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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Will the Gold Bull be Back after the Summer is Over

By Frank Holmes, CEO and Chief Investment Officer for US Global Investors

Donald Trump accepting the Republican nomination for president this week

Looking more Las Vegas casino than Oval Office, the stage Donald Trump delivered his nomination acceptance speech from Thursday was all gold, from the stairs to the podium, completely befitting of his showman-like style. Whether you support or oppose Trump, it’s time to face reality. This is really happening, and we should all brace ourselves for what will surely be one of America’s messiest, ugliest general election seasons.

Only time will tell which candidate will be triumphant in November, but in the meantime, one of the winners might very well be gold, which has traditionally attracted investors in times of political and economic uncertainty. In the United Kingdom, which voted one month ago to leave the European Union, gold dealers are seeing “unprecedented” demand, especially from first-time buyers. Some investors are reportedly even converting 40 to 50 percent of their net worth into bullion, though that’s not advisable. (I always suggest a 10 percent weighting, diversified in physical gold and gold mining stocks.) In Japan, where government bond yields have fallen below zero and faith in Abenomics is flagging, gold sales are soaring.

It’s not unreasonable to expect the same here in the U.S. between now and November (and beyond).

Strong U.S. Dollar and Treasury Yields Weighing on Gold

More so than the upcoming election, gold prices are being driven by U.S. dollar action, interest rates and low-to-negative bond yields around the world. (Between $11 trillion and $13 trillion worth of global sovereign debt currently carries a negative yield.) Right now the yellow metal is in correction mode on a strengthening dollar and rising two-year and 10-year Treasury yields, both of which share an inverse relationship with gold.

Gold Corrects on Rise of 10-Year Treasury Yield
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It’s also worth mentioning that the summer months have historically been among the weakest. By contrast, some of the highest gold returns of the year have occurred in September, when the Love Trade heats up in India in anticipation of Diwali and the wedding season.

Gold's Average Monthly Gains and Losses, 1975 - 2013
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For the past several trading days, gold demand had also been overshadowed by a hot equities market, with many stocks hitting 52-week highs. Both the S&P 500 Index and Dow Jones Industrial Average closed at all-time highs, twice in the latter’s case. The CNN Fear & Greed Index, which measures investor sentiment, is currently in “Extreme Greed” mode, at more than a two-year high.

Markets in Extreme Greed Mode

With gold taking a breather, now might be a good buying opportunity. Since 1970 there have been only four major gold bull markets, and the consensus among analysts right now is that we’re in the early stages of a new one, with end-of-year forecasts in the $1,400 an ounce range.

Learn more about what’s driving gold.

Rumors of Brexit’s Negative Impact Have Been Greatly Exaggerated

Despite gold’s correction, the metal got a boost last Thursday courtesy of Mario Draghi. The European Central Bank (ECB) president, as expected, announced that euro area interest rates and asset purchases would remain unchanged as economic ramifications of the Brexit referendum continue to be assessed.

Speaking of Brexit, Draghi noted that markets have met the volatility and uncertainty in the month following the U.K. referendum with “encouraging resilience.” Like many others, he had predicted that Brexit would dramatically stunt euro growth, but as we’ve already seen, such claims are overdone. In a note released last week, securities trading firm KCG wrote that June 24, the day following the British referendum, “was no repeat of August 24,” a reference to the “flash crash” that struck equities last summer and led to ETF mispricing.

Last week, the International Monetary Fund (IMF) trimmed 0.1 percent from its global economic growth forecast for the year, singling out Brexit fallout as the culprit. Curiously, though, the organization sees the U.K. growing faster than both Germany and France this year and next. This disconnect prompted U.K. Independence Party MP Douglas Carswell to label the IMF as “clowns” with “serious credibility problems.”

IMF Sees the U.K. Growing Faster Than Germany and France, Despite Brexit
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Following Draghi’s statement, gold prices immediately popped in Thursday morning trading, effectively hitting the pause button on the correction. On Friday, though, prices continued to slide, contributing to gold’s second straight week of losses.

The next hurdle to be cleared is a U.S. interest rate hike. Expectations that rates will go up in September have wobbled back and forth since Brexit, but in recent days, it’s been reported that Federal Reserve officials feel confident enough to raise them at least once before the end of the year. Gold will face additional pressure if rates are allowed to rise, but if the Fed chooses to stand pat, it could serve as another catalyst for a price surge.

 

Silver: The Rip Van Winkle metal – Chris Martenson

Mike Gleason* of Moneymetals.com interviews Chris Martenson

Chris comments on geo-politics, geo-economics and on whether one should invest in gold and silver.

Chris Martenson

Mike Gleason: It is my privilege now to be joined by Dr. Chris Martenson of PeakProsperity.com and author of the book, Prosper: How to Prepare for the Future and Create a World Worth Inheriting.

Chris is a commentator on a range of important topics such as global economics, financial markets, governmental policy, precious metals, and the importance of preparedness, among other things. It’s great, as always, to have him with us. Chris, welcome back, and thanks for joining us again.

Chris Martenson: Mike, it’s a real pleasure to be here with you and your listeners.

Mike Gleason: Well it’s been a number of months since we’ve had you on last, far too long by the way, and there has been a ton of things going on in the financial world of late. I’ll get right to it here. For starters, what did you make of the Brexit decision last month? Is this potentially the beginning of some meaningful opposition to the ongoing drive for a world government? Or was this just a one-off event?

Chris Martenson: No, this was not a one-off event, this was a continuation of a pattern that we’ve been talking about at Peak Prosperity for a while. We thought that there were three scenarios for the future. One of them we called fragmentation. I think this is the beginning of it, and fragmentation has its roots in a growing wealth gap. It happens when you have a stagnant to shrinking economic pie that is increasingly seized by the elites who are tone deaf.

And when they do that, people get cranky, and this is the first form of crankiness we’ve seen break out. Austria is next, we are going to see the sweep across Europe, I believe. People have seen that austerity is just a punishment by the bankers upon the average people for the sins of the banker. It feels unfair because it is.

I think Brexit as a political statement is just the beginning, and of course the powers that be are going to do everything they can to paint this as a mistake and punish the wrong people again.

Mike Gleason: What about the banking system, despite some recovery in the past week or two, the European bank stocks have been getting hit hard. We’re seeing that Italian banks need to bailout, and the share price of Deutsche Bank is signaling that the firm is in real trouble. The IMF just named them the riskiest financial institution in the world.

There is a rally here in share prices, Brexit appears largely forgotten, and Wall Street certainly isn’t acting too worried. Is the concern over European banks overdone? Or might we see a firm like Deutsche Bank actually collapse. And what do you see as the ramifications here in the U.S.?

Chris Martenson: The European banks are absolutely in trouble. I think they are insolvent, that is the step that precedes bankruptcy which is a legal action. Insolvency is just when your assets and your liabilities have a big mismatch. We know that’s the case for the European banking shares. It also explains, Mike, why we are seeing this rally, we call it on Wall Street, but it’s global.

We saw two things. First, we saw a big decline, a scary decline in January, and then this miracle, nipple bottom vault back up to the highs that came out of nowhere. To me, that was a liquification event. Somebody put a lot of liquidity into the system. We know that the central banks are coordinating on this because they are scared of the Franken-markets they’ve created. They cannot even tolerate a few percent decline without freaking out. That should freak ordinary people out, because if they are scared, you should be too.

So they re-liquefied like crazy, and then we had just another post Brexit re-liquification. My evidence, stocks at all-time highs, bonds at all-time highs. Listen, you cannot have that unless there is a lot of liquidity coming from somewhere. People cannot be panicking both into negative interest yielding bonds and stocks at the same time for this to make sense through any other lens than the central banks are absolutely pouring money into these markets.

Mike Gleason: Yeah, it’s certainly been a head scratcher to watch these equities markets, the DOW and the S&P making these all-time highs in the wake of what we’ve seen here recently. That’s a good explanation and I don’t see any other potential for why that’s happened. That’s not sustainable forever, they cannot get away with that forever before without the bubble finally bursting, is that fair to say?

Chris Martenson: That is fair to say. And just for your listeners, I just got back from a major wealth conference. These are people, families, institutions that are managing enormous money… they’re all scratching their heads. I watched these poor fund managers and CIOs, that’s investment officers, attempt to explain all of this. They contorted themselves into pretzels. I got up there and just said, “Look, somebody is dumping money in this market.” A lot of heads started nodding. First wealth conference I’ve been to, Mike, in many years where I was no longer the contrarian in the crowd. That makes me nervous.

