Gold accumulations could checkmate the petrodollar

by: Stefan Gleason*

President Donald Trump’s administration is playing a game of high-stakes international chess with Russia, Iran, Turkey, China, and other countries viewed as adversaries in trade and geopolitics.

It’s not necessarily the case that tariffs, sanctions, and blustering will result in a hot war. More likely, escalating strife between the U.S. and a bloc of much more populous adversaries will push them to unite more closely to undermine and ultimately dethrone King Dollar.

The U.S. has long been the grandmaster – the dominant player on the geopolitical board – owing largely to its unique reserve currency status.

Quite simply, the U.S. dollar is the go-to currency for world trade. Oil and gold are traded in dollars. Manufactured goods on the international market are traded in dollars. All other currencies are measured against the dollar.

Nations Anxiously Moving to Dollar Alternatives

But all that is in the process of changing. As Washington, D.C.’s international adversaries pursue contra-dollar alliances, it could soon be checkmate for King Dollar.

President Trump recently touted tariffs designed to punish Turkey. The tariffs triggered the biggest financial crisis Turkey has seen in decades.

That may well have been the intended consequence. But the unintended consequence is that Turkey is now being pushed to form stronger economic ties with Iran… which in turn is forming stronger ties with Russia… which in turn is forming stronger ties with China.

Russian Central Bank Gold Reserves

The countries being targeted with tariffs and sanctions have a much larger combined GDP and a combined population that is multiples of the United States.’ What if a contra-dollar bloc formed that was determined to isolate the U.S. from the world financial system?

Russian Deputy Foreign Minister Sergei Ryabkov recently told International Affairs, “The time has come when we need to go from words to actions and get rid of the dollar as a means of mutual settlements and look for other alternatives.”

Foreign Gold Buying Is Ramping Up

One of those alternatives is gold. The Central Bank of Russia is ramping up its gold buying and reducing its holdings of U.S. Treasuries. In recent years, in fact, Russia has been the largest official buyer of gold – followed closely by China.

Earlier this year, the Shanghai International Energy Exchange launched a futures contract for crude oil priced in Chinese yuan. Now Chinese and other international traders can trade the world’s most important energy commodity in a liquid market without using U.S. dollars.

China has also launched a pilot program to purchase oil from Russia and Angola (two of its top suppliers) using yuan. It’s another gambit in the currency war being fought by major powers that have been targeted by the U.S. administration for punishment.

Those calls turned out to be premature. The petro-dollar lived to fight another decade, boosted the perception of the U.S. dollar as a safe haven during the financial crisis and later by the shale oil fracking boom that saw North American oil production surge.

Whether this method of production is sustainable at current oil prices remains to be seen. What’s not sustainable is the U.S. government (officially $21 trillion in debt) being able to extend itself militarily and through punitive economic measures to prop up the petro-dollar.

According to Gal Luft of the Institute for the Analysis of Global Security, “The main front where the future of the dollar will be decided is the global commodity market, especially the $1.7 trillion oil market.”

The Dollar’s Dominance in Global Transactions May End on Trump’s Watch

If China wants to buy oil from Saudi Arabia in yuan, from Russia in rubles or from Iran in gold, then OPEC nations and other major energy exporters will surely figure out how to accommodate their biggest customers.

Dollar Weakens

Whether a new global standard emerges or multiple competing standards rise in tandem, the dollar’s multi-decade run as the world’s dominant transactional currency could end on Trump’s watch.

The trend in the value of the dollar versus other fiat currencies and gold is another question.

China doesn’t actually want the greenback to go down versus its yuan – at least not at this point in the currency wars.

The one alternative currency that stands to benefit as the major national currencies battle each other is gold. It’s the only monetary asset that has proven to be resilient against all economic and geopolitical threats.

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What on earth is happening to platinum?

By Clint Siegner*

The bearish price action in platinum has some of our clients wondering just what to expect. We are always happy to give our take on the markets. Below you’ll find a recent customer question along with our answer.

Question: The platinum price has fallen well below gold’s price and it continues to underperform the other precious metals. What is happening in the platinum market?

Answer: We see a handful of factors driving the recent declines in platinum. For starters, it is facing the same challenges we find in the gold and silver markets.

The dollar has been getting stronger, interest rates are rising, and traders on Wall Street have rarely been more carefree. Mainstream investors are positioning for economic strength, not looking for safety.

Platinum is trading like the other precious metals, which is to say performing poorly. As of this writing, platinum is down 16% for the year.

Autocatalyst (Platinum)

Platinum is used in autocatalysts, coins, and jewelry.

Compare that to silver’s decline of 17% and the price action looks pretty much in-line.

There are some other fundamentals behind platinum’s underperformance in the past few years though. Demand from automobile manufacturers is weakening significantly – forecast to be down 6% this year.

The prognosis for diesel cars is even worse, and that has hurt platinum demand more than the other metals. Diesel vehicles demand primarily platinum for their catalytic converters, while gasoline exhaust systems use mostly palladium.

The 2015 scandal involving Volkswagen revealed that diesel is not nearly as clean as thought previously. The car maker had been gaming the emissions testing system, and platinum-based catalytic converters were less efficient at scrubbing out unspent fuel from diesel engine exhaust.

Those revelations have had a serious impact on platinum demand – particularly in Europe where diesel had widespread adoption based on the false assumption that it was dramatically more “green” than gasoline.

 

Platinum is currently in surplus. Experts anticipate supply will outstrip demand by nearly 300,000 ounces this year.

The foreign exchange markets may also be contributing to platinum’s lower price. Recently the South African Rand has fallen significantly. Miners, who are typically paid in dollars or euros, are realizing much higher prices when those funds are converted to Rand.

For bullion investors looking to speculate as well as diversify their holdings, platinum looks interesting at these levels.

The political environment in South Africa has long been a challenge for miners. It may be about to get far worse. That may mean even more weakness in the Rand, but it can also mean a serious disruption to supply.

We also question how much longer the platinum price will remain at a significant discount to palladium. The two metals are largely interchangeable in automotive catalytic converters. If car makers see a good opportunity to save by switching to platinum, look for them to do it.

The Fed’s big mistakes and their consequences

In our view Bill Bonner is one of the most interesting, and outspoken commentators out there so we are publishing one of his most recent commentaries here in full.  These are published on the Bonner & Partners website- www.bonnerandpartners.com  and also syndicated on a number of other associated sites.  Do take time to read this article and others off his website and you will understand why we rate him so highly.  Although the article reproduced below has a title relating to what Bill feels is the fraudulently reported American Oil Boom, none of this would be possible without the Fed’s policies which make borrowing so cheap which has fuelled the aforementioned oil boom as well as much of the tech boom -= all something of a house of cards!

America’s Oil Boom Is a Fraud

By Bill Bonner

PARIS – You’ll recall that Fed policy always consists of the same three mistakes

1) Keeping interest rates too low for too long, resulting in too much debt; 2) Raising interest rates to try to gently deflate the debt bubble; and 3) Cutting rates in a panic when stocks fall and the economy goes into recession.

Well, here comes the Big Bang: Mistake #4 – rarely seen, but always regretted.

Mistake #4 is what the feds do when their backs are to the wall… when they’ve run out of Mistakes 1 through 3.

It’s a typical political trade-off. The future is sacrificed for the present. And the welfare of the public is tossed aside to buy money, power, and influence for the elite.

Apocalypse Now!

Every debt expansion ends in a debt contraction. Stocks crash. Jobs are lost. The economy goes into reverse, correcting the mistakes of the previous boom.

Investors see their money entombed. Householders await foreclosures. The authorities scream: Apocalypse Now!

The more the feds falsify price signals in the boom, the more mistakes there are to correct. For example, this week, a report in The New York Times described the big mistake in the shale oil boom.

You’ll recall that it turned America from a big importer of oil to a major exporter… and revived much of the heartland with big fracking projects in woebegone regions of Texas and North Dakota.

The shale oil boom was even credited with having scuttled the oil market, which dropped from a high of around $130 a barrel in mid-2008 to under $30 in late 2016, thanks to so much new supply.

But guess what? The whole boom was fake. It didn’t add to wealth; it subtracted from it. Accumulated losses over the last five years tote to more than $200 billion, with $36 billion lost in the Bakken shale fields in North Dakota alone.

