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Gold Is Right

Gold Is Right

Authored by Jim Rickards via The Daily Reckoning,

Is the gold skid over? There are encouraging signs that the answer is yes. And, that’s great news for patient gold investors (especially those who bought the lows, as I recommen

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Gold Is Right

Authored by Jim Rickards via The Daily Reckoning,

Is the gold skid over? There are encouraging signs that the answer is yes. And, that’s great news for patient gold investors (especially those who bought the lows, as I recommended to my subscribers a few weeks ago).

First, some facts. Gold hit an all-time high of $2,069 per ounce on August 6, 2020. Since then, it has been on the skids, despite occasional rallies. The low in this cycle was $1,678 per ounce on March 8, 2021.

The reason for the skid was not hard to discern.

It’s often the case that gold prices get pushed around by a number of factors, including real rates, nominal rates, geopolitical concerns, inflation and simple supply and demand.

But, this decline had only one factor — rising nominal rates on the ten-year Treasury note.

Ten-year note rates hit an interim low of 0.508% on August 4, 2020, right around the same time gold peaked. From there, rates began a relentless march higher. The nominal yield on the ten-year note peaked at 1.745% on March 31, 2021.

The rate/gold inverse correlation was extremely high. As rates climbed from August to March, gold fell. Nothing else mattered, including the election, the Capitol Hill riots or Biden’s confiscatory tax plans.

Rates rose, gold fell, enough said. The question for analysts was, why were rates rising?

Gold Isn’t Supposed to Offer Yield

Again, the explanation was simple. Markets were watching the $900 billion Trump bailout in December, the $1.9 trillion Biden bailout in early March, and the announcement of plans for another $3 trillion bailout later this year.

The reasoning was, with that much money being pumped into the economy and with output capacity still limited by the pandemic shutdowns, inflation must be right around the corner. Rates rose in anticipation of inflation from all of the bailout spending.

When rates rise, gold often falls because Treasury securities and gold compete for investor dollars. As rates rose, the Treasury notes became more attractive, and gold less so because gold has no yield.

By the way, some people criticize gold because it doesn’t offer any yield. But gold is not supposed to have any yield because it’s money; you only get yield when you take risks on securities, money markets or bank deposits. But that’s a story for another day.

Still, there was a conundrum at the heart of this inverse correlation.

Sure, rising rates might make for competition for investor allocations that hurts the price of gold. But, if rates were rising because of inflationary expectations, wouldn’t gold rally because of the inflation?

Ah, the plot thickens…

Gold Sees Further Than Any Other Asset

To resolve the conundrum, we have to bear in mind that gold has a better track record of predicting economic developments than any other asset class. Gold looks so far ahead that investors often cannot see what the gold price is saying.

The point is that rates were rising on inflationary expectations, but there was no actual inflation. Hard data (as opposed to Wall Street analysis) showed that most of the bailout money was not being spent.

Over 76% of the bailout money was used either for savings or to pay down debt (which is economically the same thing as saving). Neither saving nor debt repayment constitutes new consumption. And, without consumption, there is no velocity and no upward pressure on prices.

In short, interest rates were predicting inflation, but gold prices were saying: Not so fast!

This wasn’t our first interest rate fake-out. The 10-year note hit 3.96% on April 2, 2010. It then fell to 2.41% by October 2, 2010. It spiked again to 3.75% on February 8, 2011, before falling sharply to 1.49% on July 24, 2012.

It spiked again, hitting 3.22% on November 2, 2018, before plummeting to 0.56% on August 3, 2020, one of the greatest rallies in note prices ever.

There’s a pattern in this time series called “lower highs and lower lows.” The highs were 3.96%, 3.75% and 3.22%. The lows were 2.41%, 1.49% and 0.56%.

The point is that the note market does back up from time to time. And when it does, it cannot hold the prior rate highs and eventually sinks to new rate lows.

So Much for One Million New Jobs

Starting several months ago, my forecast predicted that eventually, markets would see that inflation was not emerging, interest rates would beat a retreat and gold prices would regain their former shine.

That appears to be happening. Recent data shows the core PCE deflator (the Fed’s preferred inflation measure) was only 1.6%, well short of the Fed’s 2% goal (which they’ve failed to hit on a sustained basis for 13 years).

The 1.6% showing was well within the range that core PCE has exhibited for years. In other words, no inflation.

Other economic signs have been disturbing, including a fourth wave of coronavirus cases and rising initial claims for unemployment insurance.