Mike Gleason: Switching gears here a little bit, what do you make of all of the recent social unrest here in the U.S., Chris? We’ve seen police shootings followed by protests and revenge killings of police officers in a number of cities around the country. Then we’ve got probably the two most polarizing figures ever running for president. The months between now and the November election are sure to be interesting. But there is at least the potential that they could also be very dangerous. What does the recent unrest signal here Chris?

Chris Martenson: I think this is connected to the same factors that I talked about with Brexit. Look, Mike, what’s happening here is that people are getting squeezed. If you believe the inflation numbers go get your head checked or study up on it, because we know we are getting inflation. It’s at least twice as high, maybe three times as high as officially announced. And that’s really hurting people, savers just getting crushed.

We are watching banks get bailed out, we are watching Hillary skate on what are obvious transgressions of the law as it’s written and it’s not a complicated law to understand about mishandling of classified information. She got a pass on that amongst other things. So listen, we’re primates. Fairness and justice are hard wired into us, that’s a thing. People are feeling and seeing the unfairness of this all.

What it comes down to, really, for me, Mike at this stage, is they ran these really interesting experiments back in the 40’s and 50’s. Where they would take a rat and put it in the cage, make it so there is nothing in the cage so it cannot escape, and they shock the floor. The rat hates it but ultimately they figure out how to tolerate it. They curl up in a ball, they’re miserable.

If you put two rats in the cage, what happens is that all of a sudden they are both getting shocked, they are both hated, it’s painful, but now they have somebody to look at and go, “Oh, it’s you.” And they fight. And if they leave them in there long enough, they fight to the death.

What that experiment shows us is that when people – and rats and people are the same this way – if you don’t know where the shocks are coming from, you go to the blame game. That’s what we are starting to see. I believe that police and the people they are policing are actually on the same side of the story, but they don’t know it, so they are looking at each other, they are blaming the wrong parties in the state. The pie is no longer expanding. In fact, the piece of the pie that used to belong to even the upper middle class on down is being rapidly vacuumed out.

All that oxygen is being sucked out of the room by a financial system, not just bankers but a complete financial system that just doesn’t know how to say enough. And it’s vacuuming more and more for itself at ever increasing rates. That’s leaving less and less for everybody else. Guess what? Along comes polarizing figures. One who is representing the status quo, and allows people to default into the denial of saying, “Well, if we just get back to pretending that everything is okay and we shoot for the middle zone and don’t see anything too troubling, things will be okay.” Spoiler alert, they won’t.

And then another guy that’s saying, “Hey, I got an answer for this, and this is troubling and we need to start getting angry about this.” So he’s tapped into the anger side, and I think both of them are missing the mark on this, which is that we have to have a more fundamental substantive discussion about what’s really happening in this country, which is that we have some systems that are run amok and they are going to take us into a really dark territory if we don’t stop them now.

Mike Gleason: For the people who live in these urban areas where there is maybe a little bit more danger in being in an environment where there is a lot of animosity towards police officers. I know you’ve organized your affairs, so you are no longer living in a major metropolitan area, do you have advice for people to maybe consider that type of move given the fact that there could be some real instability in some of these major city centers with all of this violence?

Chris Martenson: Short answer, move. Longer answer, be prepared to move. I do work with people who live in urban areas that they are there for a variety of reasons, they’re not ready to make the move, but they are increasingly having plans for how they would get out of there. Listen, the difficulty of this Mike is this idea of shifting baselines, where if you are a person and you took a person today from my town and you dropped them into Oakland, California they would leave so quickly because it would be like dropping a frog in boiling water. They would jump right out of that.

But for people living there, it’s a little bit violent, but it’s four blocks away, and somebody got shot six blocks away. A month later, it’s two blocks away, but that’s okay, the police responded quickly. Over time, people lose their sense of perspective over what’s happening. So my invitation to people is to really look around and actually see what’s happening, ask yourself if the trend is getting better or worse.

And regardless of whether it’s getting better or worse, is that really where you want to live? A lot of people say the answer is no, but they don’t know what to do next. My invitation is, well, start figuring out what that plan is because there really is no time like the present to begin figuring these things out. It takes time, it just takes time.

Mike Gleason: Changing gears again here. I want to get your thoughts on the Fed. The FOMC meets again next week, they have been punching on interest rate increases. We’ve had mixed economic data, growth below expectations and central bankers everywhere are ramping up stimulus. Janet Yellen and company are finding it exceedingly difficult to tighten. Throw into that that this is an election year. What do you see the FOMC doing between now and the election? Could we see some kind of surprise to the dovish side to help boost the markets and keep the status quo going this November? What are your thoughts there?

Chris Martenson: Yeah, that’s the 85% probability. I’m on record as saying that I thought it was more likely that they were going to lower rates instead of raise rates on their next move, whenever that comes. I said that back in December after that first tiny little wiggle hike. And the reason I said that is because look, you can’t have the United States raising rates while the rest of the world’s rates are going down. That just doesn’t make sense from a variety of logical standpoints. But let’s be clear, the Fed follows, it doesn’t lead.

This is not an aggressive, assertive organization ever since Paul Volcker left. These are not people who have the moxie to run against what the markets want. They’re totally captive to the markets, the markets are clearly saying rates are going down. I don’t think this fed has it in them to do anything other than follow the markets. So since the markets are going down, the best the Fed can do is hold pat. But at some point, honestly, I would put a little bit more money on the wager that said the next surprise would be to the downside not the upside. Especially in an election year.

Mike Gleason: Speaking of following and not leading, I don’t know if you have been following Alan Greenspan and his comments, but now all of a sudden late in life after leaving his Fed chairman post, he is now advocating for a gold standard. It’s quite amazing to hear that come out of that man’s mouth after all these years. Maybe it just goes to the fact that when you are in that position, you’re just following and you’re not making any real leading decisions. What have you made of what Alan Greenspan has had to say in these recent days?

Chris Martenson: Yet another extremely disappointing CYA retirement circuit lap. We’ve seen this a lot, Senators who finally on their retirement day say, “Oh, by the way, Washington is really broken, here is all the ways they are.” Eisenhower on the way out, “Hey, watch out for this military industrial complex.” Yeah thank you, would love to have had those insights while you still could have made some decisions that would have shown that you had the personal fortitude and internal authenticity to have stood up and done what was right.

So for Alan to come out afterwards, I agree with a lot of what he is saying, it’s too little, it’s too late. It doesn’t do anything to resurrect or buff his reputation in my eyes. I think he was the architect that will ultimately end so badly, that his name will be mud if you follow the historical reference, for a long time coming.

Mike Gleason: What is your best guess for what to expect in the markets between now and the election… particularly for the metals? We’ve had an excellent first half of the year in gold and silver, although they have struggled a bit here in the last week or two. So do you see this as maybe a short term pause before the next leg higher? Basically can the metals match the performance in the second half of the year that they had in the first half?

Chris Martenson: Well I still think metals of course, particularly gold given the monetary shenanigans, that’s something that has to be in everybody’s portfolio. It’s your insurance policy, get it there. I really thought that Grant Williams about a year ago had made just to me the quintessential, best gold exposition where his summary was, “nobody cares”.

And his thought was that the west is perfectly happy to sell gold, we’re perfectly happy to sell our paper gold on the COMEX. We’re perfectly happy to see about 1,000 to 1,500 tons a year leave western vaults just for Shanghai alone. So we were okay with that because nobody cared. The Treasury didn’t care. He was talking with fed officials, like, “Yeah, if we lose gold, it’s fine.”

The west is starting to care. This hearkens back again to this wealth conference I was at, big money people, of course I’m always testing the gold waters with them. And more and more people are saying, “Yeah, I’m thinking about gold now.” So we’re starting to see this really show up on the western radars. I think that if I was going to mend Grant’s title, it moves from “nobody cares”, to “some are starting to care.” And that’s a very constructive environment for gold, just from that standpoint.

And the other part, of course, has to be how can gold not be constructive in a negative interest rate environment? People used to always say, “Chris, gold doesn’t yield anything.” And now I get to say, “Well at least it doesn’t yield negative something.” So this is a really positive environment for gold. It’s clear somebody has an interest in not allowing gold to go up. We saw that on Friday late night post Brexit. Somebody put 50,000 new open interest contracts to contain gold at the $1,360 mark. And we don’t know who that was, but we can all guess.

Mike Gleason: At some point you have to think that more and more people will recognize it as a safe haven. You talk about the wealth conference you just went to, about how maybe more and more people are starting to wake up to the idea of owning precious metals as a way to hedge against what may come. Obviously, and I’m talking about physical bullion now, there is not a tremendous amount of it. There’s been so much of it going to the east, and the west does not have a whole lot of precious metal left at this point.

If we did see an increase from say 1% of the general public and going to 3% or 5% of the general public, I have to think there is going to be a difficulty getting your hands on the metal if you wait too long. Is that fair to say?

