News Note: Jim Rickards on Gold Soaring to All Time US Dollar High Over $1921 - Ray Dalio on US Dollar

This is a news note due to events unfolding this Sunday evening. At the time of this writing, gold has clearly gone well above the old all time high price in US dollars at around $1921. Right now, spot gold is quoted on Kitco just above $1930 per ounce.

Earlier today, Ray Dalio issued comments on Fox Business  about his concerns over how all these current events may impact the US dollar and economic stability. He specifically expressed concerns about the "soundness of our money" (see excerpt below).

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"The biggest issue Dalio is worried about is "the soundness of our money."

"You can't continue to run deficits, sell debt or print money rather than be productive and sustain that over a period of time," Dalio said."

Go To Fox Business to find the full comments by Ray Dalio
(note- Fox Business does not permit direct links to articles - search for Ray Dalio)

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My added comments: Obviously, we have a lot of potential stressors going on in various markets alongside a pandemic, the economic fallout from a pandemic and now also geopolitical tension. It pretty much goes without saying that readers need to monitor events closely with all this going on at the same time. I quickly asked Jim Rickards if he would like to offer some thoughts on the events we are seeing tonight. He kindly replied with the email comment below for readers here:

"This new price spike emerged in Asian trading on July 27 before London or New York had opened. Given the deteriorating state of U.S.-China relations and the potential resort to financial warfare, including the possible seizure of China's Treasury note holdings as compensation for victims of China's criminally negligent handling of the initial outbreak, it could well be the case that China and its people are flocking to gold as an alternative to dollar-denominated holdings such as Treasuries."  - James Rickards    (7-26-2020 10:30 pm cst.)


Added note on Jim Rickards - Jim has a new book coming out in October with an update on his most recent analysis as to where he sees things headed. Pretty sure this will be another best seller.

Kitco News - Gold Price Makes History, Analysts Still Looking for More

Below is the Kitco quote at 10:18 pm central standard time. Silver also sharply higher.

Metals	Date	Time (EST)	Bid	Ask	Change		Low	High
GOLD	07/26/2020	23:18	1937.10	1938.10	+35.80	+1.88%	1899.60	1942.60
SILVER	07/26/2020	23:18	24.09	24.19	+1.38	+6.08%	22.66	24.29

Added note 7-28-2020: Goldman Sachs Says Gold Spike Puts Dollar's Reserve Status in Question (thehill.com) - excerpt below:

"A record high price for gold, known as the currency of last resort, is raising questions about the U.S. dollar's future as the world's reserve currency, according to a Goldman Sachs research note published Tuesday."

Jim Rickards -- "The US Dollar Has Already Collapsed"

With all the monetary stimulus now in play, debates are breaking out everywhere as to what this will mean for the future of the US dollar versus other currencies and gold. In this recent discussion on Incrementum on these issues, Jim  Rickards says the US dollar has already collapsed. He adds that the US is currently in a depression and not a recession. So this discussion may be of interest to readers here. Below is an excerpt related to Jim's comment on the dollar. I added the underlines for emphasis.

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Jesse Felder:   "At some point almost anything could look better than dollars."

Jim Rickards:     "I'll give you an answer, Jesse, and this will actually prove your point. The inflation is already here and the dollar has already collapsed, but no one knows where to look. And you look at gold; you have to stop thinking about gold as a commodity, and start thinking of it as a form of money. The cross-exchange rate between dollar and gold – the dollar has already collapsed and the inflation is already here. But it's in gold, and gold is the best and longest-horizon leading indicator of just about everything. 

People say that the stock markets look forward and discount to the present value - that's fundamental analysis. I get it, but stock markets usually get it wrong. If you get the forecasts wrong, you're going to get discounting wrong. The stock market did not see the 2008 crash; did not see the 2020 crash; they're not going to see the next crash. They try - I give them credit - they try, but they do a really, really lousy job. But the one cross rate that does a really good job - in fact it looks so far ahead that people don't even pay attention to what it's saying - is gold. So, your inflation and your collapse have already happened, but they've happened in the gold space - that's your metric."


