About Lawrie Williams and LawrieOnGold.com

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lw ucLawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary.  He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT).

He has worked in mines in South Africa (gold, uranium and platinum), Canada (uranium), Zambia (copper) and U.K (coal) and holds a South African Mine Managers certificate.  He also worked as a gold mining company analyst for one of the major South African mining houses. He left South Africa to join Mining Journal as Financial Editor and worked his way through that organisation to edit Mining Magazine, and then join the Board.  He was Managing Director (CEO) of the company for 13 years up until it was sold in 2001.  During part of this period he was also President of Nevada-based U.S. company Mining Media Inc which was publisher of North American Mining magazine.

Following his time at Mining Journal he became editor, and then General Manager, of Mineweb.Com, taking it from lossmaker to becoming highly profitable before taking partial retirement in 2012.  Since then he continued to write for Mineweb up until September 2015, and now writes for other organisations including Sharpspixley.com as contributing editor, Seeking Alpha and for Johannesburg Stock Exchange special supplements and his articles are picked up and linked to by numerous websites around the world.   Again these articles mostly concentrate on precious metals markets and mining.

LawrieOnGold.com has been set up as a vehicle to publish articles by Lawrie Williams not published elsewhere and will also link to some of his other articles. It will also include contributions from other selected specialist writers as well as links to other carefully chosen articles of interest to those interested in the precious metals sector.

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Another big purchase into GLD as gold tests resistance

Gold TodayNew York closed at $1,337.10 after the previous close of $1,334.00 yesterday.  London opened at $1,335.20.

    • The $: € was slightly stronger at $1.1212: €1 from $1.1232: €1 yesterday.
    • The Dollar index was stronger at 95.41 from 95.26 yesterday.
    • The Yen was slightly weaker at 100.84: $1 down from 100.64: $1 yesterday against the dollar.
    • The Yuan was barely stronger at 6.6693: $1 from 6.6696: $1 yesterday.

 

  • The Pound Sterling was weaker at $1.2968: £1 from yesterday’s $1.3057: £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  23

     2016  09  22

SHAU

SHAU

286.97

286.48

286.95

286.63

Dollar equivalent @ $1: 6.6693

$1: 6.6696

$1,338.34

$1,336.00

$1,338.24

$1,336.69

New York, Shanghai and London were roughly in line, while exchange rates calmed down with the dollar slightly stronger, in a normal market correction.

The gold price in global gold markets is holding higher levels.

LBMA price setting:  The LBMA gold price setting was at $1,335.90 against yesterday’s $1,332.45.

The gold price in the euro was set at €1,191.12 against yesterday’s €1,186.35.

Ahead of the opening of New York the gold price was trading at $1,338.30 and in the euro at €1,193.21.  At the same time, the silver price was trading again at $19.82.

 

Silver Today –The silver price rose to $19.90 at New York’s close yesterday up from $19.83, Friday.  

Price Drivers

Throughout yesterday gold prices continued to hold the higher levels. Bear in mind that it was dollar weakness, not gold’s strength that led to higher dollar gold prices. With today’s dollar settling at lower levels [as the Treasury and Fed want] we do not expect any gold price moves to be caused by dollar moves.

As we have pointed out frequently, the main gold price driver in the U.S. is demand for U.S. based gold ETFs. So, yesterdays over 6 tonne purchase should have kicked the gold price higher. But from $1,340 to $1,350 represents strong resistance as a break through this level would signal overhead resistance has been defeated. Certainly a major purchase of ETF shares would do it.

With the weekend ahead of us we do expect more market action today than any other day of the week.

Gold ETFs – There were purchases of 6.528 tonnes into the SPDR gold ETF (GLD) and of 0.30 of a tonne into the Gold Trust (IAU) yesterday, leaving their respective holdings at 950.919 tonnes and 223.81 tonnes.

Looking back over the week, we have seen overall U.S. demand for the shares of U.S. based gold ETFs strong and sales standing back waiting to see where gold prices will go from here. A critical question to ask is, “Have the major sellers exited the market?” If they have we could see decisive action from physical gold demand ahead.

Silver – Silver prices followed gold higher, but not in a rush, as the silver price moved strongly higher over the last few days, already. Overhead resistance on the gold price is heavy, so silver is standing back to see where gold will go today.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold and silver jump in dollars, not Euros, post Fed

Gold TodayNew York closed at $1,334.00 after the previous close of $1,314.60 yesterday.  London opened at $1,332.70.

    • The $: € was weaker at $1.1232: €1 from $1.1147: €1 yesterday.
    • The Dollar index was weaker at 95.26 from 95.96 yesterday.
    • The Yen was stronger at 100.64: $1 up from 101.50: $1 yesterday against the dollar.
    • The Yuan was stronger at 6.6696: $1 from 6.6726: $1 yesterday.

 

  • The Pound Sterling was stronger at $1.3057: £1 from yesterday’s $1.2998: £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  22

     2016  09  21

SHAU

SHAU

286.48

283.14

286.63

284.17

Dollar equivalent @ $1: 6.6696

$1: 6.6726

$1,336.00

$1,319.82

$1,336.69

$1,324.62

New York, Shanghai and London were roughly in line, adjusting them for changing exchange rates as all financial markets reacted to the Fed statement.

All financial markets now need time to digest the announcement and feed this information into prices. Overall, we see the dollar gold price continuing to benefit from the words of Mrs. Yellen.

LBMA price setting:  The LBMA gold price setting was at $1,332.45 against yesterday’s $1,319.60.

The gold price in the euro was set at €1,186.35 against yesterday’s €1,183.55.

Ahead of the opening of New York the gold price was trading at $1,333.10 and in the euro at €1,187.54.  At the same time, the silver price was trading again at $19.88.

Silver Today –The silver price rose to $19.83 at New York’s close yesterday up from $19.23, Friday.  

Price Drivers

Please note that the gold price in the euro is barely changed, but in the dollar higher because of the dollar’s weakness.

As the dealings in the gold ETFs have driven gold prices lately, the big purchase of over 5 tonnes into the SPDR gold ETF was certainly one of the drivers, but not nearly so much as the weakness of the dollar against gold did.

Despite global demand for gold rising well in the gold season, the gold price does not reflect this. It solely reflects U.S. demand via the gold ETFs and COMEX.

Gold as a monetary metal is functioning well in this regard as they reflect the value of currencies, not demand and supply of gold.

On the Technical front mixed signals are being sent out favoring both directions. Will we see a pennant formation developing to give us consolidation mode, or will overhead resistance be challenged, while the current target on this front is below $1,300.

We have a different take on the Fed’s announcement than the one that’s being reported inside the U.S. We see Janet Yellen and her team, although divided, paying great attention to the impact on the dollar, as we have said many times before. Most U.S. institutions look at the U.S. as being the driver of the rest of the world, leading the way forward. But the reality is that the U.S. is not an island, as shown by the dollar’s price in other currencies.

The rest of the world can hurt the U.S. by weakening exchange rates against the dollar [maybe Treasury whispered quietly in the BoJ.’s ear before their meeting]. The angst, we see now from U.S. institutions, is understandable if one disregards the global economy. Inside the U.S. interest rates are seen in the light of the U.S. economy, but looked at through currency eyes interest rate moves have to be seen in terms of other currencies’ values. We repeat the U.S. cannot afford a strong dollar anymore. This is gold positive.