Chris Martenson: That is fair to say, particularly at the retail level. I think the people who have the big, big money, they have access to vaults that you and I don’t normally have access to. There’s a very different structure for the big 400 ounce and 1,000 ounce bars for gold and silver respectively. But for people who want to buy coins, we saw this in ’08, we saw it in 2011 again when there were big price moves, particularly to the down side in silver where people started to want to get into that market.

And those were almost exclusively people who had already bought silver. This wasn’t new people coming into the market, just people looking for better deals. That alone swamped the retail supply chain, the refineries were maxed out, the mints were maxed out, supplies were tight, and the wait times ballooned out to six and eight weeks in some cases.

So that’s our learning which is that when the metals really do begin to move, your chance as a retail investor to get into that are going to be very, very limited if you wait or the percentages move from whatever it happens to be, 1% or 2%, to 3% or 5%. I think that that will swamp the retail availability for quite a while.

And then, you know what, people are going to be stuck with, and they’re going to say, “Oh there’s a six week wait.” When six weeks comes by, they discover that the price has moved a lot at that point in time. So either you put a lot of money on the line in the hopes of being in line somewhere, or you wait and discover that both the prices and availability have scurried away from you in the meantime. It’ll be hard I think psychologically if not practically for people to acquire what they want. So my motto always is I’d rather be a year early than a day late.

Mike Gleason: Very good advice. In terms of gold versus silver, obviously gold is really just monetary demand that drives that market, but silver is both pushed and pulled from both the industrial demand and the monetary demand. Generally speaking, when we see the metals rising, we’ll see silver outperform, but if we have an economic slowdown, perhaps that could hold silver back a little bit as it gets maybe lumped in with copper and oil and other industrial types of commodities. What are your thoughts there on the potential for silver versus gold going forward?

Chris Martenson: They’re very different words to me. A lot of people say, “Gold and silver” like it’s one word. They are two words to me. Gold is my monetary metal, love it, I have it because I think a monetary crisis is happening. If you have a short term horizon, I like gold better because I think we are having a monetary crisis first before we have a big industrial resurgence.

Silver, primarily Mike I love it as the industrial metal, as something who’s known ore grades are vanishing and deposits are depleting, and we know that it’s being used increasingly for more and more industrial applications. Silver is my Rip Van Winkle metal. I love it. If somebody said, “I need to pick one of these two, 20 years I want to be happy when I wake up.” Silver’s it. It’s a volatile metal that goes up and down, I think it could have a run down if we hit a capital “R” recession or depression across the world… if China blows up or something like that. But barring that, I love silver because of its actual supply and demand characteristics going forward. I think it’s heavily underpriced here.

Mike Gleason: Well as we begin to close here, Chris, what would you say are maybe the top three or four actions that people could be taking right now to become more self-reliant and generally more insulated from the chaos that’s on the horizon?

Chris Martenson: Well if I could just plug my own book here for a minute that I wrote with Adam Taggart called Prosper. What we do there is we specifically talk about steps people can take so that they will be more resilient given certain futures that might arrive. But every one of these steps we advise will make your life better today. So there’s really no way to lose in this story.

What we do is we have eight forms of capital that we like people to focus on. Financial capital, which commonly everybody focuses on only. But what we’ve found, and there’s a great quote, it says, “None are so poor as those who only have money.” If you only have financial capital you are not resilient. So there’s seven other forms of capital we talk about. I’ll just go through a couple.

One is social capital. Not just how many people you know, but how well you know them. Have you had experiences with them? Have you seen them operate under a variety of scenarios so you know really who they are at core? Building that social capital is going to be one of the most important things you can do to build you resilience. And guess what? You’ll know more people and connections are proven to make us happier, more fulfilled people.

Emotional capital, also in the mix. This is very important. It doesn’t do any good to be rich in all sorts of other areas if when a crisis comes you basically fold up your mental shop and shut down. Not good. We already see people doing this with increased rates of suicide, drinking, video game playing, other forms of numbing out because the reality is just not appealing. We think there’s lots of ways to rotate your thinking so that you can be positioned to not just be on the wave of change that’s coming, but the surf it.

There’s great opportunities coming here, but not for people who are going to be feeling the loss of the changes instead of the opportunities in the change. So those are just a couple of examples. Living capital is an example, knowledge capital, time (capital). Things like that. And so this book is our collection of stories and personal experiences with each of these forms of capital, from having worked with thousands of people in our seminars, at our website, Peak Prosperity. For people who are consciously and prudently as adults saying, “Hmm, different future coming, how can I be prepared? More importantly, how can I be resilient so I can increase my quality of life today and be more prepared for tomorrow?”

Mike Gleason: Yeah, it’s truly fantastic stuff. Obviously it was years in the making. You and Adam did a fantastic job, so many practical things in there. Now as we begin to close here Chris, why don’t you talk a little bit about the Peak Prosperity site and then also let people know how they can get their hands on that book if they haven’t already done that.

Chris Martenson: Thanks Mike. Yeah, the site is PeakProsperity.com. And we have a lot of free content there, we have a subscription newsletter for people who like to go a little deeper and maybe have more information. Our site is dedicated to two big things. One is educating, we want people to understand the context of what’s happening so they are not one of those rats getting shocked without an understanding of what the shocks are.

Once you know what the shocks are, then you have information that’s really important, that can help you move when other people are paralyzed or confused. So that’s half the site, the other half is about how we can become more prepared, more resilient… (there’s a) wonderful community of people there. They are very thoughtful. If I could identify us with one word, I would say we are all curious.

This is a life to be lived, it isn’t a dress rehearsal, we are not here hunkering down saying, “Woe is us, bad times coming.” We’re saying, “Big changes coming, now what do we do about it?” So it’s very positive while realistic, if I can put those two words together. And Prosper, the book, available on Amazon. You can come to the website and get that. It’s available pretty much everywhere.

Mike Gleason: Well again, excellent stuff. Thanks so much Chris, and I hope you have a great weekend, enjoy the rest of your summer, and we’ll catch up again soon.

Chris Martenson: Thank Mike. You too, and to all your listeners, have a great weekend and summer.

Mike Gleason: Well that will do it for this week, thanks again to Dr. Chris Martenson ofPeakProsperity.com and author of the book, Prosper: How to Prepare for the Future and Create a World Worth Inheriting. For more information, just go to PeakProsperity.com, check out the extensive site there and the great online community. Or check out the book, which is also available on Amazon. You definitely will not be disappointed.

To listen to the full podcast download the MP3 file here:  DOWNLOAD MP3

 

 

Political Risk Building into the Gold Market? The Holmes SWOT

By Frank Holmes – CEO and Chief Investment Officer, US Global Investors

Strengths

  • The best performing precious metal for the week was palladium, up 5.49 percent.  Citigroup forecast that platinum could see a deficit of 172,000 ounces in 2016, but palladium’s deficit could be short by 847,000 ounces, thus the group is more bullish on the later.
  • Esturo Honda, who according to Bloomberg News has emerged as a matchmaker for Prime Minister Shinzo Abe in finding foreign economic experts to offer policy guidance, is opening his ears to Ben Bernanke.  In April, Bernanke noted that helicopter money, in which “the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them,” could work as the strongest tool to overcome deflation, says Honda.
  • Francisco Blanch, head of commodities research at Bank of America Merrill Lynch, says there is political risk building into the gold market, including the Italian referendum and U.S., French and German elections. Blanch adds that in the past, gold used to be driven more by the U.S. dollar and commodity market movements, but “in this day and age, it’s a new world.” He also mentions that one-third of government bonds are yielding negative. The chart below shows that $9.2 trillion of sovereign bonds are trading with negative yields.

swot4
Weaknesses

  • The worst performing precious metal for the week was silver, down -2.97 percent.  With silver generally more volatile than gold, a strong rally in stocks, up 10 of the last 11 days and with new record highs, had investors chasing returns in the broader market.
  • Gold traders and analysts are bearish for the first time in four weeks, reports Bloomberg. The precious metal headed for its first back-to-back weekly decline since May, with gains in equity markets and the dollar hurting prices. David Meger, director of metals trading at High Ridge Futures in Chicago, says that the dollar’s strength continues to pressure most commodities, gold in particular. “Safe-haven demand has been diminishing, obviously with equity markets moving to new record highs,” Meger said.
  • A group of armed men stormed one of Agnico Eagle’s mines in northern Mexico early Tuesday morning, reports the Canadian mining company, injuring a security guard and making off with a haul of gold and silver. Last April a similar situation occurred when armed men entered McEwen Mining’s El Gallo 1 mine in northern Mexico, reports Reuters, even though thefts within mines are “relatively rare in Mexico.”

