Forthright views on direction of equity markets, gold, silver, bitcoin and the Powell Fed from Michael Pento

An explosive interview with Michael Pento of Pento Portfolio Strategies by Mike Gleason of Money Metals Exchange.

Michael Pento describes for us what may be coming in the bond and fixed income markets and the impact on the stock market (negative) and on gold and silver prices (very positive) in 2018. He also shares some of his very strong feelings about Bitcoin and the crypto-currencies which he describes as a ‘scam’.

Mike Gleason: It is my privilege now 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 Metals Podcast, and shares is astute insights on markets and geopolitics from the perspective of an Austrian School economist’s viewpoint.

Michael, welcome back. Thanks for joining us again and how are you?

Michael Pento: I’m doing fine. Thanks for having me back on Mike.

Mike Gleason: Well, Michael, you focus a lot on the bond markets. Let’s talk for a minute here as we begin about the bubble that has been created and maintained there, and then we will get into the potential ramifications for precious metals. I was researching this morning and the yield on the 10-year Treasury note was 2.242% on December 20, 2015, just after the Federal Reserve made the first rate hike in the current cycle of raising the Fed funds rate. Today, the 10-year yield is 2.327%, a tiny increase from two years ago, so the yield has barely budged despite the funds rate ratcheting up a full percentage point higher. Now, the funds rate isn’t directly tied to Treasury yields, but shouldn’t this tightening be translating to higher yields? Why is that not happening?

Michael Pento: What a great question to start off the show. So, I’ll just dovetail on what you just said and say that in the beginning of 2017, the yield on the 10-year note was 2.4%, or just around that level. Now, as you said, it’s 2.32%. So, there’s a very good reason for why this is happening because the long end of the bond market is concerned with inflation and if the Fed is hiking rates from pretty much zero to one and a quarter percent as we sit today, the effective Fed funds rate is just a little bit above 1%, that doesn’t mean that the yield should go higher on the long end of the yield curve. Actually, what that does mean, is that the Fed is vigilant, for now at least, on fighting inflation.

They’re reigning inflation out of the economy. That means the long end is going to come down to meet the short end, and I will tell you on that front that in the beginning of 2014, 260 basis points was the spread on the two and 10-year note. And we’ve had five rate hikes since then and guess what the spread is today as we record this interview, 51 basis points. So, you don’t have to have an advanced degree in calculus to figure out that you have two rate hikes left, two, assuming that the two-year note rises commensurately with the Fed funds rate, two rate hikes left before the yield curve is completely flat.

And the problem is that when I’m reading a lot of material in the past few days that the all-knowing pundits on Wall Street from the big brokerage houses, the big wire houses, are claiming that we’re going to have five rate hikes. Mike, five rate hikes between today, December 6th and the end of 2018, five. Not two, five. That means the Fed funds rate is going to be well above where the 10-year note yield is trading today, so you’re going to have a massively inverted yield curve by the end of 2018. Not only that, you pile onto the fact that central banks are going from a $120 billion worth of counterfeit confetti each month to zero by October. So, if you’re not worried about a recession, if you’re not worried about an inverted yield curve, if you’re not worried about the central banks moving their massive bid from stocks and bonds and if you’re not worried about the stock market imploding in the next few quarters, if not months, you should be.

Mike Gleason: Interest rates are essentially the price of risk and the market seems to be saying there just isn’t much. However, you and I both know there is plenty, as you just discussed there, but this is bubble has persisted for years now. The truth is we don’t have real properly functioning markets and this extraordinary mispricing of risk will go on until, and probably suddenly, it doesn’t. What signals are you watching for in the bond markets, if you would expand on that, that would indicate the game is about up and are you seeing any of those signs?

Michael Pento: Well, you have to watch high yield spreads and the nominal yield. If you see those yields starting to spike, then you should worry. They were spiking a few weeks ago. They’ve since come down a little bit, but keep an eye on that. There were good break-even spreads, inflation break-even spreads. I watch those very insidiously. Of course, like we just talked about, you watch for the yield curve to invert.

When the yield curve flattens out and inverts, it means this – and it doesn’t really matter why it happens – some people will say, well, I hear this Mike, that you shouldn’t worry about the yield curve inverting this time because it’s inverting because. Because, the 10-year (German) bund is yielding .29%. Mario Draghi over in Europe is bending the whole yield curve to the south in Europe and that’s putting pressure on our yields here in the United States.

Well, that’s true to some extent, but let me ask you a question, if the yield on the 10-year bund was .5% not too long ago, why is it .29% now in light of the fact that everybody knows the ECB is going to taper from 60 billion euros of QE today to 30 billion come January, and eventually stop their QE probably in October around the same time the Fed steps up their monthly sales to 50 billion.

The answer is because the economy is slowing. It’s very clear to me, the economy and inflation is slowing. That it’s putting further pressure down on long-term yields. That means the yield curve is going to invert and it’s not different this time. What that means is that if you’re a depositor at the bank and you’re going to be getting say X% on your money, whatever it is, one, two percent on your money, and then the private banks make the same loans are yielding the same as they’re paying in deposits, it no longer benefits the bank to lend out money. So, money supply growth crashes and that means deflation starts to diffuse across the economy and that means asset bubbles crash.

And I just want to make one thing very clear. What happened this week, this week happened, this data point was breached. The total market capital stocks is now a staggering 140% of GDP. Yes. It did reach 140% of GDP. That ratio has only been higher at one time in history and that was during just a few short months around the very peak of the NASDAQ bubble. Outside of that very short duration, that ratio for decades was 50%. So, we don’t just have a regular stock market bubble, we have an epic Stock Market bubble that is couched within the biggest bubble in fixed income that the world has ever seen and it’s not going to end very well.

Mike Gleason: Now, let’s talk about what a bursting of the debt bubble might mean for precious metals. One could argue that if real interest rates move sharply higher, it will weigh on metals, which don’t offer a yield at all. It’s zero or even negative real interest rates that gold bulls want to see. But that certainly hasn’t been the case in recent years. Maybe gold and silver will respond as safe-haven assets in the turmoil in markets created by a collapse in bonds will drive demand for metals. What would you expect the long overdue reckoning in bonds will mean for gold and silver prices, Michael?

Michael Pento: The last time we had an inverted yield curve in a recession was circa 2006-2009. And gold benefit is very greatly leading up to the Great Recession, but if you look on your data points and see what happened in 2008, gold did not do very well at all. And that was partially because real interest rates rising is not good for gold, but it was also the case that there was a huge dollar short occurring at that time.

So, people were borrowing in dollars and investing in the so-called BRIC countries, Brazil, Russia, India, China. When it became evident that we were having a global recession, the manifestation of the global recession, people had to unwind those carry trades. So, in other words, they sold renminbi and they sold the ruble and they went back into dollars driving the value of the dollar way up. That crushed gold in the short term. But then you remember, from 2009 all the way to really late 2011, early 2012, gold had a huge run and that’s because deficits absolutely soared. We had annual deficits in this country were well over a trillion dollars. We’re going back there again and then the dollar started to again weaken.

This time around there is no massive dollar short. As a matter of fact, it’s quite the opposite. In this next iteration of a recession, there may actually be dollar weakness. Even though you have rising real interest rates, which has always been the death knell for gold, you’re not going to have that rise in the dollar. That will mollify or attenuate the swollen gold prices, if there is any at all, but on the other end of this recession, and once this recession becomes manifested and you see the Fed going from wherever they are at that juncture, maybe 2% back to zero and then QE… and then we have Mr. Marvin Goodfriend on the Board of Governors – he’s been nominated by Donald Trump – he wants negative, nominal interest rates. He wants to ban cash. You’re going to have universal basic income. You’re going to have negative nominal rates. You’re going to have QE. You’re going to have perhaps even helicopter money. You’re going to have some version of that dangerous inflation cocktail and that has to be incredibly bullish for gold.

Mike Gleason: It sounds like a “perfect storm” sort of scenario there for the yellow metal. These days, when you talk about markets, the topic of bitcoin and crypto currencies is almost certain to come up. Bitcoin hit $13,000 earlier today [$16,000 today – Monday – Editor] as we’re talking here on Wednesday afternoon. It’s epic run higher this year cannot be ignored. Have you taken any interest in this space? We’d like to get your thoughts on where this phenomenon is headed.

Michael Pento: Well, you were you asking me about crypto-currencies. I’ve been on record for well over a year saying that it’s a scam. I’ve been wrong for well over a year. I will never own a crypto-currency in my life. I will never own a bitcoin or Etherium or any of these things. When you think about it Mike, what is a crypto-currency. Well, what you really own … You always see these pictures of people holding a coin with a B on it with a dollar sign through it. That’s not a bitcoin. A bitcoin, and I’m far from a computer programmer, so please understand, but from my knowledge of what a bitcoin is, it’s a private key. So, what you actually own is a private key, which is just a series of letters and numbers. I think it’s about 64 of these. It’s a series of letters and numbers, characters, that exist not even in tangible form, they exist in the Internet, so they exist digitally. So, how could a bunch of numbers be considered money?

The definition of money, it has to be portable, tangible and it has to be transferrable, but the most important factors of money, they have to be extremely rare and virtually indestructible. Now, what the heck is extremely rare or indestructible about numbers and letters? They’re very, very common and they have zero utility. Bitcoins and crypto currencies have zero utility. Let me repeat that. Zero utility outside of that ecosystem. So, you have to agree, in order to believe in Bitcoin, that this chain of numbers and letters can be worth $13,000 per unit and that that chain of numbers and letters is money, but outside of that ecosystem, there’s zero utility and you have ask yourself what good is it to be able to move numbers and letters via the Internet. Well, you could move U.S. dollars electronically over the Internet.

What you really should be asking is how can I move gold. Gold, which is all the properties of money, gold has. And most importantly, it’s virtually indestructible and extremely rare. There are over a thousand crypto-currencies, so various versions of those numbers and letters in the private key. There’s an immutable open ledger that is used to transfer bitcoins, but you can use a private blockchain to move gold. There are companies that do that. That’s the value of the blockchain. The blockchain’s value is not to move letters and numbers over the Internet and then somehow think that unit could be anywhere near $13,000. It’s a scam. It’s going to come crashing down and I’ll not be a part of it.

Mike Gleason: Well, I don’t think anyone’s going to wonder where you stand on that, thanks for honest assessment on that. Now, what are your thoughts on Jerome Powell taking over for Janet Yellen as the new Fed Chair. He’s a mainstream dovish-minded economist from all indications, so will it be more of the same, or do you have any insights on what a new Powell Fed will look like?

Michael Pento: Well, everybody says he’s going to be more of the same. He’s another dove like Janet Yellen, but you have to understand – and there’s two things I want to mention about Mr. Jerome Powell. Everybody knows he’s nominated by Donald Trump, but why did Donald Trump make the switch from Janet Yellen to Powell? Well, Mr. Powell is going to assent to two things. Number one, what does Donald Trump love to talk about more than almost anything else? Well, he likes to talk about how great the stock market’s doing, so I can assure you one thing is Jerome Powell will not allow the stock market to go down very much, very quickly. That’s number one.