Had credit been priced properly, it never would have happened. From The New York Times:

The 60 biggest exploration and production firms are not generating enough cash from their operations to cover their operating and capital expenses. In aggregate, from mid-2012 to mid-2017, they had negative free cash flow of $9 billion per quarter.

These companies have survived because, despite the skeptics, plenty of people on Wall Street are willing to keep feeding them capital and taking their fees. From 2001 to 2012, Chesapeake Energy, a pioneering fracking firm, sold $16.4 billion of stock and $15.5 billion of debt, and paid Wall Street more than $1.1 billion in fees, according to Thomson Reuters Deals Intelligence. That’s what was public. In less obvious ways, Chesapeake raised at least another $30 billion by selling assets and doing Enron-esque deals in which the company got what were, in effect, loans repaid with future sales of natural gas.

But Chesapeake bled cash. From 2002 to the end of 2012, Chesapeake never managed to report positive free cash flow, before asset sales.

Turkeys Fly

Of course, the same thing could be said of the trillion-dollar companies, Amazon and Apple, whose market capitalizations are largely the result of cheap credit.

And it could be said of the whole tech sector – with its outrageous inputs of capital into companies that have never made a dime.

Or it could be said of emerging markets, which have managed to suck up the loose change spilling out of the financial industry. They promised slightly higher yields, and now, they owe far more than they can pay.

It could also be said of Silicon Valley carmaker Tesla, which now has an estimated $10.5 billion in debt – despite never having made a profit…

Or of the entire stock market, where trillions of dollars in cheap capital have produced very little real return.

“When the wind blows hard enough,” say the old-timers, “even turkeys fly.”

The wind never blew as hard as it did from 2009 to 2018. And overhead now are so many plump, money-losing birds that we suggest you take cover.

Mistake #4

But that’s just the beginning… As the turkeys fall to Earth, the Fed’s reputation is called into doubt. Its manhood is questioned. Congress and the Trump administration, too, are roused to action!

The feds will make the rational choice (for them). They will go for broke.

That is, they will do things that cause you to go broke… while the insiders continue to get rich, following the tried-and-true remedy of Mistake #4 – the refuge of scoundrels and the last resort of jackasses from Zimbabwe to Venezuela.

The essence of Mistake #4 is “printing” money – lots of it – to cover soaring deficits, prop up failing enterprises, reflate markets, rescue sinking households, save the bankers, reward the cronies, and keep the zombies from running wild in the streets.

All this money-printing will spark inflation… which will soon be blazing-hot.

The Fed, of course, is duty-bound to keep prices “stable.” But in the end-of-the-world hysteria, we predict the Fed will “print”… and worry about price stability later.

“When someone is trapped in a house fire… you try to get them out,” the feds will say. “We’ll worry about the fire insurance later.”

Two-trillion-dollar deficits?

Maybe more.

A breathtaking infrastructure boondoggle. A “space force” so far out that it is quickly lost somewhere beyond Mars.

New trade wars to protect U.S. industries from fair competition. A “guaranteed income” for everyone.

Bailouts… Subsidies… Grants… Contracts… Spend, spend, spend. “It’s good for the economy!”

Oh… and new controls on banking and cash… and perhaps gold and even bitcoin… closing the doors to prevent people from escaping the burning building.

Our advice: Run, don’t walk, to the nearest exit now.

What Would Impeaching Trump Mean for Precious Metals?

by: Clint Siegner,  Money Metals News Service

Robert Mueller appeared to be spinning his wheels for the last year and a half. But recent prosecutions of prominent Trump campaign figures now have Democrats giddy over the possibility of being handed grounds for impeachment.

Tasked with investigating whether or not Donald Trump and people working for him colluded with the Russians during the presidential campaign, the special counsel finally got some traction last week.

Metals investors are wondering if political turmoil ratcheting several notches higher might have ramifications for gold and silver prices.

Looking At Impeachment

The chances for impeachment did get a boost, although it would seem to hinge primarily on whether the Republicans lose the House and Senate in November.

Suddenly a number of people in Trump’s orbit have either fallen to prosecution or appear eager to cooperate with the investigation against him.

Paul Manafort, Trump’s former campaign chairman, was convicted of financial fraud and tax evasion early last week.

One of the president’s former attorneys, Michael Cohen, pled guilty to charges related to paying off two women who claimed to have had affairs with Trump.

David Peck, who owns the National Enquirer and is considered to be a friend of the president, was given immunity for whatever testimony he can provide on the subject.

And finally, Allen Weisselberg, the CFO of the Trump Organization also got immunity for whatever he might have to share about his boss.

Some are now speculating on how an impeachment effort might play out in the metals markets. But we’ll get a much better idea of which way the political winds are blowing for the White House after the crucial November mid-term election.

Last week isn’t even the first-time investors have contemplated the possibility of impeachment. So far, the markets seem to be ignoring the possibility.

“With McCain dead and Corker & Flake retiring, there are fewer Republican senators around obsessed with sticking it to Trump.”

It’s a very daunting political task. Only two presidents have ever been impeached – Andrew Johnson and Bill Clinton. Neither were convicted in the Senate and removed from office, however. That can only be done with a ⅔ majority vote.

Even the most optimistic Democrats are not expecting to win a majority of that size in this Fall’s midterm elections.

To convict, Democrats will need some help from Republicans – and with John McCain now dead and Bob Corker and Jeff Flake retiring, there are fewer Republican senators around obsessed with sticking it to Trump.

It could certainly be said Trump doesn’t have too many true friends amongst the Republican leadership in Congress. However, the President has plenty of loyalty amongst his base. It seems unlikely Senate Majority Leader Mitch McConnell is going to risk suiciding the party by collaborating with Trump’s enemies across the aisle.

Impeachment looks like a bad bet based on what we in the public know today.

If the threat of impeachment somehow becomes more credible based on the revelation of more serious crimes, then all bets are off. It will move markets. But, for now at least, it remains a longshot.

Major political turmoil is just one of many reasons to buy insurance in the form of gold and silver bullion. Investors can add upheaval in Washington to a longer list, which, at the moment, also includes:

  • Precious metals looking oversold.
  • Extremely bullish relative positioning of banks versus speculators in the Commitment of Traders data.
  • Several potential catalysts which could reignite safe-haven buying – not the least of which is a major correction in the exuberant stock markets.

Could gold and bitcoin be headed for parity?

Here’s a lightly edited version of an article I published on the http://www.sharpspixley.com website.  To read the original article click here.

At current prices with gold closing last week back over $1,200 and the bitcoin BTC token at around $6,600, the idea of gold and bitcoin regaining parity they last saw a year and a half ago might seem a little far fetched. But Bloomberg Intelligence’s Mike McGlone seems to think otherwise. In a report earlier this week, he painted a scenario of the BTC price falling and gold rising which could bring the two back into parity.

McGlone’s hypothesis is that market volatility, particularly in the bitcoin price, is an important indicator which investors need to watch. After all, bitcoin has already fallen from its peak of almost $20,000 achieved only seven months ago, to its current levels – a fall of nearly 70% – and he sees another similar fall, coupled with a possible pick-up in the gold price as being a distinct, but perhaps arguable, possibility.

As readers will be aware, this commentator is no believer in bitcoin. We feel there is no substance behind it. It is only worth what people are prepared to pay for it. It has no real inherent value having been purely a computer creation. I read somewhere that one observer (Richard Bernstein) likened it to a Candy Crush token which struck me as being extremely apposite. As people fall out of love with bitcoin – and it will have lost a lot of adherents with its fall from last December’s peak – the potential for it to fall back towards zero is, to my mind, a strong one. Bitcoin itself (BTC) is currently struggling to stay above the $6,000 mark despite a concerted campaign by pro-bitcoin commentators to drive it back up – many will probably have a vested interest in high crypto-currency prices. If it does come back down to the $5,000s or below this could signify a stronger fall ahead.

We tend to watch some of the other less costly cryptos as a guide and the fall of these from their respective peaks has been immense. Ethereum, probably the second highest market cap cryptocurrency, for example is nowadays comfortably below the $300 mark. It peaked in January at just under $1,400, so it has seen a fall of over 80% in around seven months. Monero, reputedly the crypto of choice for ransomware scammers and the criminal element wishing to keep transactions out of sight of the law and the tax collectors, is also down over 80% from its December 2017 peak and most of the other minor cryptocurrencies are also down by similar percentages or more.