Opportunities

  • The World Gold Council and the Accounting and Auditing Organization for Islamic Financial Institutions are drafting new standards for investing in gold to comply with Sharia law, reports an Energy and Capital article. If the proposals for the changes (expected in the fourth quarter) are accepted, a flood of new investors could help send gold prices soaring, the article continues. A similar situation took gold prices to $1,900 in 2011 when surging demand came from China following the government’s urge for its citizens to own the yellow metal.
  • With the U.S. presidential election seen as the next big catalyst, Bill Beament of Northern Star Resources believes that gold’s rally is set to endure, reports Bloomberg. He says the overall trend is up and that “the U.S. vote will have more of an impact on bullion than the U.K. referendum.” The IMF also scrapped its forecast for a pickup in global growth, the article continues, yet another positive for gold.
  • Commerzbank raised its year-end gold estimate by $100, reports Bloomberg, to $1,450 an ounce. Similarly, DBS Group Holdings says that gold is in a major bull market and could surge past $1,500 an ounce as “low interest rates buoy demand and the U.S. presidential election looms.” The long-term gold price has been adjusted higher at Numis Securities as well, up to $1,400 an ounce from $1,350 an ounce.  While it’s good to see the street starting to take their price forecast higher for gold, investors should remain disciplined as the late summer can be a seasonally weak period for prices and many of the expected price targets being raised are capitulation moves to higher price levels.

Threats

  • According to data compiled by Bloomberg, investors pulled $793 million out of SPDR Gold Shares last week, the most since November. As Citigroup’s U.S. Economic Surprise Index rose to its highest since January 2015 (a sign of an improving economic outlook), demand for ETFs backed by gold has diminished some. Holdings in gold-backed ETFs around the world fell 3.9 metric tons last week, reports Bloomberg.
  • Sovereign gold bonds issued in India were trading at a 27-percent premium over the fixed price when the bonds were first issued in November, reports LiveMint. Prices of physical gold have risen 23 percent during the same period. According to the article, “Investors get a fixed interest rate of 2.75 percent per annum on these bonds over and above the capital gains that may accrue if the price of gold rises in the spot market.” The gold bonds are part of the government’s gold monetization efforts aimed to “wean the public off physical gold.”
  •  Will gold miners maintain their capital discipline? Bloomberg reports that as the price of gold rises to its best first half of the year in nearly four decades, earnings reports could indicate that miners are preparing to ease in terms of spending. “Historically there’s been a very high correlation, almost a one-to-one correlation, between costs and the gold price, implying that with higher gold prices you will likely see costs rise at the same time,” Josh Wolfson of Dundee Capital Markets said. Wolfson added that a majority of miners structured spending based on the assumption that gold will trade between $1,100 and $1,150 an ounce.  Let’s hope the miners learned something over the prior three painful years of falling gold prices.

Swiss gold export and import anomalies continue

We have highlighted the strange Swiss gold import and export statistsics which have been prevailing so far this year on this site and others for which I write.  The June stats from the Swiss Customs Administration have now been announced and these anomalous gold flows are apparently continuing apace.  Switzerland has been seeing some huge reversals in imports and export data for some countries with a prior strong source of Swiss gold exports now the leading supplier of gold imported into the Alpine nation in the UAE, while the UK, in the past a major source of gold imported into Switzerland, has been the principal export destination so far this year.

I have noted some correlation between these reversed gold flows and the rise in the gold price this year, the drop in Asian demand and the big flows into the big gold ETFs, and comment on this in two articles – one on seekingalpha.com and the other on sharpspixley.com.

For those interested, links to these two articles follow:

Swiss Gold Stats Point To Big Continuing Supply/Demand anomalies.

and

June Swiss gold statistics highlight continuing reverse gold flows

A Trump Presidency would be positive for gold and silver

Gold TodayGold closed in New York at $1,333.10 on Thursday after Wednesday’s close at $1,319.30.  

    • The $: € was barely changed at $1.1028 down from $1.1029.
    • The dollar index fell to 97.01 from 97.00 Thursday.
    • The Yen was slightly stronger at 106.21 from Wednesday’s 107.02 against the dollar.
    • The Yuan was stronger at 6.6722 from 6.6742 Thursday.

 

  • The Pound Sterling was weaker at $1.3184 down from Wednesday’s $1.3254.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  07  22

2016  07  21

SHAU

SHAU

285.37

282.87

284.88

282.96

Dollar equivalent @ $1: 6.6722

$1: 6.6742

$1,330.30

$1,318.25

$1,328.01

$1,318.67

Shanghai prices were slightly less than at New York’s close, while London tried to pull prices lower at the opening.

The main bullion banks can arbitrage positions using the funds they have in all centers. Likewise the ICBC, the main Chinese bullion bank in China and a gold market maker in London can do the same, buying and selling gold without moving it across borders. This is acceptable to the Chinese monetary authorities as it involves a large use of Renminbi [Yuan] internationally.

Consequently, we are seeing the gold price smoothed out across the world. So a conclusion that can be drawn is that gold prices are in sync globally.

Nevertheless, this does not mean that there is a globally liquid gold market reflecting gold’s demand and supply. Traders and speculators continue to dominate prices, while physical gold continues to express a very different market sentiment as it moves into U.S. gold ETFs and across to Asia.  At some point in the future the two different markets will come together in a most dramatic way.

LBMA price setting:  $1,322.00 the same as Thursday 21st July’s $1,322.00.

The gold price in the euro was set at €1,198.98 down €1.10 from Thursday’s €1,200.08.

Ahead of the opening in New York the gold price stood at $1,325.05 and in the euro at €1,202.84.  

Silver Today –The silver price closed in New York at $19.85 on Thursday up from $19.61 on Wednesday.  Ahead of New York’s opening the price was trading at $19.68.

Price Drivers

Last night’s acceptance speech from Donald Trump was of significance to gold and silver prices should he become President.

Many believe he stands little chance of becoming President, just as the vast majority of Americans did not think he had a chance of becoming the Republican Presidential nominee when the selection process began. So the chances of him becoming President are more than a possibility. His message is pertinent.

He intends following a policy of what is clearly protectionism and a move away from globalization. This will not only be negative for growth, but disruptive and divisive for the global economy.

As it is, the global monetary system is marching determinedly to a multi-currency system. A President Trump will rapidly accelerate this process. The need for gold in ‘Official’ hands will grow in such an environment to smooth out the ruptures in cash flows between nations across the world.

Silver is likely to rapidly increase its pace towards a recognized monetary metal in that environment too.

A President Trump would be gold & silver price positive!

Gold ETFs – In New York on Thursday there were sales of 2.079 tonnes of gold from the SPDR gold ETF, leaving their holdings at 963.142 tonnes and purchases of 0.6 of a tonne into the Gold Trust, leaving their holdings at 217.54 tonnes.

Since January 4th this year, the holdings of these two gold ETFs have risen by 383.091 tonnes.

Silver –Silver prices continue to fall, relative to gold.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

 

Central Bank gold buying picks up nicely in June

After May’s big fall in central bank gold buying when China announced no purchases at all and Russia only three tonnes, gold investors should be relieved that these two nations, which are by far the largest central bank buyers of gold, are back on track, with China announcing purchases of 15 tonnes of gold and Russia 18.7 tonnes in June.  these two nations between them have been accounting for perhaps over 70% of last year’s estimated (by Metals Focus) net central bank total of around 566 tonnes – one can’t know for sure as China only started publishing its monthly gold reserve increases from mid-year.  This year to date their combined purchases have fallen off a little, even discounting the May hiatus, while Venezuela has sold  at least 67 tonnes to relieve its foreign debt situation.  we thus believe that total central bank net gold purchases this year may fall to as little as 300-350 tonnes – some 40% or more below last year’s estimated total.

Do check out my articles on seekingalpha.com and sharpspixley.com on the subject which go into more detail.  See:

Central Bank Gold Buying Back On Track on Seeking Alpha

and

Russian central bank gold buying back too on sharpspixley.com

 

Gold and silver still in consolidation mode

Gold TodayGold closed in New York at $1,319.30 on Wednesday after Tuesday’s close at $1,332.30.  

    • The $: € rose to $1.1029 up from $1.1002.
    • The dollar index fell to 97.00 from 97.12 Wednesday.
    • The Yen was slightly weaker at 107.02 from Wednesday’s 106.48 against the dollar.
    • The Yuan was stronger at 6.6742 from 6.6785 Wednesday.

