Diwali, Lord Rama, and the Return of Gold from Exile

By J.P. Cortez*

October 19, 2017 marks an important holiday in the Indian culture. Diwali begins.

Diwali is one of the biggest festivals for Hindus, Sikhs, and Jains. It is a lavish celebration of the victory of light over darkness with its gleaming candles, luxurious works of art, and opulent feasts. Diwali is also characterized by gift giving. Buying and gifting gold is considered auspicious during Diwali.

Given the nature of the holiday and the number of people who celebrate it, according to CNBC, the past few years have seen a tendency for the gold price to rise around Diwali. Last year during Diwali, Mihir Kapadia, founder & CEO of Sun Global Investments, said “As heavy consumers, the festive seasons always tend to surge the demand, and considering the current low prices, this should increase the market activity and thus push the prices a little.” Kapadia continued, “We do not expect it to boost prices significantly as the overall market is subdued due to the worries about rising interest rates.”

There is no shortage of economic analysis during the buildup to this year’s celebration as The Economic Times reported “bullion has climbed almost 10 percent on the Indian market this year as world prices increased on… reduced chances of a further hike in U.S. interest rates in 2017.”

However, history shows that rising interest rates do not necessarily make bonds and cash more attractive or push the demand for (and therefore the price) gold down. Interest rate hikes are usually a gold bullish event.

“Gold prices going down after rate hikes is a myth propagated by the financial establishment and portfolio managers who may be intellectually lazy or have a vested interest in scaring people away from gold,” says Stefan Gleason, president of U.S. precious metals dealer Money Metals Exchange. “In reality, central banks are almost always behind the curve, and real interest rates may be going in the opposite direction despite the rate hikes.”

Slaying the Beast Takes Multiple Blows

Diwali is a grand, extravagant multi-day festival celebrating many things by many different groups of people. One of the more popular tales remembered and celebrated during Diwali is that of the brave Lord Rama. According to legend, he returned from exile after having saved his kidnapped wife and slayed the evil demon Ravanna.

This tale of glory and triumph evokes the sound money camp’s monetary hero, gold, facing the evil government and its minions, the “professionals” who often have a cynical bias against the yellow metal.

In the grand battle, Rama fights fiercely against Ravanna and his footmen. After a long and taxing battle, Rama delivers a blow that decapitates Ravanna’s central head. Unfortunately, another head appears in its place. Finally learning that Ravanna’s secret was an immortality nectar held in his stomach, Rama fired an arrow that finally laid Ravanna to rest.

Like Rama, gold finds itself fending off attacks from all sides. The federal government has been striking blows at gold since 1933, when Roosevelt banned all private possession of gold and required it be handed over in exchange for paper money. Gold has had all sorts of taxes levied against it. Gold and silver coins were stripped of their constitutional role as the only forms of money states could recognize as legal tender in payment of debts. Today, countless Wall Street types make a living trying to pierce the armor of gold in print and on television.

Fear not! It’s true that sound money’s lionhearted soldier hasn’t launched the fatal arrow that finally slays the fiat money system run by the world’s central bankers. But the battle is tipping further in the direction of our fearless hero every day.

In America, States are taking the necessary steps to unshackle gold from its bureaucratic chains. 36 states across the union have an exemption against sales taxes being levied in precious metals purchases. Arizona has moved towards widespread acceptance of gold and silver by recognizing its legal tender status while removing capital gains taxes on precious metals holdings, with Wyoming, Idaho, and Tennessee not far behind. Texas is setting an example on how to shore up pension funds using gold, not to mention creating its own bullion depository.

Step by step, hard money forces are making advances. They still have a long way to go, of course. But they can draw inspiration from previous epic struggles against powerful foes.

During Diwali, millions of people around the world will celebrate the victory of their courageous and valiant hero, Lord Rama. Meanwhile, we can all celebrate gold’s continued ability to not only survive the onslaught coming from gold-cynics everywhere, but also to steadily re-establish itself as constitutional money.

*J.P Cortez is the Assistant Director of Sound Money Defense League,

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Investors may wait for big gains in gold and silver

By Clint Siegner*

Silver / Gold Demand Increase

Only the contrarians have capitalized
on gold & silver’s advance since 2015.

 

With strong gains both this year and last, metals prices have been responding to a host of issues – from unrestrained federal borrowing to the prospect of nuclear exchange. But they haven’t moved up as much as many expect.

After advancing dramatically in the prior decade, gold and silver have not responded as strongly to the explosive money creation and debt of the last few years as stocks have. And while predictions of crisis have been plentiful, the “Big One” hasn’t yet materialized.

Some honest money investors have even been drawn to Bitcoin and other cryptocurrencies. This is, in part, because of the tremendous run-up in prices in recent months (notwithstanding last week’s crash), and because cryptocurrencies might prove beyond the reach of Wall Street and central bankers to control.

Unfortunately, many investors will be sitting on the sidelines until precious metals are proven outperformers again, and in doing so, they will miss a big move up in prices. While we expect to see much higher gold and silver prices, the catalysts for that aren’t anything to root for. Serious geopolitical strife, a major correction in stock prices, or the U.S. dollar in free fall all mean hardship and pain.

Change is inevitable, and the U.S. economic expansion is getting long in the tooth. Even artificial markets must ultimately yield to actual physics.

The good news for investors with a contrarian bent is that buy premiums on bullion products are the lowest they have been in a decade – and inventory is plentiful. Down the road the opposite may be true, i.e. high premiums and shortages of the physical gold and silver in minted form.

Julian Phillips: RIP

We learnt today that Julian Phillips, whose informative regular reports on the gold and silver markets had been a continuing feature of our pages, passed away on August 26th.  Our thoughts are with his wife and daughters.  We will miss greatly such a strong follower of the precious metals markets and his regular contributions to our pages.

We reproduce below an obituary penned by Peter Spina of the Goldseek website who had been publishing Julian’s observations on the markets fo far longer than we have.  Peter’s views echo those of my own and I couldn’t produce a better summation of Julian’s character, life and work. His contributions to these pages will be sorely missed:

In Memory of Julian Phillips

By Peter Spina

Julian Phillips

It is with deep sadness that I share this notice of the sudden passing of Julian D.W. Phillips on the morning of August 26th. Julian was a much admired and a strong supporter of the gold and silver community, and a leading thinker who guided us for many years. His extensive work influenced tens of thousands of readers across the most recognized gold websites, media and subscribers and his passing is a big loss to many.

Over the past few decades, those who read Julian’s work know of his leadership in not just understanding the global gold, financial and monetary markets, but forecasting the major shifts to come. His work influenced many other precious metals commentators and assisted them to evolve their own understanding.  His important work provided guidance to many thousands of investors.

I met Julian shortly after the year 2,000 and he generously agreed to share his financial and monetary knowledge on GoldSeek.com during the very early days of the gold bull market. Not many authors were even covering gold at the absolute market bottom and very few had his global perspective from having lived on different continents. Julian’s weekly articles, then written under the publication Gold Authentic Money, brought incredible depth and knowledge to readers from around the world. He quickly became one of the top and most widely followed gold analysts on GoldSeek, with his expertise being highly prized by investment funds as well as the international media.

In 2005 his co-contributing technical analyst retired from Gold Authentic Money and Julian approached me to join him on a new publication, resulting in our launch of The Gold Forecaster – Global Watch. I was in my mid-20s at the time and felt quite honored to have been even considered by Julian, whom I consider one of my mentors. I was reluctant but Julian encouraged me to share my decade long experience in precious metals with my focus on junior mining companies and my technical forecasts.

In this way, our collaboration began and together we provided subscribers with an in-depth weekly newsletter forecasting the fundamental and technical aspects of precious metals with regards to the many markets and influences on its price. We produced nearly 600 weekly Gold Forecaster newsletter issues over these prior dozen years, through both the good and the difficult times, guiding thousands of subscribers through this evolving bull market. Julian’s strong fundamental knowledge truly made up the core contribution of the typically 20-30 long page weekly publication and I remain honored to have been able to work with him for so many years and sharing his insights with so many through GoldSeek.com.

Together we actively managed a multi-million dollar precious metals hedge fund for a wealthy family office, yielding millions in profitable returns in just the several months of management. But after our strong returns in the early phase of the bull market, the family office felt like gold was nearing its peak as it was running towards $800/ounce.

This then opened the door for Julian to create and develop an exceptional product for gold investors providing gold confiscation protection in the form of a storage fund. Using his experience helping families protect and move their wealth from Zimbabwe’s confiscation in the 1980’s, Julian spent the last several years creating The Ultimate Gold Trust with the assistance of skilled lawyers, bankers and bullion administrators. Now many years into its establishment, there still is no other product of its kind which provides such an exclusive gold protection structure against future confiscations.