The April 15 measure showed improvement, but today’s jobs report was a huge miss. Economists expected the economy would add at least one million jobs in April. The numbers out today only showed a gain of 266,000.

Interest rates dropped from 1.745% on March 31 to 1.579% today. That’s an almost 17 basis point drop in just over two weeks, an earthquake in bond land.

Gold responded right on cue, rallying from $1,686 per ounce on March 30 to $1,832 per ounce today. That’s a solid 5.5% gain in the same two-week span.

Heads, Gold Wins; Tails, Gold Doesn’t Lose

The rate/gold inverse correlation continues, except now it’s working in reverse with rates down and gold prices up. I expect this trend to continue because there are still no signs of inflation on the horizon.

Inflation will come, but not right away. Looking further ahead, gold is poised for major gains in response to the rise of inflation expected in 2022 and later.

This inflation will not be caused by so-called money printing. An expansion of the money supply without accompanying changes in saver psychology that affect velocity or other exogenous catalysts has little impact on consumer prices.

The driver of inflation is velocity, the turnover of money caused by lending and spending, which has been plunging for over ten years.

Still, an external catalyst of velocity will arrive soon and last for decades in the form of higher wages needed to offset declining working-age populations in China, Japan, Europe, Russia and the U.S. This wage increase will be driven in part by the diversion of workers to healthcare for seniors, which is needed work but not amenable to productivity increases.

Once this demographic wave hits, saver psychology will shift quickly, and cost-push inflation will feed on itself. Inflation combined with decreased confidence in central bank command money will move gold to $10,000 per ounce or higher. That is the implied non-deflationary price of gold needed to act as a backstop for command money.

As a reality check, I always ask myself what would happen if I’m wrong? In the event that inflation does roll in, gold would go up as it always does in inflation.

The worst position was rising rates on inflation expectations with no actual inflation. That’s over. Now it appears we have declining rates and no inflation. That’s good for gold. If inflation shows up, that’s good for gold too.

It’s heads we win, tails we don’t lose. It doesn’t get any better for gold investors.

Tyler Durden Wed, 05/12/2021 - 09:45

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Government

Mathematicians use AI to identify emerging COVID-19 variants

Scientists at The Universities of Manchester and Oxford have developed an AI framework that can identify and track new and concerning COVID-19 variants…

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Scientists at The Universities of Manchester and Oxford have developed an AI framework that can identify and track new and concerning COVID-19 variants and could help with other infections in the future.

Credit: source: https://phil.cdc.gov/Details.aspx?pid=23312

Scientists at The Universities of Manchester and Oxford have developed an AI framework that can identify and track new and concerning COVID-19 variants and could help with other infections in the future.

The framework combines dimension reduction techniques and a new explainable clustering algorithm called CLASSIX, developed by mathematicians at The University of Manchester. This enables the quick identification of groups of viral genomes that might present a risk in the future from huge volumes of data.

The study, presented this week in the journal PNAS, could support traditional methods of tracking viral evolution, such as phylogenetic analysis, which currently require extensive manual curation.

Roberto Cahuantzi, a researcher at The University of Manchester and first and corresponding author of the paper, said: “Since the emergence of COVID-19, we have seen multiple waves of new variants, heightened transmissibility, evasion of immune responses, and increased severity of illness.

“Scientists are now intensifying efforts to pinpoint these worrying new variants, such as alpha, delta and omicron, at the earliest stages of their emergence. If we can find a way to do this quickly and efficiently, it will enable us to be more proactive in our response, such as tailored vaccine development and may even enable us to eliminate the variants before they become established.”

Like many other RNA viruses, COVID-19 has a high mutation rate and short time between generations meaning it evolves extremely rapidly. This means identifying new strains that are likely to be problematic in the future requires considerable effort.

Currently, there are almost 16 million sequences available on the GISAID database (the Global Initiative on Sharing All Influenza Data), which provides access to genomic data of influenza viruses.

Mapping the evolution and history of all COVID-19 genomes from this data is currently done using extremely large amounts of computer and human time.

The described method allows automation of such tasks. The researchers processed 5.7 million high-coverage sequences in only one to two days on a standard modern laptop; this would not be possible for existing methods, putting identification of concerning pathogen strains in the hands of more researchers due to reduced resource needs.

Thomas House, Professor of Mathematical Sciences at The University of Manchester, said: “The unprecedented amount of genetic data generated during the pandemic demands improvements to our methods to analyse it thoroughly. The data is continuing to grow rapidly but without showing a benefit to curating this data, there is a risk that it will be removed or deleted.