 

  • The Pound Sterling was stronger at $1.3254 down from Wednesday’s $1.3178.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  07  21

2016  07  20

SHAU

SHAU

282.87

/

282.96

/

Dollar equivalent @ $1: 6.6742

$1: 6.6770

$1,318.25

/

$1,318.67

/

Shanghai prices were in line with those of New York. Demand in China is rising with these lower prices. The media has labeled retail gold buyers as ‘Mammas’, pointing to the conservative older ladies who invest for long term financial security. These investors likely experienced the days of hyperinflation, or at least their own mothers related tales from those days.  

We find it extraordinary that the media likes to give demeaning names to those who distrust the global financial system and favor gold itself. We have found such investors just as intelligent and perceptive as traders who go for short term profits. Fortunately few precious metal investors are affected by such puerile name calling.

LBMA price setting:  $1,322.00 down from Wednesday 20th July’s $1,325.60.

The gold price in the euro was set at €1,200.08 down €4.00 from Wednesday’s €1,204.00.

Ahead of the opening in New York the gold price stood at $1,320.65 and in the euro at €1,198.63.  

Silver Today –The silver price closed in New York at $19.61 on Wednesday down from $20.00 on Tuesday.  Ahead of New York’s opening the price was trading at $19.42.

Price Drivers

With today’s European Central Bank meeting likely to have an effect on exchange rates and the gold price the prospect of more easing becomes important. But as with the Bank of Japan’s failure to move of late [saying ‘helicopter money’ is off the table], so the E.C.B. finds itself in a position where it is extremely limited in what it can do now or in the future. Lending is timid, so stimuli are not bearing fruit!

With the downward impact of Brexit on growth there are few relevant statistics that can be used to guide the E.C.B. Therefore we do not expect any action today [rates remain unchanged]. But we might see signals for more stimuli to be deployed when data is available for the next decision in September.

A major concern is how much further Mario Draghi of the E.C.B. can go [like the B. of J.] with a stimulus package that already includes a €1.7 trillion-euro ($1.9 trillion) asset-buying program increasingly constrained by ultra-low debt yields. A problem for policy makers is that although they’ve gone out of their way to spur credit expansion, the pick-up in lending remains timid. Under its own rules, the central bank can only buy debt with a yield at or above the deposit rate. Will they change rules in the future?

The E.U. is in uncharted territory. It is likely to castigate governmental inactivity on the growth front. This is gold & silver positive!

Gold ETFs – In New York on Wednesday there were no purchases into the SPDR gold ETF (GLD) or the Gold Trust (IAU), leaving their holdings at 965.221 tonnes and at 216.94 tonnes respectively.

Since January 4th this year, the holdings of these two gold ETFs have risen by 384.57 tonnes.

Silver –Silver prices continue to fall relative to gold.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

Gold and silver prices still base building

Gold TodayGold closed in New York at $1,332.30 on Tuesday after Monday’s close at $1,329.30.  

    • The $: € rose to $1.1002 down from $1.1058.
    • The dollar index rose to 97.12 from 96.77 Tuesday.
    • The Yen was slightly weaker at 106.48 from Tuesday’s 106.11 against the dollar.
    • The Yuan was stronger at 6.6785 from 6.6920 Tuesday.

 

  • The Pound Sterling was weaker at $1.3178 down from Tuesday’s $1.3167.

 

Yuan Gold Fix

Shanghai prices were not available on site today.

The People’s Bank of China stepped into the Yuan market today and strengthened the currency as you can see above.

We continue to expect the Yuan to weaken down to 7.00 to the U.S. dollar by year’s end.

Bear in mind that with all the competitive devaluations across the world the dollar’s strength also meant the Yuan’s strength when it was around 6.2 to the dollar. China has not been devaluing against the dollar but is now trying not to be strong with it.

The fall in the Yuan is being engineered cautiously and without attracting too much attention. So far it has succeeded. Perhaps the PB of C is now trying to slow the fall so as to stay in the shadows.

LBMA price setting:  $1,325.60 down from Tuesday 19th July’s $1,332.20.

The gold price in the euro was set at €1,204.00 down €0.74 from Tuesday’s €1,204.74.

Ahead of the opening in New York the gold price stood at $1,323.75 and in the euro at €1,202.21.  

Silver Today –The silver price closed in New York at $20.00 on Tuesday down from $20.07 on Monday.  Ahead of New York’s opening the price was trading at $19.74.

Price Drivers

With tomorrow’s European Central Bank meeting gold and silver prices are trying to mark time in a poor Technical environment.

Most expect the E.C.B. to do nothing, but the pressure is mounting heavily for more easing.

The euro remains relatively strong and the economic outlook for the E.U. remains tilted to the downside. The potential for a recession is there. So something must be done.

Yes, most are worrying that there is insufficient post-Brexit data to go on, but the need for more easing is very clear. So while most do not believe Draghi will do anything, we expect action!

Such action will precipitate a fall in the euro, the E.U. hopes, but as we have said many times before, the U.S. cannot afford to see a dollar rise through the 100 level on the dollar index.

Gold ETFs – In New York on Tuesday there were no purchases into the SPDR gold ETF, but there were purchases of 0.60 of a tonne into the Gold Trust, leaving their holdings at 965.221 tonnes and at 216.94 tonnes respectively.

Since January 4th this year, the holdings of these two gold ETFs have risen by 384.57 tonnes.

Silver –Silver prices are falling strongly, relative to gold, mainly on ‘marking down’ by dealers.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

Defeating Gold and Silver’s Wall of Worry

By Clint Siegner*

Confidence is slippery, even when you are a metals investor sitting atop the best performing assets of 2016. It doesn’t help when 4 years of a miserable bear market remains fresh in our memories. Any weakness in prices and it can feel like markets are getting ready to plunge right back to $13 silver and $1,000 gold.

That feeling is called the “Wall of Worry”, and bulls are going to have to climb it by staying in the market even if their emotions are telling them to bail. Let’s review the last 6 weeks because they are quite instructional.

June 1st: Silver closed at $15.97 and gold at $1,213. Precious metals prices stood well below the highs put in at the end of April and plenty of people declared the end of metals bull run.

There was plenty of reason to worry. At the time, markets were obsessed with Federal Reserve policy and sentiment was darkening.

Climbing over the Wall of Fear and Worry

The year had opened with turmoil in the stock markets. The S&P 500 was plummeting in response to a December rate hike with the expectation of more hikes to come. Precious metals surged as investors sought refuge from crumbling stocks.

In mid-February Fed officials responded to the collapse in stock prices by reversing their rhetoric on interest rates. They reaffirmed their undying commitment to growth and prosperity through freshly printed cash!

Metals got another boost and the S&P 500 took off like a rocket.

So much so that, by June, schizophrenic officials had reversed direction once again. They sounded an economic “all clear” and began jawboning about raising rates. Some thought they might even get around to hiking as soon as the FOMC meeting in the middle of the month.

June 3rd: The Bureau of Labor Statistics (BLS) released a disastrous jobs report for May, missing even the most conservative estimates by a mile. The consensus on more rate hikes simply blinked out of existence. Forget higher interest rates, investors began wondering if Negative Interest Rate Policy would soon be making its U.S. debut.

Gold prices jumped by $80/oz to $1,299/oz over the following 2 weeks. Silver raced ahead by $1.50 to $17.54/oz.

Then, in the days leading up to the Brexit vote, metals prices take a beating. Everyone is watching, but no one expects the British to vote “Leave.”

June 23rd: United Kingdom voters shock people everywhere. Stock markets crash, there is turmoil in the foreign exchange markets and people wonder if Brexit represents the kick-off for the next worldwide financial crisis.

Helicopter Money

Not only were interest rate hikes back off of the table, central bankers stood out front and did what they do best: they assured markets that no one need pay for their sins. They stood at the ready to provide “liquidity,” also known as unlimited cash to prop up overleveraged and mismanaged banks and hedge funds who lost bets they couldn’t afford on Brexit.

The turmoil and safe haven buying drove the gold price from $1,257 to $1,367 by July 8th. Silver jumped from $17.32 to $20.31 over the same period.

July 8th: Stock markets shrugged off the turmoil following the Brexit vote. Two days of heavy selling immediately after Brexit were followed by relentless buying.

Only investors were split. Some bought risk assets like stocks, figuring the hysteria surrounding Brexit was overdone.

Others bought safe haven assets including Treasuries and metals. They saw European banks in a lot of trouble. Italian banks needed a bailout and much larger banks – Deutsche Bank and Credit Suisse – were signaling the possibility of collapse as their share prices traded below the 2008 crisis lows.

Cue the next U.S. employment report. This time the BLS puts out a blockbuster number that beats expectations by a mile. That report and the continuing rally in stocks undermine interest in safe haven assets. People once again start whispering about the Fed raising interest rates. Metals and bonds both drifted lower.