Number two, Donald Trump is on record now, not Candidate Trump, President Trump is on record saying, he wants a weaker currency and he’s also a lover of debt. So, I expect in the long run, maybe not the short run because you’ve seen this baton has been passed to Mr. Powell, who’s going to carry on with Janet Yellen’s interest rate hikes and the reduction of the balance sheet. But, once the recession hits and the stock market turns south, and I’m talking about the 10% hit that I see happening very, very soon is going to quickly morph into 30%. And once we get 30% plus down in the stock market, you’re going to see Mr. Powell reverse course very quickly, because Mr. Trump can no longer brag about the stock market when it’s down 30%. And you’ll see all those things that I mentioned, some variation of that cocktail and that is negative interest rates, QE, universal basic income and helicopter money.

Mike Gleason: Well Michael, as we approach the end of the year here and start looking forward to 2018, I would like to ask you what you think people might be talking about this time, say a year from now, in the markets? What are a couple of those key events that you see happening in the next 12 months and also, your outlook for gold next year?

Michael Pento: Well, I think you’ll be talking about the epic crash of crypto-currencies a year from now. I think a year from now, you’ll be talking about the inversion of the yield curve. I think you’ll be talking about a crash in inflation and the onslaught of deflation. You’ll be talking about a crash in the major markets and in the capital markets. You’ll be talking about a reversal in the Fed’s monetary policy. You’ll be talking about a falling dollar and you’ll be talking about gold, which will be well over $2,000 an ounce by the end of next year, given the fact that construct I just laid out. If half those things that I just mentioned occur, gold will be well on its way to its all-time record nominal high.

Mike Gleason: It should be a very interesting year. I know we have talked a lot with you and you, of course, write a lot about the oscillations between the inflation cycle and the deflation cycle. And it’s always great to get your commentaries here and read them on a regular basis. We always appreciate your time, Michael. Thanks so much for the times you’ve come on this year and I certainly look forward to doing it again. Now, before we let you, please tell people how they can follow you more regularly, get those great commentaries in their email inbox each week, and also other information that they might need to know if they would like to potentially become a client of your firm there Pento Portfolios Strategies.

Michael Pento: Thank you Mike. The office number here is 732-772-9500. You can email me directly at mpento@pentoport.com. And the website is PentoPort.com.

Mike Gleason: Well, thanks again Michael. Enjoy the Christmas season and I look forward to our next conversation in the New Year. Take care and thanks for all you do.

Michael Pento: God bless you. Merry Christmas Mike.

Mike Gleason: Well that will wrap it up for this week. Thanks again to Michael Pento of Pento Portfolio Strategies. For more info just visit PentoPort.com. You can sign up for his email list, listen to the mid-week podcasts and get his fantastic market commentaries on a regular basis. Again, just go to PentoPort.com.

And don’t forget to check back here next Friday for our next Market Wrap Podcast, until then this has been Mike Gleason with Money Metals Exchange. Thanks for listening, and have a great weekend everybody.

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Gold facing severe headwinds despite overvalued dollar – Murenbeeld

Another post published on the Sharps Pixley website earlier today

The latest issue of economist Dr. Martin Murenbeeld’s Gold Monitor newsletter (www.murenbeeld.com) does not come up with a particularly optimistic view on the short term future for the gold price.  In fact it suggests the contrary may prove to be the case.

For those who do not know him, Dr. Murenbeeld is a hugely respected Canadian financial analyst who now runs his own advisory service after working for Dundee Economics as the group’s chief economist for many years.  He concentrates, among other things, on gold and is known, and respected, for his impartial views and forecasts for gold and other precious metals.  His annual gold price forecasts have tended to be among the most accurate out there, so his views are always balanced and well worth taking into account when assessing the likely path of the gold price.  He is neither really a gold bull nor a gold bear, but tells it how he sees it at any specific point in time, although on balance is probably long term gold positive.

In his latest Gold Monitor newsletter Dr. Murenbeeld comments that rising equity markets, a rising dollar on the back of a likely tax deal out of Congress before yearend, the certainty of more Fed rate hikes – the next one on December 13 – and other attractive speculative alternatives including art, real estate, bitcoin, etc are all putting a dent in the short term investment prospects for the yellow metal as investors look for better returns elsewhere.  He does however point to some uncertainties out there which could turn the scenario around – notably Mueller’s investigation, a geopolitical crisis (North Korea?), and/or Trump Administration internal problems (will Tillerson go in the end?), to which we would add a further possible Middle East conflagration, an escalation in the Trump/Iran rhetoric (which some suggest could lead to military action), the much predicted crash in equities markets and a possible bursting of the bitcoin bubble, although neither of the financial turnarounds currently seem to be on the short term horizon.

Dr Murenbeeld has for some time, though,  reckoned that the U.S. dollar is overvalued and sees President Trump’s proposed tax cuts as exacerbating the country’s severe debt problems and budget deficit which, ultimately could lead to the dollar diminishing in value against gold and other currencies.  But this is unlikely to happen in the short term.  Dr. Murenbeeld notes: ‘Given the low domestic savings rate, funding for the rise in the US budget deficit will also have to come from abroad, meaning US interest rates will likely need to rise. Assuming the extra capital inflows push the US dollar higher, and the expansive fiscal policy raises US growth rates, the US trade deficit will rise. (For those readers familiar with GDP accounting identities, a rise in capital inflows must go hand in hand with a rise in the current account deficit!)’, so although he sees the dollar as overvalued it may well rise in the short to medium term, which would not be positive for gold.

Dr. Murenbeeld continues: ‘Our ongoing question is how the Trump Administration will manage all this – a bigger budget deficit and higher GDP growth rates – without a rise in the US trade/current account deficit. It can be done, but the US will need a higher savings rate, more exports, and a much lower dollar. Indeed, the US will need to fund the budget deficit from domestic sources, i.e. from savings generated on the back of less imports and more exports! Or the Trump Administration will go further down the road of protectionism – which is not the best alternative when the dollar should instead be devalued!’.

He sees this as all adding up to an awkward near-term outlook for gold. However President Trump has himself indicated a preference for a reduction in the dollar index (although has been a little ambivalent about this) and indeed the dollar index has fallen by around by around 9% since he took office.  But, Murenbeeld notes, failing a further engineered decline in the dollar parity against other currencies and gold, the reverse may come about and the dollar rise, putting even more pressure on the gold price.

Chinese 2017 gold demand headed for more than 2,000 tonnes

Another article published on the Sharps Pixley website taking Shanghai Gold Exchange withdrawal figures  as a proxy for Chinese demand: 

There is a certain amount of controversy over whether Shanghai Gold Exchange actual gold withdrawal levels are equivalent to the country’s true gold demand or not.  The major gold consultancies like Metals Focus, GFMS and CPM Group all aver that they are not, yet the monthly and annual gold withdrawal figures as published by the SGE bear a far closer relationship to known Chinese gold assimilations (gold imports + domestic production + scrap supply) than the consultancies’ demand estimates and therefore we stick by our opinion that SGE gold withdrawal figures are a far better representation of Chinese gold consumption (in terms of the amount of gold bullion being absorbed by the nation) than other estimates of Chinese demand despite a major discrepancy with the figures provided by the consultancies.  In any case SGE gold withdrawal comparisons on a month by month level have to be indicative of Chinese internal demand.

The table published below, thus presents the month by month SGE gold withdrawal figures for the past three years – years which include the record 2015 year where Chinese demand peaked.  As can be seen, on a year by year basis 2017 is coming out higher than last year although still comfortably below the 2015 record.

Table: SGE Monthly Gold Withdrawals (Tonnes)

Month 2017 2016 2015 % change 2016-2017 % change 2015-2017
January 184.41 225.08 255.42 – 18.1%  -27.8%
February* 148.24 107.60 156.36 +37.8% -5.2%
March  192.25 183.24 213.35  +4.9%  -9.9%
April  165.78 171.40 195.45  -3.3%  -15.2%
May  138.08 147.28 162.15  -6.2%  -14.8%
June  155.51 138.51 195.67  +12.3% -20.5%
July  144.71 117.58 285.50  +23.1%  -49.3%
August  161.41 144.44 265.27  +11.7%  -39.2%
September  214.24 170.90 259.98 +25.4% -17.6%
October  151.54  153.25 176.29  -1.1%  -14.0%
November  189.10  214.72 202.71 -11.9%   -6.7%
December    196.37 228.21    
Year to date 1845.27 1755.65 2368.15 +  5.1% – 22.1%
Full Year    1,970.37 2,596.37    

Many media reports have been suggesting weak Chinese demand this year – probably based on the sharpish drop in gold export figures to the Chinese mainland from Hong Kong, which used to be the main import route for foreign gold entering China.  But to counter this, the most up to date SGE withdrawals figures suggest that 2017 is heading to come in at over 2,000 tonnes.  If December withdrawal figures come in at close to last year’s 196 tonnes, then the full year total will be comfortably over 2,000 tonnes, but given the Chinese New Year in 2018 falls around 3 weeks later than in the current one, the December withdrawals level could well be higher than last year bringing the annual total within range of the 2013 and 2014 totals –previously the second and third highest on record – see graphic of the 11-month SGE withdrawals totals for the past 10 years from Nick Laird’s www.goldchartsrus.com site.

So, by all considerations, Chinese gold demand is still alive and well, although not as high as in the record 2015 year, which is a bit of an outlier.  The fall in gold exports to the mainland from Hong Kong is because every year more and more of mainland China’s gold imports are arriving there directly through cities like Beijing and Shanghai and completely bypassing Hong Kong altogether.  A great example of this has been the comparative levels of Swiss gold exports to China and Hong Kong (see: Big Surge in Swiss gold exports to India and China for the most recent figures).  Switzerland is one of the biggest gold exporters to China and Hong Kong and over the past two years its exports to the Chinese mainland have dwarfed those going into Hong Kong.

China’s official gold reserves level – as believable as Santa Claus or the tooth fairy

A second article published earlier today on the Sharps Pixley  website now it is up and running again.  Check the website out for much more gold news.

If you believe that China’s gold reserve figure is static at 1,842.6 tonnes, as the country’s central bank would have us believe, then you probably also believe in Santa Claus and the tooth fairy.  Well that’s the writer’s opinion but like all matters on Chinese finances the view is perhaps open to question given the nation’s assumed lack of transparency in its statistical announcements.

With gold, the Asian giant has a long track record of continuously surreptitiously adding to its gold reserve, but only reporting such increases at multi-year intervals.  It has now been claiming its gold reserves have remained static for the past 13 months in a row (the November reserve level was announced as unchanged today), which goes against stated policy and also against the long-known overall financial policy of trying to reduce forex reliance on the U.S. dollar and U.S. Treasuries.  China has long considered gold as the ultimate supporter of its financial status in a likely restructuring of the global financial system and has almost certainly been building its gold reserves with the intent of achieving this aim and, in all probability, being somewhat economical with the truth in reporting its true financial position vis-a-vis gold in particular.

Indeed there is probably good reason to doubt that the country’s total gold reserve was even actually at the aforementioned 1,842.6 tonne level the last time it announced a revised total reserve back in October 2016.  That month was, as we have mentioned before, the month in which the Chinese yuan was finally accepted as an integral constituent of the IMF’s Special Drawing Rights basket (alongside the US dollar, the Euro, the UK pound sterling and the Japanese yen).  For just over a year ahead of this acceptance, China had been reporting monthly increases in its gold reserves, apparently in the interests of transparency.  Ever since that date, though, it has reported zero increases.  Given the size of the Chinese economy and China’s enormous involvement in global trade, its acceptance into this global currency club was a seemingly inevitable move and if it needed to fudge its gold reserve figures to facilitate that aim – so be it.