Gold, on the other hand, despite it having been having a particularly torrid time of late is only down by 12% from its peak this year in U.S. dollars and beginning to pick up again as the dollar turns weaker. Unlike the cryptocurrencies, gold has stood the test of time as a store of value and does at least have substance behind it.  The recent price fall has been all about dollar strength after a period of sustained decline, and perhaps we are due a reversal again as the real ramifications of the confrontational U.S. trade tariff impositions begin to sink in in terms of raised prices, and thus inflation, in the U.S. domestic economy.

We see gold’s long term fundamentals as strong. Even if we are not quite yet at peak gold we are there or thereabouts and global new mined production will start to decline – and once the decline starts it will accelerate as there has been a huge drop in gold exploration and new mega-project construction necessary to replace depleting older assets. Meanwhile global incomes in the emerging gold buying nations are rising and the longer term increase in demand likely to be thus generated, coupled with eventually declining output, will put the gold price under some strong positive pressure.

Gold at the moment is being squeezed by the strong dollar brought on by President Trump’s tariff war and the prospect of rising U.S. Fed interest rates. But Trump is beginning to recognise that the strong dollar is putting U.S. exporters at risk while mitigating the pricing effects of the tariffs and is unhappy with this. How long before he initiates steps, perhaps behind the scenes, to start to bring the dollar down with a corresponding uplift in the gold price?

Back to Bloomberg’s McGlone: he comments that “Bitcoin is down to about 5x the price of gold after stretching toward 15x. There’s little to prevent another four-turn reduction to get it back toward 1-to-1, in our view”.

He also feels that the gold market is about to start picking up again. He pointed out that gold’s 90-day volatility is at its lowest level since 1999, at the same time its 60-day volatility is at its lowest level since 1997 and that the last time volatility was this low, the price entered a three-week rally which saw it pick up 34%. A similar increase now would put the price back to close to $1,600 and that it only needs a minor spark to ignite such a change in perception. There are plenty of geopolitical uncertainties out there which could initiate such a spark. Gold investors will hope McGlone is at least halfway correct in his analysis. Bitcoin investors will be less enamoured!

Holmes: It’s Time for Contrarians to Get Bullish on Gold

By Frank Holmes – CEO and Chief Investment Adviser U.S. Global investors

It’s Time for Contrarians to Get Bullish on Gold

Gold can’t seem to catch a break. The yellow metal normally acts as a safe haven in times of political and economic strife, but in the face of Turkey’s lira meltdown, investors have taken cover instead in the U.S. dollar. On Monday, the stronger greenback pushed gold to end below $1,200 an ounce for the first time since January 2017.

The lira fell to its lowest level ever recorded against the dollar Monday, mainly in response to President Donald Trump’s call to sanction and double steel and aluminum tariffs on Turkey. This sent gold priced in Turkey’s currency to all-time highs. If you recall, we saw the same thing happen recently in Venezuela, where inflation is expected to hit 1 million percent by the end of the year.

Turkish lira down more than 45% for the year
click to enlarge

Turkey’s faith in gold was on full display this week as President Recep Erdogan urged his fellow Turks to convert their gold and hard currencies into lira in an effort to prop up the country’s hammered currency. The same strategy was used in December 2016, a month after Trump’s election sent the lira tumbling against the dollar.

The Love Trade Is Strong in Turkey

As I’ve discussed before, Turkey has a long and rich history with gold. Home to the world’s very first gold coins more than 2,500 years ago, Turkey still stands as one of the largest buyers of the yellow metal. In the June quarter, the Eurasian country was the fourth largest consumer of gold jewelry, following India, China and the U.S. Twelve and a half metric tons were purchased in the three-month period, up 13 percent from the same time a year ago.

Along with Russia and Kazakhstan, Turkey also continues to add to its official gold holdings. Its central bank’s net purchases in the first half of the year totaled 38.1 metric tons, up 82 percent from the same six-month period in 2017, according to the World Gold Council (WGC). This made it the second highest buyer, after Russia.

Time to Get Contrarian

Gold investors might be discouraged by its performance this year, compounded by news that hedge funds are shorting the metal in record numbers. A lot of this has to do with the fact that, so far this year, gold has had a very high negative correlation to the U.S. dollar—more precisely, a negative 0.95 correlation coefficient, according to gold research firm Murenbeeld & Co. What this means is that gold prices have been moving in nearly the exact opposite direction as the greenback.

I think it’s important to point out that, despite a stronger dollar, gold is still up for the 36-month period—and climbing even higher over the long term. The dollar has only recently broken even, whereas gold has continued to hit higher lows since its phenomenal breakout in December 2015.

despite a stronger u.s. dollar, gold is still up for 36-month period
click to enlarge

The dollar could be ready to peak, with the potential for even higher gold prices. The metal is currently down two standard deviations over the past 60 trading days, so the math is currently in our favor for gold to rally.

Gold: Lessons from Venezuela

Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, talks us through the cautionary tale of Venezuelan hyperinflation and how holding some gold  could have mitigated the financial disaster which has affected that country’s population.

Wait Until You See the Price of Gold in Venezuela Right Now

Paper Money eventually returns to its intrinsic value zero

Last month in Venezuela’s capital city of Caracas, a cup of coffee would have set you back 2 million bolivars. That’s up from only 2,300 bolivars 12 months ago, meaning the price of a cup of joe has jumped nearly 87,000 percent, according to Bloomberg’s Café Con Leche Index. And you thought Starbucks was expensive.

But that was July. Prices in Venezuela are doubling roughly every 18 days. The International Monetary Fund (IMF) now projects inflation to hit an astronomical 1 million percent by the end of this year. This puts the beleaguered Latin American country on the same slippery path as Zimbabwe a decade ago and Germany in the 1920s, when a wheelbarrow full of marks was barely enough to get you a loaf of bread.

Venezuela’s socialist president Nicolas Maduro—who only this past weekend survived an assassination attempt involving several explosive-laden drones—announced recently that the country plans to rein in hyperinflation by lopping off five zeroes from its currency. If you recall, Zimbabwe similarly tried to combat soaring prices of its own by issuing a cartoonish $100 trillion banknote—which in 2009 was still not enough to buy a bus ticket in the capital of Harare.

Without structural governmental reforms, a new bolivar is just as unlikely to steady Venezuela’s skyrocketing inflation or remedy its crumbling economy.

Gold Could Save Your Life

So where does this put gold? At some point, hyperinflation gets so ludicrously out of control that discussing exchange rates becomes pointless. But as of July 30, an ounce of the yellow metal would have gone for 211 million bolivars—an increase of more than 3.1 million percent from just the beginning of the year.

Gold priced in Venezuela Bolivars
click to enlarge

My point in bringing this up is to reinforce the importance of gold’s Fear Trade, which says that demand for the yellow metal rises when inflation threatens to destroy a nation’s currency—as it’s doing right now in Venezuela. A Venezuelan family that had the prudence to store some of its wealth in gold would be in a much better position today to survive or escape President Maduro’s corrupt, far-left regime.

In extreme cases like this, gold could literally help save lives.

Such was the case following the fall of Saigon in 1975. If not for gold, many South Vietnamese families might not have managed to escape the country. A seat on one of the thousands of fleeing boats reportedly went for eight or 10 taels of gold per adult, four or five taels per child. (A tael is slightly more than an ounce.) Gold was their passport. Thanks to the precious metal, tens of thousands of Vietnamese “boat people,” as they’re now known, were able to start new lives in the U.S., Canada, Australia and other developed countries.

Venezuela’s Once Prosperous Economy Destroyed by Corruption and Mismanagement

But back to Venezuela. Amid the corruption and mismanagement, the only thing helping the country pay its bills right now is gold. Two years ago, it had the world’s 16th largest gold reserves. Today it stands at number 26 as it’s sold off more than half its holdings since 2010. While countries such as China and Russia continue to add to their holdings, Venezuela has been the world’s largest seller of goldfor the past two years.

Venezuela began liquidating its gold after oil prices declined
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It’s hard to remember now, but as recently as 2001, Venezuela was the most prosperous country in all of South America. Like Zimbabwe, the OPEC nation is rich in natural resources, home to the world’s largest oil reserves and what’s believed to be the fourth largest gold mine. Oil exports account for virtually all of its export revenue.