The Ultimate Gold Trust has attracted numerous clients resulting in a large amount of physical bullion stored securely in Switzerland and all of the hard work Julian undertook to build this gold protection fund remains active today. Because of this, Julian’s legacy will endure for many years to come, providing critical confiscation protection to gold and silver investors.

Julian’s work is vast and he had an incredible amount of knowledge to share which included his daily Gold & Silver Market Mornings, the weekly Gold & Silver Forecaster newsletters, special feature reports, interviews, in addition to being an advisor to major investment funds from Hong Kong, London to New York City and not limited to organizations including GFMS. Yet unknown to most, over the past few years Julian had begun work on a book entitled “The Book on Gold” that was to “speak to all investors with a focus on the very basics of money.”

What is not known by most of the tens of thousands who followed Julian was the personal side of Julian. If you had the opportunity to ever speak with Julian, ever so generous with his time, you would quickly come to know Julian’s character. An honest man with such integrity, Julian had a wonderful wit and humor. He was a deeply caring man, a true gentleman with such class. He had such delightful analogies to describe not only financial concepts but also his perspectives on life, usually weaving his love of sailing into lengthy conversations I was privileged to engage in often over the many miles between South Africa and Colorado.

I feel honored and extremely blessed to have spent the past decade and half working with Julian. I hold him and his work in the highest regard. I will deeply miss our talks and his constant guidance which I was able to share with so many others. He was a wonderful person to have worked with and will miss him as dear, close friend as will so many.

I would kindly ask all those who were impacted by Julian’s work to please send us your messages to julian@goldseek.com

I would like to share them with his loving wife and daughters which he leaves behind.

Julian was a huge proponent of gold and a strong supporter of the gold community. In the coming months, I will be reviewing and releasing some of Julian’s vast and yet unreleased work and articles. Some of which was written for our Gold Forecaster subscribers, some of which was intended for his book, but much of it remains relevant to the gold community today.

You can subscribe to Julian’s email list here to receive them, but we will also publish and share them with the precious metals community on GoldSeek in the coming month(s).

Peter

Views on Chinese gold demand and official reserve data

Two more articles I’ve published on the Sharps Pixley website – the first looking at Chinese gold demand as represented by Shanghai Gold Exchange (SGE) withdrawals and the second on yet another monthe where China says it has not increased the volume of its gold reserves (we doubt the veracity of the Chinese ‘official’ figures.  Do click on tghe links to read the articles on info.sharpspixley.com.

The article on the latest SGE withdrawal data – Chinese gold demand heading for 2,000 tonnes this year

Latest Chinese gold reserves article: China says it adds zero to its gold reserves – again

 

Gold and Bitcoin Surge on North Korea Fears

Article written prior to the sharpish turndown in the gold price after the weekend.

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

bicion

If you’re familiar with ABC’s popular reality show Shark Tank, you should already be familiar with the concept behind the San Antonio Angel Network (SAAN). Select entrepreneurs and innovators pitch their startup ideas to accredited investors, who can choose to make early-stage investments in a potentially successful company.

I attended an SAAN meeting last week at Ferrari of San Antonio, and what struck me the most was how fluid and seamless the whole thing is. Other professionals in attendance, including lawyers and CPAs, had a similar opinion, with some of them saying it was because there wasn’t any bureaucracy or red tape to hamstring the presenters.

This is unlike the world of mutual funds, which I believe has become excessively regulated.

As I’ve said numerous times before, regulation is essential, just as referees are essential to a basketball game. No one disputes that, because otherwise there would be chaos.

Similarly, the new and very unregulated world of cryptocurrencies has grown dramatically, beyond bitcoin and ethereum. Did you know there are over 800 cryptocurrencies? These new initial coin offerings, called ICOs, are like initial public offerings (IPOs) but with little regulation or accountability. As I’ve commented before, if the refs get too powerful or too numerous, and the rules too complex, the game becomes nearly unplayable.

Cryptocurrencies Still Draw Investor Attention Following China Crackdown

Bitcoin, ethereum and other cryptocurrencies have had a meteoric year, with more than $2 billion raised in ICOs so far in 2017, according to Bloomberg. Approximately $155 billion in cryptocurrencies are in circulation around the world right now. Bitcoin by itself is at $78 billion, which is close to the $90 billion invested in all gold ETFs.

Cryptocurrencies have made red hot moves this past year
click to enlarge

Like gold, cryptos are favored by those who have a deep distrust of fiat currency, or paper money. Money, after all, is built on trust, and the blockchain technology that bitcoin is built on top of automates trust through an electronic ledger that cannot be altered. Every transaction is anonymous and peer-to-peer. The system is entirely decentralized and democratic. No monetary authority can see who owns what and where money is flowing.

This, of course, is a huge reason why some world governments want to crack down on the Wild West of virtual currencies, especially with bitcoin surging close to $5,000 this month.

China did just that last week, putting a halt to new ICOs and crypto transactions. In response, ethereum tumbled as much as 15.8 percent last Monday, or $55 a unit. Bitcoin lost $394 a unit.

China’s decision comes a little more than a month after the SEC said cryptocurrencies are securities and therefore should probably be regulated as such. At this point, though, the implications are unclear.

What’s clear to me—after seeing firsthand how easily and quickly transactions are made—is that there’s no going back. It’s possible cryptocurrencies will one day be regulated. But I’m confident bitcoin, ethereum and some other virtual currencies offer enough value to weather such a potential roadblock.

I also believe there has to be a happy medium between the excessively regulated fund industry and the potential chaos of the cryptocurrency. This is what I witnessed at the SAAN event I mentioned, which allowed the professionals in attendance to gain information, ask questions and make informed decisions.

Gold Trading Above $1,350 an Ounce

Speaking on cryptocurrencies last week, Mark Mobius, executive chairman of Templeton Emerging Markets Group, said gold could be a beneficiary of China’s decision to clamp down on ICOs. As more governments and central banks turn their attention to virtual currencies, investors could move back into the yellow metal as a store of value.

That’s a possibility, but I think gold’s price action right now is being driven by negative real Treasury yields and fears over a potential conflict with North Korea. Adjusted for inflation, the two-year and five-year Treasuries are both currently yielding negative amounts, and the 10-year continues to fall closer to 0 percent.

Real treasury yeilds fall further
click to enlarge

As I’ve explained numerous times before, gold and real interest rates share an inverse relationship. It makes little sense to invest in an asset that’s guaranteed to cost you money—which is the case with the two-year and five-year government bond right now. Investors seeking a “safe haven” might therefore add to their weighting in gold, especially with North Korea’s Kim Jong-Un raising tensions.

The yellow metal closed (last week) above $1,350 an ounce, more than a one-year high – (but has come down quite sharply this week as some of thge geopolitical fears eased – temporarily perhaps? – Editor).   

Gold price up more than 15 percent year to date
click to enlarge

Despite Efforts to Control Spending, National Debt Expected to Continue Growing: CBO

Similarly driving the gold Fear Trade are concerns over the national debt. Last week President Donald Trump sided with Congressional Democrats in raising the federal borrowing limit to allow Hurricane Harvey recovery aid to pass. An initial package of $7.85 billion for Harvey victims was agreed upon, but with total costs expected to be as high as $190 billion—more than the combined costs of Hurricanes Katrina and Sandy—and with Hurricane Irma the federal aid amount could eventually run even higher.

Trump partially ran on reigning in government spending, which I and many others would like to see. Even so, this might not be enough to control our runaway debt. According to an August report by the Congressional Budget Office (CBO), debt will likely continue to grow as spending for large federal benefit programs—Social Security, Medicare and the like—outpaces revenue. Interest payments on the debt will only continue to accelerate as well.

Below is a chart showing national debt as a percentage of GDP going back to the founding of the U.S. Although we’ve seen periodic spikes in response to national crises, the debt could soar to unprecedented levels within the next 10 years.

Federal debt expected to continue rising
click to enlarge

Financial writer Alex Green, the Oxford Club’s chief strategist, told me during my recent interview with him that he thought out-of-control spending posed a greater threat to our country than even North Korea.

I tend to agree with him, and that’s why I believe that investors should have a 10 percent allocation in gold, with 5 percent in bullion and 5 percent in gold stocks, mutual funds and ETFs.

Gold will go to $2,000 plus on coming central bank failure – Michael Pento

Mike Gleason* of Money Metals Exchange interviews Michael Pento.  Below is a transcript.  However the interview is also available on a YouTube video and if you’d prefer to watch the video here’s a link to it: https://www.youtube.com/watch?v=3QKushYDGH0.  The interview was recorded before North Korea conducted its H-Bomb test on Sunday and gold has moved up a few notches as a result, but that does not detract from Michael Pento’s overall message – it perhaps brings the timing scenario forwards.