Jesse Felder: "I agree with all of that; I think the only thing that I disagree with is that I don't think the Fed can monetize the debt indefinitely, or infinitely, without it affecting the currency."


Jim Rickards: "I agree with infinitely, but it could be a long time between here and there."

Please click here to read the full discussion on this topic for proper context

Click here for a visual chart of the dollar index vs. gold since 2001

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Added related news note: Ex IMF Official - Is US Dollar at Risk of Sudden Collapse? (SCMP.com)

Gold and Silver Markets Reflect Significant Surge in Demand - Some Reasons Why

While this blog is not investment related and does not claim any special expertise in precious metals, we do monitor these markets because they tend signal when there is a general feeling of uncertainty about economic conditions. Lately, both gold and silver have moved up more sharply in price. Silver has also now begun to "catch up" with gold as reflected in the sharply falling gold to silver ratio.

Rather than try to provide any in depth analysis, we will just list some bullet points below as potential reasons we have seen offered for the recent strong moves higher. Following that are a few links to recent articles noting what is going in these markets.

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- fundamental demand  vs. supply issues - falling supply due to mine closures during the pandemic at the same time as global demand picked up for physical gold and silver

- general uncertainty surrounding the impact of the virus pandemic on the stability of the economy and financial system

- a general perception by investors that the increased monetary stimulus from global central banks in response to the virus pandemic will tend to devalue fiat currencies (the US dollar is certainly reflecting that lately). 

- the markets anticipating possible future inflation because of all the money creation

- possible tightness and/or stress in the Comex futures exchange for both gold and silver that is demanded for physical delivery. Again, reflecting tight supply vs. demand.

- a surge in retail demand for gold and silver coins that is drawing in a broader group of buyers than is the norm for these markets. See video below asking if millennials have "discovered" gold and silver.

-an increasing number of investment advisers recommending clients allocate %5 or more to gold and silver in their portfolios. As noted below, Ray Dalio was advising this a year ago. Of course, Jim Rickards who we have covered here quite a bit, has long advised a 10% allocation to precious metals.

- low real interest rates (or negative real interest rates) make gold more appealing

- some central banks around the world continue to add physical gold to their reserves

Here are a few articles and videos that talk about various aspects of what experts in these markets are seeing in these markets:

Big Surge in New Retail Buyers (King World News)

Gold/Silver Ratio Key as Markets Surge Higher (Kitco)

Citi Analyst Tom Fitzpatrick Technical Chart Analysis and Price Target on Silver (King World News)

Are Millennials Discovering Gold and Silver?  (Kitco)

More Technical Analysis on Silver  (321 Gold)

Ray Dalio Says Gold a Key Investment for Upcoming Paradigm Shift ( a year ago- CNBC)

Technical Analysis on Gold (Clive Maund)

Gold vs. Major Currencies the last 6 months

At the time of the writing of this article, spot silver is $22.51. Here is a sample of what various dealers want for a one ounce silver eagle at this same point in time. Not much available under $30. This suggests there is still a market imbalance in demand for silver eagles vs. available supply as this is a much higher premium over silver for these coins than we usually see in more normal circumstances.

JM Bullion 

SD Bullion

Provident Metals

Money Metals

Apmex

Ebay listings

Added note: Coming in the next few weeks will be an interview I did with my own daughter who is 25 years old on what she thinks about money and some monetary systems issues. She provides an interesting sample of opinion and some of her comments echo what I see quite often from millennials. After the interview article, I will post a followup article based on her comments on the issues involved. The goal of that article is to try to ask some thought provoking questions about concerns millennials have for the future. I did run this interview by some experts who told me that the interview answers were interesting and provide some useful insight into current thinking in that age group.

BIS Innovation Hubs to Expand in Europe and North America

We have reported on central bank efforts to study innovations such as central bank digital currencies for some time. We have noted that movement by central banks tends to be very gradual and that most are very reluctant to make major changes very quickly. 

This trend continues, but we do see more efforts by central bank friendly organizations such as the OMFIF and the Bank for International Settlements to try and spur some innovation in fintech. Below are some excerpts from a recent new BIS announcement that it will open new innovation hubs in Europe and North America. I added underline below for added emphasis.