Looking through the eyes of the currency markets we see the Fed removing the ongoing obsession of global markets of the ‘will there be or won’t there be a rate hike’ by stating that by the end of the year there will be a rate hike. Not two but one. The focus from now on will shift to the Presidential elections until the end of the year. We hope the ‘big’ picture will now impact the gold price more directly.

Immediately after the Fed announcement the dollar weakened, across the board.  The gold price leapt to overhead resistance at $1,340 before pulling back in London. Longer term, Yellen’s actions are gold and silver price positive as there are no shocks in the future and rate hikes as we have pointed out before have led to higher gold prices.

The Fed statement pointed far ahead, to prevent volatility over the subject hitting most markets now and in the future. Further, by attempting to put dots in place as to when to expect future hikes, the markets have plenty of time to discount these moves in relatively calm markets.

We will now keep our eyes on inflation rates to give us a clearer view of exactly when rate hikes will occur, as it is real interest rates in the context of global interest rates that count, when we look at potential moves in gold and silver prices.

Gold ETFs – There were purchases of 5.638 tonnes into the SPDR gold ETF (GLD) but no change in the holdings of the Gold Trust (IAU) yesterday, leaving their respective holdings at 944.391 tonnes and 223.51 tonnes.

Silver – Silver prices ignored the price action in gold yesterday climbing a little higher. Once again we say, ‘these are not the influences of fundamentals but U.S. silver investors expecting news that will send both gold and silver prices higher.’

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Ramifications of Barrick Gold’s Veladero mine spill

Barrick Gold’s Veladero mine chemical spill in Argentina could have adverse ramifications for other Barrick developments in the region and also for other companies looking to mine there.

The temporary closure of the mine while the problem is rectified is costing the company around $2 million a day in lost revenues.

Veladero is Barrick’s third largest gold mine producing around 10% of the company’s attributable annual gold output.

To read full article on Seeking Alpha click on: Barrick Gold’s Latest Veladero Spill Bad News For Argentinean Gold Mining..

Strong Russian gold reserve increases back

In its latest announcement, the Russian Central Bank has stated that its gold reserves rose from 48.4 million ounces to 49.1 million ounces during August. This increase of 700,000 ounces – 21.77 tonnes – is the largest monthly increase this year and brings Russia’s total gold reserve increase so far this year to end August to 113 tonnes according to this latest announcement and World Gold council figures for the prior seven months.  Over the same period of 2015 the Russian central bank added 109.15 tonnes, after a hiatus at the start of the year, so it has been adding to its reserves at a broadly similar overall rate in 2016 so far.  Last year it should be noted that it upped its gold reserve additions quite substantially in the final four months of the year to an average of 24.2 tonnes a month, compared with an average of 13.64 tonnes a month over the first eight months of the year.

We had been suggesting in previous articles that the pace of central bank gold buying might be slowing down, given the low purchase levels by Russia in May and July, and a big reduction in announced Chinese purchases too, given that these two nations are about the only two whose central banks have been adding to their gold reserves in a significant manner.  Relative to its own gold reserves, Kazakhstan has also been increasing its gold holdings at an important rate, but at only around 3 tonnes a month.  But the latest Russian figure suggests we may have been premature in this assessment, at least as far as that country is concerned.  We shall have to wait another week or two to find out whether China too is reverting to earlier gold reserve increase levels, or is continuing at the slower pace seen in recent months.

On the other side of the equation – central bank gold sales – the principal seller has been Venezuela which has seen its gold reserves reduce by around 100 tonnes since the beginning of December last year.  However it does not appear to have sold any gold in July and August this year according to Swiss gold import statistics given the country’s gold sales so far appear to have been routed through the BIS in Basel, although one cannot rule out further sales during the remainder of the year.

Depending on China’s announced official purchases in the final few months of the year, perhaps our estimate of net central bank gold purchases for the full year of around 350 tonnes could prove to be an underestimate, but only if Russia continues to add at the higher rate, Chinese purchases start to pick up again and Venezuela manages to hold on to most of its gold despite its dire economic situation and global debt position.

Article first published by me on sharpspixley.com website

The Curious Case of Swiss Gold Flows – Next Episode

We have commented here before on the strange reversal of gold flows in and out of Switzerland so far this year, where the main sources of supply have been countries which would normally be recipients of Swiss exports of re-refined and re-sized gold products (mostly small bars and coins).  Conversely some of the normal major suppliers of gold to Switzerland for re-refining and re-distribution have become the major recipients of Swiss gold exports.  We had speculated that perhaps one of the reasons for the latter had been the huge needs earlier in the year for supplying gold to the big gold-backed ETFs, but the ETF inflows have diminished sharply since the end of the second quarter and these contrary gold flows are continuing – and even getting bigger.

Take the chart below for Swiss gold exports for the month of August from Nick Laird’s excellent www.goldchartsrus.com service:

While the chart shows the continuation of gold exports to the world’s principal consuming nations – China plus Hong Kong and India as one would expect, more than half was destined for the United Kingdom which has traditionally been itself an exporter of gold to Switzerland of London Good Delivery gold bars for re-refining and re-sizing into the small bar sizes in demand from Asia.  Much of the major ETFs’ gold – notably that of the SPDR gold ETF (GLD), the biggest of them all – is vaulted in London, but in August GLD’s gold holdings actually fell by 8.6 tonnes, yet Swiss gold exports to the UK came in at 84.6 tonnes over the month.  This was even higher than the 65 tonnes of gold exports to the UK in June (when GLD was riding high) and 78.7 tonnes in July.

We had heard that inventories of unallocated gold in London’s gold vaults had been getting extremely low – indeed one analyst had even come up with research data suggesting they had moved into the negative, largely because of the necessity to supply unallocated gold into the ETFs which had been so strong in the first half of the year.  It could be that the latest Swiss gold export figures to the UK are an attempt to rectify this situation – if indeed it ever existed.  But again this is speculation.

But where is Switzerland importing its gold from.  That is the other side of the curious equation.  The biggest sources of this gold are nations/states which traditionally are importers of Swiss gold – namely the United Aran Emirates and Hong Kong.  See the imports chart below from www.goldchartsrus.com :

As expected many of the countries exporting gold to Switzerland that month were gold mining countries, but the UAE and Hong Kong figures stand out.  Other nations usually seen as fabricators are also represented in the list – notably Thailand and Italy.  Those following central bank data will perhaps be relieved to see that Venezuela apparently did not ship any gold to the BIS in Switzerland during the month, after being a heavy exporter in earlier months.

The USA, the world’s fourth largest producer of gold, also showed strongly in the Swiss import figures for August after appearing as a significant export destination in the two previous months, which had attracted considerable comment as to why that should be from US commentators!

Our comment on these overall gold imports – notably from the UAE and Hong Kong – we have put down to the overall slippage of gold demand outside the West so far this year prompting traders, who may have built up large inventories in anticipating better markets, taking advantage of the higher gold price so far this year and liquidating some of these at a decent profit.  Our views on that are unchanged.

article lightly edited version of one which first appeared on sharpspixley.com

Shanghai Takes the Gold Pricing Lead

Gold Today –New York closed at $1,314.60 after the previous close of $1,313.60 yesterday.  London opened at $1,319 again.