So what have we learned? World events are unpredictable – perhaps even more so lately. And, in bull markets some of the biggest moves happen suddenly, when people least expect it. Blink and you’ve missed it. So you just have to hang on to your convictions, and your position, even when worry sets in.

Japanese selling yen to buy gold- The Holmes SWOT

By Frank Holmes – CEO and Chief Investment Officer, US Global Investors

Strengths

  • The best performing precious metal for the week was palladium, up 4.89 percent. Wage negotiations started this week in South Africa with opening demands including a 15 percent hike for the highest paid employees and a 47 percent hike for the lowest paid. With the threat of possible strikes in South Africa and a 19-percent rise in auto sales in China reported for June, related to tax cuts on auto purchases, we could see further upside in palladium prices.
  • “Gold is the unprintable currency, unlike the yen,” said Itsuo Toshima, former regional manager for the World Gold Council in Tokyo. According to Bloomberg News, Abenomics skeptics are selling the yen to buy this unprintable currency – gold. Individual investors drove a 60 percent jump in sales of the precious metal in June from May at Tanaka Holdings, the operator of Japan’s largest bullion retailer.

swot3

  • Tanaka Holdings announced this week its plan to buy Metalor Technologies International SA, a privately held Swiss precious metals refiner, reports Reuters, expanding into precious metals recovery and refinery in Europe, North America and Asia. The aim is to boost Tanaka’s business as local growth stagnates due to a falling population by expanding their presence in the supply chain. No terms were given yet in the statement.

Weaknesses

  • The worst performing precious metal for the week was gold with a loss of 2.11 percent. At the end of last week, the net long gold futures position on the COMEX had reached an all-time high, when we were in line for a possible correction. Interestingly, gold equities did not fall as much as the gold price over the past week.
  • Gold assets held in the world’s largest ETF backed by the metal, the SPDR Gold Shares fund, dropped the most in three years, reports Bloomberg. Holdings fell 16 metric tons to 965.22 metric tons on Tuesday as U.S. equity markets reached record highs. Following the U.K.’s decision to keep rates at 0.5 percent, gold dropped to a two-week low. The outlook for more central bank stimulus is curbing demand for the metal as a haven, notes Bloomberg, while a decline in demand from jewelers and retailers is also pushing the price lower.
  • Gold was also impacted by a strong U.S. jobs report against signs of risks to the global economy, reports Bloomberg. Payroll data exceeded analysts’ expectations, buoying stocks and other risky assets, the article continues. In related news, SoGen announced Monday that gold producers expanded the hedge book 1.6m ounces in the first quarter, and stood at delta-adjusted 8.7m ounces at March 31. The majority of net hedging in the first quarter came from Newcrest and Polyus Gold.

Opportunities

  • In its Global Gold Outlook this week, RBC Capital Markets increased its gold price assumption from $1,300 to $1,500 in 2017 and 2018, which is 12 percent above the current spot price. Citing one of the key gold price drivers, RBC notes that “a negative real rate of -1.0 percent suggests a $1,546 gold price.” Bank of America agrees that the yellow metal could move higher, stating that gold is headed to $1,500 an ounce, while also pointing out that silver can overshoot $30 an ounce. A combination of a weaker U.S. dollar and previously deferred demand from Asia should support the gold price in the second half of the year, according to a report from Citi analysts.
  • Jeff Gundlach of DoubleLine Capital discussed his investment portfolio with Barron’s this week, the composition of which ZeroHedge broke down as follows: “high-quality bonds, gold, and some cash.” In response to inquiries about what kind of portfolio is he running, Gundlach said the following: “I say it’s one that is outperforming everybody else’s…Most people think this is a dead-money portfolio. They’ve got it wrong. The dead-money portfolio is the S&P 500.”
  • Klondex Mines reported its preliminary quarterly production results this week of 41,436 ounces, according to a statement released by the company. This apparently beat expectations as the stock rose better than 1 percent this week while the averages were down almost 2 percent. Jaguar Mining also reported strong second quarter production this week of 24,222 ounces of gold, a 17 percent increase year-over-year. The company also cited high-grade gold mineralization recently encountered, confirming downward extension at depth at its Turmalina gold mine. Jaguar says the drill results provide potential to upgrade current inferred resources to higher category.

Threats

  • For the first time ever, Germany issued a 10-year bond at a negative interest on Wednesday, selling more than 4.0 billion euros with a yield of minus 0.05 percent, reports the Bundesbank. Negative interest rates in Japan are also present, and seem to be backfiring in a big way, reports Bloomberg. The article reads, “Instead of encouraging spending, people are stashing their cash in safes, with sales of house safes increasing 250 percent over the last year.” What’s even more troublesome, is many elderly Japanese people are purposely committing crimes to end up in prison – a place with free food and health care, since negative rates are eating up their savings.
  • In Brazil, bitcoin seems to be gaining more and more momentum, reports NewsBTC.com. The digital currency trading volumes in Brazil have actually surpassed that of gold in the last six months. “The recent rise in bitcoin prices from about $450 to over $700 before stabilizing at around $650 is attributed to increased demand in the Chinese market, Brexit and other external factors,” the article reads.
  • According to portfolio strategist Martin Roberge of Canaccord, gold could correct in the summer. Roberge noted that gold stocks have outperformed the broader S&P/TSX Composite Index by 71 percent this year, and while this does not mean the bull market is over, he believes this kind of run is usually followed by a “higher risk” phase.

Marginal gold stocks vs gold majors

Some thoughts on investment in marginal gold miners – which tend to hugely outperform in a rising gold price environment, but can crash and burn in a downturn – and investing in the gold mining majors which have also performed well in this year’s gold price advance, but where downside is perhaps more limited.  See: Pros And Cons Of Marginal Gold Stocks Vs. The Majors

A balanced viewpoint on gold

In terms of gold, and silver, analysis from those ‘expert pundits’ who tend to monopolise the information highway with their self-promotional opinions, usually with an agenda to promote their own subscription websites and newsletters, or their latest books, it seems to be a case of ‘bulls are bulls and bears are bears and never the twain shall find any common ground’. They have made their positions clear over and over and while both sides may ultimately prove to be correct in their views at some point over very long periods of time, they do not tend to be good guides for the investor in the short to medium term timeframes in which most of us make investment decisions.  They may call trends correctly from time to time, but their end-predictions tend to be way off.

There are exceptions of course.  Bank analysts tend to take a more balanced viewpoint, but they seem to follow a herd instinct and are almost all totally reactive.  Gold follows an upwards path for a month or two and the analysts raise their forecasts, and vice versa.  They are not opinion leaders but followers.

I like to think of myself as having a reasonably balanced view on precious metals, although I do admit to being marginally bullish at the present time – perhaps being more swayed by bullish arguments than by bearish ones, but I would like to think I would be prepared to change my position should the fundamentals which I follow start to look like moving in a different direction.  But then my background is in mining engineering, which I believe to be a pragmatic discipline, rather than in economics where, sometimes strongly held opinions seem to have little connection with day to day life reality.

So, I tend to discount arguments that tell me that gold is going to $5,000 or $10,000 in the medium term – to be frank I’m not sure I’d want to be living in a world where this were to occur, the scenario is probably too horrific and only likely to be brought about by total economic collapse.  The world’s politicians and central bankers, however misguided they may be in their actions, do seem to just about muddle through in the end!  I wouldn’t, however, rule out a rise to $2,000 within a couple of years, although even this might be stretching it.

Conversely I do not find any sympathy for a the mega-bearish analysis that suggests gold could come crashing down well below the $1,000 level, perhaps to $750 or lower – gold at plus $1,000 levels is now probably too entrenched in the system.  Some may view it as a pet rock, but gold as an instrument of wealth is inbuilt into the psyche of the vast majority of the world’s population.  As such it has withstood the tests of time.

Thus it is always comforting when one comes across analysis which does appear to be reasonably balanced and the latest Bloomberg Intelligence Mid-Year Outlook for Precious Metals is such.  It comprises a series of short snippets from Bloomberg analysts on precious metals – some of which I would agree with and some not – but overall a more balanced series of viewpoints than are generally released onto the markets.  The report was presided over by Ken Hofmann, Bloomberg Intelligence’s Senior Industry Analyst whose opinions I much respect.  It doesn’t try and predict prices going forward but raises a succession of points which are hugely relevant to current investors and to future trends in gold demand and sentiment.

It opens with the statement: “The U.K.’s surprise vote in favor of leaving the EU has sent investors clamoring for currencies other than pounds and euros, favoring gold and other precious metals. With elections in the U.S. and major European nations scheduled through 2017, precious metals such as gold and silver also are viewed as less susceptible to political changes. The launch of blockchain, using technology currencies backed by physical gold, has also supported demand for the metal.” 