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"The Board of the Bank for International Settlements (BIS) today announced the expansion of the BIS Innovation Hub with the establishment of new Hub centres across Europe and in North America in cooperation with member central banks.

In the next two years, the BIS will open centres in collaboration with the Bank of Canada (Toronto), the Bank of England (London), the European Central Bank/Eurosystem (Frankfurt and Paris) and four Nordic central banks (Danmarks Nationalbank, the Central Bank of Iceland, the Central Bank of Norway and Sveriges Riksbank) in Stockholm. The BIS will also form a strategic partnership with the Federal Reserve System (New York)."


Statement From BIS General Manager Agustin Carstens:

"The BIS Innovation Hub is an investment in the future of central banking and the financial system. These new centres will expand our reach significantly and help create a global force for fintech innovation."

Click here to find the press release

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Added note: The BIS also releases its 2020 Annual Report which you can find here. The report this year recaps the massive central bank efforts around the world to respond to the economic slow down caused by the COVID-19 pandemic. The question going forward is what will be the longer term impact of the massive liquidity injections on systemic stability. This topic will be hotly debated in the coming months and years.

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Meanwhile ---

Unrelated news note: This news came out yesterday on King World News which covers the precious metals markets. Eric Sprott, a well known as a major precious metals investor, has apparently filed notice that he intends to acquire $1.5 Billion worth of physical silver. If so, this comes when there is already a tight market for actual physical silver. It is unlikely that he could source this much silver very quickly even if he is willing to pay somewhat higher prices for it. Mr. Sprott did mention his intention to acquire physical silver in one of his recent weekly podcasts, but did not indicate the amount. This filing will probably allow him to buy the silver over time and may put a demand floor under the silver market until he completes this purchase, assuming he raises the full $1.5 Billion. This agreement I found dated back in 2018 which sounds similar covered a 25 month time frame. So, this is a market you should keep an eye on to see if his physical silver buying increases demand enough to move the silver price higher in the weeks and months ahead. Update: Here is the new filing which confirms the time period will cover the next 25 months as was the case with the previous filing. This appears to be a time extension from the prior filing allowing the trust to buy up to $1.5 Billion in physical silver over that time frame.

OMFIF - Update on Central Bank Digital Currencies

New OMFIF update is posted below

        Updates on efforts to implement central bank digital currencies are discussed

DIGITAL UPDATE

Podcast: CBDC is a public good, not a private business case  Wolfram Seidemann, chief executive officer of G+D Currency Technology, joins David Marsh, chairman of OMFIF, to discuss how central bank digital currency has gained traction among public and private sector institutions and if Covid-19 is a motivating factor for central banks to adopt digital currency. They also discuss the state of blockchain technology, privacy concerns and the benefits CBDC may offer to society during the pandemic. Listen to the recording, or search 'OMFIF' on your smartphone's podcast app. Commentary: Cambodia edges towards digital payments By Bhavin Patel in London Serey Chea, director general of the National Bank of Cambodia, talks to Bhavin Patel, senior economist and head of fintech research at OMFIF, about the country's soon-to-launch mobile payments platform, Bakong. With this new system, the NBC hopes to improve financial inclusion and promote the use of Cambodia's local currency over the dollar. Read the full commentary.  Meeting: Bank of Thailand’s wholesale CBDC London, Europe Wed 22 Jul 2020 10:00 - 11:00 Virtual roundtable with Kasidit Tansanguan, Sarun Youngnoi and Vijak Sethaput, Bank of Thailand Leaders of Bank of Thailand’s Project Inthanon discuss how distributed ledger technology could enhance the country’s financial infrastructure and pave the way to a decentralised real-time gross settlement system using a wholesale central bank digital currency. Register your interest to attend.

What Went Wrong in 1971 Authors Say This Explains Wealth Inequality

Income and wealth inequality has become a huge issue in the United States. There is no doubt that this issue will be a factor in the upcoming US elections. Most everyone agrees that a gap exists and that the middle class has been under pressure for some time. The debate centers around what conditions have led to the gap and what are the best policies to try and reduce the gap.