  • The $: € was weaker at $1.1147: €1 from $1.1187: €1 yesterday.
  • The Dollar index was slightly stronger at 95.96 from 95.82 yesterday.
  • The Yen was slightly stronger at 101.50: $1 up from 101.76: $1 yesterday against the dollar.
  • The Yuan was slightly weaker at 6.6726: $1 from 6.6700: $1 yesterday.
  • The Pound Sterling was slightly stronger at $1.2998: £1 from yesterday’s $1.2989: £1.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  21

     2016  09  20

SHAU

SHAU

283.14

283.31

284.17

283.29

Dollar equivalent @ $1: 6.6726

$1: 6.6700

$1,319.82

$1,321.13

$1,324.62

$1,321.04

Shanghai ignored New York’s close and took the gold price higher by $10, no doubt reflecting the demand local investors demonstrated for physical gold.

Most importantly this is the first time of late, that substantial sales from the gold ETFs have not pulled gold prices down, but have been ignored to the extent that gold prices have risen.

LBMA price setting:  The LBMA gold price setting was at $1,319.60 against yesterday’s $1,315.40.

The gold price in the euro was set at €1,183.55 against yesterday’s €1,175.83.

Ahead of the opening of New York the gold price was trading at $1,324.60 and in the euro at €1,188.41.  At the same time, the silver price was trading again at $19.60.

Silver Today –The silver price rose to $19.23 at New York’s close yesterday up from $19.16, Friday.  

Price Drivers

There were substantial sales from the SPDR gold ETF yesterday, but Shanghai ignored it then London tried to pull prices back, to sit in the middle between New York and Shanghai.

This is only the second time Shanghai has walked its own road very clearly. Before, exchange rate changes could have explained the moves, but not this time. If this pattern is continued pricing power will be shifting to China from New York.

Why did this move occur now? The announcement from the Bank of Japan’s Kuroda basically did nothing for the Japanese economy. The policy moves we saw tell us that the Bank of Japan looks as though it has run out of ‘effective options’ to stimulate the economy there. With rates being held at current levels, we see the Bank of Japan unwilling to be seen furthering the ‘currency war’ by trying to lower its exchange rate. The moves by the BoJ were therefore at best hormone-free. This switches the attention back to the Fed’s FOMC meeting going on now.

In the light of all factors and Japan’s unwillingness to do anything solid, we cannot see the Fed surprising us by raising rates. Or can we? If they do, we do expect to see the dollar go stronger, albeit temporarily.

We are fully aware that the impact on the dollar exchange rates is a focal point for the FOMC. The U.S. cannot afford a strong dollar now. If the FOMC believe a rate hike of 0.25% will not affect the dollar’s exchange rate we may well see it happen. Otherwise, December will be the time when the Fed is more likely to make such a move.

Gold ETFs – There were sales of 3.858 tonnes from the SPDR gold ETF (GLD) but no sales from the Gold Trust yesterday, leaving their respective holdings at 938.753 tonnes and 223.51 tonnes.

Silver – Silver prices ignored the price action in gold yesterday climbing a little higher. Once again we say, ‘these are not the influences of fundamentals but U.S. silver investors expecting news that will send both gold and silver prices higher.’

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold and silver steady ahead of BoJ and FOMC

Gold TodayNew York closed at $1,313.30 yesterday.  London opened at $1,319.

    • The $: € was weaker at $1.1187: €1 from $1.1159: €1 yesterday.
    • The Dollar index was slightly weaker at 95.82 from 95.92 yesterday.
    • The Yen was slightly stronger at 101.76: $1 up from 102.04: $1 yesterday against the dollar.
    • The Yuan was slightly stronger at 6.6700: $1 from 6.6737: $1 yesterday.
  • The Pound Sterling was again weak at $1.2989: £1 from Friday’s $1.3058: £1.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  20

     2016  09  19

SHAU

SHAU

283.31

282.79

283.29

283.49

Dollar equivalent @ $1: 6.6700

$1: 6.6737

$1,321.13

$1,317.97

$1,321.04

$1,321.23

Shanghai did walk its own road today sitting at $1,321 throughout the day, despite the lower gold price close in New York. London opened close to that level, but quickly slipped back to $1,315.

We are now less than two weeks away from the adoption of the Yuan as one of the currencies that make up the SDR.  The Yuan is being restrained at current levels, but we see it falling against the dollar for at least the rest of the year.

LBMA price setting:  The LBMA gold price setting was at $1,315.40 barely changed on yesterday’s $1,315.05.

The gold price in the euro was set at €1,175.83 against yesterday’s €1,178.41.

Ahead of the opening of New York the gold price was trading at $1,313.80 and in the euro at €1,174.82.  At the same time, the silver price was trading again at $19.12.

Silver Today –The silver price rose to $19.16 at New York’s close yesterday up from $18.77, Friday.  

Price Drivers

Today the Bank of Japan and the U.S. Fed’s Open Market Committee (FOMC) begin their deliberations on policies. Japan is due to announce their decisions first followed by the Fed.

Once again, markets are obsessed with these events, despite expectations that neither central bank will do anything except fine tune past statements. Nevertheless two key government stock traders tell us to be ready for a shock rise of 0.25% and other tell us that the Bank of Japan will go further into negative rates. Will this boost the economy of Japan? No! It seems that so far the bank’s moves have proved counter-productive.

We believe that current moves are about exchange rates. Despite the “Currency War” being denied, we are all aware that it is on and going full bore. Japan desperately wants a cheaper Yen and to date has only seen the Yen getting stronger. Another move of interest rates into negative territory may help, but we doubt it. Why? As we have said the Treasury and the Fed of the U.S. don’t want a stronger dollar against all currencies, because that weakens their export potential and cheapens imports that are helping to undermine local production. So the Fed has to consider if a rate hike will assist in strengthening the dollar as well as other factors. They have made that clear in past announcements.

Will gold fall on a rate hike? Possibly, temporarily, but history shows that a rate hike may also cause the gold price to rise. We would not bet on a rate rise affecting gold prices for a long time. We would expect gold price to move higher once any rate hike has been absorbed.

Gold ETFs – There was no change in the SPDR gold ETF (GLD) but sales of 2.33 tonnes from the Gold Trust (IAU) Friday, leaving their respective holdings at 942.611 tonnes and 223.51 tonnes.

Silver – Silver prices are straining at the leash as they rise over $19.00 wanting to run further. These are not the influences of fundamentals but U.S. silver investors expecting news that will send both gold and silver prices higher.

Julian D.W. Phillips:  GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

War on cash Turns to $20, $50, and $100 Bills

Another guest editorial looking at Ken Rogoff’s new book suggesting that cash – or at least large denomination bills – should be phased out, and the likely unintended consequences.  See also: The War on Cash Is Still Good for Gold and Will the war on cash morph into a war on gold and diamonds

Article by Clint Siegner*

Harvard professor and economist Ken Rogoff is once again leading the chorus of high-level academics and officials who declare cash is only for criminals. He made his case in a recent Wall Street Journal editorialcalled the “Sinister Side of Cash.” The solution, he declares, is to simply get rid of anything but the smallest bank notes.