In 2016, Venezuela was the third largest exporter of crude to the U.S. following Canada and Saudi Arabia, but with output in freefall, this is changing rapidly. For the first time ever in February, Colombia sold more crude oil to the U.S. than its eastern neighbor did. And in June, Venezuela’s state-owned oil and gas company, Petróleos de Venezuela (PDVSA), informed at least eight foreign clients that it would be unable to meet supply commitments. According to GlobalData, production is on track to fall to only 1 million barrels per day by 2019, down from 3 million a day in 2011, meaning the petrostate might soon have nothing left to deliver.

President Maduro now has the ignoble distinction of reigning over an economic recession that rivals the very worst in modern history. Last month, the IMF forecast that the country’s real gross domestic product (GDP) would fall 18 percent this year—the third straight year of double-digit declines.

Venezuelas recession among the worst in recent history
click to enlarge

A mass exodus of young, working-age Venezuelans, many of them college-educated, is unlikely to help. Estimates of the number of people who have fled the country in the past two years alone range from 1.7 million to as high as 4 million.

Their escape is no easy task, as numerous international airlines, citing rampant crime and a lack of electricity, have canceled all flights in and out of Caracas. The only U.S. carrier still operating in the country is American Airlines, which offers a single daily flight from the nation’s capital to Miami. Just two years ago, there were as many as 40 nonstop American flights, not to mention those of rival carriers, between the two cities—a sign of just how dramatic and swift Maduro’s mismanagement has been in crippling Venezuela’s once-robust economy.

The Diversification Benefits of Gold

The gold bears were on top last week, with the metal trading as low as $1,205 on Thursday. That’s the closest it’s come to dipping below $1,200 since February 2017. Friday’s lower-than-expected jobs report gave gold a modest boost, but it wasn’t enough to prevent a fourth straight week of price declines.

Gold delped stem the rout
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In times like this, it’s important to remember that, according to gold’s DNA of volatility, it’s a non-event for the metal to close up or down 1 percent at the end of each session, 2 percent for the 10-day trading period. And guess what? The S&P 500 Index has the same level of volatility.

Ten days ago, gold was trading just under $1,230 an ounce, or 0.6 percent more than today. The math is sound.

It’s also worth remembering that gold has traditionally had a low to negative correlation with other assets such as equities. This is why many investors over the years have used it as a portfolio diversifier.

Case in point: On June 26, Facebook suffered its worst single-day decline since the company went public in 2012. Its stock plunged 19 percent, erasing some $120 billion in market capitalization—the most ever in history for a single trading session.

Gold, meanwhile, held relatively steady, slipping only 0.62 percent.

Pelaez: Time to Position for a Decade-Long Bull Market in Natural Resources

Interview by Mike Gleason of www.moneymetals.com

Coming up we’ll hear a wonderfully fascinating interview with first time guest Samuel Palaez of Galileo Global Equity Advisors. Sam highlights what he views as a tremendous investment opportunity in commodities right now, and also talks about how the markets may be getting it wrong when it comes to the trade wars and the likely impact it will have on the U.S. economy, inflation and the dollar.

Samuel Pelaez

Mike Gleason: It is my privilege now to welcome in Samuel Pelaez, CIO and Portfolio Manager at Galileo Global Equity Advisors, a Canadian subsidiary of U.S. Global Investors. Sam manages Galileo’s Growth and Income fund as well as the Technology and Blockchain fund and also follows the natural resource and gold mining space quite closely. And it’s a real pleasure to have him on with us today.

Sam, thanks so much for the time and welcome.

Samuel Pelaez: Thanks, Mike. It’s a great pleasure to join you. I think this is the first time.

Mike Gleason: Yeah, absolutely. Excited to get a chance to talk to you finally. You’ve been talking about commodities being way undervalued. You published a chart back in the spring showing the value of the S&P GSCI Index of commodities companies relative to the broader S&P 500 Index. The ratio is near all-time lows. Since that chart was published in April not a great deal has changed, so talk about where we’re at here in commodities now and give us your thoughts on what the value proposition looks like today because they certainly have been laggards compared to the broader markets.

Samuel Pelaez: Yeah, absolutely. That’s my favorite all-time chart I think. I’m a big proponent of commodities and natural resource investing. Keep in mind, that chart goes over 60 years or so of markets. We’ve had cycles like this three times or this will be the third time. Twice in the past we’ve seen that sort of extreme rating where commodities are so undervalued relative to the broader market as measured by the S&P 500.

What that suggests is that we may be at a juncture here that provides an opportunity to invest in resources that we haven’t had for over 20 years. Last time this happened was coincidental with the NASDAQ 1990-2000 boom. That was the time when the commodities were as undervalued relative to the broader market. And what happened since was obviously the big industrialization of China commodities did very well for a decade up until 2008 and even a little bit further than that.

So, it was at least a decade of commodities out-performance relative to the market. And we’re in a similar predicament right now and that keeps me very excited. Now, if you think about short term especially since the spring, there’s been a lot of talk of the trade wars. Commodities have sunk most of them quite dramatically, especially those that are sort of core to development of China. I would call those short-term deviations in the bigger and broader context. I think this chart is a very powerful indicator for investments over the next decade.

That may not mean that today is the bottom or tomorrow, but as any responsible investor, I would suggest to start reallocating some of your broader market exposure towards commodities just on the back of what this chart is saying. Now, the short-term deviations that we’ve seen can be very material. Copper is over 20% drop from its highs. Same story with zinc. Gold has also under-performed quite dramatically. But in general, I believe we are approaching a situation with that under-performance is unsustainable.

Frank at U.S. Global put out a piece a couple of weeks ago that was actually very insightful. And it said, “Let science drive your investing.” It just shows how gold is two standard deviations below its mean. Copper is 3 1/2 standard deviations below its mean. And in statistical terms, that’s a very sort of powerful indicator for a rebound. Just to say in a little bit more plain language, what that suggests is, there’s a 95% probability that gold rebounds in the next 60 days. And in copper, it’s more like a 99% probability that it rebounds in the next 60 days.

So, maybe we’re just towards the tail end of this short-term trade war inflicted sort of under-performance. And then maybe we can start recapturing the uptrend that we’ve seen over the last year or year and a half that could, I hope, translate into a decade-long bull market for natural resources and commodities.

Mike Gleason: Of course, our focus here is on precious metals, you alluded to gold of course. They often trade like commodities. Particularly silver which has significant uses as an industrial metal. But gold and silver are also monetary metals. They can get more attention from investors looking to hedge against inflation or as a safe haven. Given that, what are your thoughts on where the precious metals might be headed? Do you think they will be pretty well correlated with commodities in the months ahead? Or, are you looking for them to perhaps behave differently, Sam?

Samuel Pelaez: The answer is yes. I expect them to perform very well. Gold is actually one of the more puzzling asset classes so far this year because it’s under-performed. With the whole trade war angle, China and the U.S. at odds. President Donald Trump being at odds with some of Canada, some of the U.S. allies including Canada. That should be a pretty good environment for gold. But what’s happened is the markets have interpreted the trade war as a positive economic impact to the U.S. and we’ve seen the U.S. dollar rise. And that’s generally negative for gold on the other hand.

That’s also been sort of turbocharged for lack of a better word, by the fact that the U.S. continues to raise rates at a much quicker speed than its peers in Europe or in Japan. The 10-year yield in Japan today is as close to zero as it gets. The euro is already at 3%. So that interest rate disparity has also helped the U.S. dollar be pretty strong year to date. I think that’s going to stall and I’ll tell you why.

Number one, inflation. Gasoline prices if you’ve been to the pump recently you’ve seen that from July 4th last year to July 4th this year, gasoline prices have on average risen about 50%. And that’s inflation. That measure is not captured by the inflation metrics that the markets use. But, it’s captured by the inflation that all consumers in the U.S. pay. So, inflation is creeping in so it’s going to be starting to chip away from that 3% 10-year yield that’s larger than that you can get in Japan and other places.

And the second one and perhaps more important is, I think gradually the markets are going to start turning and accepting the fact that the trade war angle could be detrimental to the U.S. We’ve seen General Motors come out with a profit warning. We’ve seen Alcoa come out and issue a profit warning on the back of the trade wars. And this is just the companies that have started reporting so let’s wait another couple of weeks where most of the S&P 500 reports and see how many times the chairman and CEOs of these companies actually comment on the trade war being a potentially negative impact to the U.S. economy and to corporate earnings.

And circling back to gold, that may take some of that very strong support that the U.S. dollar has had year to date, which conversely should be very positive for gold. If you correlate that to what I mentioned earlier about the charts that show gold being two standard deviations below its mean, then we’re in a predicament where over the next two or three months we may see a strong rally in gold prices.

