). The market will, of course, price in the pending inflation in advance.

You want an argument for inflation.....
I can look at my monthly payments from now VS 2010
They are higher. I do not need any other evidence.
Have your monthly bills and costs gone down?
So what if the dollar strengthens vs other currencies while finished stuff costs more.
Most Americans are getting poorer...You can save all the bankrupt zombie companies you want. Won't help if the average person doesn't have disposable income.

[jk]

Re: Let's talk about the gold market

i know i've said this before, many times, but i'll repeat it:
when discussing inflation we MUST distinguish between value vs other fiat currencies and value vs "stuff" - goods and services.

also finster is right to distinguish prices in dollars from e.g. prices in gold, but i earn my living in dollars and pay my bills in dollars. i expect that will remain the case for many years, probably the rest of my life. i say this because there is no global ready alternative to the dollar except hugely revalued gold, and the political system and banking systems are far from prepared to accept this alternative. also gold is not great as a medium of exchange since its supply is so inelastic while many prices, especially wages, are so inelastic. i think the usd may lose its global pre-eminence but i've long said i think the world will break into 3 currency zones, and i live in the one which will still use the dollar.

in recent developments groceries have certainly gotten more expensive during the pandemic - not a surprise given stresses on the distribution system. meanwhile i read about dairies dumping milk and crops rotting in the field because of problems in the distribution system, including mismatches between underutilized systems geared for bulk buyers like restaurants, vs bottlenecks in distribution systems aimed at consumers, combined with panic hoarding.

this last is emblematic of the supply chain reformation which will contribute to driving prices higher once we get past 1-3 years of [fiat] deflation.

as to your observation, llanlad2, certainly nominal everyday expenses in the dollar world i inhabit have been rising all my life. but it's hard for me to evaluate changes in the cost of infrequent, large purchases - autos most notably are nominally much more expensive than 10 or 20 years ago but they are quite different in their safety, comfort and convenience features as well as their mileage and other technologies. housing is more costly [but houses have steadily grown in size and amenities], water heaters, furnaces, and so on. simultaneously, no one can doubt that electronics prices have been declining steadily - how many people buy a purpose-built camera these days?. then, of course, we have to include the price of services even as the nature of those services change - utility bills, subscriptions of all kinds including streaming services, stock transaction commissions, access to encyclopedic knowledge, navigation services, communications in general- the cost of "mailing" something, 21st century "teletype," voice calls, video calls. heaven knows what's happening at the moment or will happen in the future, but the cost of airfare has declined enormously.

but it's everyday expenses we pay every day, and which hit us the hardest and most directly.

[GRG55]

Re: Let's talk about the gold market

You want an argument for inflation.....
I can look at my monthly payments from now VS 2010
They are higher. I do not need any other evidence.
Have your monthly bills and costs gone down?...

In the last three months, dramatically.

We spend less on fuel - less driving during lockdown combined with a much lower gasoline cost
We spend less on meals - somewhat (and temporary) higher costs at the supermarket are much more than offset by the fact we haven't been in a restaurant, not even a pizzaria, since early March.
We spend less on travel - haven't been on a commercial airplane or stayed in a hotel since early February
We spend less on entertainment - no concerts, no live theater, no movie theaters, no professional sports, etc.
And on it goes, despite the fact my national currency has declined a further ~7% against the US$ since Jan 1 and Canada now imports damn near everything it consumes from the USA, Mexico and China.

This deflationary global impulse is significant. And it seems likely to affect economies for a few years to come. The swing to an inflationary bias will take a rebuilding of private and corporate balance sheets and incomes, combined with a stripping out of productive capacity on the supply side (from the reduction in capital investment during the balance sheet repair).

So what if the dollar strengthens vs other currencies while finished stuff costs more.
Most Americans are getting poorer...You can save all the bankrupt zombie companies you want. Won't help if the average person doesn't have disposable income.

As the government support programs are exhausted this will be The*Big*Issue - loss of income, compression of income through salary reductions and loss of work hours, ongoing income insecurity.

Right now the world is awash in too much productive capacity for just about everything - cement, steel, copper, timber, oil, milk, downtown condo apartments, Fords & Teslas, you name it. As jk points out in his post even the rising prices at the supermarket are not due to a shortage of food or a lack of food production. At the same time milk at your local retail food store is increasing in price the excess is being dumped. COVID induced sudden consumption pattern changes, temporary hoarding, the lag time to adjust supply and distribution systems are all factors that came into play.

If you think that populations becoming poorer and a lack of disposable income supports an inflationary outcome, so be it. I'll continue to respectfully disagree.

[shiny!]

Re: Let's talk about the gold market

i know i've said this before, many times, but i'll repeat it:
when discussing inflation we MUST distinguish between value vs other fiat currencies and value vs "stuff" - goods and services.

When discussing inflation and deflation, this point can't be stressed enough. In order to have a discussion about an issue, everyone first must agree on what the words mean. If to some people the word "inflation" means rising cost of goods, and to others it means devaluation of the currency against something else (gold perhaps), chaos will ensue ;-) Better IMO to be more specific, e.g. when talking about rising costs of goods, call it rising costs of goods. When talking about depreciation of the currency, call it that. If everyone gets their terms straight there's actually more agreement than disagreement here. Or at least when there's disagreement it's not from misunderstandings.

[jk]

Re: Let's talk about the gold market

However, as 2020 unfolds, if this virus induced economic crisis morphs from just another liquidity event (like 2008) into an almost certain solvency crisis spreading from one country to another around the world, it will be increasingly difficult to prevent a spike higher in the US$. It may also become increasingly difficult to avoid some sort of capital controls in the overindebted nations of southern Europe - even though they share the same currency as their northern cousins.

the u.s. economy has been on life support for the last 2 months. but the fed has recently been tapering its purchases. when congress fails to pass another several trillion in bail-outs/helicopter money/state and local gov't support/whatever, and the fed's purchases dwindle enough, the ventilator tube will be pulled and we'll get to see if the u.s. economy can breathe on its own. it won't be pretty.

with the s&p at 3000 the fed won't pump much. it will take another swoon for them to intervene again. same story for this congress - it can't act except under the pressure of an emergency.

[GRG55]

Re: Let's talk about the gold market

the u.s. economy has been on life support for the last 2 months. but the fed has recently been tapering its purchases. when congress fails to pass another several trillion in bail-outs/helicopter money/state and local gov't support/whatever, and the fed's purchases dwindle enough, the ventilator tube will be pulled and we'll get to see if the u.s. economy can breathe on its own. it won't be pretty.

with the s&p at 3000 the fed won't pump much. it will take another swoon for them to intervene again. same story for this congress - it can't act except under the pressure of an emergency. [/COLOR]

Right now the US$ is weakening on the expectation the global economy is about to recover from the virus lockdown. Who needs the safe-haven US$ when things are improving.

These things take time time to play out I've learned. The hard way, LOL. The really hard way.
So I am expecting a tug-of-war between the fear mongering of a 2nd wave vs the euphoria of a pent up demand rebound.
Once we get past that over the next few months maybe some semblance of fundamentals will reassert.

They might hold it together until until the election.

[shiny!]

Re: Let's talk about the gold market

Right now the US$ is weakening on the expectation the global economy is about to recover from the virus lockdown. Who needs the safe-haven US$ when things are improving.

These things take time time to play out I've learned. The hard way, LOL. The really hard way.
So I am expecting a tug-of-war between the fear mongering of a 2nd wave vs the euphoria of a pent up demand rebound.
Once we get past that over the next few months maybe some semblance of fundamentals will reassert.

They might hold it together until until the election.

They have kept the game going far longer than I ever expected they could.

Why would any politician run for national office now? I understand it's been a lucrative gig up till now, but don't they realize the destruction they have wrought? Anyone running for president now is fighting to be the next captain of the Titanic.

[llanlad2]

Re: Let's talk about the gold market

In the last three months, dramatically.

We spend less on fuel - less driving during lockdown combined with a much lower gasoline cost
We spend less on meals - somewhat (and temporary) higher costs at the supermarket are much more than offset by the fact we haven't been in a restaurant, not even a pizzaria, since early March.
We spend less on travel - haven't been on a commercial airplane or stayed in a hotel since early February
We spend less on entertainment - no concerts, no live theater, no movie theaters, no professional sports, etc.
And on it goes, despite the fact my national currency has declined a further ~7% against the US$ since Jan 1 and Canada now imports damn near everything it consumes from the USA, Mexico and China.
Well how much one spends isn't quite the same as how much things cost....If someone loses his job and he spends less would he celebrate his "bills and costs" going down for example?

This deflationary global impulse is significant. And it seems likely to affect economies for a few years to come. The swing to an inflationary bias will take a rebuilding of private and corporate balance sheets and incomes, combined with a stripping out of productive capacity on the supply side (from the reduction in capital investment during the balance sheet repair

This is where we disagree. I think this is going to be very soon. Yes, there is a massive deflationary impulse which is being countered by massive stimulus. It's a political economy. The timing is political.
As the government support programs are exhausted this will be The*Big*Issue - loss of income, compression of income through salary reductions and loss of work hours, ongoing income insecurity.

Politically this stimulus is difficult to turn off. With unrest on streets the US Fed and Govt are not going to be making people poorer any time soon. This stimulus allied with supply destruction (firms are laying off thousands) is going to be be stagflationary as sellers will have less competition but laid off workers still have income in the short term.

Right now the world is awash in too much productive capacity for just about everything - cement, steel, copper, timber, oil, milk, downtown condo apartments, Fords & Teslas, you name it. As jk points out in his post even the rising prices at the supermarket are not due to a shortage of food or a lack of food production. At the same time milk at your local retail food store is increasing in price the excess is being dumped. COVID induced sudden consumption pattern changes, temporary hoarding, the lag time to adjust supply and distribution systems are all factors that came into play.

If you think that populations becoming poorer and a lack of disposable income supports an inflationary outcome, so be it. I'll continue to respectfully disagree.

It's the government and central banks response that determines the type of outcome. Faced with deflation they always choose inflation. Why will it be different this time?

the u.s. economy has been on life support for the last 2 months. but the fed has recently been tapering its purchases. when congress fails to pass another several trillion in bail-outs/helicopter money/state and local gov't support/whatever, and the fed's purchases dwindle enough, the ventilator tube will be pulled and we'll get to see if the u.s. economy can breathe on its own. it won't be pretty.

with the s&p at 3000 the fed won't pump much. it will take another swoon for them to intervene again. same story for this congress - it can't act except under the pressure of an emergency.


They will step in. They are going to blow the final bubble. Shorting this market is like shorting Tesla. It will pop when they raise interest rates and I think it's possible we see new HIGHS and LOWS in that order before the year is out. If this plays out then that will be Ka before a real investment led recovery allied with a weakening dollar. [/COLOR]

[jk]

Re: Let's talk about the gold market

They might hold it together until until the election.

i doubt it holds together til november. some places never really locked down, and their illness count is rising, just on a lower base because of lower and less dense population.

in places that are opening up now people will initially be fairly careful, but by mid-july precautions will be much more casual, if observed at all. mid august to early september the cases start rising again, slowly at first. sept-oct we'll be seeing the need to lock down all over again.

that's what my crystal ball says, anyway.

[shiny!]

Re: Let's talk about the gold market

Again, I'm relying on Roy Sebag, but he would suggest that cash settlement isn't an option (yet). From a few days ago:

1/2 I’ve received some important information relating to what’s going on in Gold markets. Today, some banks failed to deliver physical in the comex bar EFP. As a result, these banks suffered large losses which will soon be announced. They’ve also decided to exit the comex market.
— Roy Sebag (@roysebag) March 24, 2020

2/2 Now there remains a big shortage in physical in the comex denomination so rumors are the Comex will announce a force majeure and allow banks to deliver LBMA bars instead. This should be announced imminently.
— Roy Sebag (@roysebag) March 24, 2020

And then he tweeted this out the following day:

The CME PR is out. Two important facts have been withheld: 1)Which banks were short $16B more physical than in CME vaults and required a bail out? 2) How will LBMA metal in London be used to settle delivery in NY during Covid shut-down? Another sad day for "free" markets.
— Roy Sebag (@roysebag) March 25, 2020

https://twitter.com/dimit/status/1268526469149573121

Comex, "Force Majeure" in play. Futures contracts now ~60% physical backed. Represents ~4X Annum USA gold production (~30% World). All in the open.

[jk]

Re: Let's talk about the gold market

and here i thought the comex gold market was a commodities market.