Mike Gleason: It is my privilege to welcome in Michael Pento, President and founder of Pento Portfolio Strategies, and author of the book, The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market. Michael is a well-known and successful money manager, and has been a regular guest on CNBC, Bloomberg, Fox Business News, and also the Money Medals Podcast, and shares his astute insights on markets and geopolitics from the perspective of an Austrian school economist viewpoint.

It’s always a real pleasure to have him on with us. Michael, welcome back and how are you?

Michael Pento: I’m doing fine and thank you for having me back on Mike.

Mike Gleason: Well Michael, let’s start out here with the topic that is dominating the news. Hurricane Harvey has laid waste to Houston, and the Texas Gulf coast. But Wall Street doesn’t seem to be bothered. Gold and silver have got a bit of a boost, but the equity market shrugged it off. This all makes me think back of the parable of the broken window, which was introduced by the well-known 19th century economist, Frédéric Bastiat, where he described why the money spent to recover from destruction is not actually a benefit to society.

But Michael, it appears as though Wall Street and the financial world might be buying into the idea of the broken window fallacy and viewing it as truth, and that all the destruction will somehow be good for the economy. What are your comments there, and what do you makes of the market’s initial response here, to this terrible, terrible tragedy?

Michael Pento: I guess it’s part of the hyperbole and hysteria that encompasses Wall Street right now. Nothing can knock down the stock market. You didn’t even mention the fact that North Korea Kim Jung-un, his new regime, launched his 80th scud missile, and they’re ICBM’s, ballistic missiles, into the Sea of Japan and over Japan, and towards southern, south Sea of Japan. And nobody seems to care. As a matter of fact, the market rallied, from being down about 150 points in the pre-market to, I think, plus 58 on the DOW, yesterday (Tueday).

There’s nothing (that) can harm this market. The reason for that … The simple reason behind that, is that central banks have printed 15 trillion dollars’ worth of confetti and counterfeit money, leading out of the financial crisis, from 2008 to today. 15 trillion and counting. You know, don’t forget you still have 60 billion euros per month, over in Europe, and you’ve got the Swiss Central Bank. You’ve got the Bank of Japan, which is hopefully enamored with money printing in it, at least Mr. Kuroda, the head of the BoJ, understands that he can never, never, even think about, or hint about reducing his quantitative easing, or QQE program that he has.

Going back to Frédéric Bastiat … Wall Street, very low level of thinking, very idiotic group of individuals, who actually … I was listening to CNBC, comment about how … By the way my heart and my prayers go out to the people in Houston, and now in Louisiana. I heard a commentator on the show saying, “Hey, but let’s look at the good news here. Look at all the construction that’s going to happen, so this is actually a boom for the economy.” Well, you know, if you follow that philosophy, then we might as well just bulldoze all the houses, and all of the physical structures in the United States. That’s how you grow GDP. You don’t grow GDP through productivity, and you don’t grow GDP by increasing and boosting your labor force.

The new way of growing productivity now, is to break things, and to pray for catastrophic storms. Of course, they never think about where the money comes from. In other words, if I was going to fix this pane of glass, in the analogy that you brought up, the broken window analogy … Well, I was going to buy a pair of shoes, and now I have to spend that money on fixing the pane of glass. Or, if I have to just borrow that money, that money that’s borrowed, to fix the glass, would have been borrowed to, perhaps buy capital goods, and expand the economy. And of course, if that money is just printed, well then, we have the scourge of inflation. There is no magic. There is no free lunch, in anything, and especially in economics. That’s true.

Mike Gleason: When the flooding in Texas moves out of the news, the coming fight over the debt ceiling could be front and center. Now, it looked like, to us a fight was brewing with a contingent of conservative Republicans revolting on one flank, and Democrats looking to thwart Trump and his agenda, everywhere possible, on another. Trump and GOP leadership have their hands full, getting a bill to hike the borrowing limit passed. But it could be that Hurricane Harvey will be used to prevent a big fight here, relief for Texas, might be inserted into the bill to raise the borrowing cap. And few politicians will object for fear of being criticized. With that said, are you expecting a fight over the debt ceiling to be significant Michael? And any chance, we could see a government shut down here?

Michael Pento: Well, at first glance, a prima facie look at this, is that I expect more dysfunction in DC. I predicted this when Donald Trump was elected. I said that his massive reform of healthcare, his tax reform packages would be both, deluded, and delayed, and that’s exactly what has happened. And of course, Wall Street likes to look at every event as a positive. The glass is always half full. So, now they’re saying that we have hurricane that we have to pay for, that this is going to somehow make the passage of everything, tax reform, construction spending, infrastructure, the debt ceiling, the budget. Everything’s going to go smoothly.

I have my doubts. I run an actively managed portfolio. So, the base case scenario is dysfunction in DC. That has been very, very prudent, and a correct path to assume and to take. I believe it’s not going to go smoothly. I believe that we have to pass the budget by the end of September, and raise the debt ceiling by middle of October. Now, Mnuchin and Mulvaney, they were on opposite sides of this, but now they’re on the same talking points as Trump. They just want to raise the debt ceiling cleanly. But I don’t think the Tea Party Republicans, in the House of Representatives are going to go alone with that, so yes there will be a fight, even if they try to attach this hurricane spending bill, infrastructure bill to it.

Mike Gleason: The U.S. dollar isn’t looking too good these days. We’ve seen pretty steady decline, since the beginning of the year. Of course, the dollar is a terribly flawed instrument, and the fact that the DXY index traded at an all-time high late last year, was more a testament to just how bad other major world currencies must be. Where do you think we’re going from here? Is the dollar going to head lower?

Michael Pento: Well, we went from about 80 on the DXY … which is heavily weighted towards the euro … from 80 to above 100, in anticipation of what? Anticipation of Mr. Trump getting a lot of his agenda passed, rather quickly. And also the divergence between the two major central banks, between ECB and the Federal Reserve. And where, as we see now, things not shaking out that well at all. We see the dollar index has dropped from above 100, now at major support around 92. If it breaks through 92 on the DXY, I think it could head towards 80. All eyes are on the ECB. The ECB is primarily in charge here.

If Mario Draghi, on September seventh, announces a tapering of his 60 billion per euro a month, asset purchase program, I would expect the euro to skyrocket, and the dollar to fall precipitately, right through that 92, towards 80. And, of course if he does not taper his asset purchase program, then the dollar could catch a bid and head back towards 100.

That’s why, again, I run an actively managed portfolio, trying to guess the minds of these megalomaniac schizophrenics, that run central banks, is very, very difficult, so it’s best to have, not a passive ETF strategy, buy and hold, and then forget about your money. You have to actively manage your portfolio. So, I will react to, what Mario Draghi does. European GDP growth is not very strong, but getting stronger. They are missing on the inflation target, just as we are here in the United States, at least the way central banks measure inflation, if you don’t count everything that’s going up, like medical costs, and college tuition, and asset prices. So, who knows what they’re going to do, but you have to be reactive, rather than just proactive in this kind of environment.

Mike Gleason: Staying on monetary policy here for a moment. Any thoughts on where Trump goes with his Fed chair appointee early next year? Any chance Yellen get reappointed, or does he bring in somebody even more dovish? What do you think?

Michael Pento: Well, it’s hard to get someone more dovish than Janet Yellen, but … I guess, you know, I don’t have any special insight here. Gary Cohen would be my best guess, because Trump likes to put his fingerprint on everything, and he needs somebody in there who is going to really fight for low interest rates, and for deregulation policy. Yellen kind of submarines herself at Jackson Hole, talking about the importance of regulation in the banking system. So, my best guess is that, come February 2018, that we have a new Fed chair, and that person is Gary Cohen, who will really fight hard for low interest rates, and a weak dollar. Both those things espoused by our President Trump, not candidate Trump, President Trump, and there’s a difference.

Mike Gleason: Yeah. Very important distinction there, for sure. Let’s dig into the gold and silver markets here for a minute. Now, demand in the retail bullion market continues to be pretty soft. To our way of thinking. That can be largely attributed to a few factors. First off, bullion investors are more optimistic about a Trump Presidency, than the Obama Presidency.

Another is that, precious metals prices really haven’t been going anywhere for a while now. And then, also, those who have been buying gold and silver as a safe haven, have probably, just gotten exhausted. They’ve been on high alert, expecting significant fallout, resulting from ultra-loose Fed policy, massive Federal deficits, unlimited borrowing, et cetera.

But the reckoning, it never seems to come, so are bullion investors just going to have to live a while longer here, in purgatory, or do you see anything exciting developing in the months ahead for the metals?