Mike Gleason: Yeah, extremely well put. I agree that maybe the markets don’t quite have it right and there’s maybe a lot of pent-up inflation coming. Obviously, the U.S. economy has not really felt much of these trade wars and that may be coming. That’s very well summarized there.

Now, I’d like to switch gears a little bit and get your take on the overall health of the markets in general. Around here we wonder how “real” markets are these days. For starters, we have central banks here and around the world heavily involved in markets. Interest rates are centrally planned. And these days it is commonplace for central bankers to be buying corporate stocks and even bonds for that matter. Then there’s the mounting evidence of more underhanded activity. Bank traders colluding to rig prices in everything from metals to LIBOR and to cheat their clients. In recent years the advent of high-frequency trading has raised concerns that retail traders may not get a fair shake.

So, we have a pretty dim view when it comes to the honesty and fairness of markets. That said, we rely on exchanges such as the COMEX and want to believe they can still work. Give us your thoughts, Sam, on the integrity of markets since this is the first time we’ve had a chance to get your thoughts on the subject.

Samuel Pelaez: This is a subject that we discuss internally quite a bit. I do believe there is a fair amount of market manipulation. That’s a very strong statement to say, but there’s facts that support that, right? There’s multiple banks have been, for lack of better word just risk locked. LIBOR, the gold market rigging, FX. There’s factual evidence that some of the banks have been actively manipulating markets.

But that’s just one of the angles from it. I think a second angle which is not manipulation but just an effect of passive investing is ETFs continue to raise capital and ETFs, the majority of them, are market cap weighted so they only allocate money to the top of the market. And that creates a sort of self-fulfilling bias for certain stocks that become market darlings and they receive more dollars, so they out-perform so then they receive more dollars. And it becomes like a vicious circle of out-performance.

That’s because there’s a lot of academics who are very interested in the subject and are writing about it. I think the term they coined for this is the passive investment paradox because the more dollars that go passive, the less dollars that go active essentially. And we start getting into this complacent type of markets, which I think we started to see especially in the broader indices in the U.S. like the S&P 500 and the NASDAQ.

Now, that may have started to crack. I think we can talk about it in a second. But before or after I complete the answer to this question, but we think ETFs have become a problem. They’ve hit that sort of like momentum and size where they’ve started to disrupt the natural flows of money in the markets. I agree completely with you about the LIBOR and FX manipulations.

But then lastly, and you did mention COMEX and I’m glad you did, because I don’t know if people are aware and I don’t think they are, when you buy a gold futures contract on the COMEX, it specifically states that you can redeem in kind. Meaning you can actually show up to COMEX and demand to be paid in physical gold. The problem is… and this number fluctuates… but there’s about 400 contracts for every ounce of gold. Meaning if just one out of 400 people show up to reclaim their gold in physical form, the COMEX vaults would be completely empty.

So, there’s this false perception that this paper contract from the COMEX actually represents one ounce of gold. It actually represents one four hundredths of an ounce of gold. And that in a way is a form of manipulation as well because it inflates the number of contacts. It inflates the liquidity of the sector. It inflates the supply of gold that realistically in physical form is not there.

These things worry us. They concern us. But, what we’re really focusing on in our investing is allocating capital to sustainable companies that have higher than average return invested capital. We are supporting businesses. We’re supporting management teams and we believe that the better ones will be able to surface amidst this market manipulation and still be darlings for a lot of investors.

Mike Gleason: Sam, among other responsibilities you manage the Galileo Technology and Blockchain Fund. Cryptocurrency has been a big topic in the precious metals space. Many people who look at gold as sound money have taken interest in Bitcoin and other cryptocurrencies for some of the same reasons. We at Money Metals Exchange do significant business both selling metals and taking crypto in payment and vice versa, buying metal and making crypto payments. Do you think a cryptocurrency offers genuine potential for widespread adoption as money? What do you make of the comparison between Bitcoin and gold?

Samuel Pelaez: Let me turn the question around. I don’t believe that Bitcoin and gold are the same thing as has been purported by other market participants. I believe gold has a unique status and it’s had it for a long time and it has a lot to do with its physical properties. Gold is the only metal that you can store for decades and then come back to it and it looks exactly the same. It doesn’t rust. It’s essentially oxygen proof, rusting proof, among other things.

You cannot say that about Bitcoin or a paper wallet of Bitcoin or a physical wallet of Bitcoin. So, I’m not subscribing to that thesis that cryptocurrencies are a store of a value akin to what gold is. I do subscribe to the thesis that blockchain technology… and I think tokens are just one representation of blockchain technology… blockchain technology is transformational for multiple industries. The payment processing industry or the barter industry let’s call it, is obviously the most ripe industry for disruption from this kind of technology and that’s what Bitcoin has done and Ethereum in the field of crypto have done, is create a secondary market for transactions outside of the fiat world.

It’s much more efficient than gold at that because you can trade it instantaneously with people anywhere in the world which is something that you can’t really do with gold in its physical form. Now, what do I think about the technology going forward? I think it’s going to disrupt virtually every industry. And people probably heard it before. This is the internet all over again. We’re only starting to learn how deep this is going to get. And also, think about it from a consumer perspective. The internet came about very late. But, for decades now or least two or three decades, when you pay anything at the supermarket and show it to the cash register, that’s an Oracle machine with internet all through the back connected to a number of devices that make all of it possible. If you’re at Walmart, then it automatically connects to the suppliers and updates the inventories and the unit numbers so they can place orders.

The internet has been amongst us for a long time. And I think blockchain technology would be the same. Now, Bitcoin, Ethereum and the other ones we can see as consumers. But the real transformation I think is happening in the business to business world. We’re involved in a number of companies that are doing some incredible amount of work that will facilitate business to business. Not payment transfers but all sorts of technological processes that will completely disrupt the way things are being done right now.

What I’m trying to convey is that sense that this technology is not just limited to payment processing and money transfers. That’s just one of the sectors. There’s dozens and dozens of other sectors where these this technology will transform the way we do our business going forward.

Mike Gleason: Yeah, very interesting technology and that I think is the bigger story here: the blockchain technology much more than say, yeah, just Bitcoin as a cryptocurrency for instance. Well, as you know, we’ve had Frank Holmes on a number of times here on our podcast and he’s talked a lot about the gold royalty ETF, ticker symbol GOAU here in the U.S. and GOGO there in Canada. I know you played a big part in the research behind that. So talk about mining royalty space here, Sam, and why are you guys so excited it. And also, talk about the fund’s performance over the first year or two now.

Samuel Pelaez: Absolutely. We are big proponents of the royalty model. We think it’s a superior business model relative to the miners. They also fit one of the key characteristics in everything you look for which is return on invested capital. The return invested capital in the royalty companies is exceptional. I warn you though if you just calculate the ratio on Bloomberg or any other data source, the return capital may appear lower than it actually is.

And that is because these companies have spent so much money forward in projects that will generate cash flows in the future. But, if you take them on a project-by-project basis, any investment they did and what they’re deriving out of it, the returns are spectacular and they come at a very low risk. So when you sort of risk adjust then they’re even better than they are in absolute form. So, we’re big proponents of the model. We’ve been big supporters of the formation and the ongoing marketing of these companies. Frank was involved in the seeding of what became Wheaton Precious Metals which is the second largest royalty company out there right now.

So, what we decided to create was an ETF that offered investors that alpha generation that the royalty companies have offered us, over the full business cycle. We’ve noticed that many people only invest in gold when they think gold’s going up. We actually believe that everybody should have an allocation to gold throughout the business cycle because it has this diversification properties relative to the other components of your portfolio given to broader the market.

So, what product could we offer our investors in the market that would allow them to invest across the full business cycle and deride all the benefits of gold investing without some of the detriments? And we created this ETF that’s overweight the royalty companies because they offered that intrinsically and then after that it holds a number of gold producers that also have very high returns in invested capital and generally trade at a discount to their peers.

We believe that’s part of the magic sauce. There’s a few other factors that they’re clearly listed on the marketing materials, you could get those at the U.S. Global website or at the Galileo Funds website. And what we’ve been able to achieve and I want to make sure that this doesn’t sound promissory, it’s actually based on the one year of performance, is the data of the ETF to the upside as in how it moves to the upside relative to the gold sector is about one for one.