Blame on Cash

In his vision, drug dealers, human traffickers, and tax cheats are everywhere, but they are reliant on cash. Our benevolent central planners can largely incapacitate them by ridding society of anything larger than a $10 bill.

Kingpins won’t know what to do when a single-engine Cessna full of cocaine requires a Boeing 747 full of $1s, $5s, and $10s to make payment.

Rogoff seems to blame cash, not bad people, for facilitating criminal activity. He writes;

“There is little debate among law-enforcement agencies that paper currency, especially large notes such as the U.S. $100 bill, facilitates crime: racketeering, extortion, money laundering, drug and human trafficking, the corruption of public officials, not to mention terrorism.”

People worried about meth dealers swapping dangerous drugs for “dirty” cash might get mad enough, and afraid enough, to put up with what Rogoff calls a “less cash” society. While elimination of most cash might make it harder for black marketeers who operate in the small dark corners of society, it will be a bonanza for the undesirables along Wall Street and in Washington DC who are planning to shake down literally everyone.

Getting rid of large bills is a terrific way for them to herd people down a blind alley and pick their pockets. Bankers will grab handfuls of fees and deposits they wouldn’t otherwise get because people can no longer hold or transact with cash. Fed officials can impose negative interest rates, robbing even more of the value from everyone’s savings. And bureaucrats in government can swipe everyone’s ability to transact privately using off-the-grid cash.

At least Rogoff is willing to admit the REAL REASON cash is a problem for central bankers who want to impose negative rates. You just have to read much further down, past the pictures of shady characters and contraband:

“Unfortunately, the existence of cash gums up the works. If you are a saver, you will simply withdraw your funds, turning them into cash, rather than watch them shrink too rapidly. Enormous sums might be withdrawn to avoid these losses, which could make it difficult for banks to make loans – thus defeating the whole purpose of the policy.”

Like all Keynesians, Rogoff doesn’t care much for savers. How dare they withdraw cash to avoid negative yields and other losses!

He wants savers to be treated more like livestock – ready to be milked, shorn, and butchered by smarter policy makers such as himself.

One thing is for sure – many people, criminals, and honest people alike aren’t going to let themselves be herded to financial slaughter.

Officials certainly have control over the supply of cash circulating in society. But they do not control the alternatives, the first and foremost being gold and silver rounds, coins, and bars.

It won’t take long for drug lords to figure out that while an airliner full of small bills is impractical, a briefcase full of small gold bars can work just fine. Nor will all savers stand for paying their bank to hold deposits when they can convert those savings to precious metal instead. It is easy to predict these sorts of unintended consequences – the very reasons why central planners such as Rogoff inevitably fail.

 *Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

The War on Cash Is Still Good for Gold

Blog post by Frank Holmes, CEO and Chief Investment Officer of US Global Investors looking at the current much-promoted idea of eventually doing away with cash and its likely effect on the gold market.  Readers are also directed to an article I wrote on the same subject and published on SharpsPixley.com which suggested that thge logic behind the war on cash could also eventually be applied to gold – perhaps leading to gold confiscation.  See:Will the war on cash morph into a war on gold and diamonds

Negative Real Rates Real Positive Influence Gold

The consumer price index (CPI), a measure of inflation, came in hotter than expected Friday, registering 2.3 percent year-over-year in August on expectations of 2.0 percent. With the five-year Treasury yielding 1.19 percent, government bond investors are now receiving a negative real rate of return (because 2.3 minus 1.19 comes out to negative 1.11 percent).

This is highly constructive for the price of gold. As I’ve discussed many times before, the yellow metal has benefited when real rates have fallen below zero. This was the case in September 2011 when gold hit its all-time high of $1,900 per ounce. And last year around this time, the opposite was true—positive real rates were a drag on gold.

Although gold sunk to a two-week low on a strong U.S. dollar and fears over this week’s Federal Reserve meeting, the drivers are firmly in place to push prices higher.

Rogoffs new book calls end paper money

Maybe you’ve heard that a new book out right now is planting propaganda voice in the war on cash. In “The Curse of Cash,” Harvard economics professor Kenneth Rogoff makes the case that nixing paper money—at the very least, larger-denominated bills—“could help more than you might think” in combating criminal activities such as drug trafficking, corruption, extortion and money laundering. It could even prevent the spread of terrorism and discourage illegal immigration, Rogoff argues.

It gets even worse. Central banks, he adds, should have the latitude to drop interest rates below zero during recessions to spur spending. If the Federal Reserve tried this now, of course, many people would likely convert their savings into paper—which at least yields 0 percent—and hoard it in bedroom safes. This is precisely what many Germans have reportedly done, prompting safe manufacturers to scramble to meet demand

But in a world where nothing larger than a $10 bill exists, hoarding cash would be highly impractical. Better to buy that new boat you don’t need!

While we all agree that corruption and terrorism are things that should be stopped, killing cash is the absolute wrong way to go about it.

Instead, perhaps Rogoff should consider “The Curse of No Cash.” Does he not recall what happened in Cyprus just three years ago? The government ransacked citizens’ bank accounts to “fix” its own mistakes and mismanagement. In example after example, people’s rights to save and freely hold cash have been disrupted, with tragic results.

I’ve written about this topic before. In a cashless society, your economic liberty is forever at risk. Every transaction could be monitored, taxed and charged a fee. Capital controls would be crippling, assets could be seized. Just ask the Colombians and Venezuelans

I’m not the only one who disagrees with the ideas in Rogoff’s polemic against money. As of this writing, nearly three quarters of Amazon customers have given the book a rating of two or fewer stars. And in a scathing Wall Street Journal op-ed, respected financial writer James Grant strips away the book’s “technical pretense” to uncover its true motive. Rogoff, he writes, “wants the government to control your money,” which is the extreme form of Keynesian economics.

Gold Has Shined Brightly During Currency Crises

There’s one area where Rogoff and I both agree, though. “As paper currency is phased out,” he writes, “gold prices will rise.” Were cash eliminated and interest rates plunged underwater, gold’s role as a store of value would become even more apparent and demand for the yellow metal would turn red hot, despite its price appreciation.

This has been the case in countless past examples. Rogoff himself cites Indians’ longstanding love of and cultural affinity to gold jewelry as protection against currency uncertainty. For centuries, inhabitants of the Indian subcontinent saw continuous regime change, not to mention imperialist rule by various European forces. During all this time, the one stable and widely accepted currency was gold.

Indian Households Own More Gold Than Top Six Central BanksThe tradition carries on today. A third of Indian gold jewelry demand comes from rural farmers, who annually convert a portion of their crop revenues into the yellow metal. Whether this gold is stored or given to a female family member, perhaps a daughter, before her wedding day, its purpose is twofold: one, as a beautiful heirloom to be worn and passed down to the next generation, and two, as a form of financial security.

It’s estimated that Indian households currently holdmore than 20,000 tonnes of gold. To put that in perspective, 20,000 tonnes is more than the official gold holdings of the U.S., Germany, Italy, France, China and Russia combined.

With speculation strong that a rupee devaluation is imminent, it makes just as much sense now as ever for Indians to have at least some of their wealth in gold. When the rupee unexpectedly dipped to record lows in August 2013, the wealth that prudent Indians had stored in the precious metal was, for the time being, safe.