Recently, the authors of a new theory on this issue did an interview with Jan Nieuwenhuijs of Voima. They argue that events you can trace back to 1971 have had a major impact on our monetary system and have greatly contributed to the wealth gap the most everyone agrees exists today. Does their theory have merit? Readers can assess that for themselves by reviewing this interview. Below are some excerpts.

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Jan: "The “Nixon Shock”—as the unilateral suspension of Bretton Woods is often referred to—brought about a sea of change in economies and societies around the world, because from that moment on all national currencies stopped having an anchor. Fiat currencies could be created boundlessly. To get an understanding of the changes since 1971, I decided to interview the gentlemen behind the website “What Happened in 1971?”

. . . .

"Jan: What do you say are the most significant developments that have occurred since 1971.

Collin: Monetary expansion—but we get a lot of criticism on this. People say, “oh you're not taking into account many of the regulatory changes, or the socio-cultural changes that happened around that same time period, that caused some of these second and third order effects that you attribute to this one 1971 data point.” If you were to sit down and talk with us, we'd tell you that the story goes back much further. We would trace it back to 1944 and 1933, and we would look at the Great Depression in America in 1929. We'd look at the creation of the Federal Reserve in 1913, and then ideally, we'd go all the way back to the birth of fiat currencies in the United States before the U.S. was even a country. We'd look at the early fiat experiments, we'd go back to the bi-metal standards, we'd look at the process of coin clipping under the feudal lords. The story obviously doesn't start in 1971, but certainly that's when there's an interesting inflection in the data that you can point to and say: “look what happened here, everything went crazy.”  

Please click here to read the full interview article on Voima

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My added comments: The issue of the the wealth gap is a major issue for millennials who are directly impacted by this phenomenon. The authors of "What Happened in 1971?" say they can explain what led to this problem. Their views are a legitimate contribution to this discussion, so we are happy to feature them here.

Added related news note: Reuters - Fed's $3 Trillion Virus Rescue Inflates Market Bubbles

South China Morning Post - US Coronavirus Stimulus Reignites China's Criticism of US Dollar

This article in the South China Morning Post once again outlines how the present monetary system is still very much US dollar based. The article notes that all the massive money creation of US dollars by the Federal Reserve is generating concerns within China about the future prospects for the US dollar. China is said to hold at least $2 Trillion in assets denominated in US dollars. 

However, the article also points once again that no viable alternative to the US dollar seems anywhere on the horizon. Below are a couple of excerpts with my added underlines for additional emphasis.

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"The US economic policy response to the coronavirus crisis and the threat of financial sanctions on China have reinvigorated criticism in Beijing over the US dollar hegemony, but few analysts see a viable alternative currency emerging any time soon.

Chinese officials have recently taken aim at the unprecedented coronavirus stimulus in the United States, which has seen American debt levels balloon and stoked concern in Beijing about the devaluation of the US dollar assets held by Chinese financial institutions."

. . . .

"China has long had an issue with the perceived “exorbitant privilege” of the US dollar, which is the bedrock of the global financial system and underpins the lion’s share of international trade and cross-border financial transactions."

. . . . 

"Though the attitude in Beijing may be increasingly wary, few Western economists believe Washington is abusing the power of the US dollar with its coronavirus response. Others point out the impact on exchange rates has so far been relatively mild."

. . . . 

“Given the US dollar shortage that emerged with Covid, a weaker dollar is still good for the world, relieving funding pressures in both developed markets and emerging markets,” said Steve Englander, global head of North America macro strategy at Standard Chartered Bank.

Reform of international monetary policy is likely to take a back seat to efforts to stabilise the global economy from the coronavirus pandemic. But even in the long-term, it is not clear what shape that would take.

“In fact, the Fed’s apparent magnanimity in allowing other countries to have access to dollar financing collateralised by their holdings of US Treasuries will pull countries even deeper into the clutches of the dollar,” Prasad said."

Please click here to read the full article on the South China Morning Post

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My added comments: My key takeaway from this article is that once again, while many people are unhappy with the present US dollar based monetary system, the current monetary system authorities don't see any thing on the immediate horizon likely to change the situation any time soon. Also, this article quotes Steve Englander (Standard Chartered Bank) as saying a weaker US dollar is a good thing and that Federal Reserve policy likely to result in a weaker dollar should be welcomed around the world. Lately, the US dollar index has been falling. Of course a US dollar systemic failure would change things at any time that were to happen.