So when gold starts to go up, owning our product or owning any other product is about the same. It’s when the markets go down that our ETF goes down by a lesser amount than the competing products. And then when you bootstrap that difference over a long time, it creates a very big spread above performance. So far for the one year, our product beat the GDX by about 8%. That’s a pretty… I call it… a pretty impressive alpha generation. The fund also has a lower management fee and it has a lower standard deviation or pretty much every other risk metric is inferior.

So, we’re very confident that it will continue to do that. The back tests suggest that it can do over the full business cycle. And I encourage your listeners to go and have a look because we’re very proud of what we’ve created.

Mike Gleason: Yeah, you should be. It’s done very well and it’s exciting stuff and I love the model as well, you guys have done a great job putting that together and the research behind it. Well, as we begin to close here, Sam, any final comments? What will you be watching most closely in the months ahead? Maybe give us a final synopsis on commodities and metals as we wrap up.

Samuel Pelaez: I’ll give you anecdotal piece of evidence. I had some friends visit from Colombia, where I’m from originally. And the first thing they mentioned was, and they looked at all the cranes and they said, “Wow, there’s so much construction going on.” And I guess because we live in North America and we see it all the time, we don’t really recognize it every day. But, just think about all the wonderful things taking place in terms of… if you travel to New York often you’ve seen the big transformation that’s taking place at the airport at LaGuardia.

I’m sure in all your communities and your cities you’re going to see major projects being built. President Donald Trump has made a big focus of his presidency to roll out a major infrastructure plan. So, we’re going to need these commodities. It’s not like we achieved that peak moment of commodity demand. Commodity demand continues to go up every year. It’s almost like GDP growth. So we will need these commodities. And right now you have the opportunity to buy them at one of the cheapest relative valuations that you’ve had in the last 20 years. And if you’re like me, I wasn’t investing – I wasn’t old enough to be investing in the ’90s – this is the best entry into the resource market that’s ever been presented to me.

And because it only happens every 20 or 30 years, over the course of a professional life. You may only have one or two of this big macro cycles. So, I encourage listeners to follow that chart. We publish it very frequently every six or eight weeks as part of our marketing materials. I invite them to think seriously about reallocating some of the capital from the broader market. The S&P and NASDAQ have been a phenomenal investment over the last nearly decade, since 2009.

So, maybe it’s time to start rolling some of those profits and rolling some of that allocation from some of the sectors that have out-performed into the sectors that have under-performed. And I believe over the next decade you will be handsomely rewarded for that.

Mike Gleason: Very good way to wrap up, very well put. Really enjoyed the conversation today and appreciate you sharing your market insights with our audience. Before we let you go please tell people how they can learn more and how they can reach you and your firm if they’re so inclined.

Samuel Pelaez: Absolutely. The easiest way to reach is through our website GalileoFunds.ca. We’re based in Toronto, Canada. I do travel to the U.S. a lot to speak at conferences, I travel a lot with Frank at U.S. Global. You can find all of our contact information and our fund fact sheets on the website. You can also follow us with social media. We have a LinkedIn page. We have an Instagram account. We’re catching up to the times and finding all the new ways to reach the new demographics and to be out there for people to find us.

Mike Gleason: Well, good stuff. Thanks again, Sam. Keep up the good work. Continued success there and I hope we can speak with you again in the future. Take care.

Samuel Pelaez: Thank you, Mike. Bye, bye.

Mike Gleason: Well, that will do it for this week. Thanks again to Samuel Pelaez, CIO and Portfolio Manager at Galileo Global Equity Advisors. For more information visit www.GalileoFunds.ca.

Latest Gold Demand Trends from the WGC

The World Gold Council released its latest quarterly Gold Demand Trends report today with some mixed messages.  Although overall demand was seen as down 4% in Q2 year on year this was mostly due to outflows (or slower inflows) from/into the gold ETFs.  Positives include increased demand in China and in the industrial sector while jewellery and investment demand was pretty flat, albeit down marginally.

Supply is seen as increasing 3% year on year due to increased mine production – notably in Russia, Indonesia and Canada – yet another indicator that peak gold is not quite with us yet – and an increase in scrap supply, although the lower recent gold price may see this fall away again.

The WGC’s own report summary follows:

Slowdown in ETF inflows drives 4% decline in gold demand in Q2 2018

Global gold demand remained muted in Q2 2018 at 964 tonnes (t), 4% below the same period in 2017, according to the World Gold Council’s latest Gold Demand Trends report. Slower inflows into gold-backed exchange-traded funds (ETFs) created a weak comparison against the highs of last year, contributing to the lowest H1 demand since 2009. Whilst China, the world’s largest gold market, saw a 7% rise in consumer demand.

ETF inflows continued, albeit at a much slower pace compared with the high levels seen in 2016 and 2017. Inflows were down 46% y-o-y. However, European-listed funds saw decent inflows we believe due to uncertainty stemming from Italian elections and monetary policy outlook. In contrast, holdings of North American-listed funds fell by 30.6t as investors focused on domestic economic strength.

Despite the Q2 decline, H1 jewellery demand was scarcely changed at 1,031t. Weaker demand in India and the Middle East in Q2 was only partly offset by growth in China and the US, both up 5% compared with the previous year. Indian demand fell 8% y-o-y, crimped by higher local prices, as well as by seasonal and religious factors.

Q2 2018 saw the seventh consecutive quarter of year-on-year growth in the technology sector, with demand up 2% to 83t. Gold used in electronics continued to thrive, due to enduring demand for smartphones, games consoles and vehicles. H1 demand reached a three-year high of 165t.

Global bar and coin investment was virtually unchanged at 248t. Stronger demand in China and Iran – fuelled by increasing geopolitical tensions with the US – were offset by falls in Turkey, India and Europe, where local prices remained elevated.

Central banks added 89t of gold to global official reserves in Q2 2018, down 7% compared with Q2 2017. Cumulative H1 2018 purchases of 193t were the highest since 2015. Alongside the familiar cast list of Russia, Turkey and Kazakhstan, the Reserve Bank of India returned to the market, albeit with only a very small purchase (+2.5t).

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, commented:

“It’s interesting how investors around the world have reacted to some of the risks stalking financial markets. Weaker economic prospects and tumbling currencies off the back of heightened tensions with the US boosted Chinese and Iranian gold demand, while US investors shrugged off any geopolitical concerns. Demand from tech companies continued to grow, with H1 demand reaching a three-year high, while economic growth boosted jewellery demand in the US with Q2 demand hitting a ten-year high.

The total supply of gold increased by 3% in Q2 2018 to 1,120t, supported by increased mine production and recycling growth. Mine production in Q2 saw a rise of 3% to 836t, the highest Q2 on record, as projects in Russia, Indonesia and Canada continued to ramp-up. Gold recycling also grew, as currency weakness in India, Turkey and Iran boosted local gold prices and encouraged consumers to lock in profits from their holdings.

The key findings included in the Gold Demand Trends Q2 2018 report are as follows:

  • Overall demand was 964t, a decrease of 4% compared with 1,008t in Q2 2017
  • Total consumer demand fell by 1% to 758t, from 767t in the same period last year
  • Total investment demand was down 9% to 281t compared with 310t in Q2 2017
  • Global jewellery demand fell 2% to 510t, from 519t in the same period in 2017
  • Central bank demand decreased by 7% to 89t compared with 96t in Q2 2017
  • Demand in the technology sector increased 2% to 83t compared with 81t in Q2 2017
  • Total supply was up 3% to 1,120t, from 1,086t in the same period last year
  • Recycling was up 4% to 295t, compared with 283t in Q2 2017

The Gold Demand Trends Q2 2018 report, which includes comprehensive data provided by Metals Focus, can be viewed at http://www.gold.org/research/gold-demand-trends and on our iOS and Android apps. Gold Demand Trends data can also be explored using our interactive charting toolhttp://www.gold.org/data/gold-supply-and-demand/gold-market-chart.

Gold News from Russia and China

My latest articles published on http://www.sharpspixley.com website looking at the latest gold related news from China and Russia – two real believers in the future of the precious metal.  Click on the titles to read full articles

Russia’s largest gold miners sees H1 gold output rise substantially

Both Polyus Gold and Polymetal – Russia’s two largest gold producers have seen substantial output increases in H1 making suggestions that Russia’s gold output this year might rise by 3% look distinctly conservative.