“We know that human expert time is limited, so our approach should not replace the work of humans all together but work alongside them to enable the job to be done much quicker and free our experts for other vital developments.”

The proposed method works by breaking down genetic sequences of the COVID-19 virus into smaller “words” (called 3-mers) represented as numbers by counting them. Then, it groups similar sequences together based on their word patterns using machine learning techniques.

Stefan Güttel, Professor of Applied Mathematics at the University of Manchester, said: “The clustering algorithm CLASSIX we developed is much less computationally demanding than traditional methods and is fully explainable, meaning that it provides textual and visual explanations of the computed clusters.”

Roberto Cahuantzi added: “Our analysis serves as a proof of concept, demonstrating the potential use of machine learning methods as an alert tool for the early discovery of emerging major variants without relying on the need to generate phylogenies.

“Whilst phylogenetics remains the ‘gold standard’ for understanding the viral ancestry, these machine learning methods can accommodate several orders of magnitude more sequences than the current phylogenetic methods and at a low computational cost.”


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International

There will soon be one million seats on this popular Amtrak route

“More people are taking the train than ever before,” says Amtrak’s Executive Vice President.

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While the size of the United States makes it hard for it to compete with the inter-city train access available in places like Japan and many European countries, Amtrak trains are a very popular transportation option in certain pockets of the country — so much so that the country’s national railway company is expanding its Northeast Corridor by more than one million seats.

Related: This is what it's like to take a 19-hour train from New York to Chicago

Running from Boston all the way south to Washington, D.C., the route is one of the most popular as it passes through the most densely populated part of the country and serves as a commuter train for those who need to go between East Coast cities such as New York and Philadelphia for business.

Veronika Bondarenko captured this photo of New York’s Moynihan Train Hall. 

Veronika Bondarenko

Amtrak launches new routes, promises travelers ‘additional travel options’

Earlier this month, Amtrak announced that it was adding four additional Northeastern routes to its schedule — two more routes between New York’s Penn Station and Union Station in Washington, D.C. on the weekend, a new early-morning weekday route between New York and Philadelphia’s William H. Gray III 30th Street Station and a weekend route between Philadelphia and Boston’s South Station.

More Travel:

According to Amtrak, these additions will increase Northeast Corridor’s service by 20% on the weekdays and 10% on the weekends for a total of one million additional seats when counted by how many will ride the corridor over the year.

“More people are taking the train than ever before and we’re proud to offer our customers additional travel options when they ride with us on the Northeast Regional,” Amtrak Executive Vice President and Chief Commercial Officer Eliot Hamlisch said in a statement on the new routes. “The Northeast Regional gets you where you want to go comfortably, conveniently and sustainably as you breeze past traffic on I-95 for a more enjoyable travel experience.”

Here are some of the other Amtrak changes you can expect to see

Amtrak also said that, in the 2023 financial year, the Northeast Corridor had nearly 9.2 million riders — 8% more than it had pre-pandemic and a 29% increase from 2022. The higher demand, particularly during both off-peak hours and the time when many business travelers use to get to work, is pushing Amtrak to invest into this corridor in particular.

To reach more customers, Amtrak has also made several changes to both its routes and pricing system. In the fall of 2023, it introduced a type of new “Night Owl Fare” — if traveling during very late or very early hours, one can go between cities like New York and Philadelphia or Philadelphia and Washington. D.C. for $5 to $15.

As travel on the same routes during peak hours can reach as much as $300, this was a deliberate move to reach those who have the flexibility of time and might have otherwise preferred more affordable methods of transportation such as the bus. After seeing strong uptake, Amtrak added this type of fare to more Boston routes.

The largest distances, such as the ones between Boston and New York or New York and Washington, are available at the lowest rate for $20.

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International

The next pandemic? It’s already here for Earth’s wildlife

Bird flu is decimating species already threatened by climate change and habitat loss.

I am a conservation biologist who studies emerging infectious diseases. When people ask me what I think the next pandemic will be I often say that we are in the midst of one – it’s just afflicting a great many species more than ours.

I am referring to the highly pathogenic strain of avian influenza H5N1 (HPAI H5N1), otherwise known as bird flu, which has killed millions of birds and unknown numbers of mammals, particularly during the past three years.

This is the strain that emerged in domestic geese in China in 1997 and quickly jumped to humans in south-east Asia with a mortality rate of around 40-50%. My research group encountered the virus when it killed a mammal, an endangered Owston’s palm civet, in a captive breeding programme in Cuc Phuong National Park Vietnam in 2005.