Indians Gold Jewelry Protect Wealth Against Currency Devaluation
click to enlarge

Although there’s little fear right now that the U.S. dollar is in trouble, I still recommend that investors maintain a 10 percent weighting in gold—5 percent in gold stocks, 5 percent in gold coins and jewelry.

Will Gold Find A Better Environment to Move Higher? – The Holmes Gold SWOT

Strengths

  • The best-performing precious metal for the week was palladium, down slightly by 0.41 percent. In an overall down week for the precious metals sector, palladium remained flattish.
  • Following the release of disappointing U.S. economic data Friday morning, which reduces the chance of a rate hike next week, gold rebounded from near two-week lows (although still on track for its first weekly loss in three), reports Reuters. “Once past the FOMC, gold may find a better environment to move higher,” said Michael Armbruster, principal and co-founder at Altavest. “In the big picture, even if the Fed raises rates twice more a total of 50 [basis points], real interest rates will remain negative—a very bullish environment for gold.”
  • Copper posted the biggest gain in nearly three months, reports Bloomberg, as strong economic data from China fueled speculation that demand will strengthen in the country. Factory output, investment and retail sales all exceeded analyst estimates in the Asian nation. On the London Metals Exchange copper for delivery in three months rose 2.6 percent mid-week, the biggest increase since June 15, the article continues.

Weaknesses

  • The worst-performing precious metal for the week was platinum, down 4.18 percent. According to Bloomberg, platinum experienced a seventh week of losses (the longest run since 2013). John Meyer, an analyst at SP Angel Corporate Finance LLP, says investors are losing interest in both platinum and palladium on concern that the popularity of electric cars, which use less platinum and palladium than gasoline-fueled cars, will cut into demand.
  • Reports that U.S. inflation pressures are rising, with a rise in monthly inflation seeing its biggest jump since February, sent the U.S. dollar higher on Friday. Gold, which has an inverse relationship with the greenback, drifted lower on the news. “This continues the tennis match between bulls and bears, hawks and doves over whether or not the Fed will raise interest rates next week,” said Colin Cieszynski, chief market strategist at CMBC Markets.
  • Although 2016 started with a bang for commodities, the year could end with a whimper, reports Bloomberg. The Bloomberg Commodity Index is heading for a third-quarter slump after posting consecutive gains for the first two periods, the article continues. Investors pulled $791 million out of ETFs tracking commodities over the past month and hedge funds have cut their combined wagers on a rally for raw materials in nine of the past 11 weeks.

Opportunities

  • David Mazza, head of ETF and mutual fund research at State Street Global, doesn’t believe a rate hike in the U.S. will spoil investors’ appetite for gold, reports Bloomberg. “We’re still going to be in an environment where rates in the U.S. are still very low,” Mazza said. In fact, holdings in gold-backed ETFs are heading for a third quarterly gain, the longest streak since 2012, despite the rising odds of a rate increase, according to data compiled by Bloomberg.
  • Barrick Gold Corp. has turned to tech giant Cisco Systems Inc. to help digitize its global mining operations, reports Bloomberg. “We mean to create value and push the boundaries of our industry in entirely new ways,” Barrick Executive Chair John Thornton said. A flow of real-time data should help cut costs and wring additional value out of its existing mines. As seen in the chart below, Barrick’s debt is down 43 percent to $9 billion from a 2013 peak, with most of the heavy lifting done by Thornton, Bloomberg continues.

bswot

  • Klondex Mines announced this week its decision to put its underground True North Gold Mine in Manitoba, Canada, back into full production, reports Mining.com. This will be Klondex’s third operational mine and President and CEO Paul Huet sees it delivering “significant value” to shareholders. The positive production decisions estimates annual production at True North at 45,000 to 65,000 ounces of gold.

Threats

  • With the Federal Reserve’s interest rate decision due next week, some gold investors are getting a bit nervous, reports Bloomberg. Cohen & Steers Capital Management, for example, was overweight in the yellow metal until last week when it decided to pare its gold allocation. In fact, over the past week, investors pulled $698 million from SPDR Gold Shares (taking holdings to the lowest since June), the article continues.
  • Barrick Gold Corp. announced temporary suspension of operations at its Veladero mine in Argentina on Thursday, pending further inspections of the mine’s heap leach area. A new spill was confirmed in the area, but Barrick reported that no solution from the damaged pipe had reached any water diversion channels or watercourses. The impacted area has now been remediated. The company does not expect the incident to have a material effect on its 2016 operating guidance for the mine.
  • In South Africa, one of the biggest producers of gold, 60 mining deaths this year (through August) were reported, according to the Chamber of Mines, up 20 percent from the same period last year. Finding minerals is becoming more and more deadly in the country, reports Bloomberg. The annual tally is heading for its first increase in nine years, the biggest in at least two decades.

 

Big gold ETF inlow gives gold small boost

Gold TodayNew York closed Friday at $1,310.90.  London opened at $1,318.

    • The $: € was stronger at $1.1159: €1 from $1.1240: €1 Friday.
    • The Dollar index was stronger at 95.92 from 95.30 Friday.
    • The Yen was slightly weaker at 102.04: $1 down from 102.00: $1 Friday against the dollar.
    • The Yuan was slightly stronger at 6.6737: $1 from 6.6740: $1 Friday.

 

  • The Pound Sterling was very weak at $1.3058: £1 from Friday’s $1.3229: £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  19

     2016  09  15

SHAU

SHAU

282.79

/

283.49

/

Dollar equivalent @ $1: 6.6737

$1: 6.6740

$1,317.97

/

$1,321.23

/

With Shanghai back in business we see it registered the purchase into the SPDR gold ETF and took the price higher. On the surface it looked like Shanghai was walking its own road after the holidays, but with the SPDR having to find the gold in London today to supply the Friday buying we feel that Shanghai was fulfilling its role in the 24-hour global gold market.

LBMA price setting:  The LBMA gold price setting on Thursday was at $1,315.05. Friday it was at set at $1,314.25.

The gold price in the euro was set at €1,178.41 against yesterday’s €1,171.03.

Ahead of the opening of New York the gold price was trading at $1,314.80 and in the euro at €1,177.98.  At the same time, the silver price was trading at $19.12.

Silver Today –The silver price was dropped to $18.77 at New York’s close Friday down from $18.98, Thursday.  

Price Drivers

The gold price received a positive input from heavy buying into the fund as you can see below. This has led to Shanghai and London lifting prices today. The buying and selling into the SPDR gold ETF continues to be the main driving force behind the gold price. As we said on Friday, “… the drifting nature of the gold price could be turned back just as fast by a large buy order.” This is what we are seeing now.

This week we expect market moving action from the Bank of Japan in the potential stimuli additions it may announce, or not. With the FOMC also due to meet this week we expect to hear a great deal of chatter on the subject of a rate hike until then.

Indian – The Indian government plans a proposal that includes a major increase in the tax on gold and other precious metals. The gold markets in India expect a Sales Tax between 2%-6%. Precious metals are currently taxed at between 1%-1.6%. If this happens, we expect a loud outcry from those on whom it is imposed.