News Note: Fox Business Article on the Upcoming 'Great Reset' Conference in 2021

Fox Business runs an article by Justin Haskins on the proposed Great Reset Summit to be held in Davos in 2021 by the World Economic Forum. We noted this upcoming event in an earlier blog article. Below are a couple of excerpts from the Fox Business article and then some added comments. (I added the underline for emphasis)

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"The economic, social and political chaos caused by the COVID-19 outbreak and Black Lives Matter protests have for months captured the attention of virtually every American — and for good reason. These are incredibly important issues worthy of significant and thoughtful debate.

But while most Americans have been preoccupied with protests and pandemics, a potentially bigger story has managed to slip beneath the radar: a growing movement among the world’s most powerful leaders to call for a “reset” of the entire global economy."

. . . . 

"In an article published on the World Economic Forum’s website, Klaus Schwab, the founder and executive chairman of WEF, wrote of the Great Reset, “Every country, from the United States to China, must participate, and every industry, from oil and gas to tech, must be transformed. In short, we need a ‘Great Reset’ of capitalism.”

Original article appeared on Fox Business on 6-25-2020

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Other links for further research on the The Great Reset 2021 

IMF Director Georgieva Explains How She Envisions The Great Reset

Mahmoud Jabari (World Economic Forum) on What the Great Reset Needs

World Economic Forum - The Great Reset as a response to COVID-19

Klaus Schwab (World Economic Forum) - Time for a Great Reset

Prince Charles says there is a "golden opportunity for a Great Reset"

Barrons - WEF Bills Davos 2021 As the 'Great Reset'

My added comments: Please note that the Fox Business article mentioned above describes this upcoming event next year as "a potentially bigger story" that "has managed to slip beneath the radar". This is why we covered this in our earlier blog article. Right now the major media and the world are mostly focused on other issues. But this is the very type of issue we watch for here on this blog. Here, we have by all accounts, (from both proponents and opponents) a proposal for a "Great Reset" of just about everything including the current monetary system. 

This has the potential to become a major event depending on the outcome of the upcoming elections in the US. As we said in our earlier article, a Trump election victory will likely mean very little US support for this proposal since it will focus on a more "globalist" approach while a Biden victory likely means the US would be much more supportive. Many of the generic proposals for this "Great Reset" are in line with the desires of the more progressive wing of the Democratic Party which we can expect will have substantial influence in a Biden Administration. For those wondering how a Biden Administration might look, this set of 'Great Rest' proposals may well provide a peek into what to expect.

It will be interesting to see if this surfaces as a major campaign issue in the upcoming US Presidential election. So far, it is mostly being completely ignored. This Fox Business article is the first I have seen on any major news outlet other than some articles basically announcing the summit will he held in Davos in 2021. 

If it does become an issue that is debated, it will be an interesting debate to follow. A number of questions come to my mind about this topic including:

- Do we really have a fully free market capitalist system now? (Ray Dalio says we don't) Currently, central banks including the Federal Reserve are massively intervening in all kinds of markets and this intervention results in winners and losers not determined solely by competition in the marketplace. What should we call a system like this? Did free market capitalism actually create wealth inequality or was it a perversion of true free market capitalism (governments and central banks implementing policies that created winners and losers)?

- Any such debate will likely be framed as a war between "Capitalism" and "Marxist Socialism" if it is debated at all. But right now, the US central bank is engaged in massive money creation policies in an effort to keep the present system from collapsing into a full blown major depression.  This is somewhat like the MMT that progressives have been calling for all along. They just want even more of it. So, again, exactly what is the present system as it exists at this time (and has for some time now)? 

-Almost everyone realizes that the present system is on an unsustainable path due to exploding debt burdens. The already massive debt obligations around the world are now rocketing even higher due to the global pandemic impact and the policy responses to it. So, when are we going to acknowledge this obvious fact and start to honestly discuss how all this will eventually get resolved? Can we really solve the eventual systemic stability problem by just creating any amount of unbacked currency we want and then insuring it is distributed equally? What kind of government intervention into markets (and bureaucracy) would be required to actually do this? How would that intervention impact citizens individual liberties and civil rights under the law? 

