(USAGOLD – 3/4/2020) – Gold pulled back modestly from yesterday’s strong gains inspired by the Fed’s aggressive half-point rate cut. It is trading at $1642 – down $4 on the day. Silver is down 13¢ at $17.16. The cut played to mixed reviews on Wall Street. Some lauded it as appropriate and needed. Others saw it as a futile gesture.
The stock market itself read it as an admission that something might be seriously wrong with the global economy and promptly dropped nearly 800 points. Gold, as might be expected, reacted positively with a more than $50 gain in yesterday’s hectic trading. “Echoes of the financial crisis,” as Financial Times put it in an editorial this morning, “are not reassuring.”
The one mission the cut did accomplish, after all is said and done, is send a clear and unambiguous message that the Fed remains ready, willing and able to accommodate the markets with timely doses of easy money if and when the economy falters. “This is where we are headed,” says Russel Napier, author of the cult classic, Anatomy of the Bear, in an interview with Bloomberg’s John Authers, “and helicopter money must come with financial repression – something I have written a 60-page tome on for clients.
I cannot go through all those arguments, but gold is the stand-out asset class in a financial repression. So in the world of finance Covid-19 will be remembered not for the damage it did, but for the new form of cure it unleashed – particularly in Europe but also probably in Japan. Gold benefits from this shift for a very long time indeed.”
The Authers-Napier interview is highly recommended.
Chart of the Day
Chart note: We have had quite a few new visitors over the past few weeks who are looking into gold for the first time, and this chart more than any other, we feel, is central to understanding why gold continues to make sense as a long-term portfolio holding.
When the United States abandoned the gold standard in 1971 and freed currencies to float against one another, the fiat money era began. We are still in that era today. This chart shows the performance of gold from the early 1900s to 1971 when gold backed the dollar, and the era from 1971 to present when it did not.
Gold has had its ups and downs since 1971, but clearly, over the long run, in the absence of an official gold standard, individual investors have been well-served by putting themselves on a private gold standard.