None of this I would quarrel with, although, as noted above there are aspects in the informational snippets which to me suggest a degree of unfortunate under-research in particular relating to current Chinese gold consumption, but perhaps that’s just because the analyst responsible did not have the space to present a more closely researched picture of the reality.

The introduction also highlights the following aspects of the report:

  • China Seeks Larger Role in World Gold Market: Primer
  • Blockchain May Be Future of Trading, Currencies: Midyear Outlook
  • Gold Holdings Show Rising Role in Global System: Midyear Outlook

The notes on the Chinese impact are, for the most part, quite illuminating having mainly been drawn together by Chinese speaking analysts who perhaps have greater insights into the Chinese mindset and policies than those of us Westerners who try, and often fail, to understand some of the motivations and nuances behind Chinese gold demand and market participation rationale.  A considerable section of the overall analysis is devoted to China and its importance in the Precious Metals sector and what the analysts perceive as the key points in the country’s overall precious metals strategy which is particularly significant given that the nation is both the world’s largest producer of gold, and the largest consumer.

It is, though, the snippet on Chinese consumption with which I would perhaps argue the most.  Analyst Sean Gilmartin comments: “Estimates by groups such as the World Gold Council and Metals Focus put Chinese gold demand at 834 metric tons in 2015, based on imports from Hong Kong and local mining. The Shanghai Gold Exchange (SGE), the official exchange of Chinese gold, had over 2,500 tons of withdrawals in 2015. Those who say China has been importing more gold than the West estimates point to this figure as support for higher Chinese demand. Traditional sources maintain it is just the same gold, moving in and out of the SGE.”  This is something of a simplification of the position and does not note that the WGC and Metals Focus estimates (which are effectively the same number as the latter supplies the data to the former) of Chinese demand relate only to a section of gold flows into China plus Chinese production. This has been very much the pattern mainstream analysts have followed for some years.  But in the past two or three years there has been a substantial flow into banks and financial institutions which is not included in this ‘demand’ figure. which has teneded to follow precedent and only look at consumer and retail investment flows.

Flows from Hong Kong, which still seem to being taken as a proxy for total Chinese imports are no longer so dominant with much more gold being imported directly than used to be the case and published detailed gold export figures from several countries bear out that perhaps only 60%, or even less, of mainland China imports nowadays flow through Hong Kong.  The true figure for Chinese gold imports plus domestic production is far close to the SGE withdrawal figures than the note might have us believe.

However other aspects of the report trying to get behind the Chinese rationale for building its gold reserves, the role of the huge increase in the Shanghai Gold Exchange’s impact, the increasing participation of Chinese banks in global gold price setting and trade and the implementation of the Chinese daily gold ‘fixes’ in yuan, make for valuable reading.  But again all could do with much further analysis.

A significant sector of the overall report is also devoted to gold and the blockchain and its potential impact moving ahead.  It notes that “Blockchain is also being used to transform gold, one of the world’s oldest forms of money, into one of the newest. Gold apps, such as the gold-backed BitGold, are being used as global payment systems, similar to PayPal, only backed by metal, not cash.”

Time will tell how much impact the above will have on the global usage of gold.  The somewhat chequered history of bitcoin – the progenitor of the blockchain – suggests perhaps that one should reserve judgement.

The report gives some limited insights into other aspects of gold, gold stocks, central bank gold buying and even more on the Chinese effect round it off.  Valuable reading if one can get hold of a copy, although is definitely in need of further amplification which no doubt is available, at a cost, direct from the Bloomberg service.

The above is an edited version of an original article published on sharpspixley.com – which will be updated with some of the edited changes in this article.

Digesting BoE inaction – Gold and silver marked down

Gold TodayGold closed in New York at $1,333.80 on Thursday after Wednesday’s close at $1,332.20.  In Asia the gold price held similar levels to New York.  

  • The $: € fell to $1.1135 down from $1.1096.
  • The dollar index fell to 96.07 from 96.32 Thursday.
  • The Yen was weaker at 106.00 from Thursday’s 105.44 against the dollar.
  • The Yuan was slightly weaker at 6.6825 from 6.6855 Thursday.
  • The Pound Sterling was stronger at $1.3352 down from Thursday’s $1.3225 reacting to the mistake in expecting more easing now.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  07  15

2016  07  14

SHAU

SHAU

285.95

288.94

286.62

287.60

Dollar equivalent @ $1: 6.6825

$1: 6.6855

$1,330.94

$1,344.26

$1,334.06

$1,338.02

The Chinese gold market followed New York yesterday as the Yuan picked up slightly over yesterday’s exchange rate. All global markets were surprised by the Bank of England’s inaction, despite the indication that if the U.K. economy slowed down between now and August, easing action would be taken. This left the markets in the same position as the Bank of England, waiting for post-Brexit data.

The attempt to break the gold price down further in New York, with yesterday’s over 2 tonnes sale of gold, continued, but with less enthusiasm. The Technical picture continues to point downwards but appears to lack conviction.

As we forecast yesterday, “It is clear that if the BoE does announce easing we may well see a very strong upward move in the gold price. If not we expect to see the gold price either move slightly higher or sideways, as this has been discounted in the gold price now.”

LBMA price setting:  $1,330.50 up from Thursday 14th July’s $1,325.70.

The gold price in the euro was set at €1,196.12 up €3.41 from Thursday’s €1,192.71.

Ahead of the opening in New York the gold price stood at $1,334.2 and in the euro at €1,199.33.  

Silver Today –The silver price closed in New York at $20.25 on Thursday down from $20.38 Wednesday.  Ahead of New York’s opening the price was trading at $20.26.

Price Drivers

Global financial markets were stunned by the lack of action by the Bank of England yesterday, despite an intention to add more easing should the U.K. turn down in the period until the next meeting.

With hindsight we can see why they did this. We don’t think it was because they had done enough to date, but we do see that like global markets, post Brexit data on the way forward and impact of Brexit needs to be assimilated, before decisions are made. Pre-Brexit information cannot point the way forward!

That throws us back to the ‘big’ picture, once again. There we see a stabilizing China with growth picking up to 6.7% indicating it is becoming less dependent on the developed world and now walking its own road. We do expect, long-term, that China’s economic activity will separate itself from that of the developed world, while continuing to draw wealth and power from it. The developed world continues to have a falling growth prospect and a rising debt burden threatening to hurt it badly. [It is different in China where economic growth enables loans to be repaid. This warrants higher debt levels]. The overall economic picture promises increasingly heavy exchange rate pressures that favor gold and silver.

Gold ETFs – In New York on Thursday there were sales of 2.376 tonnes of gold from the SPDR gold ETF but we did see purchases into the Gold Trust of 0.36 of a tonne, leaving their holdings at 962.845 tonnes and at 214.90 tonnes respectively.

Since January 4th this year, the holdings of these two gold ETFs have risen by 380.154 tonnes.

Silver –Silver prices are chomping at the bit towards the upside. The reins and the bit are being held back by the gold price only.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

 

BoE disappoints. Gold and silver fall back. Pound rises.

Gold TodayGold closed in New York at $1,332.20 on Wednesday after Tuesday’s close at $1,332.20.  In Asia the gold price tried to rally as you can see below  

  • The $: € fell to $1.1096 up from $1.1151.
  • The dollar index fell to 96.32 from 96.53 Wednesday.
  • The Yen was weaker at 105.44 from Wednesday’s 104.32 against the dollar.
  • The Yuan was slightly weaker at 6.6855 from 6.6845 Wednesday.
  • The Pound Sterling was initially weaker at $1.3225 down from Wednesday’s $1.3271 waiting for Governor Carney’s expected easing of the B. of E. interest rates.  A hope that was dashed with a no change decision leading to a pick up to the $1.3400 level before easing back again.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  07  14

2016  07  13

SHAU

SHAU

288.94

286.90

287.60

288.16

Dollar equivalent @ $1: 6.6855

$1: 6.6845

$1,344.26

$1,334.97

$1,338.02

$1,340.83

The Chinese gold market was not convinced by the fall in New York and lifted the gold price, reflecting internal Chinese demand. After the close and ahead of London’s opening the gold price was ‘marked down’ pretty heavily and after the LBMA price setting was trading at $1,326.65. No doubt, if Shanghai prices remain higher, its banks in London will move physical gold from their London bases to Shanghai to arbitrage prices and shift more bullion into China.

The attempt to break the gold price down further in New York with no physical sales is a risky mark down of prices as the Technical picture degenerated and pointed down. The bears who have engineered this break down of the Technical position are relying on no further stimuli and hope that physical demand will stay on the sidelines. Get ready for a dramatic day in New York!