We have pointed out how Indians are unwilling to bow to government on import duties, as well as Sales tax impositions including striking against such taxes. Normally, taxes deter the buying of gold, but in India there is a long tradition of smuggling gold into the country, with the public more than happy to disobey government and what is seen as their corrupt bureaucrats when policing the trade. We can just hear the whooping from smugglers at the prospect of such an imposition of tax. It will simply serve to make their business more profitable and to expand. As to gauging the volume of smuggled gold into the country, any figures should be treated as uninformed guesses. We have heard figures of between 150 and 250 tonnes per year, but have to question the willingness and veracity of smugglers who come forward with such statistics. It could be much higher! Right now such speculation is likely to spur demand ahead of such an imposition.

Gold ETFs – There was a huge purchase of 10.386 tonnes of gold into the SPDR gold ETF (GLD) but no change in the Gold Trust (IAU)Friday, leaving their respective holdings at 942.611 tonnes and 225.84 tonnes.

Since January 4th this year, the holdings of these two gold ETFs have risen by 368.149 tonnes.

Silver – Silver prices are back over $19.00 showing great resistance to falling too far into the $18.00 area.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Central bankers hate to be seen to be wrong

With so much seeming to ride on central bank interest policies in terms of equities in general, and precious metals in particular, perhaps one should look at the motivations behind the timings of likely interest rate hikes.

If we start with the U.S. Fed – nine months ago its Federal Open Market Committee (FOMC), which calls the tune on interest rates, was predicting that the U.S. economy was recovering sufficiently to allow three, or perhaps four, small rate hikes in 2016.  Presumably the economy has not so far recovered sufficiently to do so and thus not a rate hike to be seen as yet, which is why there has been so much attention being paid to a possible September rate increase.  Perhaps this could still happen despite some poor economic data, if only to save FOMC face.  We get successive statements suggesting the U.S. economy is coming right, only for the next set of government data showing that it patently is not doing so, and the rate increase can gets kicked down the road again.

The latest data, showing disappointing retail sales in August, following on from an ultra cautious statement from Fed Governor Lael Brainard, seems to have left those thinking that there could yet be a September rate increase announcement, in the distinct minority.  But there are still lingering doubts that the FOMC may talk itself into a rise this month, hence some of the weakness seen in the gold price and equities.

Everyone rules out a November rate hike as that would come so close only a couple of days ahead of the Presidential election date and now apparently some 70% of analysts believe that the FOMC will bite the bullet and implement a small increase in December – probably whether the data would seem to justify this or not.  While the Fed’s forecasting credibility is perhaps near zero, to do this might be a tiny face-saver, although there are still analysts and commentators out there who believe the Fed may hold off any tightening for a few months beyond that date.

Here in the UK we have the opposite scenario post the Brexit vote.  The establishment spent so much time telling everyone what a disaster a vote to leave the EU would be economically that not surprisingly, in the immediate aftermath of the referendum, economic nervousness prevailed.  Bank of England (BoE) Governor, Mark Carney, was at the forefront of the dire warning brigade, as was the Chancellor of the Exchequer (Finance Minister), George Osborne who had suggested there would have to be an immediate increased austerity budget should Britain vote to leave the EU.  George Osborne is no longer Chancellor and his successor, Philip Hammond, does not seem to be considering drastic changes ahead.

To almost everyone’s surprise, the UK economy is yet to show much, if anything, in the way of a downturn after an initial stutter which we would put down to the ‘Project Fear’ Remain campaign.  Even so the BoE lowered interest rates ‘just in case’ as an economic stimulus in August and although it has kept them steady this month as the data so far has notGovernor  supported the necessity of a further cut, Carney is still forecasting the likelihood of an additional drop before the year-end – presumably taking the bank’s base rate down to zero percent – or very close, although his most recent statements have perhaps been slightly less negative.

Consider the data.  The stock market is up post Brexit, employment has risen, property prices appear to be on the rise again, we are still in a GDP growth phase, the latest Services PMI for August (i.e post Brexit) has shown the biggest month on month rise in its history;  the August manufacturing PMI also grew at the fastest rate in its 25 year history to 53.3 when the market had been expecting a contraction;  inflation has not yet taken off, despite the fall in the value of the pound sterling against the euro and the US dollar.  Indeed the pound seems to be just about the only sufferer so far from the Brexit vote, although this is a two-edged sword in that it makes UK exports more competitive, and boosts tourist spending as foreign currencies go further making the UK an even more attractive destination.

Now Carney, the BoE  and the other Brexit naysayers will warn that this is a phony temporary outcome.  Inflation is almost certainly going to increase as lower sterling means higher costs of imports and if that starts filtering through to consumer spending we could well see difficult times ahead.  It is early days yet, and the UK is still in the EU so the real exit fallout is perhaps still two years or more away.  But so far the figures have confounded virtually all the ‘expert’ predictions and perhaps they will continue to do so when some of the potential positives of Brexit are at last taken into account.

However, this doesn’t stop the Brexit doom and gloom merchants from still trying to talk things down in order to justify their dire predictions – and Carney and the BoE are among these and thus may yet decide to cut rates again whether the data really justifies this or not.  Conversely the U.S. Fed may well raise rates to pursue the so-called legitimacy of its own forecasts.  That’s what happens in global economics and politics.  The experts and the establishment hate to be seen to be wrong and will often follow their pre-conceived paths regardless with no thought for the general public and the investment community if it may affect them adversely in the process.

What is doubly worrying is that this same analysis may well apply throughout the global political arena – even down to going to war!  Once national leaders are set on a particular path they tend to continue regardless, even though intelligence data may change and not ultimately support their decisions.  One might argue that the Iraq wars and the interventions in Afghanistan, Libya and Syria have indeed followed this kind of route with no planning or perception of the potential consequences, not only for the combatants, but probably even more importantly for the domestic populations of those nations. They just create a power vacuum allowing extremist organisations to take control, if not of the whole country, but large swathes of it.

NATO could find itself embroiled in something similar in the Ukraine when it could talk itself into lining up against Russia – altogether a different, and far more alarming, confrontation for all concerned.  But it’s too easy for what starts as combative rhetoric to lead to an ultimate nightmare scenario with neither side willing to back down for fear of losing face.

But that’s something of a digression, albeit an alarming one.  Both the U.S. Fed and the BoE, and perhaps the European Central Bank too, could be talking themselves into economic policies which are to the ultimate detriment of their own domestic communities and will likely also adversely impact the world’s emerging economies.  Arguably the Bank of Japan has already accomplished this having implemented policies which have driven this key economic and industrial powerhouse into years of average zero growth.

But until we hear the results of the FOMC deliberations before the end of this week, precious metals and equities may remain volatile – even with the week-long moratorium on Fedspeak ahead of the meeting so there won’t be FOMC participants muddying the waters with their conflicting statements.  If, as most expect, there’s no decision on rates this time, the markets may breathe a collective sigh of relief up until the weeks ahead of the December FOMC meeting when we’ll see this all play out again.

The above article is an updated and edited version of one which first appeared on the Sharps Pixley website last week

Gold and silver drifting lower. Opportunity knocks?

Gold TodayNew York closed yesterday at $1,314.00 yesterday.  London opened at $1,322.60.