Michael Pento: Oh. I see something very exciting developing. So, we have a condition here across the United States and in Europe – not in Japan as I mentioned – where we have central banks that absolutely believe they have solved all of the global, economic problems. And, what they have done instead, they’ve engendered, they’ve fostered a huge increase in debt. We have about a 70 trillion dollar increase in debt, coming out of the great recession. We have 230 trillion dollars of debt now in the globe. It’s about 330%, just about 330% of global GDP. And the entire global economy, as anemic as it is, and people talk about this global synchronized growth…

Global growth is not anywhere near where it was in the early 2000’s. We’re about – globally speaking, you look at the major developed economies – they’re about one percent, one to two percent. There is no big expanse in global growth, but whatever global growth there is, it totally and completely hinges on continued low interest rates. And central banks have now convinced that they’ve solved all our problems, as I said. And now, you look at the Fed, who entered QE in 2014, and now we’re getting ready for quantitative tightening, reverse QE to start this year.

And surely, I’m 100% convinced, if it doesn’t start in September, at least in the early part of 2018, Mario Draghi and the ECB, will start to taper, it’s assets. They were 80 billion. Now, they’re 60 billion. He’s going to be reducing his asset purchase program towards zero, certainly by the end of 2018. So, when that happens, you’re going to have … and the Fed likes to talk about tapering, they’re not selling assets, they’re just letting them roll off the balance sheet… assets do not roll off of a Fed’s balance sheet. When the Federal Reserve has a note due, what they’re going to do, is ask the treasury to pay them this note. Well, the treasury has no money.

So, the treasury has to sell an amount equal to the note due to the Fed. The treasury then, has to not only sell this debt, but has to now, service this debt, whereas before those interest payments were being refunded by the Fed to the treasury. And when the Fed gets this money, it’s retired. So, you’re talking about a draining of the money supply. You’re talking about that happening, not only in the United States, but also in Europe. And who’s going to buy all this debt?

Now, the debt has absolutely, as I said, skyrocketed, 70 trillion dollars increase. There isn’t any private source for this funding. No one is going to buy a German bund, yielding .37%, when there is no central bank around, and the central bank is getting ready to sell assets. There isn’t anybody who’s going to buy a U.S. 10-year note, yielding 2.2%, or 2.15 as we make this recording. Nobody is going to make that purchase, when the Federal Reserve is getting ready to sell trillions of dollars. They have four and a half trillion dollar balance sheet. If they take it down to two and a half, it’s two trillion dollars’ worth of mortgage backed securities and treasuries that are going to be adding to that a trillion-dollar deficit that we already have. Deficits go up huge, as interests rates go up. Interest rates rise. It’s a very vicious, counterproductive cycle.

If we have higher debt service costs for every one percent to 200 billion dollars. We have one trillion dollar in deficits, because of demographics. And if we have a recession, deficits will rise and buy an additional trillion dollars. We can have deficits well over two, approaching three trillion dollars, with no help from the government. This is going to cause, whatever relatively anemic economic growth to falter substantially.

And I will add this. We already have the automotive sector, and the real estate sector rolling over in this country. If we have a spike in interest rates, which will emanate from the ECB, whenever they decide to start tapering assets, and the German Bund rises towards nominal GDP, which is close to three percent, actually above three percent. You go from .37% to over three percent, that’s going to drag up yields across the globe, and that’s when the situations really going to be extremely pernicious.

And what’s going to happen then … now the gold market is already sniffing this out, by the way, as we breached $1,300 an ounce a couple of days ago … the gold market is sniffing out this: that central banks are going to have to get back into the QE programs, across the board. And when that happens, faith in fiat currencies – not just the dollar, all fiat currencies – is going to falter very dramatically. You see some of this, not only in the gold market, but you see this phenomenon in the cryptocurrency world.

There is going to be a dramatic watershed, trench and drop in the faith of central bankers. That’s the biggest bubble of all. And when that pops, gold’s going to go back to its all-time high, and well surpassing that level too. So, look for $2,000 an ounce gold. It’s going to happen rather quickly. I think it’s going to happen within the next couple of years, and you already see the beginnings of that happening today.

Mike Gleason: Well, we’ll leave it there. Fantastic stuff as always. Michael, it’s great to have you on, we respect your insights quite a bit. It’s excellent to have you join us every few months.

Now, before we let you go, as we always do, please tell people, who want to both read and hear more of your wonderful market commentaries, and also learn about your firm, and how they could potentially become a client, if they want to do that. Please tell them, how they can find out more information.

Michael Pento: Sure. You can email me directly, mpento@pentoport.com. My website is www.PentoPort.com. The office number here is 732-772-9500. Be glad to talk to you.

Mike Gleason: Well, thanks again Michael. Enjoy the Labor Day weekend. We look forward to catching up with you again later this year. Take care, my friend.

Michael Pento: Thanks again for having me back on Mike.

 

Mike Gleason

Gold price: Korean bomb test could see fireworks in the gold market

Edited and updated version of an article I published on the Sharps Pixley website at the weekend following the North Korean hydrogen bomb test confirmation.

When the world’s largest gold ETF – SPDR Gold Shares (GLD) – adds gold into its holding, the gold price usually rises – and vice versa, and perhaps the second most bullish pointer for gold is that between June 8th and August 7th, some 80 tonnes of gold were liquidated out of GLD with only a limited overall impact on the gold price.  For the first month of the two month sell-off period, gold did fall back, but in the second month of sales out of GLD the gold price reversed and actually rose.  OK, so without these sales perhaps the gold price would have risen more sharply.  Since August 7th though we have seen purchases into GLD and the gold price has indeed risen fairly substantially, despite what look like big ‘flash crash’ sales of paper gold knocking the price back sharply, but only succeeding to do so for a very short time.

 Another factor which has been apparent is that the trading volumes seen over the past few weeks have been particularly high for the end of what is a holiday period.  This suggests a raging battle under way between gold bulls and gold bears which the bulls appear to have been winning.  But – and it’s a big but – the holiday period is now coming to an end with the Labor Day holiday and the serious players will be back at their desks.  As we have pointed out before, major U.S. holidays seem often to provide inflection points in the markets, and observers will be keen to see whether Labor Day 2017 will prove to be one of these and see the gold price either take off strongly upwards, or be knocked sharply back yet again.

But the No.1 bullish factor for the gold price this week is probably the fact that North Korea is confirmed to have tested a new, more powerful, nuclear weapon (50-60 kilotons according to reports – some put it at 100-120 kilotons) over the weekend, and the claim by North Korea that it could be fitted to one of its inter continental ballistic missiles (ICBMs).  This may well sway any likely post-Labor Day inflection point towards the likelihood of a serious gold price boost this week, although initial upwards price movement has been limited – the powers that be have obviously been successful so far in damage limitation!

GLD liquidations or purchases may also provide a strong pointer to market direction for precious metals.  It tends to be bank and/or fund purchases or sales which account for major moves in GLD, so whether the ETF’s gold content bleeds or grows should be an excellent guide as to where the gold price may be headed.  Weak U.S. economic data has effectively removed the Fed’s prospective rate rise scenario from the gold price equation – at least for a couple of months although may have an impact again in November as speculation will reign over whether the Fed will implement another small rise in December, or kick the can down the road once more.  The U.S. dollar is looking weak and a weak dollar tends to see the dollar gold price rise. And it is the dollar gold price which the market judges to be the most important indicator, even though the gold price in other currencies, like the euro or the yen, should perhaps be just as relevant to the gold investor.

We have ignored silver in this scenario, but silver continues to be tied to gold.  The gold:silver ratio (GSR) has fallen back below 75 again and will undoubtedly fall further should the gold price get a boost after Labor Day and the latest North Korean bomb test.  We see the GSR coming back down into the 60s which would make silver a far better short term buy than gold, but beware silver’s volatility.  However neither would be much good in a nuclear wasteland!

While North Korea’s Kim Jong-Un may not be as unstable as the media makes him out to be, the bomb test is yet another serious escalation in the DPRK/US confrontation and the big danger for further escalation here is that President Trump may be forced into military action, having backed himself into a corner with his rhetoric.  Unlike Iraq it looks as though North Korea’s weapons of mass destruction (WMDs) are real and the U.S. may now feel it has to make a move, however costly this may be to the U.S. itself and its Asian allies within easy range of North Korea’s missiles, before the threat to the U.S. itself escalates further.   If North Korea has indeed developed a nuclear warhead for its ICBMs and they are capable of targeting U.S. mainland cities, the U.S. may feel the necessity to strike and try and curtail the programme before the threat grows to an uncontrollable level.

The seemingly increasing threat of war between North Korea and the USA, could well give the gold price a huge boost in the days and months ahead with safe haven demand escalating worldwide – and particularly in Asia and the U.S. itself.  It could also persuade those banks holding big short positions in gold and silver to cover and reverse their policies.  A gold price reset could be on the cards even sooner than those like Jim Rickards and Eric Sprott have suggested – see $5,000 gold – then $10,000. Gold bulls sing from same songbook.