China’s H1 gold output falls 7.9%, but demand rises

China, the world’s largest gold consumer, appears to be seeing its own gold production fall – down 7.9% in H1 2018

China imports 400 tonnes of Swiss gold in H1

Greater China (mainland plus Hong Kong) remained the principal destination for Swiss gold exports again in June. So far this year Greater China has imported around 400 tonnes of gold from Switzerland alone.

Russia continues to add to its gold reserves

Russia, which has been running down its holdings of U.S. Treasuries, is continuing to increase its gold reserves at a rate of over 200 tonnes a year. At the current rate of increase the nation’s holdings will exceed 2,000 tonnes by the end of 2018.

 

UPDATE: Gold, Silver, Platinum, Palladium – Price And Stock Forecasts/Recommendations For 2018

My latest article on Seeking Alpha looks at changes to my precious metals price predictions for 2018 and recommended stocks given the underperformance in the precious metals space so far this year

Summary

Our precious metals-related stock selections of late December last year have underperformed along with the corresponding metals prices.

We anticipate an improvement in precious metals prices in the remaining months of 2018.

We have re-worked our tabulation of stock and metal price predictions and look for growth over the remainder of the year.

To read the full article click on: Gold And Silver Now And Forecast Target Price Adjustments For End 2018

How to avoid gold and silver investment scams

by: Stefan Gleason*

It could be undisclosed commissions and fees in an annuity, unwanted accounts opened up by a banker seeking additional fees, trades sabotaged by market manipulators, or any number of other schemes.

Rip-off artists, unfortunately, operate within the precious metals space as well.

Most recently, a scammer posing as a government agent in order to gain people’s trust was convicted of selling counterfeit gold bars and phony Morgan silver dollars. He took one investor for $11,000, according to reports.

You can avoid this type of scam as well as other common cheats when buying or selling precious by heeding the following guidelines.

1. Avoid “Too Good to Be True” Deals

If a price on a bullion product sounds too good to be true – or comes with exorbitant incentives or exaggerated claims – you should be suspicious.

Too Good to be True!

Gold and silver bullion products do not legitimately sell below spot prices. Individuals holding precious metals can visit a dealer and sell items immediately, for full value. Given that everyone has this option, it is highly likely anyone offering items well below actual value is trying to stick it to you.

Legitimate dealers cannot afford to offer items way below cost either. Dealers must charge small premiums above spot prices to reflect product minting costs and the costs of doing business. (One notable exception: 90% silver U.S. coins minted prior to 1965 (aka “junk” silver) which exhibit significant wear occasionally become available at melt value or even slightly lower.)

2. Choose a Reputable Dealer and Use Extreme Care Buying from Unknown Parties Online

Find a reputable dealer who offers prompt, reliable service, and fair prices. Customers who buy based solely on slick advertisements or low quoted prices risk getting left holding the bag when that dealer fails to deliver.

Every so often a dealer will come along that tries to undercut the industry with super-low prices. Only a few years back a “low price leader” called Tulving & Company went bust. A similar blow up occurred at the Northwest Territorial Mint in 2016.

In both cases, warning signs included delivery delays and rising customer complaints. A slew of customers ultimately lost tens millions of dollars when their orders went undelivered.

Bottom line – receiving actual delivery of your metals is way more important than getting the lowest price!

Take a few minutes to investigate a dealer’s online reputation before ordering. You should also expect the dealer to provide a firm estimate as to when the order will ship when the order is placed.

Customer reviews for Money Metals Exchange are overwhelmingly positive for a reason. Regardless of whether you’re a new customer with a small budget or an experienced stacker, you can buy with confidence from Money Metals.

3. Avoid eBay, Craigslist, and Other Online Bulletin Boards

You may be tempted to peruse sources such as eBay, Craigslist, or flea markets to try to find hidden bargains. But all to often, the only ”hot deals” being offered are from sellers with questionable or poor reputations.

Auction sites, including eBay, charge significant fees to the seller. That means reputable dealers must charge very high prices within that platform – passing along the fees eBay charges them. Better prices are usually available by going directly to dealers outside of eBay.

It is always better to know you are dealing with an established business with a reputation for fair dealing, rather than random individuals who can disappear in the night.

With underground sources, you can spend hours researching, bidding, emailing, phoning, driving, and waiting… only to still be left worrying that the product you bought might be counterfeit, stolen, or otherwise not as described.

4. Avoid Rare Coins and Other Hard-To-Sell Products PriceD Way Above Their Melt Value

Numismatics – coins that carry hefty premiums as collectibles – are a huge profit opportunity for dealers and scammers alike. Gold and silver bullion products do not legitimately sell below spot prices.

St. Gaudens Gold Coins

Only serious collectors and experts
are qualified to make wise investment
decisions in so-called rare coins,
so scammers love to peddle them.

If you are a bullion investor, you are more concerned with the number of ounces you hold than the supposed rarity or aesthetic value of coins.

Sometimes the dealer is the scammer – making false claims about a coin’s history, for example, or engaging in “bait and switch” tactics and outright lies to steer unwitting customers into high-premium coins.

There are prominent numismatic dealers that had paid for celebrity endorsements and TV commercials now face litigation over their dishonest sales tactics.

The numismatic market also attracts forgers. There’s little incentive to tamper with bullion coins that sell close to melt value when the value of a numismatic coin can be hugely inflated by altering its grade or appearance slightly.

5. Know Exactly What Something Is Worth to Sell… Before You Buy

Doing a bit of upfront due diligence to determine how – and for how much – you can sell the precious metals you are considering buying can help you steer clear of big mistakes.

It’s not unusual to find a seller of so-called “rare” coins would only pay you 60% of your purchase price if you were to sell it back to them the next day. Most coins being represented as “rare” are not particularly scarce or desirable. They do not bring much premium above the value of their metal content when it is time to sell.

Bottom line – avoid precious metals that are not actively traded. If the difference between the price you will pay to buy and the price you would receive to sell is more than 5-10%, you are likely paying too much.

6. Never Sell Coins, Rounds or Bars at More Than a 5% Discount to Melt Value

When the time comes to sell your bullion, the “cash for gold” sign displayed at your local strip mall represents a fast and convenient way to get paid a fraction of what your bullion is worth.

Whether it’s a jewelry store, a pawn shop, or a scrap gold middleman, you almost certainly won’t be offered anything near fair value. If you negotiate aggressively, you might get closer. But you’ll almost always get a better upfront offer from a large national bullion dealer like Money Metals Exchange (which happens to have the best “sell to us” prices in America).

Some coin dealers will offer more than others, of course. A small local shop that doesn’t carry much inventory may only be able to serve as a middleman for your bullion (and lower the buy price accordingly). Or they may not be able to make an offer at all. A large national dealer will be generally able to accept bullion in larger quantities and varieties – and with narrower buy/sell spreads.

7. Treat Your Bullion Purchases Confidentially and Store Your Metals Securely

A precious metals stash will be at higher risk of theft if you don’t secure it. One of the very best ways to secure your gold and silver is to keep your mouth shut. Loose lips really do sink ships.

Confidentiality

A good home safe that is hidden from view and embedded in or bolted into concrete will go even further to minimize the chances of a burglary.

It can also be a good idea to keep a separate, larger stash in a professionally secured storage facility. A bank safe-deposit box is not suitable for this purpose. Nor are pooled bullion programs offered by brokerage firms.

A few years ago, MF Global lost clients’ gold when it co-mingled their assets with those of the firm…and the firm’s bad derivatives bets caused it to go bankrupt.

Insist on fully segregated storage for maximum security. Money Metals Depository offers this service, as do a few other dedicated bullion storage facilities (albeit at higher storage fees than MMD).

8. Know When Your Bullion Order is Expected to Ship and Monitor the Dealer’s Follow Through

A dealer who is repetitively slow to ship orders is, at best, a poor operator.

At worst, late shipments are a signal that the dealer is in serious financial trouble. They are selling inventory they don’t have and can’t pay for without waiting for funds to come in from future buyers.

Very occasionally there can be legitimate reasons for a delayed shipment.

For example, there have been a few short periods in recent years when mints and refiners were not able to keep up with the huge demand for coins, rounds, and bars, and extended lead times for delivery were not uncommon. But reputable dealers will explain any expected shipping delay upfront, so the client knows what to expect.

With the current glut of inventory in the market, however, there is no excuse for delivery delays at the present time. So if you do not receive prompt delivery, you are most definitily taking more risk by placing another order with that particular dealer.