    • The $: € was barely changed at $1.1240: €1 from $1.1239: €1 yesterday.
    • The Dollar index was weaker at 95.30 from 95.43 yesterday.
    • The Yen was stronger at 102.00: $1 up from 102.25: $1 yesterday against the dollar.
    • The Yuan was slightly stronger at 6.6740: $1 from 6.6790: $1 yesterday.

 

  • The Pound Sterling was unchanged at $1.3229: £1 from yesterday’s $1.3229: £1.

 

Yuan Gold Fix

With Shanghai on holiday London and New York continued to make the prices of gold and silver without input from Shanghai

LBMA price setting:  The LBMA gold price setting on Thursday was at $1,314.25. Yesterday it was at set at $1,320.10.

The gold price in the euro was set at €1,171.03 against yesterday’s €1,174.36.

Ahead of the opening of New York the gold price was trading at $1,313.35 and in the euro at €1,170.44.  At the same time, the silver price was trading at $18.93.

Silver Today –The silver price was lifted to $19.00 at New York’s close yesterday up from $18.98, Wednesday.  

Price Drivers

The gold price is drifting assisted by a steady stream of selling from the SPDR gold ETF in the last week. These sales do seem to be aiming at lowering prices. It is a great opportunity for bears insofar as a short position taken on COMEX of a larger size than the physical sales ensures profits on the falls. This is what’s happening now. But the drifting nature of the gold price could be turned back just as fast by a large buy order.

The lower the gold price drifts the closer to heavy support at around $1,300.

Indian Demand – The start of the gold season is underway. The discount prices on gold are disappearing and gold should be trading at the same price as London from next week onwards.

The monsoons were very good this year letting farmers make a decent profit for the first time in three years.

Governmental sources say that is because smuggling is now being deterred by better policing of smuggler’s routes at airports. We doubt that they are having such an impact as smugglers routes into the country are many and varied along India’s vast borders along mountainous passes and along the coast as well as at airports. Large volumes would not go through airports. What is clear is that smuggled gold comes in at an 11% discount to official imports where duty is paid.

We see the disappearance of discounts as an indicator of demand absorbing both ‘official’ imports and smuggled imports.

While China is on holiday for the long weekend they return next week to an economy that is stabilizing, where the middle classes are burgeoning and buying cars in record numbers. This enrichment of the poor could eventually extend to more than a third of the population, all of whom are attracted by gold as an investment.

While their disposable income levels dictate the amounts of gold they can buy [a 25% rise in price reduces the amount of gold buyable by 25%] the sheer rise in numbers of richer people overwhelms the increased cost of buying gold in terms of buying potential.

Gold ETFs – There were sales of 3.264 tonnes of gold from the SPDR gold ETF but no change in the Gold Trust yesterday, leaving their respective holdings at 932.225 tonnes and 225.84 tonnes.

Silver – With silver prices falling far less, in percentage terms, than gold we see silver investors unwilling to believe the fall in the gold price will go much lower or for longer.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Stagflation fears yet gold dumped

Gold TodayNew York closed yesterday at $1,322.60 yesterday.  London opened at $1,321.30.

    • The $: € was slightly weaker at $1.1239: €1 from $1.1232: €1 yesterday.
    • The Dollar index was weaker at 95.43 from 95.52 yesterday.
    • The Yen was stronger at 102.25: $1 up from 102.68: $1 yesterday against the dollar.
    • The Yuan was slightly weaker at 6.6790: $1 from 6.6733: $1 yesterday.

 

  • The Pound Sterling was stronger at $1.3229: £1 from yesterday’s $1.3201: £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  15

     2016  09  14

SHAU

SHAU

/

283.68

/

284.41

Dollar equivalent @ $1: 6.6790

$1: 6.6733

/

$1,322.20

/

$1,325.60

With Shanghai on holiday today and another holiday coming in the next few days London and New York are making the prices of gold and silver. Gold in London is drifting alongside the Technical picture. The Technical picture is negative but with such strong support below current levels and below $1,300, we are doubtful that it will have more influence than it currently has in a market that is ‘drifting’.

The market is poised to be influenced once more by gold ETF action but with such a period of sideways movement any gold news that appears is expected to have a disproportionate impact. So once we see what iceberg is about to hit the developed world’s economies we can measure the damage that is coming.

We concur with the remarks by Paul Singer and Alan Greenspan of late. [See below]

LBMA price setting:  The LBMA gold price setting on Thursday was at $1,320.10. Yesterday it was at set at $1,323.20.

The gold price in the euro was set at €1,174.36 against yesterday’s €1,177.59.

Ahead of the opening of New York the gold price was trading at $1,321.10 and in the euro at €1,175.57.  At the same time, the silver price was trading at $19.01.  But after a big data release gold rose initially to around $1,326, but was subsequently dumped down to $1,310

Silver Today –The silver price was lifted to $18.98 at New York’s close yesterday up from $18.87, yesterday.  

Price Drivers

Both the gold and silver prices have barely moved in the last day. Exchange rate fluctuations have adjusted prices slightly, but essentially there has been no price affecting action in the New York, London or Shanghai markets. A raft of data released in the U.S. today has seen gold and silver  prices marked up initially, but then down, although the data content would not all necessarily have suggested the latter.  A volatile day looms.

Is all well then? Such quietness in this case could be the eye of the storm. Bear in mind we are talking about events that affect New York prices where prices are made [even though it is a minnow in physical terms]. We note the comment by Greenspan made recently, “On the economic front, the U.S. is headed toward stagflation[a combination of weak demand and elevated inflation]. We’re not in a stable equilibrium.”  

For years the Gold Forecaster has forecast the likelihood of stagflation but, through central bank actions, essentially fighting deflation, this has not happened, yet. But now, this huge supertanker of the developed world economies is soon to complete its full turn, started in 2008.

Central banks appear to have ‘shot their bolt’ and are proving relatively ineffective with their stimuli.

The future is uncharted territory and unpredictable. We agree, “We are not ‘in a stable equilibrium”.

What we can be certain of is that when this message is fully absorbed and the symptoms visible, gold and silver will come into their own as a counter to governmental failures.

Gold ETFs – There were no sales or purchases into or out of the SPDR or the Gold Trust yesterday, leaving their respective holdings at 935.489 tonnes and 225.84 tonnes.

Silver – With silver prices sitting on $19 and the gold price drifting slightly, we expect the silver price to move slightly into the $18 level but until gold makes a decent move the silver price will remain lackluster.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Unprecedented Global Bond Bubble. Gold and Silver an Escape Hatch.

By Stefan Gleason*

While the article below is aimed at the U.S. investment community, there are parallels throughout the world where negative interest rates are already in effect, or being contemplated.

Falling Interest Rates

The world has rarely seen a bond bull market that is not only 36 years old, but also shows few signs of ending. And never before in recorded history have interest rates gotten so low across the board.

How much lower can interest rates go? Conventional wisdom once held that rates could only get as low as 0%. WRONG! In the current crazed central banking climate, yields on cash can move below zero, and they could stay there for longer than anyone can possibly imagine.

Negative rates – where lenders pay interest to borrowers – are a strange-but-true phenomenon in Japan and throughout much of Europe. They aren’t confined just to overnight rates set directly by central banks. They have spread across the yield curve to afflict the long-term bond market as well.