How these animals caught bird flu was never confirmed. Their diet is mainly earthworms, so they had not been infected by eating diseased poultry like many captive tigers in the region.

This discovery prompted us to collate all confirmed reports of fatal infection with bird flu to assess just how broad a threat to wildlife this virus might pose.

This is how a newly discovered virus in Chinese poultry came to threaten so much of the world’s biodiversity.

H5N1 originated on a Chinese poultry farm in 1997. ChameleonsEye/Shutterstock

The first signs

Until December 2005, most confirmed infections had been found in a few zoos and rescue centres in Thailand and Cambodia. Our analysis in 2006 showed that nearly half (48%) of all the different groups of birds (known to taxonomists as “orders”) contained a species in which a fatal infection of bird flu had been reported. These 13 orders comprised 84% of all bird species.

We reasoned 20 years ago that the strains of H5N1 circulating were probably highly pathogenic to all bird orders. We also showed that the list of confirmed infected species included those that were globally threatened and that important habitats, such as Vietnam’s Mekong delta, lay close to reported poultry outbreaks.

Mammals known to be susceptible to bird flu during the early 2000s included primates, rodents, pigs and rabbits. Large carnivores such as Bengal tigers and clouded leopards were reported to have been killed, as well as domestic cats.

Our 2006 paper showed the ease with which this virus crossed species barriers and suggested it might one day produce a pandemic-scale threat to global biodiversity.

Unfortunately, our warnings were correct.

A roving sickness

Two decades on, bird flu is killing species from the high Arctic to mainland Antarctica.

In the past couple of years, bird flu has spread rapidly across Europe and infiltrated North and South America, killing millions of poultry and a variety of bird and mammal species. A recent paper found that 26 countries have reported at least 48 mammal species that have died from the virus since 2020, when the latest increase in reported infections started.

Not even the ocean is safe. Since 2020, 13 species of aquatic mammal have succumbed, including American sea lions, porpoises and dolphins, often dying in their thousands in South America. A wide range of scavenging and predatory mammals that live on land are now also confirmed to be susceptible, including mountain lions, lynx, brown, black and polar bears.

The UK alone has lost over 75% of its great skuas and seen a 25% decline in northern gannets. Recent declines in sandwich terns (35%) and common terns (42%) were also largely driven by the virus.

Scientists haven’t managed to completely sequence the virus in all affected species. Research and continuous surveillance could tell us how adaptable it ultimately becomes, and whether it can jump to even more species. We know it can already infect humans – one or more genetic mutations may make it more infectious.

At the crossroads

Between January 1 2003 and December 21 2023, 882 cases of human infection with the H5N1 virus were reported from 23 countries, of which 461 (52%) were fatal.

Of these fatal cases, more than half were in Vietnam, China, Cambodia and Laos. Poultry-to-human infections were first recorded in Cambodia in December 2003. Intermittent cases were reported until 2014, followed by a gap until 2023, yielding 41 deaths from 64 cases. The subtype of H5N1 virus responsible has been detected in poultry in Cambodia since 2014. In the early 2000s, the H5N1 virus circulating had a high human mortality rate, so it is worrying that we are now starting to see people dying after contact with poultry again.

It’s not just H5 subtypes of bird flu that concern humans. The H10N1 virus was originally isolated from wild birds in South Korea, but has also been reported in samples from China and Mongolia.

Recent research found that these particular virus subtypes may be able to jump to humans after they were found to be pathogenic in laboratory mice and ferrets. The first person who was confirmed to be infected with H10N5 died in China on January 27 2024, but this patient was also suffering from seasonal flu (H3N2). They had been exposed to live poultry which also tested positive for H10N5.

Species already threatened with extinction are among those which have died due to bird flu in the past three years. The first deaths from the virus in mainland Antarctica have just been confirmed in skuas, highlighting a looming threat to penguin colonies whose eggs and chicks skuas prey on. Humboldt penguins have already been killed by the virus in Chile.

A colony of king penguins.
Remote penguin colonies are already threatened by climate change. AndreAnita/Shutterstock

How can we stem this tsunami of H5N1 and other avian influenzas? Completely overhaul poultry production on a global scale. Make farms self-sufficient in rearing eggs and chicks instead of exporting them internationally. The trend towards megafarms containing over a million birds must be stopped in its tracks.

To prevent the worst outcomes for this virus, we must revisit its primary source: the incubator of intensive poultry farms.

Diana Bell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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