Thus be prepared for fireworks when North American markets re-open this week, although one suspects the big institutional holders with enormous short positions in gold and silver amy do their best to limit rises while, perhaps, unwinding from these.   The latest North Korean bomb test is probably favouring gold moving upwards – perhaps strongly – once the markets are back in full swing.

Gold price performance – latest views

Here are links to a couple of articles I’ve posted in the past few days on the Sharps Pixley website for which I am a contributing editor;

The first looks at gold’s performance despite some seemingly concerted attempts to knock the price back – a subject I’ve commented on before.  These look to have failed – at least in terms of making a major permanent dent in the metal price, although the mere process of knocking the price back – even if only for a very short time – may indeed make potential gold investors more cautious.  The article is: Even another flash crash can’t keep gold price down.  Click on the title to read it.

The second looks at predictions for gold at $5,000 and then $10,000 from a couple of the more rational gold bullish commentators and why their predictions will almost certainly come about – over time.  It’s just a matter of how long it will take for these levels to be achieved which is in doubt.  I point out in the article that in terms of the yellow metals’ past performance these estimates are not only reasonable, but perhaps conservative.  As I point out in the article, in my lifetime gold has risen from an admittedly controlled $35 an ounce to over $1,900 at one point – a 54x increase – and over 37x to the current price level.  Even a 37x gold price rise from the ca. $1,320 where its stands today would put it at over $48,000 – probably unlikely without some kind of global catastrophe, but at least it puts a rise to a mere $10,000 into context – only around a 7.5x increase from where it is at the moment!”

To read the full article, click on $5,000 gold – then $10,000. Gold bulls sing from same songbook

Gold Breaks Out to New 2017 High

by: Stefan Gleason*

Gold’s naysayers and doubters came out in full force earlier this summer as sentiment reached its nadir. The mid-year pullback in prices did, too.

There can be no doubt about it now – gold has broken out of its summer doldrums. On Monday, the yellow metal finally broke through the longstanding $1,300/oz resistance zone to make a new high for the year at $1,316.

Gold - Continuous Contract (August 28, 2017)

Assuming the breakout holds, the next upside target is $1,375/oz, the high point for 2016.

There are plenty of bullish factors behind gold’s recent upside momentum to continue pushing prices higher in the days and weeks ahead. The gold mining stocks are starting to show relative strength again. And the U.S. Dollar Index appears to have begun another new down leg this week, falling Monday to a two-and-a-half-year low.

Another bullish factor is geopolitics. Gold gained a few more dollars in early trading Tuesday morning in Asia after North Korea launched a missile over Japan. Japanese Prime Minister Shinzo Abe said, “Their outrageous act of firing a missile over our country is an unprecedented, serious and grave threat and greatly damages regional peace and security.”

On any ordinary news day, this dangerous provocation from North Korea would be the top story on all the cable news channels. Hawks would be calling on the U.S. to retaliate, and doves would be warning of the potential for millions of deaths in the event war breaks out in the densely populated region.

For now, though, the unprecedented flooding caused by Hurricane Harvey is the Trump administration’s top priority. Early estimates are that the storm has caused $40 billion in damage. Water levels are still rising in Houston, and surrounding areas extending to Louisiana, so the scale of the catastrophic losses stemming from 11 trillion gallons of water will continue to grow in the days ahead.

Several major oil refineries have been shut down by the storm. However, crude oil production is little affected. Oil inventories are expected to build even as gasoline prices rise (gasoline futures jumped 3% on Monday).

The disaster is bringing Americans from disparate backgrounds and worldviews together, united in a common purpose to help provide relief to those in need. Perhaps Congress will set aside some of its partisan acrimony when it goes back into session next week. Unfortunately for taxpayers, though, outbreaks of bipartisanship are usually associated with emergencies that cause both sides to agree on even more spending.

The political pressure to make sure federal agencies are equipped to handle Harvey relief efforts (which will be ongoing for months) figures to be overwhelming. Conservatives who had aimed to force concessions in an upcoming budget fight may conclude that they now have no leverage to do so.

Government Shutdown

President Donald Trump so far hasn’t backed off his vow to pursue border wall funding even if Congress refuses and a government shutdown occurs. But a government shutdown in the aftermath of a major natural disaster could be a political disaster for whoever gets blamed for it.

With so many risks hitting investors this week, it’s no surprise that the gold market is benefiting from safe-haven inflows.

Silver is benefiting as well. Although the silver market has not yet hit a new high for the year, prices advanced nearly 2.5% Monday to close above the 200-day moving average.

If silver can now start showing leadership, that would be bullish for the entire precious metals complex. The gold:silver ratio currently stands at about 75:1. Gold is still trading at a high price historically relative to silver.

The ratio can move rapidly to the downside when silver prices are surging. That was the case from late 2010 to early 2011, when the ratio dropped from the high 60s to the low 30s. An even bigger move could be in store for those who buy silver now, while the gold:silver ratio is still in the 70s.

Gold gains from economic storms, ‘fake rates’ and Jackson Hole

Are You Prepared for These Potentially Disruptive Economic Storms?

By Frank Holmes – CEO and Chief Investment Officer U.S. Global Investors

Hurricane Harvey

Here in San Antonio, grocery stores were packed with families stocking up on water and canned food in preparation for Hurricane Harvey, which has devastated Houston and coastal Texas towns. I hope everyone who lives in its path took the necessary precautions to stay safe and dry—this storm was definitely one to tell your grandkids about one day.

Similarly, I hope investors took steps to prepare for some potentially disruptive economic storms, including this past weekend’s central bank symposium in Jackson Hole, Wyoming, and the possibility of a contentious battle in Congress next month over the budget and debt ceiling.

As you’re probably aware, central bankers from all over the globe visited Jackson Hole this past weekend to discuss monetary policy, specifically the Federal Reserve’s unwinding of its $4.5 trillion balance sheet and the European Central Bank’s (ECB) ongoing quantitative easing (QE) program. Janet Yellen gave what might be her last speech as head of the Federal Reserve.

As I told Daniela Cambone on last week’s Gold Game Film, there are some gold conspiracy theorists out there who believe the yellow metal gets knocked down every year before the annual summit so the government can look good. I wouldn’t exactly put money on that trade, but you can see there’s some evidence to support the claim. In most years going back to 2010, the metal did fall in the days leading up to the summit. Gold prices fell most sharply around this time in 2011 before rocketing back up to its all-time high of more than $1,900 an ounce.

Gold prices generally fell days before the annual economic symposium
click to enlarge

Many of the economic and political conditions that helped gold reach that level in 2011 are in effect today. That year, a similar Congressional skirmish over the debt ceiling led to Standard & Poor’s decision to lower the U.S. credit rating, from AAA to AA+, which in turn battered the dollar. The dollar’s recent weakness is similarly supporting gold prices.

In August 2011, the real, inflation-adjusted 10-year Treasury was yielding negative 0.59 percent on average, pushing investors out of government bonds and into gold. Because of low inflation, we might not be seeing negative 10-year yields right now, but the five-year is borderline while the two-year is definitely underwater. Bank of America Merrill Lynch sees gold surging to $1,400 an ounce by early next year on lower long-term U.S. interest rates.

Are Government Inflation Numbers More “Fake News”?

If we use another inflation measure, though, yields of all durations look very negative. For years, ShadowStats has published alternate consumer price index (CPI) figures using the methodology that was used in 1980. According to economist John Williams, an expert in government economic reporting, “methodological shifts in government reporting have depressed reported inflation” over the years. The implication is that inflation might actually be running much higher than we realize, as you can see in the chart below.

Official US consumer inflation vs shadowstats alternate
click to enlarge

If you believe the alternate CPI numbers, it makes good sense to have exposure to gold.

Recently I shared with you that Ray Dalio—manager of Bridgewater, the world’s largest hedge fund with $150 billion in assets—was one among several big-name investors who have added to their gold weighting in recent days on heightened political risk. That includes Congress’ possible failure to raise the debt ceiling and, consequently, a government shutdown. Dalio recommends as much as a 10 percent weighting in the yellow metal, which is in line with my own recommendation of 10 percent, with 5 percent in physical gold and 5 percent in gold stocks, mutual funds and ETFs.

I urge you to watch this animated video about opportunities in quality gold mining stocks!

Falling Dollar Good for U.S. Trade

Returning to the dollar for a moment, respected CLSA equity strategist Christopher Wood writes in this week’s edition of GREED & fear that it’s “hard to believe that the political news flow in Washington has not been a factor in U.S. dollar weakness this year.”

The U.S. media certainly wants you to believe that Trump is bad for the dollar. Take a look at this chart, showing the dollar’s steady decline alongside President Donald Trump’s deteriorating favorability rating, according to a RealClearPolitics poll.