The Fed Is Speaking Warmly about Imposing Negative Rates in America

The U.S. Federal Reserve is now contemplating a negative interest rate policy even as it jawbones about raising rates. At its August Jackson Hole gathering, Fed officials listened to economist Marvin Goodfriend make the case for negative rates (and another draconian measure, as I’ll explain in a moment).

War on Cash

“It is only a matter of time before another cyclical downturn calls for aggressive negative nominal interest rate policy,” he said. The U.S. economy is overdue for a recession, and when the one hits, Goodfriend suggests the Federal funds rate will be dropped to as low as -2%.

Goodfriend is no friend to holders of cash. Not only does he want to penalize savers; he also proposes eliminating coins and paper notes from circulation.

After all, if your bank account “pays” negative interest, holding physical cash under your mattress would give you a higher yield. So central bankers would rather see cash be eliminated to prevent you from pulling it out of the bank.

Fed Vice Chairman Stanley Fischer said in a recent Bloomberg interview that negative interest rates “seem to work.” While he denied that the Fed has any immediate plans to pursue a negative rate policy, he sure sounded favorable to the concept.

There Is Still an Escape Hatch to Sound Money

There is an escape hatch for those who fear being trapped in a negative yield regime. Hard assets, including physical precious metals, have no interest rate attached to them.

Putting aside capital appreciation qualities, a gold coin with a 0% yield also offers a superior yield to any currency instrument with a negative rate affixed to it. Gold and silver are normally seen as more attractive forms of cash when cash instruments yield less than the inflation rate (i.e., negative real interest rates). But in a negative yield environment, precious metals also have the advantage of sporting nominally higher yields.

Many economists, who assume that markets are efficient and that investors make rational choices, remain puzzled as to why negative yielding bonds have attracted nearly $16 trillion in inflows globally. The standard models for evaluating bonds assume that a bond must offer at least some nominal yield above cash to make it more attractive than simply holding cash itself.

Logically, there shouldn’t be any demand for negative yielding bonds under any circumstance. Why would investors in a free market wittingly pursue sure-fire losses? And yet, today, there is enormous demand for bonds that promise to pay back holders less than the principal they invest.

It’s important to recognize that negative yields are being imposed on markets by central banks. Many institutional investors such as commercial banks, pension funds, and insurance companies are effectively forced to own government bonds regardless of what they yield.

Then, speculators come in who don’t care about logic or sound fundamentals, but only care about chasing extant trends. Continuation of this trend seems likely when we have central banks willing and able to create unlimited amounts of currency to buy bonds. This trend begets followers, and followers exacerbate the trend – often to the point of “irrational exuberance,” as Alan Greenspan once put it.

Don’t Bet against the Government Bond Market

Bond market speculators can potentially reap capital gains even on bonds that carry negative yields. If future bonds get issued with rates that are even more deeply negative, then the values of all previously issued bonds will keep climbing.

The U.S. Bond Bubble Grows

Given that rates in the U.S. are still positive, the bond bubble could get much bigger before it bursts. U.S. Treasuries with yields of 1%-2% may be historically low, but they look fat and juicy to Japanese and European investors who get literally less than nothing on bonds in their home markets. In other words, the government bond market still looks like a raging bull.

Before you go chasing after capital gains in Treasuries, however, consider the risks of owning bonds at today’s ultra-low yields. You could subject yourself to massive real losses over time if inflation rates perk up. Even nominal capital gains in bonds could prove to be illusory in real terms.

Gold and silver are premier assets to hold if you are concerned about negative real interest rates. Precious metals markets offer no guarantee of inflation-beating returns in any given year, of course. But if you’re thinking 30 years out, would you rather put your trust in metals – or in a bond issued by an over-indebted government that promises to pay you a historically low yield?

Although low to negative interest rates could persist for years, odds are the current low-yield craze won’t last a full 30 years. Therefore, at some point down the road, today’s buyers of 30-year bonds will likely wish they had parked some of their savings in physical precious metals instead.

The Chinese have not lost their appetite for gold

Gold TodayNew York closed yesterday at $1,318.00 yesterday.  London opened at $1,323.00.

    • The $: € was slightly weaker at $1.1232: €1 the same as $1.1232: €1 yesterday.
    • The Dollar index was stronger at 95.52 from 95.30 yesterday.
    • The Yen was stronger at 102.68: $1 up from 102.18: $1 yesterday against the dollar.
    • The Yuan was slightly weaker at 6.6733: $1 from 6.6800: $1 yesterday.
  • The Pound Sterling was weaker at $1.3201: £1 from yesterday’s $1.3263: £1.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  14

     2016  09  13

SHAU

SHAU

283.68

286.64

284.41

286.14

Dollar equivalent @ $1: 6.6733

$1: 6.6800

$1,322.20

$1,334.66

$1,325.60

$1,332.23

Shanghai went $7 higher than New York but London pulled it back but not far.

This is the second day that we have seen pricing in Shanghai separating itself from New York. London’s pricing seems to respect Shanghai and could be asking the same question. Exchange rates appear to have a key influence on prices at the moment.

We are often the victims of the media’s views on China. They have led us to believe that all in not well in China’s economy. However, we see wages rising, house prices moving higher and industrial production climbing, factors that are the envy of the developed world. This insinuates that the middle classes are thriving and in a position to buy more gold.

Some say higher prices slow buying, but others that rising prices in the Yuan speak of a weakening Yuan, an incitement for Chinese investors to buy. We have no doubt that the Chinese have not lost their appetite for gold. While they are about to enjoy two national holidays they will be back!

LBMA price setting:  The LBMA gold price setting on Monday was at $1,323.20. Yesterday it was at set at $1,328.50.

The gold price in the euro was set at €1,177.59 against yesterday’s €1,182.26.

Ahead of the opening of New York the gold price was trading at $1,321.75 and in the euro at €1,177.77.  At the same time, the silver price was trading at $19.00.

Silver Today –The silver price was  $18.87 at New York’s close yesterday down from $19.13, the day before.  

Price Drivers

We do believe that the equity market is overpriced and have said this for some time. These markets are rising without there being underlying growth of income, because the economic growth levels are far below that of a healthy economy. These markets are rising because equities are giving dividends that provide more yield than bonds. Almost any rate increase will hammer bond and equity markets.

But there is an almost blithe trust that the U.S. economy is getting healthy. Yes, it is not deflating visibly, held up by Fed stimuli. Fed officials keep telling us of the dangers in and outside of the U.S. but this is being treated lightly, with cries that the time for a rate rise is now in a week’s time the overall Fed will speak and markets will react to what they say as if it were a surprise. At that time we expect a surge in volatility, which could well encompass gold and silver markets in the U.S.

Nevertheless, the gold and silver markets will always respond to currency values against each other with the U.S. dollar being the pivot of the currency world.

Gold ETFs – There were sales of 4.451 tonnes of gold from the SPDR gold ETF (GLD) but a purchase of o.45 tonnes into the Gold Trust IAU) yesterday, leaving their respective holdings at 935.489 tonnes and 225.84 tonnes.

Silver – Once again, like gold, the silver price appears unwilling to fall through support at $19 for any length of time. As we’ve said before, silver will follow gold and neither its technical picture nor its fundamentals, a pattern set some years ago. It is being treated as a monetary metal and has been throughout those years.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance