Gold Crosses $1,800, Better Hold On From Here!

July 8, 2020

* Currencies didn’t rally or get sold later yesterday… 

* You do know that the Bill of Rights are not just recommendations? 

Good day… And a Wonderful Wednesday to you! We’re not even into the dog days of summer, and I can already feel the slowdown in energy each day… I had a nurse ask me last week how my energy level was, if I got out and did stuff… I told her, that 45 minutes per leg each day on the leg pumps, and 3 hours a day with my feet at hip level, and a cat nap, doesn’t leave me a lot of time to “get out and do stuff”… She laughed, and said, “ I guess you’re right”! I loved it! I was told I was right! Do you know how many times even here at home that I’m told I’m wrong? That made my day, along with the fact that I didn’t have to return to the wound center! Just a friendly Spiderman reminder that there will be no Pfennig tomorrow. I get to go see my oncologist… The Guess Who greet me this morning with their rock classic song: These Eyes…. Watched you bring my world to an end… Very appropriate wording, eh?

Well, the currencies didn’t rally during the day like they have been lately, and they didn’t get sold during the overnight session either, so the trend has come to an end…. I didn’t like the trend any way…. So, the dollar bugs fought back yesterday, and gained some ground for the dollar…. But that sure wasn’t what happened with Gold…. The dollar lost $10 to Gold, as it closed at $1,795… I don’t really consider myself a Gold Bug, but I do believe that if you do NOT own Gold at this point, you had better figure out a way to buy some, because from $1,800 I believe Gold will leap from to $2,000, in the blink of an eye…. I could be wrong, but if inflation is in our future,( more on that in a couple of minutes) with debt up to the country’s eyeballs and the economy in shambles, I just don’t see how Gold won’t move upward from here…

And in the early morning trading today, Gold has moved past $1,800, so strap yourself in, and keep your arms and legs inside at all times, this ride is going to go from zero to 60 in a flash…. Here we go! 

Did you know that since 1999, the Dow is down 66% VS Gold? I read that yesterday, and about fell out of my chair! Well, I don’t see Gold stopped there either! So, either you need to buy your first ounces of Gold, or you need to buy more for your portfolio I would suggest that you get off your collective duffs and get to it!

In my daily perusal of Twitter, I came across a couple of Tweets that caught my attention, and should catch yours too, I believe…. First up is Danielle Di Martino Booth and her Twitter feed said, “Via DB’s Reid “This is only 10th time that YoY money supply growth has gone above 20% in the US. On all previous occasions nominal GDP soon moved comfortably into double digits, mostly through inflation” Are we, in theory & grounded in historic precedent, prepared for inflation?”

And then this from Sven Heinrich who had this to say on his Twitter feed: “Screw sanitized Fed minutes. Fed meetings should be on public live feed. The public has a right to know as this privately owned organization controls so much of their economic lives.”

And that ends today’s walk through Twitter….

I do want to touch on something that was in Danielle Di Martino’s Tweet…. That Money Supply is over 20%, and that the only times in the past that it has reached 20%, we had had soaring inflation…. Look, as opposed to the Paul Volcker years, when he crushed inflation, these Fed Heads want and need inflation badly… And the thing that gets me is that they actually think that they can stop inflation at 2%…. I’ll bet you a shiny quarter that they can’t…. I’m just saying…

You may ask, “why does the Fed need inflation?” Well, obviously you haven’t been in class in the past when I explained this, so here goes…. Inflation brings about higher GDP…. It also helps to pay off debts, which is what their main goal is all about…. There’s some research out there that counters the age old rhetoric of low inflation and low interest rates, spur consumer spending… Their research shows that when inflation is rising, consumers get out their check books and plastic cards and get to spending!

Another thing I want to talk about today is debt…. Yes, I’ve been the boy crying wolf about debt for over 20 years, but I think given what we have today, with no economic growth, that the chickens have come home to roost on that subject….

And then there’s also this…. Recall how I’ve blasted the Fed over and over again, ever since the Greenspan put, that the Fed doesn’t allow the economic cycle to run its normal course, and to have a recession where all the excesses get cleared out, bad corporations fails, and new corporations take their place for the next upward movement in GDP…. So, if there’s never a period where the economic cycle starts over, how can it ever get moving upward again? That’s my position on this, and you won’t change my mind! The Fed is at fault for just about everything that’s wrong with the economy, with some major boosts from Congress who continues to deficit spend as if it’s the cool thing to do…

Of course it took a pandemic and economic lockdown to finally have a recession, and now we will be able to eventually move forward and upward again, but then there’s always that debt thing dragging us down… You can’t win for losing in this environment folks… 

You know how people will give up their civil rights in a heart beat? Think back to the Patriot Act? And then the stay at home, economic lockdown… We all listened, (well mostly ) and may jobs were lost, many lives were lost during the lockdown, I believe in social distancing, I believe in wearing a mask in public, but I don’t believe the Gov’t should have told us to stay at home, not go to work, and closed down the businesses….

Speaking of losing their jobs…. On Tuesday this week, it was reported that there were 5.4 Million Job Openings…. Now that’s all fine and good, except…. That there are still 25 Million people looking for a job! See? The math doesn’t work, and just like I told you when the lockdown began, a lot of companies aren’t going to be coming back, and if they do, they won’t be at the employment levels they were previous to the pandemic. I read yesterday that the iconic clothier Brooks Brothers, who outfitted several presidents over the years, got themselves into deep debt, and have no way out, but to file bankruptcy…. Another one bites the dust….

And this just in, this morning, it’s being reported that the operating company that owns Ann Taylor, will file for bankruptcy…  Who’s next? 