US dollar tracks trumps favorability down
click to enlarge

However, a weak dollar is good for America’s economy. I’ve commented before that Trump likes a falling dollar, because it is good for the country’s export trade of quality industrial products. It’s also good for commodities, which we see in a rising gold price and usually energy prices.

Ready for a Big Fight?

You might have watched the Mayweather vs. McGregor fight, but have you been watching the fight between Trump and the Fed?

At the symposium in Jackson Hole, Fed Chair Janet Yellen squared up directly against Trump when she defended the strict regulations that were put in place after the financial crisis. Echoing these comments was Dallas Fed chief Robert Kaplan. This is the opposite of what Trump has been calling for, which is the streamlining of regulations that threaten to strangle the formation of capital.

Hurricane Harvey

It’s important to recognize that the market is all about supply and demand. The number of public companies in the U.S. has been shrinking, with about half of the number of listed companies from 1996 to 2016. Readers have seen me comment on this previously, and I believe that the key reason for this shrinkage is the surge in federal regulations. The increasingly curious thing is that we are seeing the evolution of more indices than stocks, as the formation of capital must morph.

As I told CNBC Asia’s Martin Soong this week, there is a huge amount of money supply out there, and investors are looking for somewhere to invest. The smaller pool of stocks combined with the greater supply of money means that the market has seen all-time highs. In addition, major averages were regularly hitting all-time highs not necessarily on hopes that tax reform would get passed, but on strong corporate earnings, promising global economic growth and the weaker U.S. dollar.

Meanwhile, small-cap stocks are effectively flat for 2017 and heading for their worst year since 1998 relative to the market, according to Bloomberg. Hedge funds’ net short positions on the Russell 2000 Index have reached levels unseen since 2009. Remember, these are the firms that were expected to be among the biggest beneficiaries of Trump’s “America first” policies.

However, the weakness in U.S. manufacturing has a great impact on the growth of these stocks, as indicated by the falling purchasing managers’ index (PMI). The slowdown in manufacturing is offset by strength in services, shown by the Flash composite PMI score of 56.0 which came out this week. Though there is a spread between large-cap and small-cap stocks, historically this strong score is an indicator of growth to come.

Spread between large cap and small cap stocks continues to widen
click to enlarge

Some big-name investors and hedge fund managers are turning cautious on domestic equities in general. On Monday, Ray Dalio announced on LinkedIn that he was reducing his risk in U.S. markets because he’s “concerned about growing internal and external conflict leading to impaired government efficiency (e.g. inabilities to pass legislation and set policies).” Pershing Square’s Bill Ackman and Pimco’s Dan Ivascyn have also recently bought protection against market unrest, according to the Financial Times. Chris Wood is overweight Asia and emerging markets.

Stay Hopeful

It’s important to keep in mind that there will always be disruptions in the market, and adjustments to your portfolio will sometimes need to be made. For those of you who read my interview with the Oxford Club’s Alex Green, you might recall his “Gone Fishin’” portfolio, which I think is an excellent model to use—and it’s beaten the market for 16 years straight. Green’s portfolio calls for not just domestic equities, Treasuries and bonds but also 30 percent in foreign stocks and as much as 10 percent in real estate and gold.

Stay safe out there!

Even another flash crash can’t keep gold price down for long

This is a lightly edited version of one first posted on the Sharps Pixley news website

2 million ounces of gold were dumped on the gold market in a minute on Friday, just ahead of Janet Yellen’s speech at Jackson Hole – and, after a very brief downwards spike to below $1,280, the gold price rapidly climbed back to unchanged.  This has to be an incredibly bullish signal for gold in that even this amount of presumably paper gold thrown at it (62.2 tonnes) couldn’t keep the gold price down.  Bloomberg described the 2 million ounce trade as ‘mysterious’.  Perhaps at least that is a welcome change from the usual ‘fat finger’ attribution which seems to be applied to these seemingly increasingly frequent mega-sales of paper gold which, despite protestations to the contrary, seem to be designed to keep the gold price suppressed.

Today, the gold price drifted upwards ahead of New York’s opening and then, at around 11.00 am New York time the price spiked upwards sharply, soaring through the $1,300 psychological barrier.  The question is where to next?

The key here may well be what has been happening with physical gold.  On Friday the SPDR Gold Shares ETF (GLD) had almost 6 tonnes of gold bought into it.  GLD has thus seen 18.33 tonnes of physical gold added to it in 2 weeks after what we might describe as ‘mysteriously’ seeing some 80 tonnes withdrawn over the previous two months – during which time the gold price didn’t seem to be spooked by this amount of gold being taken out of the world’s biggest gold ETF.  We had already pointed out the anomaly that America’s second biggest gold ETF – the iShares Gold Trust (IAU) – had not seen corresponding metal liquidations.  The Swiss gold import and export statistics, also reported in these pages, had shown that there appears to be a ready market in Asia for any physical gold released in the west, and this could well be a sign that gold could be moving into a short supply situation in the West.  If America starts buying physical gold again, we could thus see big price rises with buyers bidding up what might be an increasingly rare commodity.

As I write, the gold price rise seems to have stalled at the $1,310 level and there will almost certainly be attempts to drive it down, or at least prevent it rising further.  But it does seem to have some momentum behind it and could well move up to the $1,320s.  But, as we have pointed out before, this time next week is the U.S. Labor Day holiday and this often seems to provide an inflection point in economic trends.  It could presage a sell-off in gold or see the price boosted into the stratosphere, figuratively speaking.  Nothing is simple with gold.  But if gold gets a boost after September 4th we could see equities – and perhaps bitcoin – moving sharply in the other direction.  Both would seem to be in bubble situations and sooner or later all bubbles burst.

We’d rather bet on gold than alternatives.  Even if there is a gold price turndown ahead it is likely to be relatively minor, while the fall, when it comes, as come it must, in equities and bitcoin could be devastating.  Food for thought ahead of the U.S. holiday weekend.

Gold waiting on Yellen and Draghi indicators

Gold Today –New York closed yesterday at $1,286.20. London opened at $1,285.95 today. 

Overall the dollar was slightly weaker against global currencies before London’s opening:

         The $: € was slightly weaker at $1.1799 after the yesterday’s $1.1794: €1.

         The Dollar index was slightly weaker at 93.28 after yesterday’s 93.31

         The Yen was slightly weaker at 109.63 after yesterday’s 109.29:$1. 

         The Yuan was slightly stronger at 6.6609 after yesterday’s 6.6621: $1. 

         The Pound Sterling was slightly stronger at $1.2822 after yesterday’s $1.2807: £1

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    8    25

     2017    8    24           

     2017    8    23

SHAU

SHAU

SHAU

/

277.00

276.39

Trading at 277.60

277.25

276.92

$ equivalent 1oz at 0.995 fineness

@   $1: 6.6609

       $1: 6.6621

       $1: 6.6624     

  /

$1,288.24

$1,285.33

Trading at $1,289.70

$1,289.40

$1,287.80

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 New York closed at $3.20 lower than Shanghai’s yesterday’s close. Today sees Shanghai holding just $0.30higher than yesterday, which was $3.75 higher than London’s opening. The global gold markets remain close to each other with Shanghai barely moving.

Silver Today –Silver closed at $16.95 yesterday after $16.95 at New York’s close, Wednesday.

LBMA price setting:  The LBMA gold price was set this morning at $1,287.05 from yesterday’s $1,285.90.  The gold price in the euro was barely changed being set at €1,090.35 after yesterday’s €1,090.76.

Just before the opening of New York the gold price was trading at $1,287.20 and in the euro at €1,089.19. At the same time, the silver price was trading at $17.03. 

Price Drivers

We cannot remember seeing prices in the precious metals this calm for a few days. As we have said before Shanghai has had a calming effect on global gold markets, but even its calmness is remarkable. It is not that we expect anything dramatic from Jackson Hole but in such a calm market, any news at all, will have an impact.

We feel for Janet Yellen and Mario Draghi as the financial world waits for the slightest hint in their speeches today of dovishness or hawkishness. The slightest stumble on their part could influence the entire financial world. Nevertheless, central bank policies are really the only policies affecting the financial world.

It should be government policy with central bank policy backing up government policy, but governments just don’t seem able to get things done and have not done it since the credit crunch in 2008. In itself, this tells you just how fragile the financial world is, when governments are so emasculated.

It is so fragile that even if the two central bankers were neutral in what they said, the financial world will behave in a mercurial fashion. We do expect action in financial markets today which will turn the market calmness into a storm in the coming weeks.

But we need to be clear on the reality that whatever Yellen and Draghi say that does not directly affect exchange rates, will be gold neutral or will only affect gold prices for the short term. We remind readers that the gold price is a synthesis of global gold prices and not the result of U.S. factors. It reflects the condition of the currency and monetary world which continues to evolve away from dollar hegemony.

Once again there are no purchases or sales into or from the SPDR gold ETF and the Gold Trust as U.S. gold investors wait too.  

Gold ETFs – Yesterday there were no purchases or sales of gold into or from the SPDR gold ETF but there were small purchases into the Gold Trust of 0.44 of a tonne. The SPDR gold ETF and Gold Trust holdings are at 799.286 tonnes and at 215.91 tonnes respectively.

Since January 4th 2016, 177.55 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust. 

Since January 6th 2017, 15.95 tonnes to the gold ETFs we follow.

Julian D.W. Phillips – GoldForecaster.com | StockBridge Management Alliance 

Gold and Silver marking time: Waiting on Jackson Hole statements

Gold Today –New York closed yesterday at $1,290.20. London opened at $1,287.10 today. 

Overall the dollar was slightly weaker against global currencies before London’s opening:

         The $: € was slightly weaker at $1.1794 after the yesterday’s $1.1784: €1.

         The Dollar index was slightly weaker at 93.31 after yesterday’s 93.39

         The Yen was slightly stronger at 109.29 after yesterday’s 109.36:$1. 

         The Yuan was slightly stronger at 6.6621 after yesterday’s 6.6624: $1. 

         The Pound Sterling was slightly weaker at $1.2807 after yesterday’s $1.2811: £1

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    8    24

     2017    8    23           

     2017    8    22

SHAU

SHAU

SHAU

/

276.39

277.34

Trading at 277.20

276.92

276.92

$ equivalent 1oz at 0.995 fineness

@   $1: 6.6621

       $1: 6.6624

       $1: 6.6559     

  /

$1,285.33

$1,287.00

Trading at $1,289.17

$1,287.80

$1,289.07

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 New York closed at $2.40 higher than Shanghai’s yesterday’s close. Today, sees Shanghai holding almost the same level as it did yesterday, which was $2.27 higher than London’s opening. The global gold markets remain pretty much in line with each other.

We continue to see prices pausing and building strength, ahead of breaking higher.

Silver Today –Silver closed at $17.08 yesterday after $17.00 at New York’s close both Tuesday.  It has slipped back today.

LBMA price setting:  The LBMA gold price was set this morning at $1,285.90 from yesterday’s $1,286.45.  The gold price in the euro was barely changed being set at €1,090.76 after yesterday’s €1,090.86.

Just before the opening of New York the gold price was trading at $1,287.55 and in the euro at €1,090.36. At the same time, the silver price was trading at $16.96. 

Price Drivers

The currency and precious metal prices are remarkably quiet again, today. Once again there are no purchases or sales into or from the SPDR gold ETF and the Gold Trust.

While we do recognize that the Shanghai market has reduced volatility in the London and New York, currency and precious metal prices remain in calm waters. The Jackson Hole meeting of central bankers on Friday is headline news as Draghi, of the E.C.B. may now give a speech.

What we need to say about central bankers in the developed world is that they have to and will, keep interest rates negative for the foreseeable future.

With that being said we now see a calm rising gold price, in all currencies, reflecting that it is a measure of the value of currencies and not the other way around of late. For instance, the Shanghai gold price for the last couple of days has been very stable, while the Yuan is appreciating against the dollar. The dollar is struggling to hold levels in the dollar index, confirming what we have said since we called not only the top of the dollar index, but the start of the bear market in the dollar.

As we said before the dollar has entered a multi-year bear market as it loses dollar hegemony in favor of a multi-currency system. It is only a matter of time before China becomes the largest economy in the world, not only because it has around 4 times the population of the U.S. and three times that of Europe, but its infrastructure is nearly brand new as are its manufacturing industries. Germany and Japan gained the same advantages after the Second World War and look at them now.

After the establishment of the euro in 1999 that currency took a nearly 25% position in global reserves. As China grows so the Yuan will take an ever increasing percentage of global reserves. The currency system as we know it, was designed for dollar hegemony [including being the only currency with which to pay for oil] not a multi-currency system. The potential ruptures to the foreign exchange world necessitate gold taking a more important role. China has realized that, which is why it is amassing so much gold in its reserves including in the hands of institutions and its citizens. It still has a long way to go on that front before it has adequate amounts of gold in the country [gold is not allowed out of the country].

We are not convinced it wishes to hold just as much as the U.S. It will hold as much gold as it deems necessary to ensure its international position and size is backed by sufficient gold to guard it against any monetary crisis and to reinforce the Yuan internationally.

Gold ETFs – Yesterday there were no purchases or sales of gold into or from the SPDR gold ETF or the Gold Trust. The SPDR gold ETF and Gold Trust holdings are at 799.286 tonnes and at 215.47 tonnes respectively.

Since January 4th 2016, 177.11 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust. 

Since January 6th 2017, 15.51 tonnes to the gold ETFs we follow.

 Julian D.W. Phillips – GoldForecaster.com | StockBridge Management Alliance 

China’s Get the Gold Plan: Part II

by: David Smith*

Readers may remember my November 2014 report in which I discussed how gold flowed into China in “tributary fashion” like small streams flowing into a giant one. In this case, the gold has been streaming into China’s increasingly massive thousands-of-tons gold hoard.

China's Gold Reserve

In January, 2015, I penned an essay titledChina’s Global Gold Supply “Game of Stones,” outlining China’s long-range goal to dominate the world’s physical gold market.

Well, events have moved massively forward since then. I want to update you as to just how much things have changed – and how close we may be to experiencing a “defining moment” in the gold market.

I’m talking about a game-changing event that could, with little warning, propel the price of gold upward by hundreds – even thousands – of dollars per ounce in the space of a few weeks… conceivably overnight! (And since silver’s price movements are highly correlated with that of gold, we could expect an upside explosion in silver as well.)

China’s 4-pronged gold accumulation strategy:

First: Buy physical gold in world markets, re-fabricate it when necessary (into .9999 fine bars in Switzerland), and ship to the mainland.

Second: Hoard all domestically-produced gold… which is now being done, even when produced from operations with foreign-partners. This is also true with silver production, e.g. Silvercorp Metals – a Canadian silver/lead producer with operations on the Chinese mainland.

Third: Partner with (e.g. Pretivm Resources; Barrick Gold-Pascua Lama) or buy outright, gold explorer-producers located on foreign soil.

Fourth: Purchase for cash, gold production “off the books” from ‘informa’ miners in S.E. Asia, Africa, and South America. China’s intent is to supplant the U.S. as the largest holder of physical gold (claimed to be around 8,000 metric tons) on the planet.

(Disclosure: I, David Smith, have held for several years, positions in Silvercorp and Pretivm, purchased in the open market.)

Right now, China is vastly understating what it actually holds as well as how much is being imported.

This deception is easier than ever because a significant amount is no longer routed (and thus reportable) through Hong Kong, but rather through other mainland entry ports. What the authorities admitted holding as of last summer was almost unbelievably small compared to what even the official figures streaming through Hong Kong alone, plus domestic production add to the total, and China is also now the number one global gold producer.

As reported by Steve St. Angelo China has, during Q1, 2017, imported a record 57.4 metric tons of gold to the mainland, from Australia.

Australia & U.S. Gold Mine Supply vs Exports

Notice the Australian/U.S. multi-year pattern of gold mine exports vs. production

In Addition: A parallel determinant is China’s effort to lessen its holdings of U.S. dollar reserves, by signing infrastructure agreements (denominated in yuan) with countries participating in its massive, long-term New Silk Road project. It’s been reported that China has even approached Saudi Arabia about yuan-based oil sales – a direct threat to the decades-long monopoly of the U.S. petrodollar.

And then there’s this:

The Perth Mint sold $11 billion worth of bullion to China last year alone, and demand continues to climb. Demand is so strong that Perth Mint brings in gold from mines in other countries like Papua New Guinea and New Zealand, and jewelry from South-East Asia that is refined down to the Mint’s signature 99.99 percent gold bullion. (ABC News)

and:

Steve St. Angelo reports that so far in 2017, scrap gold recovery is down sharply, even though the price of gold has risen – an unusual historic occurrence.

His projection for the year? “…as the price of gold has increased in 2017, global gold scrap supply will fall by almost a third, or 32% versus 2010… this major gold market indicator trend shift suggests that individuals are now holding onto their gold rather than sell it for a higher FIAT MONETARY PRICE.”

A Surprising Shock-Rise?

Precious metals prices have been in a cyclical decline since mid-2011 – not unlike the last secular bull market in the 1970’s – before gold’s eight-fold rise less than two years later.