LBMA price setting:  $1,325.70 down from Wednesday 14th July’s $1,340.25.

The gold price in the euro was set at €1,192.71 down €17.56 from Wednesday’s €1,210.27.

Ahead of the opening in New York the gold price stood at $1,328.05 and in the euro at €1,195.20.  

Silver Today –The silver price closed in New York at $20.38 on Wednesday up from $20.09 Tuesday.  Ahead of New York’s opening the price was trading at $20.15.

Price Drivers

The extraordinary features of the gold market are that they do not reflect the balance of demand and supply, either totally or even the marginal amounts outside those amounts ‘subject to contracts’. So called ‘efficient markets’ are supposed to reflect these fundamentals and changes in physical demand and supply.

Shanghai is trying to do that, but is hesitant to impose their fundamentals on the global gold price, even though they should be entitled to do so in view of the fact that they have the largest, most active physical market in the gold world.

No, the biggest influence on the gold price is the ‘paper’ gold market on COMEX where 5% or less of the transactions require a physical settlement. However, we are seeing U.S. demand for physical gold for the gold ETFs based in the U.S. have a decidedly strong impact on prices, despite such gold being bought and sold in London.

This makes the global gold market far from an ‘efficient’ market and one likely to remain so until Shanghai exerts it potential influence on gold prices. What’s holding them back? We believe it is their desire to acquire as much gold as possible for the retail, institutional and retail Chinese gold markets, as all such sources are considered ‘China’s gold” [easily available for confiscation should the authorities decide to do that].

But the gold price is far from just a ‘commodity’ price. It is a monetary metal.  As we said yesterday, “The prime drivers of the gold price remain macro-economic and monetary factors which will not change overnight.”

The degradation of the value of currencies give a facet to the gold price which ‘reverses’ the gold price, making gold a pricer of currencies, not currencies pricing gold [which is how the majority of investors view the gold price]

Gold ETFs – In New York on Tuesday there were no sales or purchases into either the SPDR gold ETF or the Gold Trust, leaving their holdings at 965.221 tonnes and at 214.54 tonnes respectively.

We expect activity in this market to pick up later today in New York.

Since January 4th this year, the holdings of these two gold ETFs have risen by 382.17 tonnes.

Silver –Silver prices could be extremely volatile and have slipped along with gold after the BoE decided not to raise rates.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

Pound jumps as BoE fails to cut interest rates

Mark Carney and the Bank of England (BoE) did not cut UK interest rates by 25 basis points today as many had expected perhaps implying a degree of confidence in the post Brexit UK economy that many of those still preaching the Remain position have not shared.  Or perhaps just a decision to defer such a move until more data is availabel.  Doubtless the post-Brexit rises in the main UK stock market indexes will have influenced today’s decision as these would appear to indicate that financial markets have been far less disturbed by the electorate’s decision to exit the EU than many commentators might have been suggesting.

In the immediate aftermath of the Central Bank’s announcement that the base rate would be held at 0.5%, the pound jumped sharply against the dollar and was up against the euro too.  At close to a rate of $1.34 t0 the £ that is around the highest level since the end of June in the immediate aftermath of the Brexit vote decision.  On the downside the FTSE 100 index started to fall back as it had been strong in the anticipation of the additional stimulus from the BoE, and the gold price fell too – making the decline in pound sterling terms even greater.  UK gold investors might have been wise to take some profits as we had suggested a few days ago.

Bu, as noted above,  perhaps BoE confidence is not really there – at least not yet.  although the vote was 8-1 against cutting rates at this time, such a decision may only be deferred for around three weeks when the rate setting committee next meets.  By that time there will be more data available on the effects of the post-Brexit vote decision and the initial impact of any newly announced moves by the new UK Cabinet.  It is thus still widely anticipated that the BoE will cut rates then.  so the uptick in sterling, the fall in gold and in the FTSE 100 may all turn out to be premature!

 

New PM May a closet Brexiter? What does it all mean for gold?

Britain’s new Prime Minister, Theresa May, has come into the position post the Brexit vote despite officially supporting the Remain in the EU campaign.  However her statements and actions since her ascendancy to the UK’s top political position suggest she may have been at best lukewarm in her support for the Remain campaign, and perhaps at heart a closet Brexit supporter.  One suspects there may be more to her initial decisions since her ascendancy to the Conservative party’s leadership than just an attempt to unite the party, which only has a slim majority in the UK’s Parliament.

One of her first statements on achieving the party leadership was that ‘Brexit means Brexit’ – an extremely adamant position which she will not be able to back away from, even though the country is hugely divided given the closeness of the vote and a petition signed by over 4 million people to implement a referendum re-run – surely a non-starter.  Because you don’t like the result doesn’t mean you should immediately call for a second vote. Even the Scots didn’t do that after a close independence referendum.

Also her initial Cabinet appointments putting some strong Brexit supporters into key ministerial positions (the charismatic, but highly controversial Boris Johnson as Foreign Secretary and longtime EU sceptic David Davis as Minister for Exiting the EU for example) indicates an additional determination to proceed with the negotiated exit, albeit perhaps not quite as quickly as some EU leaders might appear to prefer.  The exit will not happen until Article 50 is invoked by the UK and current indications are that this might not be until next year – and then there would be a 2-year countdown to the break – so the UK is likely to remain an EU member until 2019 at least.

So what does all this mean for the UK economy – and that of Europe and the rest of the world?  It will certainly be a destabilising influence on the rest of the EU where many member nations have their own anti-EU movements to deal with.  This is why the rhetoric from a number of national leaders is to play hardball over the UK exit, although the economics of so doing would almost certainly be counter-productive for their own economies.  In the event one suspects economics will win out and deals will be quickly renegotiated, particularly as the UK remains either the biggest or second largest market for trade from other EU nations depending on whether this relates to goods or goods and services – but of huge importance regardless.

The big sticking point may well be the free movement of EU nationals in and out of the UK, but there is the possibility that some fudge will be made here of at least partial satisfaction to both sides.

But it is EU instability which will be the most significant factor here.  Polls suggest that many EU nations, and in particular some with the biggest economies, have huge underlying anti-EU sentiment, but whether this would be sufficient to a move to actually exit from the Union is perhaps much more difficult to judge, but it could put the EU project – in particular with regard to ever-closer political union – into jeopardy.  It is this uncertainty which will impact the global economy perhaps for years to come and could well be a stimulus for precious metals as a continued safe haven investment.

Regarding gold, there has been a substantial post-Brexit drop in value over the past few days after a big rise immediately after the vote.  Ironically this has coincided with the publication of bullish forecasts from a number of bank analysts – perhaps these should be seen as a contra-indicator.  After all at the beginning of the year many of these were then preaching a gold price collapse and were hugely wrong then.  They could be equally wrong now.  So much for ‘expert’ predictions!  While the gold price fall has not reached freefall levels yet the trend looks to be downwards – but for how long?

Withdrawals from, or purchases into, the big gold ETFs – for which SPDR Gold Shares (GLD) – is probably the best proxy being the biggest of them all – is a key indicator.  After a big sell-off in the GLD holding on Tuesday, yesterday saw no change, but future day-to-day purchases or sales will likely be very closely followed by the precious metals markets.  Given the big rise in gold and silver prices immediately after the Brexit vote a degree of profit taking is to be expected – particularly in the UK where big gains had been made with the combination of a dollar gold price rise and a sharp fall in the pound sterling’s parity against the dollar.  The pound appears to be stabilising, although could be knocked back a little further if the Bank of England, cuts interest rates by 25 basis points today, as expected, although this could already be factored into current sterling levels against the dollar and the euro.

We would expect the UK economy and indicators to stabilise – or even improve – as the negatives and positives of a UK exit become more apparent.  Certainly the UK stock market seems to suggesting this with the FTSE100 index riding high at around its highest level since August last yearand even the FTSE250 – seen as more representative of the UK economy as a whole, picking up well and now only around 2.5% down on its high point for the year reached immediately pre the Brexit vote when a Remain outcome was seen as something of a certainty.  Indeed it is now up 12% plus since the actual outcome of the vote became apparent.  This does not suggest an economy in crisis as many still-smarting Remain campaigners and EU leaders have been suggesting.  The pound has been the only real indicator to suffer seriously so far and, as noted above this seems to be stabilising and we would not be too surprised if it should recover perhaps half the ground lost, or more, over the next few weeks and months.

But, uncertainty will persist as the post Brexit vote ramifications unwind, and could receive another setback if and when Article 50 is actually invoked.  If Brexit truly does mean Brexit, and this may not have played out fully yet, then the fallout will continue across Europe and in the UK, and all this would seem to be positive for precious metals in the medium to long term.