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Gold is Best Form of Wealth Preservation

Release Date:  Friday, May 24, 2019
DEAL OF THE WEEK:                                                                  

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Gold Prices Up for the Week

Gold prices rose this week as economic indicators flash warnings to investors.

"Gold's short-term outlook is improving as the U.S. dollar is running out of reasons to keep going higher and the U.S. equities are raising doubts about their future performance, according to analysts. Concerns around slowing global growth will be a key driver for gold in the coming weeks and months, Capital Economics senior commodities economist Ross Strachan told Kitco News on Friday. 'The central elements recently have been some of the concerns around global growth. And we've seen weak data out of the U.S., Europe, and China,' Strachan said.

"Today was another perfect example of weak economic data out of the U.S., with the April's durable goods number disappointing and revealing weak business investment, said TD Securities head of global strategy Bart Melek ... The implications of slower global growth are tremendous for gold, which is why Capital Economics is still keeping its year-end target level at $1,400 an ounce, which is more than $100 off the current trading level...." ("Gold To Prioritize U.S. Economy And Geopolitics As Price Outlook Improves - Analysts," Kitco News, 5/24/19.)

Gold ended the week at $1,285.60/oz. Silver closed at $14.63/oz.


Gold is Best Form of Wealth Preservation - James

Louis James, LLC, financial publisher and advisor for "an elite group of savvy investors," explained why gold is the best form of wealth preservation ever devised.

"Simply put, gold is the ultimate financial insurance. How can I say that with gold down almost 50% since its 2011 peak? What kind of safe haven fluctuates that much in just a few years? ... More relevant is that the Dow dropped almost as much during the crash of 2008-a year gold finished in the black.

"Despite the nonsense claims of gold being a "barbarous relic" and the even more ridiculous claims that Bitcoin is the new gold, the most important and undisputed facts are:  Gold has held its value for thousands of years.  The US dollar-the reserve currency of the world-has lost 96.1% of its value since 1913.  Cryptos have only existed for a few years and have already manifested extreme volatility. Reliability TBD.

"This is all any rational person really needs to know...

But I'll give you a bit more color. Gold isn't like the kind of insurance one buys to cover every sniffle and stubbed toe... Gold is more like the catastrophic insurance healthy people buy, knowing it's cheaper to simply pay for sprained ankles and such routine things out of pocket. It's still a great comfort to know that if something major comes up, one is covered.

"Whether it's sudden unemployment, the next stock market crash, or the next global economic depression, gold is the best insurance you can buy. I have, in fact, experienced this financial life-saving aspect of precious metals myself...

"Gold happens to be a unique, easily identified metal with many uses that give it value in and of itself. It's also convenient, consistent, durable, and divisible. It has all the attributes of good money. And you don't need the Internet, a computer, or even electricity to use it...

"Better still, you don't need a government to pass laws requiring people to accept it... And what happens to those pieces of paper when governments fail? Ask the folks in Zimbabwe. ... Gold is the best form of wealth protection ever devised. Period...." ("I'm Not a Gold Bug - You're a Dollar Bug," Louis James, LLC, 5/24/19; original emphasis.)

Chinese Tariffs May Cause Tsunami of Retail Store Closures - Business Insider

Business Insider reported that the already weak retail store market may be devastated by Chinese tariffs resulting in thousand of stores closing throughout the United States.

"The trade war with China is threatening to trigger one of the biggest waves of store closures that the US has ever seen, according to UBS research. Higher tariffs on Chinese goods could force 12,000 stores to close within a year and put $40 billion of sales at risk, the UBS analyst Jay Sole wrote in a recent research note. 'The market is not realizing how much brick-and-mortar retail is incrementally struggling and how new 25% tariffs could force widespread store closures,' Sole wrote...

"Higher tariffs increase the costs of goods sold for companies that import products from China. Some retailers, including Walmart, have warned that higher tariffs would force them to raise prices for consumers... A crush of another 12,000 store closures would be "highly negative," Sole wrote.

"It would upend the retail industry in the short term by triggering an onslaught of intense discounting that would harm even healthy retailers, he wrote. It could also push some struggling malls to the edge of collapse - further pressuring healthy retailers with locations at those malls - and squeeze the broader economy with mass job losses." ("China tariffs could trigger one of the biggest waves of store closures the US has ever seen, sparking the second coming of the retail apocalypse," Business Insider, 5/20/19.)  

US Dollar May be "Dethroned" By "Friends and Foes" - WSJ

Wall Street Journal commentator Sahil Mahtani wrote that a combination of America's "friends and foes" may work together to eliminate the US Dollar as the world's reserve currency.

"Will the U.S. dollar soon lose its status as the world's pre-eminent currency? The consensus is no-it's said that any move away from the dollar would take decades. This view is too complacent.

"Developments in foreign-exchange markets during the past 18 months point toward dedollarization... The world's central banks bought more gold last year than at any time since President Nixon took the U.S. off the gold standard in 1971...

"The increasing use of economic sanctions under Presidents Obama and Trump is the immediate cause of dedollarization... It's not that surprising, or even that significant, when Russia shifts $100 billion of dollar-denominated reserves into Chinese yuan, euros and Japanese yen, as it did last year. But the change in posture among the trans-Atlantic democracies is noteworthy. At his final European State of the Union address, European Commission President Jean-Claude Juncker said: 'It is absurd that European companies buy European planes in dollars instead of euros.'

"Surging U.S. oil production also has implications for the currency. By 2025 the U.S. is expected to overtake Saudi Arabia as the world's biggest oil exporter... [I]f America buys less international crude oil while the Chinese ramp up purchases, the likelihood increases that oil exporters will accept currencies other than the U.S. dollar. Oil companies in Russia, Iran and Venezuela have already begun accepting yuan...

"Meanwhile, political polarization in the U.S. implies budget deficits as far as the eye can see, driven by tax cuts and higher entitlement spending. Congressional Budget Office forecasts show U.S. federal debt hitting 152% of gross domestic product by 2048, up from 78% today. The U.S. twin deficits -- fiscal and current account -- are a good leading indicator, with a two-year lag, of dollar weakness. They currently imply double-digit percentage declines in the dollar's value over the next few years...

"Some will say that we've heard this all before... Habitual dollar use remains high-everywhere. Nevertheless, the emergence of a genuinely multipolar world means the coming market cycle is likely to be different. The U.S. dollar may finally be knocked off its pedestal." ("America's Competitors, Friend and Foe, Have Opportunities to Challenge the U.S. Currency," WSJ, 5/22/19.)

US Debt About to Soar - Bloomberg

Bloomberg reports that despite the end of Quantitative Easing by the Federal Reserve, the Fed has plans to engage in a buying spree that may increase the Great Recession purchases.

"If you thought the Federal Reserve was done with quantitative easing, you might only be half right.As soon as next year, analysts say the Fed will resume large-scale buying of debt securities -- this time just U.S. Treasuries -- in amounts that may ultimately exceed its crisis-era purchases. According to an estimate by Wells Fargo & Co., the central bank's balance sheet will rise past its historic peak as it adds over $2 trillion to its Treasury debt holdings in the next decade...

"'For anybody that has been in the market for the last 10 years, it will feel like QE,' said Priya Misra, global head of rates strategy at TD Securities. 'Once again the Fed will be the single largest buyer of Treasuries and (this time) in a non-QE world. This will be a very bullish Treasury-market dynamic...'

"Before the start of the first round of QE in 2008, the Fed had less than $900 billion in U.S. debt securities. By 2017, it had amassed $2.5 trillion of Treasuries, as well as $1.8 trillion in mortgage-backed securities. The bank finally began unwinding QE in October 2017 in an effort to "normalize" its monetary policy, and will continue winnowing through the end of September." ("QE May Be Over, But the Fed's U.S. Debt Hoard Is About to Soar," Bloomberg, 5/21/19.)