There are a number of expert followers of the gold market though, who suggest that China’s gold reserves are actually far higher than the stated total with the ultimate aim of matching, or exceeding, the official U.S. gold reserve total of 8,133.5 tonnes – itself open to some questions as to its true level.

Indeed much of the world’s official gold reserves could be open to question given the IMF relies on ‘official’ figures given to it from the individual reporting countries without running any checks.  Most gold reserve figures are not independently audited and could thus be open to exaggeration, or understatement, by the various countries which report, although the incentive for the majority of countries which hold only relatively small amounts of gold to do so is perhaps unnecessary.  What is not disclosed in the figures reported to the IMF, though, is the amounts of gold owned which may not actually be readily available due to gold leasing, or swap deals, which fall outside the reporting guidelines.

JPM and Goldman building big positions in physical gold and silver – Butler

The following article has been written for the Sharps Pixley website but as this is down temporarily am posting it here.  It will appear on the Sharps Pixley site when that is up and running again.

Sharps Pixley site is now up and running again and this post now appears there too.

Precious metals specialist, Ted Butler, is nothing but forthright about his views on the big investment banks, notably JP Morgan as top of his list of the ‘baddest dudes’ in the sector.  To this he has added the financial sector’s other frequently recognised ‘bad dude’ – Goldman Sachs – accusing them both of playing the markets in such volumes that they totally dominate them and frequently calling them out in what he describes as ‘criminal’ manipulation’ of these markets.  Obviously the regulators disagree, or just turn a blind eye. And, in any case as we have pointed out before if any of the mega investment banks are called out on their activities and subsequently fined for, at the very least bending the rules, the size of the fines, even though they may be millions of dollars, are tiny compared with the money made and probably just considered a normal cost of doing business.  It would probably take senior executive jail time to have any impact and, with the establishment (the swamp) protecting its own that would seem unlikely.

Ted’s latest accusation is that he now has conclusive proof that those two entities, which he sees as the ‘baddest dudes in the hood’ are taking 80% of all COMEX silver and gold deliveries for the first time in nine months in the case of one and much longer than that in the case of the other.  That has made him really sit up and take notice.

In Ted’s view there is only one basic reason for why anyone would buy and take delivery of anything.  As he says that is ‘that they think it will go up in value. No one buys and takes delivery (paying full cash value) for an asset expected to decline. That Goldman Sachs is now taking delivery of COMEX gold and silver, second only to JPMorgan, should send strong signals to anyone interested in these metals as an affirmation to do likewise.’

Ted goes on to note, as anyone who follows his extensive research will know, that JP Morgan has held the largest paper short position in the silver market for over ten years even though it also holds probably the world’s largest accumulation of silver bullion having been building this up for the past six and a half years..  In Ted’s view ‘the bank is taking advantage of the low prices its paper short position helped create to buy up physical silver at a bargain price. Until it started covering in this week’s COT report, JPM held its largest paper short position in years, only to turn around and add another 10 million physical ounces to its hoard this week.’

The recent gold price declines (and similar in the other precious metals)  bear all the hallmarks of being engineered through futures markets notional transactions and Ed Steer (www.edsteergoldsilver.com – note revised web address) comments in his today’s newsletter that JP Morgan and Goldman Sachs again appear to have been the main buyers of physical metal on the dip for their own in-house and proprietary trading accounts.  As Ed puts it in his newsletter: ‘It’s been a really weird delivery month so far.  There have been 5,995 gold contracts issued and stopped, plus 5,147 silver contracts.  HSBC USA has been the big short/issuer in both metals — and JPMorgan and Goldman Sachs have been gorging themselves’ –  at least in the gold accumulations.  In silver, the other big buyer has been Scotiabank which Ted Butler tars with much the same brush as JP Morgan in terms of silver market manipulation.

If Ted and Ed are correct then it looks like JP Morgan and Goldman Sachs could be positioning themselves for a big turnaround in the precious metals markets led, of course, by gold.  When gold rises the others in the precious metals complex tend to do so too.  But here again it is a question of timing.  Maybe the New Year could be looking good in this respect.  January tends to be a positive month for precious metals.  It will thus be interesting to see how Goldman’s commodities analysts – normally bearish on gold in particular – will rate precious metals prospects at the year-end and at the beginning of 2018.

Sharps Pixley website down – now restored

As readers of lawrieongold will hopefully be aware I publish most of my articles on the Sharps Pixley website.  Unfortunately that website has been down for the past day while some admin difficulties with ICANN are sorted out.  I also put occasional articles up on Seeking Alpha and US Gold Bureau websites – the latter only being accessible to North American domains unless one uses a web browser like Tor which enables one to access sites blocked to certain domains by making it appear you are accessing from somewhere which is acceptable.

I am now pleased to report that the Sharps Pixley website is back on line and my articles can be read at https://www.sharpspixley.com/articles/

Gold and Silver boring for now – lacking fear and greed

By Clint Siegner*

Fear and greed drive the precious metals markets, but there hasn’t been much of either pushing gold and silver prices lately. Investors have grown tired of worrying about geopolitical events, ever increasing federal debt ceilings and ever inflating equity bubbles.

Meanwhile, greedy trend traders continue piling in to hot markets.

With the exception of palladium, metals prices have been stagnant for most of the year. For the time being, gold and silver are looking pretty boring relative to the hefty gains in stock prices and the explosive rise in Bitcoin.

Goldbugs are still waiting for a catalyst to shift investor attention back to the metals markets. Let’s take a look at some of the possible near-term drivers for gold and silver…

The equity markets remain overdue for a significant correction, and that would definitely stir some safe-haven demand. Yes, we have been expecting a correction in stocks for some time and prices are still moving higher.

There is, of course, no telling when the next bear market in stocks will arrive. But price-to-earnings valuations have only moved higher into nosebleed territory and shares are truly priced for perfection. A good-sized hiccup could have investors heading for the exit.

Bitcoin prices may also correct, diverting some of that capital instead into gold and silver. Cryptocurrencies are an entirely different kettle of fish when it comes to valuation. If Bitcoin can deliver on its promise to revolutionize payments and finance, today’s prices will ultimately look cheap.

Bitcoin Caution

However, no one should expect Bitcoin to continue moving higher in a straight line, with price corrections measured only in days or hours. There are a couple of developments right now with the potential to derail the extraordinary bull run in Bitcoin – at least temporarily.

A number of major cryptocurrency exchanges have grown reliant on a token called “Tether.” The Tether token is supposed to be backed 1 to 1 with U.S. dollars held by the company behind the Tether. Traders swap Bitcoin and other coins into Tether, assuming it is akin to cash. However, there are serious questions about whether or not the backing exists.

If confidence is lost in the nearly $1 billion of Tether tokens floating around exchanges, much of which has been used to make leveraged purchases of Bitcoin, it could be a disaster rivaling the collapse of Mt. Gox.

Bitcoin is also getting a boost in anticipation of institutional money pouring into the markets. The CME Group (COMEX) will launch Bitcoin futures trading later this month and lots of people expect the influx of capital to be very good news for the price. Our perspective is a bit different given that the nearly unlimited supply of paper futures contracts has undermined precious metals prices.

We think Bitcoiners should be wary of the participation of establishment institutions, such as JPMorgan Chase, which are likely to heavily short Bitcoin. These banks have a record of defeating limited supply by selling paper contracts in unlimited quantity and profiting as prices fall. People should also understand that many of the institutions who will be playing in Bitcoin futures are not fans of Bitcoin.

There are also a couple other developments of particular interest for metals investors in the coming weeks. Tensions with North Korea and Iran are still escalating. And Michael Flynn, President Donald Trump’s former National Security Advisor, has taken a plea deal. The President’s many enemies in Washington DC are hoping Flynn will testify to some impeachable offense.

Should these players finally hang something serious on the President, we can definitely expect some turmoil in conventional markets.

It is quiet in the metals markets now, but there are plenty of ways for this quiet to be broken at any time.

Gold in bargain territory for the holidays

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

Gold christmas tree decorations

One of the most compelling and engaging presenters at the Precious Metals Summit in London last month was Ronald-Peter Stöferle, a managing partner at Liechtenstein-based asset management company Incrementum. Incrementum, as you may know, is responsible for publishing the annually-updated, widely-read “In Gold We Trust” report, which I’ve cited a number of times before.

During his presentation, Stöferle shared the fact that his wife prefers to do her Christmas decoration shopping in January. When he asked her why she did this—Christmas should be the last thing on anyone’s mind in January—she explained that everything is half-off. A bargain’s a bargain, after all.

This is very smart. Here we are several days before Christmas, and demand for ornaments, lights and other decorations is red-hot, so be prepared to pay premium prices if you’re doing your shopping now. But mere hours after the Christmas presents have been unwrapped and Uncle Hank has fallen asleep on the couch with a glass of boozy eggnog, stores will begin slashing prices to get rid of inventory.

Gold bullion and mining stocks are currently in the “January” phase, so to speak, according to Stöferle. The Barron’s Gold Mining Index, which goes all the way back to 1938, recently underwent its longest bear market ever, between April 2011 and January 2016. And as I already shared with you, the World Gold Council (WGC) reported last month that gold demand fell to an eight-year low in the third quarter.

Barrons gold mining index bear markets since 1942
click to enlarge

“Most people get interested in stocks when everyone else is,” Warren Buffett famously said. “The time to get interested is when no one else is.”

The same logic applies to Christmas decorations, gold and mining stocks.

Gold on Track for Its Best Year Since 2010

As of my writing this, gold is trading around $1,280, up 11 percent in 2017. That’s off 5 percent from its 52-week high of $1,351 set in September. If it stays at its present level until the end of the year, the metal will end up logging its best year since 2010, when it returned 30 percent.

former national security advisor pleaded guilty to lying to fbi

Gold traded up on Friday as the U.S. dollar weakened following news that former National Security Advisor Mike Flynn pleaded guilty to lying to the FBI about conversations he had with Russian officials last December during the presidential transition. It’s possible that the details Flynn might provide as part of a plea bargain could help special prosecutor Robert Mueller advance his investigation into Russia’s meddling in the 2016 election.

But back to gold. Considering it’s faced a number of strong headwinds this year—a phenomenal equities bull run that’s drawn investors’ attention away from “safe haven” assets, lukewarm inflation and anticipation of additional rate hikes, among others—I would describe its performance in 2017 as highly respectable.

And yet if you listen to the mainstream financial news media, gold is “boring” and “flat.” Speaking to CNBC last week, Vertical Research partner Michael Dudas called the gold market “eerily quiet.”

10 day standard deviation

click to enlarge

Dudas was specifically describing gold’s volatility, but even here the facts tell a slightly different story. In the table above, you can see the 10-day standard deviation for a variety of assets, using data from the past 12 months. Gold traded with higher volatility than domestic equities, the U.S. dollar and global emerging markets. Of those measured, only oil and bitcoin showed higher volatility.

Based on volatility alone, it’s stocks that look pretty “boring” and “quiet” this year, but you’re not likely to hear a pundit or analyst describe them that way.

And with good reason. The S&P 500 hasn’t fallen more than 3 percent from a previous high for more than 388 days now, the longest stretch ever for the index. And for the first time in its 120-year history, the Dow Jones Industrial Average has reached four 1,000-point milestones in a single year—with a whole month left to go. It’s possible that excitement over the Senate’s tax bill will be enough to push the Dow above 25,000 sometime before the ball drops in Times Square. The drama involving Flynn, however, could threaten to derail those chances.

Dow jones industrial average made history again
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What this means is that, compared to domestic equities, gold is highly undervalued right now. The gold-to-S&P 500 ratio, a time-tested trading indicator, is near 50-year lows. I see this as a strong buy signal, especially now as we await the Federal Reserve’s decision to lift rates this month. If you recall, gold broke out strongly following the December rate hikes in 2015 and 2016.

Gold is a bargain right now compared to stocks
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In his December outlook on precious metals, Bloomberg Intelligence commodity strategist Mike McGlone writes that “gold is ripe to escape its cage soon,” adding that “prices just don’t get as compressed as they did for gold in November, indicating a breakout soon.”

Is a Recession Brewing? History Says Maybe

So what are the catalysts that could trigger a breakout? Stöferle mentions two: a possible recession and stronger inflation.

“I think the odds are pretty high that a recession might be upon us sooner or later because we’re in this rate hike cycle, and as always the central banks are way behind the curve,” he said.

What Stöferle is referring to is the strong historical correlation between new U.S. rate hike cycles and recessions. Going back more than 100 years, 15 of the last 18 recessions were directly preceded by monetary tightening.

Recessions have historically followed us rate hike cycles click to enlarge

The Federal Reserve isn’t just raising rates, remember. It’s also begun to unwind its $4.5 trillion balance sheet, which was built in the years following the financial crisis. This carries historical risk. The central bank has embarked on similar reductions six times in the past—in 1921-1922, 1928-1930, 1937, 1941, 1948-1950 and 2000—and all but one episode ended in recession.

“Quantitative tightening will fail,” Stöferle predicted.

Obviously, there’s no guarantee that this particular round will have the same outcome as past cycles, but if you agree with Stöferle, it might be prudent to have as much as 10 percent of your wealth in gold bullion and gold stocks.

The Risks Surrounding Tax Reform

Inflation is a trickier thing to forecast. A lot of people, myself included, had expected the cost of living to show signs of life this year in response to some of President Trump’s more protectionist and policies. But nearly 10 months into his term, no major legislation has been passed or signed.

That might be about to change with the highly anticipated tax reform bill, which the Senate passed late Friday night. If the bill reaches Trump’s desk, it will be the first time in a generation that the U.S. has amended its tax code.

But will the $1.5 trillion bill, as it’s currently written, lead to stronger economic growth and pay for itself, as its most vehement supports insist? My hope is that it will. As I’ve been saying for a while now, it’s time we begin relying more on fiscal policies to drive growth, especially now that the Fed is beginning to tighten policy.

In the spirit of staying balanced, though, there are troubling signs and forecasts that the bill could actually end up being a disappointment. After reviewing the bill, the Joint Committee on Taxation (JCT) estimates that its enactment could lead to a whopping $1.4 trillion increase in the deficit between now and 2027. Even if we factor in economic growth that might come as a result of reforms, the JCT says, we’d still be looking at a $1 trillion shortfall.

Many economists are also skeptical. A recent University of Chicago Booth School of Business survey of economists from Yale, MIT, Princeton, Harvard and other Ivy League schools found that over half did not believe the current tax bill will “substantially” grow GDP. Only 2 percent thought it would, and more than a third were uncertain. Additionally, nearly 90 percent believed that if the bill is enacted, the U.S. debt-to-GDP ratio will be “substantially” higher a decade from now.

And then there’s the Kansas experiment from five years ago. In May 2012, Governor Sam Brownback signed a sweeping state tax reform bill that in many ways resembles the Senate’s current tax bill. It slashed personal and business income taxes, consolidated the state’s three tax brackets into two and eliminated a number of credits and exemptions. Hopes were high that the reforms would kickstart economic expansion, help taxpayers and attract new business to the state.

Instead, none of that happened. Following the bill’s enactment, Kansas GDP growth remained stagnant, trailing the national growth rate as well as that of neighboring states and even its own rate from years past. This year, the nonprofit financial watchdog group Truth in Accounting gave Kansas a failing financial grade of D, citing its inability to pay its debts or balance its budget.

Kansas 2012 tax cuts failed to spur growth a lesson for the us click to enlarge

In June of this year, Kansas’ Republican-controlled state legislature voted to raise taxes for the first time since reforms were enacted and eventually had to override Governor Brownback’s veto. Many of those state legislators who initially supported the Kansas tax cuts are now warning federal lawmakersthat similar outcomes could occur on a nationwide scale.

I’m not sharing this to discredit tax reform—in fact, I’m strongly in favor of it. However, I believe it’s important to highlight the fact that nothing in life is guaranteed. Hope for the best, prepare for the worst. What steps can you take now in the event the tax reform bill doesn’t accomplish what it’s designed to do—or worse? This type of uncertainly has historically made gold shine the brightest.

Think Gold Has Fallen Short of Expectations this Year? Don’t Blame Bitcoin

At conferences I’ve attended and spoken at recently—the Silver & Gold Summit in San Francisco and Mines and Money in London among them—the suggestion has been made by a few big-name investors and money managers that bitcoin’s meteoric rise is to blame for the market’s apparent disregard for gold and gold stocks right now. With bitcoin up more than 1,050 percent since the beginning of the year, even after a 21 percent dip last Wednesday, many market-watchers might simply be too star-struck by the newness of bitcoin to be bothered by the “barbarous relic.”

I happen to think this is a mistake. As much as I believe in the value of bitcoin, gold and gold stocks still play a crucial role in the modern portfolio.

As I told Kitco News’ Daniela Cambone at the Silver & Gold Summit, bitcoin isn’t responsible for dismantling gold. Although both assets are currencies, I don’t see them at odds because they serve very different functions. For one, gold is more than money—it’s worn as jewelry, widely used in dentistry and can be found in art and even some high-end foods. It’s been traded around the world for millennia and, unlike bitcoin, does not require electricity. Indeed, it conducts electricity, which is why you can find it in your iPhone and GoPro camera’s circuitry.

Frank Holmes on CNBC london

Bitcoin is more than money as well. It’s the most influential spokesperson, if you will, of blockchain technology, upon which the currency is built. Speaking with SmallCapPower’s Angela Harmantas at the Mines and Money conference in London, I made the comparison that bitcoin is to email as blockchain is to the internet. In the earliest days of the internet, few people truly understood what it was or could predict the implications of this new technology—but email they understood. It’s what woke people up to the idea of using the internet. Bitcoin is doing just that for blockchain.

But blockchain’s utility goes far beyond finance. As a decentralized, highly encrypted ledger, it has untold potential to change the way we run our lives, businesses and governments. Among other tasks, the technology can help manage digital rights to intellectual property, bring transparency to supply chains and reliably track the spending of public funds. It can even be used as a tamper-proof voting system, whether you’re voting for a new chairman of the board or president of the United States. One day soon, we might all be e-voting from our smartphones and tablets, reassured that our vote cannot be compromised.

For more on my outlook on bitcoin and blockchain, and to get my thoughts on why I think HIVE Blockchain Technology is well-positioned to be an industry leader, watch my full interview with Angela Harmantas.

Middle East Could Bring Down Markets, Drive Up Gold – Gerald Celente

 By Mike Gleason*
Podcast first published on www.moneymetals.comListen to the Podcast Audio: Click Here

Coming up we’ll hear from the one and only Gerald Celente of the Trends Journal. Gerald weighs in on the rise of crypto-currencies, the massive volatility he sees ahead in the crypto world and the key geopolitical ticking time bomb that he sees having a big effect on gold prices.

Gerald Celente

Mike Gleason: It is my privilege now to welcome Gerald Celente, publisher of the renowned Trends Journal. Mr. Celente is perhaps the most well-known trends forecaster in the world and it’s always great to have him on with us.

Gerald, thanks for taking the time and welcome back.

Gerald Celente: Thanks for having me on.

Mike Gleason: Well, Gerald, to start off here, we still have the equities markets ripping and roaring and there is seemingly no news that can derail the train. So, as we head into the end of the year, what does your forecast show for the crowd on Wall Street? Is the party going to end anytime soon?

Gerald Celente: Well, as they go through with this tax deal, it’s just going to bring more money to the bigger corporations and you saw what the corporations have done with the profits from the past, what do they do with them? They reinvested them into the stock market rather than building their companies and investing in capital improvements.

So, giving them more money will give them more stock buybacks. The more stock buybacks, the higher the market goes. I mean that’s the reality of it. So, if the tax breaks go through the way they’re being planned, we’re going to see more stock buybacks, more cheap money to reinvest back into the markets.

Again, we’re looking at a very small segment of the population that’s really playing the markets. For example, only 10% of Americans are in the markets at the range that makes any difference, so that 10%, for example, that’s playing, they have about in equity about $350,000 (on average). The rest of society that has money into it, the so called middle class, of those that have any money in it, and again the 10% own over 90%. For the rest of the society, they only have about $15,000 in equity.

So, the markets are just going to keep going up if the cheap money keeps existing. Again, that’s going to also see what happens when they raise interest rates, which are about a 99% sure shot now, later in December. And if the cheap money flows stop, then the markets stop. It’s as simple as that, but we don’t think a 25 basis point increase is going to have much of an impact.

Mike Gleason: Clearly the world has a problem with crooked bankers and corrupt politicians. We talked about this a bit when we had you on back in August. The two aren’t unrelated, of course. Bankers and politicians have a very long and dark history of collusion.

On one hand, if history is a guide, there isn’t much reason to expect anyone will be held to account for their crimes. “They are too big to jail,” as former Attorney General Eric Holder might say. On the other hand, we can’t help but be a little bit hopeful. It looks to us like some of these crimes, such as the Uranium One deal, are getting harder to ignore.

What do you make of the recent news? Are you feeling any more optimistic about some of these crooks actually going to prison?

Gerald Celente: No, quite the opposite. Look at the new Fed chair that’s coming in. He’s already saying that the banking regulations in place now are too tough and tough enough. So, if under the current regulations nobody went to jail and they soften them, they could steal more, and get fined, and also accused of less crimes.

So, no, it’s going in the opposite direction. Under the new administration, they’re not draining the swamp, they’re just filling the swamp with different swamp creatures. I mean look at the Trump White House. Who’s running it? Mnuchin and Cohn on the financial end and those are both Goldman Sachs guys. It’s just more of the same.

Mike Gleason: The rise of cryptocurrencies, Bitcoin in particular, is making waves in the precious metals markets. Some of the demand for gold and silver has been diverted to Bitcoin. People see it as another form of honest money and there is plenty of excitement over the huge price gains. Lots of people are wondering what the rise of Bitcoin might mean for precious metals over the longer term.

Now, our take is that Bitcoin offer hope as honest money and we are certainly fans of anything that can circumvent central bankers. Gold and silver, on the other hand, are proven stores of value with a track record extending back thousands of years and they are totally off the grid. Physical metals work with or without electricity or an internet connection and they can be used without leaving digital tracks behind.

What are your thoughts on the relationship between Bitcoin and bullion?

Gerald Celente: Well, we’ve been writing a lot about it now in our Trends Journal. One of the points that we keep making is that we see this isn’t a fad, it’s a trend in the cryptocurrency world, but the volatility’s going to be enormous.

Again, when you look at volatility in gold … I remember, back in 1980, I bought gold in the highest point of the trading day at $875 an ounce and then it went down from there. It was down for, what, almost 20 years.

So that’s the kind of thing you’re going to see in cryptocurrencies, as well. You’re going to see great volatility. They’re not going to go anywhere, but in looking at it, you see what happens when there’s geopolitical unrest. For example, you saw what happened in Zimbabwe, when they were getting rid of Mugabe, who had been running the joint since 1980. All of a sudden, Bitcoin over there spiked.

So, you’re going to see that kind of thing, but, again, there’s definitely playing a role as another safe haven asset of sorts, relative to gold and silver, but the volatility aspects in the crypto world are far higher and far greater than any of the precious metals. Also, in the cryptocurrencies, or what we call “Millennials’ Gold.”

My generation was gold, this generation, they’re looking more at digital. It’s a digital world. You’re in China, you don’t pay anything with cash or credit cards, it’s an app. So, it’s a different world.

However, saying all that, again, the big point is, you’re going to see a lot of the cryptos come and go. There’ll be some for the long term. The volatility will be enormous, but we don’t see them going away in the long term. And when you look, again, at particularly gold, the central banks around the world are buying it up in much greater proportions now, although the public is buying less physical gold.

So the demand for physical gold among the central banks, particularly Russia, China, will continue. And the crypto markets will have their place, but again, the volatility’s real, something we’ve been forecasting for quite some time and you can see it in the numbers.

Mike Gleason: One of the potential drivers for Bitcoin prices moving forward… it looks like the CME Group, the people behind the COMEX Exchange will soon launch a futures contract for Bitcoin. Lots of people in the crypto space are excited that the market will be opened up to “institutional money” and expect additional demand will be good for the Bitcoin price.

That might be true, but we have a dim view of the COMEX and how crooked the markets for gold and silver have become. According to the recent Wikileaks memo, they showed evidence that gold futures were first launched in the early 1970’s to help to rig the gold price, trade volatility, and discourage ownership for physical gold. 40 years later, we can look back and see precious metals futures worked exactly as intended.

In light of that and in light of this news now, what are we going to see a Bitcoin future exchange mean and can you comment about whether this will be good news or bad news for the cryptos?

Gerald Celente: Well, you summed it up. You’re going to see a lot more volatility. Again, I remember, going back to 1980 with the volatility of the gold markets and how also, though, and this is very important. Because of the futures trading, that’s what really drove the prices up.

What we expect to see is that you’re going to see a real surge and a price drive, higher, but you’re also going to see a greater downward collapse of the prices as well. Again, you see it with the futures contracts in many different fields, naked shorts, all of a sudden, the whole market changes in a flash.

So it can be very easily manipulated by bigger players. And again, with cryptos, it’s a bit more difficult considering how difficult it is to buy them, the periods of time you have to wait in order for you to buy them, so it’s going to be a little harder to manipulate, but they’ll figure a way how to do it.

So, expect, when the CME futures happen, and also other futures exchanges opening around the world, much more volatility. So what we see is a real spike up and a real sharper spike down.

Mike Gleason: Getting back to the Fed a little bit here. Jerome Powell was recently tapped to replace Janet Yellen as Fed chair, as you mentioned earlier. Powell looks like another garden variety central planner to us. He’s an attorney with decades of experience spread across Wall Street to Washington D.C. Obama installed him on the Board of Governors at the Fed in 2012.

Give us a little bit more about what your take is on Powell and can we expect any difference happening with the monetary policy?

Gerald Celente: Well, again, Powell has already made clear that the bank regulations are too difficult already for the banksters. So, what that means is that the bigger banks will have less regulation, more trading opportunities.

Again, who made up this thing that banks are supposed to be investment banks. Banks were there just as commercial banks. When I was a kid growing up, banking was boring. Banks used to open up at like 10:00 in the morning and be closed by 3:00. I mean, really. I know it sounds like ancient history, and it is when you get older, but there was no such thing as an investment bank.

So, what he’s going to do is the that the bigs are going to be bigger, more manipulation in the system, and again, he is a proponent, he says, of raising interest rates. However, we don’t see them going up that high. And as long as interest rates remain low, the Ponzi scheme on Wall Street continues.

I mean, there’s only one factor that’s driven the markets. It’s cheap money. Period. Paragraph. The rich have gotten richer and everybody else has gotten poorer. Those are the facts. Median household income in the United States is below 1999 levels.

Do you realize you have five people in the world, five people, that have more money than 3.5 billion people, half the world’s population? Same thing in the United States. Buffett, Gates, and Bezos. Three people have more money than half of the American population combined.

So, Powell is just one of the white shoe boys. He’s going to keep the club going and it’s going to go in the same direction it was going before. Again, the bubble can happen because it is a bubble and it’s only being pumped up by this monetary methadone. That’s all it is. It’s a fix.

There’s wild cards that would change this in a flash. And the wild cards, for example, could be what’s going on in the Middle East, with the new crown prince over there in Saudi Arabia saying that Lebanon and Iran have declared war against Saudi Arabia, which they never have. And you know how he became a crown prince, don’t you, that everybody’s bowing down to? You must remember when you were a kid. A princess kissed a frog and the frog became a prince and then a king.

I mean, who’s making this garbage up? Crown prince. Give me a break, man. They just made the Saudi government up in about 1934. It’s an oligarchy. It’s one of the most repressed nations on earth and they’re starting wars. They’ve slaughtered over 10,000 Yemenis. 50,000 Yemeni children are going to die this year because of the war conditions started by Saudi Arabia, supported by the United States. We just sold them another $7 billion worth of armaments.

Again, now that the Arab League, minus Syria, Qatar, and Iran, and Iraq, are declaring a new Arab NATO and a war against terrorism. A war against terrorism? Hey, it’s the Saudis that gave the money to Al Qaeda and ISIS to overthrown Qaddafi in Libya and Assad in Syria.

But, again, the presstitute news doesn’t bring these facts out. Going back to gold, gold is the ultimate safe haven in times of geopolitical economic instability. And geopolitical and economic instability in the Middle East could bring down the markets and drive up gold prices.

Remember, Saudi Arabia needs oil at $100 a barrel for its economy to break even, to balance its budget. We were playing with $40, $50, now $60 oil since 2014. They’re in great financial straits. You look at the numbers, man. Anybody. All they have to do is look at them. Look at the oil revenue coming in from 2006 to Saudi Arabia to 2017 and it’s lower now in 2017 than it was even back in 2006.

Going back to gold. Our forecast of gold has been steady since 2013. November 2013, we said, “Gold prices have to stabilize over the mid $1,400’s.” $1,450, $1,480, $1,460, $1,470. Then it would spike to $2,000. Absent that, we saw a downside risk of gold at around $1,150. Saying this constantly. We maintained that forecast.

We see gold coming under more pressure even though we see interest rates coming up and most people are expecting it. There’s an opportunity cost for holding gold. Bond yields go higher, become more attractive, gold less attractive.

However, in this time of economic and geopolitical uncertainty, we still maintain that gold is the ultimate safe-haven asset in this geopolitical and economic climate.

Mike Gleason: Well, finally, as we begin to close here, Gerald, anything else that you’re focusing on as we head towards the final month of 2017 and start looking at 2018? What’s on the horizon and what are you watching most closely?

Gerald Celente: What we’re watching most closely, really, is the events in the Middle East. People are talking a lot about North Korea. We’re not so concerned about that, because if the United States does anything to North Korea, in terms of war – and by the way, again, we’re getting a one-sided story. The United States keeps launching these massive military maneuvers. Matter of fact, there’s going to be a new one in December with about 16,000 U.S. troops, hundreds of aircraft, and also naval forces on their shores.

So the United States is provoking North Korea and North Korea’s made it very clear they’re not going to give up a nuclear weapon because they saw what the United States did to Qaddafi and Hussein when they gave up their nuclear capability.

What we’re saying is that North Korea’s not on our radar as being the hot spot that could explode, because if the United States launches war against North Korea, say goodbye to South Korea. What do you got? 24 million people living in Seoul, Korea, about 35 miles away from the North Korean border? Say goodbye to Japan. It’s not going to happen.

Again, (North Korea) that’s a country, by the way, with a GDP smaller than West Virginia’s and a population the size of Texas. They don’t have the wherewithal to withstand the long war, so what they’ll do is, they’ll go all out and destroy anything anywhere near them.

Again, while the focus is on North Korea and everybody’s pumping up this king over there, or the crown prince, excuse me, who’s really the de facto leader at 32 years old, in Saudi Arabia, as the new enlightened guy over in the region, we see just the opposite. So that’s where our focus is really on, very heavily now.

And looking at the real news and really reading through and sifting through the propaganda that’s being sold by their government, our government, and other governments, and repeated by the presstitute media, those reporters that cut paid to put out by their corporate Johns and their Washington whoremasters.

Mike Gleason: Well, thanks so much for your time again today and we appreciate it, as always, and love getting your candid and unfiltered comments on the state of things. Now, before we let you go, please tell listeners how they can get their hands on the Trends Journal and the other great information that you put out there on a regular basis at the Trend Research Institute.

Gerald Celente: Well, the new Trends Journal will be out this week. You could got to TrendsResearch.com or TrendsJournal.com. And not only do we put out the Trends Journal, we do Trends in the News Broadcast, we have Trends Monthly, Trend Alerts each week. Money back guarantee, the only place you’ll read history before it happens. TrendsResearch.com or TrendsJournal.com.

Mike Gleason: Well, thanks again, Mr. Celente, for being so generous with your time, as always. Have a great weekend and we’ll look forward to our next conversation. Take care.

Gerald Celente: Thank you for having me on and thank you for all that you do.

 

Gold’s Global Supply: Heading for Cardiac Arrest

by: David Smith* – Lightly edited version of article originally published on Money Metals Exchange

An oceanic-scale demand push from “all parts Far East” is building, as the desire to own gold and silver promises to place an increasingly solid foundation for years to come.

China’s One Belt-One Road (OBOR) Initiative – the world’s largest-ever construction project – is designed to link 60% of the world’s population in a cooperative financial and economic matrix. Taken together, the continued migration of gold supply from West to East is baked into the cake.

For a deeper understanding of how and why China is leading the charge – and going about capturing an outsized portion of the global gold supply – see my essay from last summer, titled China’s Get the Gold Plan: Part II.

Even as the West ships much of its remaining gold eastward (largely via Swiss refineries who “repurpose” it into .9999 fine gold), countries like Germany and Turkey have stepped up to the plate, becoming noteworthy demand drivers in their own right.

Fund managers are finally realizing that gold deserves to be a permanent portfolio asset holding category. In The Morgan Report and in Riches in Resources, David Morgan has written extensively about this for both individual investors and institutional clients. Just one more “silent lever” by which a long-term, rock-solid foundation is being built under gold’s demand… and price.

Gold Supply Vein Seizures

Metaphorically-speaking, available data strongly suggests (with evidence mounting sharply since 2015), that over the next few years an ongoing narrowing of the global gold supply’s veins and arteries is leading to a series of demand seizures, climaxing in a systemic “heart attack”.

Peak Production is Expected ~2015 (Chart)

As of 2017-18, this trend shows no signs of abating

South Africa’s Gold Production Keeps Heading Further South

South Africa’s Witwatersrand Basin has been the source of almost 40% of all the gold ever recovered. But the government has become so obdurate that its current declining rank as the world’s 7th largest producer looks set to fall even more.

They have once again decided to “amend” the country’s mining code, demanding higher royalties and increased Black Empowerment participation, leading to a dire warning from the rating agency Moody’s. It states that “If the substantial expansionary investment required to reconfigure loss-making mining operations and make them profitable is not forthcoming, mines will either be restructured or closed.”

South Africa’s next move on the resource supply chessboard follows recent gambits against other large gold producers in Indonesia (Freeport) and Tanzania (Acacia Mining). Dave Forest, who keeps track of this in his letter, Pierce Points, remarks:

Mining “nationalism” has re-introduced one of the most crippling elements a mining producer – or explorer can face…unpredictability.

If there is no certainty that some sort of “rule of law” will prevail, then trying to anticipate/ predict how much gold and copper will/can be produced in a given operation flies out the window. Look how much is going on right now as gold hovers “merely” around $1,300 per ounce. What do you think that this witches’ brew of greed, corruption, power-grabbing and incompetency is going to produce when gold trades – as it will before long- at $2,000, $3,000, $5,000 or more?

Even without heavy-handed regulations, South African mining would be facing increasing costs as mines go deeper to access gold and platinum. The way things are going, the last nails in the coffin appear set to be hammered into place. In the early 1970s, annual gold production topped out at an amazing 1,000 tons. Since 2000, gold production has literally fallen off a cliff, as it spirals downward toward a paltry 200 tons/year.

South Africa's Gold Output has Benn in Steady Decline for More than 45 Years (Chart)

Courtesy sources as listed.

When a Gold Giant Speaks, You Should Listen…

Pierre Lassonde is a giant in the mining business. In 1982, he co-founded Franco-Nevada, the first publicly-traded gold royalty company, which now has a seven billion dollar market cap. He played a critical role in the growth of Newmont Mining, the world’s second largest gold producer, heading to become the largest as current No. 1 Barrick Gold divests non-core mines. When he speaks, you and I should pay attention… In a recent interview, discussing the global gold supply going forward, Lassonde said:

Production is declining and this is going to put an enormous amount of pressure on prices down the road. If you look back to the 70s, 80s, and 90s, in each of those decades the industry found at least one 50+ million ounce gold deposit, at least ten 30+ million ounce deposits and countless 5 to 10 million ounce deposits. But if you look at the last 15 years, we found no 50 million ounce deposit, no 30 million ounce deposit, and only very few 15 million ounce deposits. So where are those great big deposits we found in the past? How are they going to be replaced? We don’t know. We do not have those ore bodies in sight…

They have not put anywhere near enough money into research and development, particularly for new technologies with respect to exploration and processing… it takes around seven years for a new mine to ramp up and then come to production. So it doesn’t really matter what the gold price will do in the next few years: Production is coming off and that means the upward pressure on the gold price could be very intense.

Average Number of Years Between Discovery and Production

You Can’t Fight a War – or Produce Gold – without Reserves

Of the 5 formal categories estimating the amount of economically-recoverable gold a mining company has in the ground, “Reserves” ranks highest. The other 4 categories decline in estimated value and the likelihood they will ever be profitably recovered. As of this year, global gold reserves barely equal those prevailing in 2004 – the very beginning of the current metal’s bull run. This, despite gold having risen from $250 to (briefly) $1,900 the ounce, and now around $1,280.

The inescapable truth is that every ounce of mined gold that is not replaced by a new reserve places a producer just that much closer toward going out of business.

The trend of annual declining gold yields is well-established.

This Is the Calm before the Storm

Do not be lulled into complacency by this year’s muted U.S. gold and silver sales figures.

“High grading” – mining the best ore bodies first in order to remain profitable, lack of exploration success in replacing reserves in spite of increased funding, and elevated “country risk” around the globe are placing declining supply on a collision course with increasing demand.

Establish and keep adding to your gold “stash” now while the price is favorable. Don’t be shut out when an unpredictable but inevitable “gold supply heart attack” takes place.

Holding some gold and silver is ALWAYS a good idea for portfolio diversification

Clint Siegner* of  Money Metals Exchange tells us why holding some bullion in your portfolio is a good idea.

The Dangers of Zero

Zero is an important number in the psychology driving demand for bullion. There are periods when investors find the argument that gold or silver prices “will never go to zero” compelling.

The 2008 financial crisis and the years immediately following it are the most recent example. The fear of conventional securities and even the fiat dollar becoming worthless was palpable for many in the metals markets. Bullion demand hit record levels.

Left Behind

Investors have chased bull markets
for fear of being left behind.

 

While demand for gold ETFs and futures contracts has been strong in 2016 and 2017, some investors in the physical market for coins, bars, and rounds seem to have overlooked the modest gains of the past two years and are anxious instead to participate in bull markets elsewhere. If they are worried about anything, it is the possibility of missing out.

Gold and silver’s appeal as a safe haven is in temporary eclipse.

The metals markets are awaiting the moment when investors lose their conviction about ever higher stock prices and once again grapple with the idea that prices do fall.

Indeed, the value of some securities can, and does, fall all the way to zero. Companies miss expectations or fail outright. Bond issuers occasionally default and fiat currencies eventually die. Investors discount risk in the euphoria of a bull market.

In fairness, it is also possible for investors to focus too much on the downside.

Given the Fed’s absolute unwillingness to allow overall asset prices to fall and remain at low levels, the fear driving investors in the years following the Financial Crisis certainly looks now to have been overblown. A more meaningful threat is a devaluation in the purchasing power of the Federal Reserve Note – NOT broad-based declines in nominal asset prices.

Left Behind

The Fed will not allow nominal asset prices to crash,
but it won’t guarantee our currency retains value.

 

The Federal Reserve Note has lost more than 97% of its value in the past 100 years, with an acceleration in this decline since the 1970s. That’s 97% of the way to zero.

We’ll find out in the years ahead whether the historic intervention by central banks around the world cushioned economies from the worst effects.

We continue to hold the minority view. Manipulating markets, printing money and propping up failed banks is a recipe for bigger and more destructive bubbles, not prosperity.

Regardless of how history ultimately judges these markets, now seems like an important moment to remind people that metals will never fail and be valued at zero. Even if it sounds blasé, it is worth repeating; physical gold and silver carry no counter-party risk. A gold coin in your possession will have value regardless of what happens or who breaks a promise.

For investors with a portfolio stuffed full of paper, that means genuine diversification. It is why holding some bullion is always a good idea.

Gold royalty companies and bitcoin – a viewpoint

Here at lawrieongold.com we have long advocated the investment positives of precious metals royalty companies – and Franco Nevada and Royal Gold have been the two best performers so far this year out of the precious metals stocks we recommended on Seeking Alpha right at the end of 2016 – See: 2017 Predictions – Gold, Silver, PGMs, The Dollar, Markets, Geopolitics,

However we do have to say that on bitcoin we are not really a believer.  To us there is no underlying value, it is in a bubble, and will likely, at some stage, come crashing down from whence it came – but Frank Holmes. whose thoughts we publish below is very definitely a believer reckoning that it is a currency for our times and is being taken up particularly by millennials.  As I say, we are not so sure but Frank’s views are well worth reading.  After all he runs a successful series of funds, while I do not!  Anyway, do read Frank’s views on the royalty companies and bitcoin below:

My Conviction in Gold Royalty Companies and Bitcoin

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

Bitcoin

Some of you reading this might already be familiar with the “Parable of the Talents,” but it’s worth a brief retelling. The story, which appears in the gospels of Matthew and Mark, involves a master who entrusts three servants with some of his “talents,” or gold coins, while he’s away on business. Two of the servants take a risk by putting the money to work and end up doubling their master’s wealth. The third servant, however, buries his share to “keep it safe” and so doesn’t generate any returns. (Indeed it likely loses value because of inflation.)

When the master returns, he’s so pleased at how the first two servants grew his wealth that he puts them in charge of “many things” and invites them to share in his own success.

The third servant, though, he calls “wicked and lazy” and says he might as well have deposited the money in a bank while he was away—at least then he would have received a little interest. The servant is punished by having his share of the talents given to the two who faithfully grew their master’s money, leaving him with nothing.

The lesson here should be plainly obvious, and we can express it in a number of different ways: There can be no reward without risk. You must spend money to make money. You reap what you sow. This should resonate with investors, entrepreneurs and any true believer in the power of capitalism.

Jesus’ parable applies not just to individuals but to corporations as well. Companies must grow to keep up with the rising cost of labor and materials and to stay competitive. To do that, they must put their money to work just as the two servants do.

And just as the two servants were invited to share in their master’s success, corporate growth has a multiplier effect—for the company’s employees and their families, shareholders, the local economy, strategic partners, companies up and down the supply chain and much more.

A Bonanza for Precious Metal Royalty Companies as Exploration Budgets Have Declined

I think the business model that best illustrates the meaning of the “Parable of the Talents” is the one practiced by gold and precious metal royalty companies. As much as I write and talk about royalty companies, I still encounter investors who aren’t aware of how significant a role they play in the mining space.

As a refresher, these firms help finance explorers and producers’ operations by buying royalties or rights to a stream. Because miners have had to slash exploration budgets since the decline in metal prices, the kind of financing royalty companies provide has only grown in demand—as evidenced by the mostly positive earnings reports last week.

Chief among them is Franco-Nevada, which had a very strong third quarter, reporting earnings of $55.3 million, or $0.30 a share, up 3.4 percent from the same three-month period last year. The Toronto-based company, having also recently diversified into the oil royalties space, closed its purchase of an oil royalty for C$92.5 million, bringing the number of its oil and gas assets up to 82. Including precious metals and other minerals, the total number of assets Franco-Nevada had in its diverse portfolio as of the end of the quarter stood at 341.

Here’s the multiplier effect: Not only do the miners benefit from the deals, allowing them to continue exploration and other operations, but shareholders are also rewarded handsomely. Since the company went public nearly 10 years ago, it’s raised its dividend each year and its share price has outperformed both gold and relevant gold equity benchmarks. After its earnings announcement last Monday, Franco-Nevada stock closed up more than 6 percent on the New York Stock Exchange (NYSE), its best one-day performance in nearly a year and a half. Shares hit a fresh all-time high last week.

Precious metal royalty names have outperformed gold and gold producers
click to enlarge

Other royalty companies’ reports were just as impressive and show the rewards of putting your “talents” to work. Sandstorm Gold, reporting higher operating cash flow of $11.9 million, has acquired as many as 10 separate royalties since the end of September on properties in Peru, Botswana and South Africa that collectively cover more than 2.4 million acres.

Osisko Gold Royalties bought a $1.1 billion portfolio of 74 precious mineral royalties, including a 9.6 percent diamond stream. The company reported record quarterly gold equivalent ounces (GEOs) of 16,664, up 65 percent from the same quarter last year, and record quarterly revenues from royalties and streams of $26.1 million, up 48 percent.

Royal Gold also had a strong quarter, reporting operating cash flow of $72 million, an increase of 30 percent from last year, and returned as much as $16 million to shareholders in dividends.

Wheaton Precious Metals, the world’s largest precious metal streaming company, showed a sizeable decline in profits in the third quarter, but it continued to generate strong cash flow and looks poised to meet its end-of-year production guidance.

Although some investors might not realize how important these companies are to the industry, many other investors are opting to place their bets on royalty names, seeing them as having ample exposure to precious metals without some of the risks associated with producers. In its review of the third quarter, the World Gold Council (WGC) reported that global gold demand fell to an eight-year low as investment in gold ETFs slowed to 18.9 metric tons, down from 144.3 metric tons in last year’s September quarter. This could be a consequence of the media’s continued negative coverage of gold, despite its competitive performance against the S&P 500 Index. Whatever the cause, in this environment, there was no lack of love for royalty names, as you can see in the chart above.