It’s understandable that you might meet this latest suggestion of an unexpected, massive rise in the price of gold and silver with skepticism. A rise that could take place so quickly that those who hesitate could not react before prices had climbed far above prevailing levels. Before the supply cupboard had been swept clean. But the truth is – it’s not a pipe dream, not blowing smoke, not wishful thinking. This is not just possible, but increasingly probable.

Everything in life involves playing the odds. If something is “unlikely” but possible, and if that something taking place had the potential of being a “game-changer,” would you not seek to prepare for it in some measure?

A vertical up-move in gold would place you in a tidy profit position, even if you held a relatively small amount (e.g. the oft-touted 5% of your investable assets). So, it’s not necessary to mortgage the house or go into debt in order to “participate.”

I believe it’s almost “a given” that precious metals will resume their secular bull run, which could continue for the next three to five years. If you agree, does it not make sense to begin (or continue) a conservative metals’ acquisition plan? With little worry as to the price where you began?

It’s not that difficult. Either buy metals when you have some surplus investible funds, and/or do so on a regular, dollar-cost-average basis. If the “China card” never gets played, you’ll still do well as metals’ prices advance over the coming years. You’ll have been purchasing “paid-up insurance” for the rest of your holdings, hedging more as time goes on.

And one more thing. Don’t think of it as “spending money” on buying gold and silver. You’re simply exchanging continually-depreciating “paper promises” – the enduring term coined by David Morgan at TheMorganReport.com – for “honest money” which has stood the test for millennia and will likely continue for as far as the eye can see.

Remember, if you don’t hold it in your hand, you can’t be sure you really own it. John Hathaway, Tocqueville Asset Management covers this precisely, saying,

When the market reverses, the diminished physical anchor to paper claims, concerns over title and encumbrances on central bank bullion, and worries over the drift of public policy will drive liquid capital into gold. However, this time around, it seems to us that the major recipient of flows will be the physical metal itself. Holders of paper claims to gold will receive polite and apologetic letters from intermediaries offering to settle in cash at prices well below the physical market. To those who wish to hold their wealth exclusively in paper assets, implicitly trusting the policy elites to resurrect normally functioning capital markets and economic conditions, we say good luck. For those who harbor doubts on such an outcome, we say get physical.

 *

Gold breaches $1,300 albeit briefly

Gold Today –New York closed yesterday at $1,288.70. London opened at $1,293.15 today. 

Overall the dollar was weaker against global currencies, early today. Before London’s opening:

         The $: € was weaker at $1.1750 after the yesterday’s $1.1743: €1.

         The Dollar index was weaker at 93.47 after yesterday’s 93.64

         The Yen was stronger at 109.05 after yesterday’s 110.02:$1. 

         The Yuan was weaker at 6.6769 after yesterday’s 6.6713: $1. 

         The Pound Sterling was stronger at $1.2896 after yesterday’s $1.2887: £1

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    8    18

     2017    8    17           

     2017    8    16

SHAU

SHAU

SHAU

/

277.29

274.83

Trading at 278.0

277.03

274.62

$ equivalent 1oz at 0.995 fineness

@   $1: 6.6769

       $1: 6.6713

       $1: 6.6926     

  /

$1,287.80

$1,272.26

Trading at $1,290.03

$1,286.59

$1,271.28

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 New York closed $2.00 higher than Shanghai’s close yesterday. Then today sees Shanghai jumping to $1.33 higher than New York’s close before London opened nearly a $3.12 higher than Shanghai, as the dollar continued its fall and real demand for gold was seen.

All three global gold centers continue to react to the falling dollar today. This is about the dollar once again. There appears to be an effort to curb the euro’s rise, with Draghi saying the euro may be overheating.

The market consensus is that the euro could rise above $1.20.If that happens and the gold price reflects such a rise, then we would see a dollar gold price of $1,317, well above long term resistance.

Silver Today –Silver closed at $17.05 yesterday after $16.94 at New York’s close Wednesday.

LBMA price setting:  The LBMA gold price was set today at $1,295.25 from yesterday’s $1,285.90.  The gold price in the euro was set again at €1,102.72 after yesterday’s €1,098.78.

Just before the opening of New York the gold price was trading at $1,296.00 and in the euro at €1,103.82. At the same time, the silver price was trading at $17.22. After New York opened gold briefly breached the $1,300 psychological level before being brought back down the the mid-$1290s again.

Price Drivers

The dollar is falling once more, but not precipitously. It will lead to higher gold prices if it continues. This is being reflected in today’s prices. There is strength to the rise in gold price that we had not seen before in the previous attacks on $1,300. The causes are solid too. These are; an overvaluation of the dollar, a resuscitation of U.S. demand for physical gold, a dearth of sellers of gold, Shanghai’s demand for gold remains strong as it does in London!

While we rarely attribute gold price rises to political stories and the like, we do feel that the disappointment at President Trump’s efforts to bring great economic changes to the U.S. is resulting in bearish sentiment on the dollar, U.S. equities and the future of interest rate rises.

His abrasive attacks, on all fronts, appear to have undermined his hopes of achieving great things. It does look like the government in the U.S. is unable to rule effectively, at the moment, due to partisan infighting and lack of support amongst even the Republican Party. This is supportive of higher gold prices as U.S. institutional investors advocate a 10% – 15% holding in gold.

Gold ETFs – Yesterday there were no purchases or sales into the SPDR gold ETF or the Gold Trust yesterday. The SPDR gold ETF and Gold Trust holdings are at 795.443 tonnes and at 213.28 tonnes respectively.

Since January 4th 2016, 171.08 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust. 

Since January 6th 2017, 9.114 tonnes have been added to the gold ETFs we follow.

Julian D.W. Phillips  – GoldForecaster.com | StockBridge Management Alliance

Gold rises, dollar falls, on FOMC minutes consideration

Gold Today –New York closed yesterday at $1,282.90. London opened at $1,288.10 today. 

Overall the dollar was weaker against global currencies, early today. Before London’s opening:

         The $: € was weaker at $1.1743 after the yesterday’s $1.1725: €1.

         The Dollar index was stronger at 93.64 after yesterday’s 93.89

         The Yen was weaker at 110.02 after yesterday’s 110.86:$1. 

         The Yuan was much stronger at 6.6713 after yesterday’s 6.6926: $1. 

         The Pound Sterling was almost unchanged at $1.2887 after yesterday’s $1.2883: £1

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    8    17

     2017    8    16           

     2017    8    15

SHAU

SHAU

SHAU

/

274.83

274.93

Trading at 277.2

274.62

274.81

$ equivalent 1oz at 0.995 fineness

@   $1: 6.6713

       $1: 6.6926

       $1: 6.6792     

  /$1,272.26

$1,275.28

Trading at $1,287.38$1,271.28

$1,274.73

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 New York closed $11.38 higher than Shanghai’s close yesterday. Then today sees Shanghai jumping to $4.48 higher than New York’s close before London opened nearly a $1.00 higher than Shanghai, as the dollar started to resume its fall.

All three global gold centers are reacting to the falling dollar today. What is of great interest is that the concept of Shanghai having a “premium” over London is just about dead. We are seeing a truly global gold price now, both ways. We have no doubt now that global gold prices are here to stay and that the impact of COMEX ‘paper’ gold prices has almost been removed as the significance of New York’s gold prices has diminished, in favour of the global gold price. This is a significant point in the evolution of the gold price!

Silver Today –Silver closed at $16.94 yesterday after $16.71 at New York’s close Tuesday.

LBMA price setting:  The LBMA gold price was set this morning  at $1,285.90 from yesterday’s $1,270.15.  The gold price in the euro was set again at €1,098.78 after yesterday’s €1,084.67.

Just before the opening of New York the gold price was trading at $1,286.50 and in the euro at €1,098.54. At the same time, the silver price was trading at $17.10. 

Price Drivers

The dollar appears to have turned down to resume its fall to lower levels. It has bounced down off overhead resistance. This is now reflected in the exchange rate against the dollar as well as the gold price. Take a look at the gold price in the euro and it shows that gold is €10 higher at the opening, so the gold price is rising against all currencies now.

It was after the Fed Minutes came out that the dollar changed direction. Market hopes that tightening is still on the cards were disappointed.  As we write the dollar is trying to strengthen, but the index remains below 94.

Gold ETFs – Yesterday there were purchases of 4.435 tonnes of gold into the SPDR gold ETF but no change in the Gold Trust yesterday. The SPDR gold ETF and Gold Trust holdings are at 795.443 tonnes and at 213.28 tonnes respectively.

It does appear that U.S. investors are listening to their peers who are recommending gold to the extent of 10% – 15% of their portfolios as more warnings of toppy markets in U.S. equities become more apparent.

Since January 4th 2016, 171.08 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust. 

Since January 6th 2017, 9.114 tonnes have been added to the gold ETFs we follow.

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