"Everything you need to know about gold"
Kelsey Williams GOVERNMENT DEFAULT
In the world of “all things gold”, every event is viewed within the context of how it will affect gold prices – on the upside.
Earlier this year, it was bank failures. Before that and since then, the focus was/is on the Fed with regards to a possible reduction of interest rates.
Two years ago, it was Russia vs Ukraine. Last month, it was Hamas vs Israel (see Gold Price And Geopolitical Concerns).
GOLD PRICE AND GEOPOLITICAL CONCERNS
Investors and others often use the term geopolitical to describe investment risk arising from various conflicts between individual countries and, also, among nations in general on a worldwide basis.
TREASURY BONDS
There is an important Treasury Bonds update you should know of. There must have been poison gas inside the Treasury Bond price balloon. It appears that bond traders were overcome with it and lost consciousness while still at their desks with their fingers on the sell key.
We know there are buyers for all sellers, of course; but, at what price? Equilibrium in the bond market is like a fantasy mirage in the middle of a desert sandstorm – it is nowhere to be found. Here is the latest chart (source) for TLT, the 20+ Year Treasury Bond ETF…
The chart covers trading activity for the past two weeks beginning with Monday, September 25th, and ending with Friday, October 6th.
During those ten trading days, TLT losses totaled almost eight percent. For anything other than U.S. Treasury bonds, that might not seem so bad, but…
These are U.S. Treasury bonds. They are a long-term version of the same securities that are considered a standard for “risk-free” investments – U.S. Treasury bills.
Yes, we know that a longer maturity has more exposure to interest rate risk. Even allowing for an understanding of that risk, though, doesn’t provide much consolation when you watch a “safe”, AAA rated, income-oriented investment that promises to pay interest annually and all your money back at maturity, go up in smoke.
Let’s not forget the “full faith and credit of the United States government” behind those bonds. That should make anyone feel comfy and secure.
BLOODLETTING OR BLOOD-DRAINING?
It took four decades for the Federal Reserve to engineer interest rates downward to near zero from north of 15% on the very same U.S. Treasury bonds that currently yield 4.7%.
In order to return interest rates to something more historically normal (we’re not there yet), we have endured three years of money destruction.
The past two weeks have accelerated the bloodletting process and the patient may not get a transfusion.
CONCLUSION
In conclusion, this is the summary of the treasury bonds update. The drop in U.S. Treasury bonds continues. The percentage drop in Treasury bond prices since 2020 now totals more than 53 percent.
The effects are felt in all markets, including auto loans, mortgages, retail consumer credit, etc.
A credit collapse (think 2008) is a very real possibility and so is a washout in stocks. No one is immune. Just ask Silicon Valley Bank.
Things will get worse before they get better; a lot worse for a lot longer.
(also see Bond Market Tells The Real Story)
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!
GOLD CONTINUES DECLINE
Gold continued its downward path this past week and all but confirmed that lower prices are ahead. Below is a chart of price action dating back to the peak in 2020…
BOND MARKET TELLS REAL STORY
While everyone else twiddles their thumbs and waits for the next missive from the Federal Reserve, the bond market has spoken loudly and clearly about the near-term (and, possibly long-term) direction of interest rates.
SILVER NOT UNDERPRICED
Silver bulls have for decades made the argument that the white metal is underpriced relative to gold. Their enthusiasm is fueled by expectations for a return to the original fixed ratio of 16:1 in favor of gold.
Using the current gold price of $1925 oz., a return to the ratio of 16:1 would require a silver price of $120 oz. – right now.
The renewed danger of trade tariffs by various presidential candidates is a clear and present danger to free trade and the world economy.
In today’s globalized world, trade is the lifeblood of economies; connecting nations and fostering prosperity. However, there is a contentious tool that is often used in international trade relations: tariffs.
Tariffs are taxes imposed on imported goods, ostensibly to protect domestic industries or gain a competitive edge. They are sometimes recommended and promoted by those who think they have identified an “unfair advantage” existing between trade partners.
Even though politicians say otherwise, tariffs are guaranteed to produce net negative results that are much worse than any short-term theoretical benefits.
ECONOMIC DISRUPTION
The primary danger of trade tariffs is the economic disruption they can cause.
When tariffs are imposed, they disrupt the equilibrium. Domestic industries might benefit in the short term, but at what cost?
Since the prices of imported goods rise due to tariffs, consumers end up paying more for the things they want to buy.
Trade tariffs often trigger a chain reaction, leading to retaliatory measures from affected countries. Full-blown trade wars can result…
“America’s last major trade war happened after imposition of the 1930 Smoot-Hawley Tariff, which increased 900 import tariffs from 40-48%. It was supposed to support U.S. farmers whose land had been devastated by the Dust Bowl, but it resulted in higher food prices for Americans who were already crippled by the Great Depression.
America’s trade partners at the time hit back with their own tariffs and global trade fell by 65%, worsened the depression, and contributed to the beginning of World War II.
After Smoot-Hawley, the country suffered tremendously. The general public had little understanding of tariffs or trade agreements.” Tariffs And Trade Wars… by Anna Kucirkova
NEGATIVE IMPACT ON SMALL BUSINESS
Small businesses bear the brunt of trade tariffs. Without the resources to absorb the increased costs imposed by tariffs, They struggle to compete with larger companies that have more significant financial reserves.
Moreover, the uncertainty created by trade tariffs can deter small businesses from growing and expanding, stifling growth and harming the overall economy in the long run.
INEFFICIENT RESOURCE ALLOCATION
Trade tariffs can distort the allocation of resources within an economy. When protectionist measures artificially support certain industries through tariffs, it can lead to inefficiencies.
Resources can flow to industries that are protected rather than those that are genuinely competitive.
This misallocation of resources hinders economic growth and productivity. It may also delay the necessary transitions to more sustainable industries, as resources are tied up in less efficient sectors.
CONCLUSION
Regardless of the intentions of the countries involved, and irrespective of who levies the first assessment (penalty), tariffs and other protectionist trade measures come with unintended consequences which outweigh exponentially any perceived benefits. In addition, they hinder cooperation on other global issues.
In short, they do not work. Historically, they have always failed – despite the near-sighted promises and illogic of the politicians.
It is no different this time. Beating up on China won’t solve any problems. As bad as things appear to be economically for both the United States and China, expect them to get worse if either country takes action.
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!
GOLD AFTER INFLATION
The closing price for spot gold in New York today is $1915. Forty-three years ago, in May 1980, gold was priced at $515.
Being somewhat generous, and since gold has been higher (above $2000) recently, we might say that the gold price has quadrupled over those forty-three years.
GOLD AND THE MONEY SUPPLY
A recent article (Credit Crunch: The Money Supply Has Shrunk For Eight Months In A Row) by Ryan McMaken of the Mises Institute explained clearly the historical significance of the contraction in the money supply that has occurred over the past eight months.
In this article, I will be talking about the possible effects of this ongoing contraction as they relate to the price of gold.
SILVER COIN PREMIUMS ARE SMALLER
One year ago I published the article Silver Coin Premiums – Another Collapse?. In it, I expressed concern about the high premiums being paid by stackers and others for the privilege of owning silver in coin form, particularly Silver Eagles…