A Changing Financial Landscape

We were one of Wheaton Precious Metals’ seed investors in 2004, when it was then known as Silver Wheaton. Because Franco-Nevada wouldn’t be spun off from Newmont Mining for another three years, Wheaton had first-mover advantage. It was something new, something different. This, coupled with what I recognized as a superior business model, gave me the conviction to allocate capital into the fledgling company, a move that turned out to be highly profitable.

Today I have the same conviction in blockchain technology and digital currencies. As of the end of October, the initial coin offering (ICO) market had raised $3 billion so far this year. That’s more than seven times the amount generated in crowdfunding in all of the previous years before 2017. And Bloomberg just reported that Google searches for “buy bitcoin” recently surpassed searches for “buy gold.”

Search queries for buy bitcoin surged past buy gold
click to enlarge

With bitcoin’s market cap having grown past that of Goldman Sachs and Morgan Stanley, cryptocurrencies can no longer be written off as a curiosity. Major financial institutions have become bullish, having filed approximately 2,700 patents in blockchain technology.

Abigail Johnson, the youthful chairman of Fidelity, was quoted as saying, “Blockchain technology isn’t just a more efficient way to settle securities, it will fundamentally change market structures, and maybe even the architecture of the internet itself.” Johnson allegedly has a crypto-mining computer rig in her office, and Fidelity accountholders are now able to see their bitcoin holdings on the brokerage firm’s online platform. USAA, the massive financial firm used by millions of U.S. military personnel and their families worldwide, provides a similar service.

Bitcoin

This all comes as Coinbase, a leading digital currency broker, saw a record number of people opening new accounts on its platform recently, doubling the number of accounts from the beginning of the year. In one 24-hour period, 100,000 new accounts were opened.

Millennials Driving Interest in Blockchain Technology and Cryptocurrencies

A lot of this growth in demand is thanks to millennials, the largest U.S. generation. Forget the stereotype of the “entitled” millennial in the workplace and the misconception that they’re all wasting their money on $10 avocado toast. Consulting firm Deloitte estimates that by 2020, millennials will make up 50 percent of the workforce and control between $19 trillion and $24 trillion. Many are savvy investors and were found to be more likely to be aware of their brokerage account fees than older generations, according to Charles Schwab’s Modern Wealth index.

In some ways, millennials are reshaping our living habits. Many of them choose to rent instead of own to stay mobile. They’re more likely to get their news from Twitter than from TV. Online dating apps have helped foster today’s hookup culture, but while young people now might have more sex partners than before, they’re having less sex overall than their parents or grandparents might have had at their age.

It’s little surprise, then, that millennials are among the earliest and most enthusiastic adopters of blockchain technology, bitcoin and digital currencies in general—none of which existed even 10 years ago. A poll conducted by Blockchain Capital found that large percentages of millennials would prefer $1,000 in bitcoin to $1,000 in other assets. More than a quarter said they would prefer bitcoin to stocks, while nearly a third preferred it to bonds.

Percent of millenials who would prefer 1000 in botcoin to 1000 in
click to enlarge

What I find especially encouraging is that only 4 percent of those who took the poll owned or had owned bitcoins. I say encouraging because this suggests there’s quite a lot of upside potential for bitcoin ownership, which in turn could raise prices further. As I shared with you recently, Metcalfe’s law states that the bigger the network of users, the greater that network’s value becomes. Consider Facebook. The social media giant has more than 2 billion active users. That’s 2 billion pairs of eyes Facebook is able to charge top dollar for advertisers to reach, helping it deliver record profits in the third quarter.

We could see the same thing happen across the blockchain and cryptocurrency network as more and more businesses and people embrace this new form of exchange.

Ploughing Capital into Blockchain

It should be clear by now that something is changing in financial markets, and this is what inspired me to make a strategic investment in a company with first-mover advantage in the cryptocurrency space, just as we did with Silver Wheaton years ago. As the “Parable of the Talents” teaches us, no reward can come to you without some risk-taking. Doing nothing is not an option.

That company is HIVE Blockchain Technologies, a blockchain infrastructure company involved in the mining of virgin digital currencies. The first company of its kind to sell shares to the public, HIVE began trading on the TSX Venture Exchange on September 18.

I’m very excited about this new chapter in our company’s history. If you weren’t on today’s earnings call, you can download the slide deck here to learn more about our deal with HIVE and what it means for our investors and shareholders.

WGC – Global gold demand in Q3 seen at eight-year low

The latest Gold Demand Trends report from the World Gold Council is now out and the full report can be downloaded from the WGC website – www.gold.org

World Gold Council Report Highlights as follows:

  • Gold jewellery demand fell in Q3. Jewellery volumes continue to languish below longer-term average levels. Indian weakness was the main reason for the y-o-y decline. Tax and regulatory changes in India weighed on domestic gold demand. The new tax regime deterred consumers, as did anti-money laundering measures governing jewellery retail transactions.
  • Inflows into gold-backed ETFs stalled: holdings grew by just 18.9t. Investors continued to favour gold’s risk-hedging properties, but the greater focus was on rampaging stock markets.
  • Gold bar and coin demand growth was driven by China. Global investment in bars and coins rose 17% from relatively weak year-earlier levels. Chinese investors bought on price dips, to notch up a fourth consecutive quarter of growth.
  • Volumes of gold used in technology increased for the fourth consecutive quarter. Demand for memory chips continued to soar thanks to the persistent popularity of high-end smartphones.
  • Total supply fell 2% in Q3. Mine production fell 1% y-o-y in Q3, which was also the fifth consecutive quarter of net dehedging. Recycling activity (-6%) continued to normalise after jumping in 2016

Stock Picks YTD, Newmont/Barrick and Randgold Q3 – Articles posted on Seeking Alpha

One of the other sites on which some of my articles are posted is U.S. site Seeking Alpha but this doesn’t allow me to publish the same articles here so if you’d like to read them you’ll need to read them on Seeking Alpha.  My three most recent articles here relate to the performance of the precious metals stocks I recommended at the end of last year – rather better than I had anticipated, particularly with respects of what are probably the top two royalty stocks, Franco Nevada and Royal Gold which both comfortably outperformed the Dow and the S&P500, despite the somewhat disappointing progress of the gold price, and a second one is on Randgold’s Q3, which on first look was pretty dire and the stock price plunged accordingly, but in fact was largely in the company’s own forecasts and still leaves it on track to reach the top end of its 2017 guidance.  Overall Randgold has been the star performing major gold miner and the recent stock price dip should provide a buying opportunity.

I also published one showing that Newmont is overtaking Barrick as the world’s No. 1 gold producing company – and may even do so this year:

To read the articles, click on the following links:

Precious Metals Stocks Update YTD

Newmont Closing Gap On Barrick As World’s Largest gold miner…

Randgold: Difficult Q3 But Still On Track To Meet Top End of Guidance.

Note:  the above articles were written for a North American investment audience so use U.S tickers – and spelling!

Are we running out of major gold mines?

The World Is Running out of Gold Mines—Here’s How Investors Can Play It

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

the world is running out of gold mines, here's how investors can play it

My good friend Pierre Lassonde, cofounder and chairman of Franco-Nevada, doesn’t know how we’ll replace the massive gold deposits of the past 130 years or so. Speaking with the German financial newspaper Finanz und Wirtschaft this month, Pierre says we’re seeing a significant slowdown in the number of large deposits being discovered. Legendary goldfields such as South Africa’s Witwatersrand Basin, Nevada’s Carlin Trend and Australia’s Super Pit—all nearing the end of their lifecycles—could very well be a thing of the past.

Over the medium and long-term, this could lead to a supply-demand imbalance and ultimately put strong upward pressure on the price of gold.

According to Pierre:

If you look back to the 70s, 80s and 90s, in every one of those decades, the industry found at least one 50+ million ounce gold deposit, at least ten 30+ million ounce deposits and countless 5 to 10 million ounce deposits. But if you look at the last 15 years, we found no 50 million ounce deposit, no 30 million ounce deposit and only very few 15 million ounce deposits. 

So few new large mines are being discovered today, Pierre says, mostly because companies have had to slash exploration budgets in response to lower gold prices. Earlier this year, S&P Global Market Intelligence reported that total exploration budgets for companies involved in mining nonferrous metals fell for the fourth straight year in 2016. Budgets dropped to $6.9 billion, the lowest point in 11 years. Although we’ve seen an increase in spending so far this year, it still dramatically trails the 2012 heyday.

Total nonferrous exploration budgets fell to an 11 year low in 2016
click to enlarge

And because it takes seven years on average for a new mine to begin producing—thanks to feasibility studies, project approvals and other impediments—output could recede even more rapidly in the years to come.

“It doesn’t really matter what the gold price will do in the next few years,” Pierre says. “Production is coming off, and that means the upward pressure on the gold price could be very intense.”

Have We Reached Peak Gold?
Frank Holmes standing next to Pierre Lassonde right at Mines and Money London in December 2015

What Pierre is talking about, of course, is the idea of “peak gold.” I wrote about this last year and suggested another factor that could be curtailing new discoveries—namely, the low-hanging fruit has likely already been picked. Gold is both scarce and finite—one of the main reasons why it’s so highly valued—and explorers are now having to dig deeper and venture farther into more extreme environments to find economically viable deposits.

Other factors contributing to the decline include tougher regulations and higher production costs. And unlike with the oil industry, no “fracking” method has been invented yet to extract gold from hard-to-reach areas, though Barrick—the world’s largest producer by output—has been experimenting with sensors at its Cortez project in Nevada.

Take a look at how drastically annual output has fallen in South Africa, once the world’s top gold-producing country by far. In the 1880s, it was the discovery of gold in South Africa’s prolific Witwatersrand Basin—responsible for more than 40 percent of all gold ever mined in human history, if you can believe it—that helped transform Johannesburg into one of the world’s largest and most populous cities. Today, South Africa’s economy is the most advanced and stable in Sub-Saharan Africa, all thanks to the yellow metal.

In 1970, miners dug up more than 1,000 metric tons—an unfathomably large amount. Since then, production has steadily dropped. No longer in the top spot, South Africa produced only 167.1 tons in 2016, an 83 percent plunge from the 1970 peak. Meanwhile, miners in the notorious Mponeng mine—already the world’s deepest at 2.5 miles—continue to follow veins even deeper into the earth at greater and greater expense.

South Africa's gold output has been in steady decline for more than 45 years
click to enlarge

Australia could soon be seeing a similar downturn over the next four decades. A first-of-its-kind study conducted by MinEx Consulting and released this month, shows that Australia’s gold production is expected to see a significant drop between now and 2057. By then, all but four of the 71 currently operating mines in the country will be exhausted. Most of these will close in the next couple of decades. Any additional production will be dependent on new exploration success, which will become increasingly difficult if companies don’t invest in exploration and if the Australian government doesn’t relax rules in the mining space.

MinEx estimates that “for the Australian gold industry to maintain production at current levels in the longer term, it will either need to double the amount spent on exploration or double its discovery performance.”

To be fair, large discoveries haven’t disappeared entirely. Back in March it was reported that Shandong Gold Group, China’s second-largest producer, uncovered a deposit in eastern China containing between 380 and 550 metric tons of the yellow metal. If true, this would make it the country’s largest ever by amount. The mine has an estimated lifespan of 40 years once operations begin.