What if we do try that and it also fails because most people don't trust that the currency has any real value or they don't trust the authorities running the system to be politically unbiased and fair? No one anywhere has even asked that question as far as I know.

-Everyone in this debate is an an awkward position since no one will admit that the present system is unsustainable and that the creation of even more massive debt and/or money does not ultimately solve the problem. One side of this debate is currently engaged in a massive increase in debt and money creation. The other side just wants even bigger debt and money creation. So, will a debate on this topic (if we even get one) really be an honest debate based on reality, or just more political talking points designed to win an election and be in power? 

- Does anyone really believe either side has a realistic long term plan (beyond winning the upcoming election) to deal with the real underlying problems of excessive debt and the related potential debasement of currencies? How long will markets just continue to ignore the entire question of financial systemic stability? Months, years, decades?

These are immensely important questions that no one is likely to even ask or answer before the upcoming US elections. They are probably considered too complicated and too likely to upset or confuse potential voters. So most likely, no one will raise them during the campaign.

I don't have the answers, just the questions. But what this blog tries to do is monitor where all this is eventually going and also provide educational information to anyone interested in these issues from a variety of credible viewpoints. We have archived that kind of information in our Marketplace of Ideas for Monetary System Reform. The articles in this section are educational in nature and include Q&A style interviews with a number of experts on this topic from around the world. 

Some day, if the present system does fail, it might be useful to be aware of this kind of information. Current events suggest that systemic failure is more possible than ever no matter who wins the upcoming US election, even though neither political party is likely to acknowledge that fact or discuss it ahead of the election.
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Added note 7-3-2020: In this article, Ray Dalio raises some of the same issues raised above in our article here. He says we don't currently really have true free markets due to massive central bank intervention. This may be all the central banks can realistically do given all the current problems. But it is important when philosophical discussions and debates take place that "free markets" are not blamed for problems they did not cause and that an accurate full perspective is discussed. These are enormously important issues and a full and accurate discussion of all the pertinent facts is important when people try to decide what policies are best to pursue.

News Note: Gold Hits Highest Quaterly Closing Prince Since 2012

It appears our recent educational article on gold was pretty timely. Gold ends the second quarter of 2020 closing at its highest quarter ending price since 2012. You can look at its chart over that time period here. 

Below I have pasted in links to some articles noting the strong closing price for gold for this quarter. Interest in gold is obviously on the increase with the pandemic and the central bank response to the pandemic likely being a couple of the primary reasons for that interest. Gold can be an important indicator so it is always useful to keep an eye on how its price is trending in relation to major currencies.

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Gold Settles at 8 and 1/2 Year High

"Safe-haven demand and dovish central bank expectations have sparked fund buying of precious metals in recent months. Long gold positions in ETFs on Monday rose to a new record high of 3,199.12 MT (data since 2002). Also, long silver positions in ETFs rose to a new record high of 773.68 million ounces on Monday."

CNBC - Gold Sprints towards 8 Year High

“Bulls are delighted with what will almost certainly be a strong close, which provides the basis for a push to $1,800 in short order.” Gold, long considered a hedge against inflation and currency debasement, was headed for its third month of gains, driven by stimulus measures to support economies decimated by the pandemic."

Kitco News - Gold Prices Power to High

"Gold prices are sharply higher and hit an 8.5-year high Tuesday, on technical buying based on very bullish charts that got even more bullish today—suggesting still more (likely much more) upside price potential to come, including new record highs."

                                            

Jim Rickards Weighs in on the Gold Price Action

"Today’s price of $1,782 per ounce is the highest since 2012 and a 70% gain from the low of $1,050 per ounce at the end of the last bear market in December 2015." (editors note: Jim called the low in December 2015 as a bottom and the start of a new bull market for gold years ago).

US Mint 1 ounce Proof Gold Eagle (a collector version)

Here is the bullion coin - still nearly $100 over spot gold