The U.S. Data Cupboard continue to lack anything that would move markets, and today’s flavor of a 2nd tier report, will be Consumer Credit (read debt) for May… And it won’t be reported until this afternoon, so the morning trading is all open for Trader Sentiment to take it somewhere… 

Tomorrow’s Data Cupboard has the usual Tub Thumpin’ Thursday fare, and that’s the Weekly Initial Jobless Claims.  Did you know that there are still 1.50 -ish Million claims being filed weekly? Yes, the weeks were 6 Million claims were filed, but still… 1.5-ish Million?  That’s each and every week folks…. There’s no V for the recession / economy, and if anything we might see a W… 

And in the next downward move for the economy, and stocks, we’re going to see even larger money printing numbers…. With each downturn, the money printing numbers grow higher than the previous downturn…  I know the Fed thinks they are doing the right thing, here…. But, in my mind, I don’t see how the financial system can deal with more Trillions all at once… 

And here’s another thing that crossed my mind yesterday reading about Trillions of dollars being used for this, that and the other things…  Think back to 2007-08, and that financial meltdown, the Trillions number wasn’t used… Remember TARP? $750 Billion…  But this time we broke out the Trillions numbers, and what will be for the next downturn? 

Before we head to the Big Finish today: Well, The devil may have gone down to Georgia, but an angel went to heaven… I was so saddened to hear that one my all time favorite musicians, Charlie Daniels, had died…. Just as a tribute to him, I played the Saddle Tramp album last night, every song… R.I.P. Charlie Daniels…. You made my life richer… 

To recap… The currencies didn’t rally during the day, and they also didn’t get sold overnight, so it was a nothing day all around for the currencies. Gold on the other hand gained $10 on the day, and in the early trading this morning it has crossed over the $1,800 level…  Chuck thinks you had better keep your arms and legs in for this ride…  And Chuck goes on to talk about Civil Liberties… Did you know that the Bill of Rights is not just recommendations? I’m just saying…

For What It’s Worth…. Thanks to the good folks at GATA for sending me this link to this article, about a coming crisis at the COMEX…. It’s written by Alasdair Macleod, and it can be found here:

Or, here’s your snippet: “We are all used to the bullion banks covering their shorts on Comex by waiting until the speculators are over-bullish and vulnerable to mark-downs that trigger their stops. Algorithmic traders go from long to short in a heartbeat as well, and they dump contracts into a falling market, speeding up the decline. We should say at this juncture that the Managed Money speculators are short-term, attracted by futures leverage, and their gold position is often part of a wider risk strategy deployed by hedge funds. They do not intend to stand for delivery. The wider investment world taking strategic portfolio decisions does not often get involved with gold, so the Comex gold contract has been a secular play.

In the non-speculative category, the bullion banks (Swaps) had 56% of the shorts and the Producer/Merchants 44%. Mark-to-market value of the Swaps net short position was $25bn. Of the speculative longs, the managed money category (hedge funds) held 69%, and at 296,106 long contracts it was almost a record. There was a high level of bullishness; easy pickings for the bullion banks, who by the following December drove the price down to $1120, reducing their net shorts to under 50,000 contracts.

It was a game that evolved out of Comex futures being used simply to offset long bullion positions at the LBMA. Over time, bullion bank traders increased their trading position limits, as opposed to their pure hedging activity, making easy money jobbing the other side of Managed Money trades.

Now look at the current situation, with the gold price at decade highs ($1775) and open interest at 561,628 (30 June).

Bullion banks are between a rock and a hard place. For years they’ve been playing the hedge funds as an angler hooks and plays a fish. That game has ceased and there is no easy way for them to get level. For the moment they are trying to put a lid on the price, but the cost has been rising open interest, and therefore rising mark-to-market positions.

The August active contract runs off the board at the end of this month and bullion banks are likely to be forced into large delivery volumes again. Furthermore, the exchange for delivery arbitrage facility between Comex and the LBMA is broken, allowing Comex premiums to London spot to go unchallenged.

It is increasingly possible the gold contract is evolving into deep crisis, and that force majeure might have to be declared if, as seems increasingly inevitable, a wider banking crisis ensues.”

Chuck again, yes, I know it’s a long one, but well worth it when you get to the end conclusion, that extrapolated, means the short sellers won’t be able to cover their shorts without HUGE losses… YIPPEE!!!!

Market Prices  for 7/8/20: American Style: A$ .6949, kiwi .6550, C$.7360, euro 1.1288, sterling 1.2557, Swiss $1.0626, European Style: rand 16.9871, krone 9.4631, SEK 9.2373, forint 314.89,  zloty 3.9641,   koruna 23.7005, RUB 71.63, yen 107.51, sing 1.3947, HKD 7.7498, INR 74.78, China 7.0154, peso 22.70, BRL 5.3563,  Dollar Index 96.90,  Oil $40.65,   10-year .65%, Silver $18.50, Platinum $840.99, Palladium $1,942.42, and Gold… $1,803.88

That’s it for today, and this week…  I realized something as I was writing this morning, regarding my energy levels… It’s been 3 months on the new chemo cocktail I take each night, the accumulation effects are beginning to work on me… So… I have that going for me! Aren’t I lucky? They used to joke on the trade desk that I was Mr. Lucky…  Well, my beloved Cardinals were back on the field to work out yesterday, after having their workout cancelled on Monday because of a delay in Test results…  This is the new norm? I sometimes think, why didn’t they just wait until next spring? But I would miss the game too much…  OK… onto the oncologist tomorrow, just an opportunity for the doc to get to see me! HA!  OK, here’s a treat for good friend Rick B., The group A-ha takes us to the finish line today with their song: Take Me On…    I hope you have a Wonderful Wednesday, and rest of the week, and please Be Good To Yourself!

Chuck Butler