In addition, Kitco reports this month that Toronto-based Seabridge Gold recently stumbled upon a significant goldfield in northern British Columbia. The find appeared, coincidentally, after a glacier retreated. It’s estimated to contain a whopping 780 metric tons.

“There’s no question that as glaciers retreat, more ground will become available for exploration and more discoveries could be made in that part of the world,” Seabridge CEO Rudi Fronk told Kitco.

The company already has the permits to begin mining.

Seabridge gold is up 15 percent for the three month period
click to enlarge

Exploration Budgets Jumped
Gold represents over half of global annual commodities exploration budgets

As I said earlier, we just saw an encouraging spike in the amount spent on exploration. According to S&P Global Market Intelligence, exploration budgets increased in the 12-month period as of September for the first time since 2012. Budgets jumped 14 percent year-over-year to $7.95 billion, with gold explorers leading the way. During this period, gold companies spent around $4 billion on exploration, which is roughly half the value of all nonferrous metals mining budgets.

But because exploration is getting more expensive for reasons addressed earlier, senior producers might very well decide instead to acquire smaller firms with proven, profitable projects.

This could create a lot of value for investors, so I would keep my eyes on juniors that look like targets for takeover. Dealmaking in the Australian mining industry, for example, is showing some growth this year compared to last, according to a September report by accounting firm BDO. Last year, Goldcorp finalized its deal to acquire Vancouver-based junior Kaminak Gold, and in May of this year, El Dorado announced it was taking over Integra Gold for C$590 million. I expect to see even more deals in the coming months.

In the meantime, I agree with my friend Pierre’s “absolute rule” that investors should hold between 5 and 10 percent gold in your portfolio. I would also add gold stocks to the mix, especially overlooked and undervalued names, and rebalance once and twice a year.

Frank Holmes: Are ICOs Replacing IPOs?

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

Last week I was in Barcelona speaking at the LBMA/LPPM Precious Metals Conference, which was attended by approximately 700 metals and mining firms from all over the globe. I found the event energizing and stimulating, full of contrary views on topics ranging from macroeconomics to physical investment markets to cryptocurrencies.

My keynote address focused on quant investing in gold mining and the booming initial coin offering (ICO) market. I’m thrilled to share with you that the presentation was voted the best, for which I was awarded an ounce of gold. I want to thank the London Bullion Market Association, its members and conference attendees for this honor.

Speaking of gold and cryptocurrencies, the LBMA conducted several interesting polls on which of the two assets would benefit the most in certain scenarios. In one such poll, attendees overwhelmingly said the gold price would skyrocket in the event of a conflict involving nuclear weapons. Bitcoin, meanwhile, would plummet, according to participants—which makes some sense. As I pointed out before, trading bitcoin and other cryptos is dependent on electricity and WiFi, both of which could easily be knocked out by a nuclear strike. Gold, however, would still be available to convert into cash.

It’s a horrific thought, but the poll results show that the investment case for gold as a store of value remains favorable. Goldman Sachs echoed the idea last week, writing in a note to investors that “precious metals remain a relevant asset class in modern portfolios, despite their lack of yield.” The investment bank added that precious metals “are still the best long-term store of value out of the known elements.”

Metcalfe’s Law Suggests Crypto Prices Could Keep Rising

This isn’t meant to knock bitcoin and other virtual currencies. Because they’re decentralized and therefore less prone to manipulation by governments and banks—unlike paper money and even gold—I think they could also have a place in portfolios.

Even those who criticize cryptocurrencies the loudest seem to agree. JPMorgan Chase CEO Jaime Dimon, if you remember, called bitcoin “stupid” and a “fraud,” and yet his firm is a member of the pro-blockchain Enterprise Ethereum Alliance (EEA). Russian president Vladimir Putin publicly said cryptocurrencies had “serious risks,” and yet he just called for the development of a new digital currency, the “cryptoruble,” which will be used as legal tender throughout the federation.

Follow the money.

Metcalfe’s law states that the bigger the network of users, the greater that network’s value becomes. Robert Metcalfe, distinguished electrical engineer, was speaking specifically about Ethernet, but it also applies to cryptos. Bitcoin might look like a bubble on a simple price chart, but when we place it on a logarithmic scale, we see that a peak has not been reached yet.

Bitcoin still has room to run
click to enlarge

Bitcoin adoption could multiply the more people become aware of how much of their wealth is controlled by governments and the big banks. This was among the hallway chatter I overheard at the Precious Metals Conference, with one person commenting that what’s said in private during International Monetary Fund (IMF) meetings is far more important than what’s said officially.

I have a similar view of the G20, whose mission was once to keep global trade strong. Since at least 2008, though, the G20 has been all about synchronized taxation to grow not the economy but the role government plays in our lives. Trading virtual currencies is one significant way to get around that.

The Incredible Shrinking IPO Market

Just as water takes the path of least resistance, money flows where it’s respected most.

You need only look at the mountain of cash U.S. multinationals have stashed overseas, currently standing at an estimated $2.6 trillion. The steep 39 percent U.S. corporate tax rate—the highest among any country in the Organization for Economic Cooperation and Development (OECD)— discourages companies from bringing their profits back home and reinvesting them in new equipment and employees.

Of course, taxes aren’t the only type of friction money can run up against. More and more stringent financial rules and regulations have been one of the top destroyers of capital and business growth over the past 20 to 30 years. The Sarbanes-Oxley Act, signed in 2002, is widely blamed for limiting the number of initial public offerings (IPOs) that occur in the U.S. The legislation has made it prohibitively expensive for many smaller firms to get listed on an exchange. Between 1996 and 2016, the number of investable U.S. companies was cut in half, falling from 7,322 to 3,671.

Number of listed US companies continues to drop
click to enlarge

This has ultimately hurt everyday retail investors who not only have fewer stocks to invest in now but also lack access to many of the same potentially profitable opportunities enjoyed by angel investors, venture capitalists and other institutional investors. Private equity and venture capital can be much higher-yielding investments than common asset classes such as Treasuries and equities, but for the most part, only accredited investors can participate.

Bracing for MiFID

IPOs could be squeezed even further after the implementation of the European Union’s (EU) revised Markets in Financial Instruments Directive (MiFID), set to go into full effect January 3. The directive, initially passed in response to the financial crisis, acts as a sweeping reformation of existing trading rules that affect everything from stocks to bonds to commodities. All 28 EU nations must have laws in place to comply with MiFID by the January deadline—or face litigation and fines.

With less than two months left on the clock, 17 countries, including Spain, Portugal and the Netherlands, are still scrambling to convert MiFID into national law, according to Bloomberg. This is creating all sorts of financial uncertainty for banks, insurers and money managers on both sides of the Atlantic.

Half of the EU still scrambling to meet the January 3rd MiFID compliance deadline
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One rule in particular could threaten U.S. IPOs. It states that, to be more transparent, banks must now “unbundle” the costs of investment research from that of executing trades, a practice that’s been routine for decades. To produce stand-alone research, banks must register as investment advisers, a costly process that might prompt some firms to avoid it altogether. This would limit investors’ exposure to only the largest companies and, in turn, discourage smaller U.S. firms from pursuing an IPO, according to Cowen & Co. analysis and reported by Bloomberg.

MiFID is just the latest in a long string of regulations that, while conceived with good intentions, carry unintended consequences. It’s doubly unfortunate that an EU rule could so impact U.S. companies’ ability to gain the publicity necessary to go public.

But hasn’t this been the trend for years now? In many ways, doing business in the EU has only gotten more challenging, and bureaucrats seem determined to take punitive steps against successful American firms.
Look at how Facebook, Google and other large tech companies have been treated in Europe. Back in June, the search giant was slapped with a record $2.8 billion antitrust fine and has since been strongarmed into changing its online shopping service.

A restrictive regulatory backdrop is largely responsible for this. Because rules are so tight, European companies have a hard time innovating and staying competitive. So instead of building its own Facebook or Google, the EU’s only other recourse is to take a protectionist approach and wrap the 28-member bloc in more and more red tape.

For Many Startups, ICOs Are a Solution

I believe this is part of the reason why we’re seeing such a massive surge in ICOs, which, at the moment, are nearly unregulated in the U.S. and Europe. In an effort to bypass the rules and costs associated with getting listed on an exchange, many startups now are opting to raise funds by issuing their own digital currency based on blockchain technology. And unlike with private equity, smaller retail investors can participate.

Again, money flows where it’s respected most.

Bitcoin and Ethereum are the best known cryptocurrencies, but there are more than 1,000 being traded around the world, with a combined market cap of around $150 billion, according to Bank of America Merrill Lynch (BoAML).

As of this month, IPOs have raised over $3 billion in 2017, more than seven times the amount generated in all years prior to 2017 and far surpassing expectations of around $1.7 billion for the year.

ICO market has raised more than 3 million so far in 2017
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To give you some perspective, the U.S. IPO market raised $4.1 billion from 29 deals in the September quarter alone, according to Renaissance Capital. Although this dwarfs the ICO market in dollar terms, both the number of IPOs and the amount raised are significantly lower than the same quarter in 2014, which saw an impressive $37.6 billion raised from 60 deals.

As long as the barriers to getting listed remain high, I expect we’ll see this trend of fewer IPOs and more ICOs continue.

Bitcoin Now Bigger than Goldman Sachs

Not all cryptocurrencies will survive, obviously, and we’ll likely see huge transformations in the space before clear leaders pull away from the pack. Remember, no one knew in 1997 which internet companies would eventually dominant  the others.

But for now, it’s an exciting time for an asset class that didn’t even exist 10 years ago. Trading above $6,000 for the first time last week, bitcoin reached a market cap of $96.7 billion. Amazingly, that’s more than Goldman Sachs’ market caps of $92.9 billion.

Cryptocurrencies off their 2017 highs
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It’s important for investors to know that cryptos do face potential regulation risk. What kind of risk, though, is currently up in the air as U.S. regulators debate whether digital currency is a security or commodity. One would place it within the jurisdiction of the Securities and Exchange Commission (SEC), the other within the jurisdiction of the Commodity Futures Trading Commission (CFTC). Unsurprisingly, both agencies see cryptos as their own.

Last week also highlighted a new risk in the fledgling market. Tezos, the firm behind what was at the time the largest ICO in history, revealed a significant slowdown in the progress of its virtual coin, the “tezzie.” Back in July, Tezos made headlines for raising a then-unprecedented $232 million. But today, the group, headed by a husband-and-wife duo, is faced with a number of setbacks including a lack of developers and a highly-publicized management dispute.

According to the Wall Street Journal’s Paul Vigna, this has “put trading of Tezos tokens held by investors in limbo while also putting some of the technology on hold as well.”

Diwali Fails to Light Up Gold

U.S. Global Investors wishes our friendss & followers a Happy Diwali filled with light and prosperity

Turning to gold, the yellow metal made healthy gains the week before last, climbing more than 2.3 percent as we headed closer to the first day of Diwali. As I’ve explained numerous times before, it’s considered auspicious to give gifts of gold bullion and jewelry during the Hindu Festival of Lights, and in years past we’ve seen some price appreciation in the days and weeks leading up to the celebration.

Last week, though, the gold price fell below $1,300 an ounce as stocks continued their record-setting bull run.

But as the LBMA poll shows, it’s prudent to have some gold in your portfolio, as it’s negatively correlated with other assets. As always, I recommend a 10 percent weighting, with 5 percent in physical gold and 5 percent in gold stocks, and remember rebalance every year.