While performing your due diligence on a dealer, it is wise to look for regular customer complaints about late deliveries. The Better Business Bureau website is one good place to search for what people have to say.

China, South Africa, Trump trade moves and the Dollar – My recent SP articles

Here are links to four recent articles published by me on the Sharps Pixley website.  Sharps Pixley is probably about the best consolidator of links to pertinent articles on precious metals globally so should be on every gold investor’s list of go-to places for precious metals news and comment.

China’s gold reserves – fact or fiction?

China has again reported a zero increase in its official gold reserves to the IMF for the 20th successive month increasing speculation that it is building up its gold holdings in other non-reported accounts.

How the mighty are fallen. RSA gold on the decline

The Republic of South Africa (RSA) used to be by far the world’s biggest gold producer but output there peaked nearly 50 years ago and has been on the decline ever since.

Markets nervous as Trump trade rhetoric escalates

The U.S.-China trade (tariff) war appears to be escalating and markets are reacting nervously accordingly.

Gold held back by dollar index upturn

Gold looked as though it might be about to break out from its recent weak trading range, but has been brought back down to earth by a stronger dollar

Polymetal’s big new gold mine on stream ahead of schedule, under budget

Russia’s No. 2 gold miner, and world No. 5 silver miner, Polymetal, has announced that its big new precious metals mine – Kyzyl in north-eastern Kazakhstan – poured its first gold on June 25th a month ahead of schedule.  What is more, start-up has been achieved under budget.  Polymetal is London Stock Exchange quoted (ticker POLY).

As we noted when writing about the Russian miner a month or so ago, Kyzyl is a key element in the company’s long term production growth strategy and now that it appears to have started up successfully Polymetal can concentrate on the next major project in its production pipeline – the Nezhda mine.

According to Polymetal, Nezhda is Russia’s fourth largest gold property based in the Republic of Sakha (Yakutia) with a resource inventory of 55.9 million tonnes of mineralised material containing 8.9 million ounces of gold equivalent with an average grade of 5.0 g/tonne gold equivalent based on the latest resource estimate.

Currently, the Company envisions the construction of an open-pit mine at Nezhda and a conventional on-site concentrator followed by concentrate processing at the Amursk POX or 3rd-party off-take. This ensures low capital intensity for the project, making it an excellent fit for Polymetal’s core capabilities. Total capital costs for Nezhda are estimated at US$249 million, including $15 million capitalised pre-stripping costs, with approximately $30 million to be invested in 2018 into project design, permitting and exploration.

Polymetal currently has been operating eight producing mines – six in Russia and one each in Kazakhstan and Armenia and has other projects in the pipeline as well as Kyzyl.  However it has a policy of only managing two new projects at any given time and the current concentration, now that Kyzyl is in production, will be on de-bottlenecking its state-of-the-art pressure oxidation (POX) facility at Amursk in Russia’s Far East, and can now take the decision to progress Nezhda. Then in the prospective pipeline it has a second POX line which could be installed at  Amursk, but won’t take the decision on that until the current POX debottlenecking programme is also seen to be successfully implemented – due to be in early 2019.

At Kyzyl Polymetal has achieved the start-up of the concentrator one quarter ahead of the original schedule that had been announced in 2014, and one month earlier compared with the January 2018 updated plan. Project Capex is expected to be approximately 3% below the original US$325 million budget, inclusive of 62 million tonnes of pre-stripping.

Mining activities at Kyzyl have already reached full design capacity with 315,000 tonnes of ore stockpiled ahead of start-up. The grade control programme demonstrated robust reconciliation with the reserve model with both ore grade and gold contained tracking slightly above plan.   Kyzyl is, in today’s terms, a high grade operation with a reserve grade of over 7g/tonne gold.  First concentrate deliveries to off-takers are scheduled for the end of July with shipments to the Amursk POX facility expected to commence in September.

The Kyzyl concentrator will now be entering a 3-month ramp-up period, after which it is expected to reach nameplate capacity of 150,000 tonne/month mand recoveries of 86% by October 2018. This year Polymetal plans to produce 80,000 ounces (around 2.5 tonnes) of payable gold at Kyzyl, ramping up production to 280,000 ounces (8.7 tonnes) in 2019 and nameplate capacity of 330,000 ounces (10 tonnes plus) thereafter at a very low AISC of approximately US$ 500-550/ounce.

At Kyzyl, the JORC compliant gold reserve is estimated at 7.3 million ounces at 7.7 g/t of gold. This would support a life-of-mine of 10 years for the open pit followed by further 14 years of underground mining. Additional JORC-compliant gold resources comprise 3.1 million ounces at 6.8 g/t indicating strong potential to further extend operations.

“Polymetal is delighted and proud to successfully complete the largest development project in the company’s history ahead of time and below budget”, said Vitaly Nesis, Group CEO of Polymetal who we interviewed back in April (see: Polymetal CEO, Vitaly Nesis, very bullish on silver) “Significant cash flow and net income contributions from Kyzyl should start in Q4 2018.”

Russia is the world’s third largest producer of gold after China and Australia but is expanding output and aiming for the No. 2 spot.  Kazakhstan is currently the world’s 15th largest gold miner and Kyzyl’s output could help move it up a couple of slots by the end of the decade.  Its central bank currently buys most of the gold produced by the country’s mines as it aggressively builds its gold reserve.

 

 

 

 

 

 

Lawrieongold one of top 5 UK gold blogs

American based web consolidator, Feedspot.com has selected lawrieongold as No. 3  in the listing of the top 5 UK gold blogs.  Incidentally No. 1 is sharpspixley.com which I also write for as a Special Correspondent. see: https://blog.feedspot.com/uk_gold_blogs/

Globally lawrieongold comes in at No. 49 although many of those which appear above it in the site’s compilation are websites for corporate gold mining companies.

I have to say I am honoured at being so selected, but I suspect it is a representation of how few good specialist precious metals websites there are out there!

Silver and Gold Bludgeoned in Controlled Market

Sound Money Needed Now More Than Ever
Ron Paul and the Tea Party advocated for limiting government and ending the Federal Reserve system. Sound money advocates made real inroads in recruiting Americans to their cause based on evidence that the nation is headed for bankruptcy.

The implications of the most recent financial crisis went way beyond budget and finance.

Many Americans grasped the more significant lesson. The perpetual expansion of government spending lay behind the corresponding decline in personal liberty for them, their children, and their children’s children.

National Debt 1940 - 2008

Dishonest money is a dream for politicians and bankers, but it is a nightmare for citizens. Charts showing the final abandonment of the remnants of the gold standard in 1971 and the exponential rise in government debt helped people make the connection between dishonest, unlimited fiat money and unlimited government.

Here is one example from the Daily Caller…

The trend shown on this chart has not changed or improved. The red bar on the right hand side of the current chart now stands more than twice as high with total government debt north of $21 trillion.

There is no credible effort in Washington to limit spending. It is safe to say U.S. deficits and the corresponding borrowing will continue to rise exponentially. It will continue until confidence finally collapses; either in the nation’s ability to repay, or in the dollar, or both.

The nation needs sound money more desperately now than ever.

Unfortunately, the debt chart above isn’t the only chart that tells a damning story. Below is a chart from TF Metals Report which shows the regular beatings given to silver in recent months. The picture for gold looks similar.

Silver Daily Chart

This is what a controlled market looks like!

The bankers and central planners hated the lesson Americans got following the 2008 financial crisis. They are using the markets to condition people to respond differently. Buy stocks, buy bonds — any conventional “paper” securities. And, for the love of Pete, keep borrowing.

For gold and silver investors, the conditioning is delivered in the form of a regular bludgeoning each time the metals start to show strength.

Any who still question whether markets are manipulated, simply aren’t paying attention. Or they rely upon CNBC for all of their investment news. The topic has been covered extensively on alternative news sites, including by Money Metals.

Crooked and relentlessly painful markets, combined with optimism surrounding Donald Trump, is a potent combination.

Yes, there was some grumbling when Trump signed the latest budget and expansion of government.

However, many fewer Americans feel the sense of alarm that prevailed when the Federal government was running trillion-dollar deficits under Obama. Others may be alarmed, but they question whether gold and silver will work as honest money given the price never seems to reflect the reality of the nation’s finances.

Too many Americans are effectively tuned out when it comes to the message of sound money and limited government. That is tragic. Few will be ready and a whole lot more will be caught by surprise when the inevitable reckoning finally arrives.