About Lawrie Williams and LawrieOnGold.com

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

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

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

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

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RIP Mike West

A doyen of mining journalism sadly passed away last week

I was hugely saddened to hear of the passing of Michael (Mike) West, CEO of Mining Journal Ltd for 25 years, and then company chairman for another 14.  Mike took me into the company in 1970 as Financial Editor and ended up selling half the company to me – and 20% to Chris Hinde – in 1990 and was hugely well known within the international mining community – particularly in the gold mining sector giving many talks at conferences on the subject.  Many will mourn his death.  He was undoubtedly one of the greats of the mining publishing sector.

The following, lightly edited, note has been penned by my erstwhile colleague and partner when Mike turned Mining Journal over to us in 1990, Chris Hinde.  Chris now works for SNL.

Lawrie Williams

Pick and Pen

The concept of internationalization in mining is at least 2,000 years old, but the first international mining society was formed barely 230 years ago when European engineers met together at Schemnitz in Hungary’s mining district. The 150 attendees at the inaugural Societat der Bergbaukunde (Society of Mining Professors) in 1786 included the inventor of the modern steam engine, James Watt, the celebrated German poet Johann Wolfgang von Goethe (who was in charge of the mines of the Duchy of Weimar), the discoverer of titanium, Professor Martin Klaproth, and one of the discoverers of oxygen, Antoine-Laurent de Lavoisier.

This meeting was held in the middle of the industrial revolution — the transition to new manufacturing processes that occurred in the period from about 1760 to circa 1830. These industrial changes were led by Britain, which was well endowed with coal, iron and base metals.

Britain was also a leader in the technical reporting of the industrial revolution, and this was particularly true for mining. In 1829, the first of a series of quarterly mining reports was published by Henry English. Then, on August 29, 1835, English launched the weekly Mining Journal and Commercial Gazette, which has remained in continuous publication (albeit without the Commercial Gazette handle for some years).

The birth of the publication more or less coincided with the start of modern mining. A large number of important inventions were introduced in the 1830s with the growing commercial use of steam power.

In 1910, writing in the 75th anniversary issue of Mining Journal, Edward Baliol Scott (who was nine years into a 53-year tenure as editor) warned against treating mining as other investments, saying, “The investor suffers by reason of two conditions natural to it. In the first place it is speculative; in the second its duration, though uncertain, is certainly limited.”

Baliol Scott also wrote about the growth of big business: “Capital is now so plentiful and well organised, and so alive to the profits that are to be realised” that “even if important discoveries are made by independent prospectors, they are certain to give place to the wealthy corporation.”

All this comes to mind because a doyen of the mining industry, and the owner of Mining Journal Ltd from 1965 to 1990, died on Monday, August 22. The Reverend Michael John West (he was surely one of the few modern mining engineers to be ordained into the Church of England) was almost certainly the most highly regarded mining publisher of the second half of the 20th century, being instrumental in restoring Mining Journal to strength in the 1970s and 1980s.

West wrote about the Schemnitz meeting in the 150th anniversary issue of Mining Journal in 1985. In that comment 31 years ago, West noted the “incredible” advances in technology, and that “telex is now a universal facility.”

A Royal School of Mines graduate, Michael worked on the Zambian Copperbelt before joining Mining Journal Ltd in 1960. In 1962 he was involved in the acquisition of the monthly Mining Magazine, and took ownership of the enlarged company three years later. During his 25 years in control, Michael published numerous books, and was the company’s CEO when it launched International Gold Mining Newsletter, World Tunnelling , Mining Environmental Management, Geodrilling International and the improbably titled No-Dig International.  He was also primarily responsible for the move to mailing Mining Journal around the world by air – an absolute necessity in this day and age

During his tenure, Michael led many campaigns to improve the responsibility of the industry to stakeholders (not that they were called that back then). He was also a leading member of the Institution of Mining and Metallurgy (now part of the Institute of Materials, Minerals & Mining), including a period as its president (1982-83). So that he could devote more time to the church, Michael passed over control of Mining Journal Ltd in 1990 but remained as chairman until the company was acquired by venture capitalists in 2004 (and two years later by Aspermont Ltd).

In 1837, English, the first editor of Mining Journal, had expressed the publication’s intentions of “zealously performing our duty,” relying on subscribers for “succour and support, and on their assistance in rendering Mining Journal more generally useful.”

Mining Magazine had been launched in September 1909 by the best known American mining engineer of the time, Herbert Hoover, as a competitor to Mining Journal. In the first issue, its editor, Thomas Rickard, wrote, “The purpose of this periodical is to be useful to those engaged in mining. To be useful, a publication must be interesting, and to be interesting it must be truthful.”

As the successor to both English and Rickard, West delivered on both mens’ promises, and cemented the relationship between industry and readership to a remarkable degree. Much of this achievement was highlighted in Arthur Wilson’s book, The Pick and the Pen, published by Mining Journal Ltd. in 1979.

The first issue of Mining Journal, on August 29, 1835, included a reference to sighting of Halley’s Comet, which returns only every 75 years. Like the famous comet, it will be a long time before we see another mining engineer of the calibre of Michael West.

[Chris Hinde worked with Mike West at Mining Journal Ltd for over 20 years.]

Gold Trade Is Not Overcrowded Says UBS – The Holmes SWOT

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

Strengths

  • The best performing precious metal for the week was gold, down slightly by 1.47 percent. Current market conditions make it the perfect time to invest in gold, according to Heather Ferguson, an analyst at Hargreaves Landsown. “There is a fixed amount of this precious metal in the world so central banks are not able to manipulate the gold market like they can with bonds and cash,” Ferguson explains. “In the current environment of quantitative easing and increasingly extreme monetary policy, gold is highly sought after.”
  • UBS says the gold trade is not overcrowded, according to a note this week.  The group believes that Federal Reserve policy decisions relative to the metal are not as straightforward in this environment where global yields are under pressure ahead of a rate hike.
  • Citigroup is also positive on the metal, raising its forecast for the second half of the year. The group cites elevated levels of U.S. election uncertainty and stickiness of ETF and hedge fund flows into gold products, reports Bloomberg.

Weaknesses

  • The worst performing precious metal for the week was platinum with a loss of 3.77 percent. Platinum sold off when precious metals were bear raided on Wednesday, but did not get much of a bounce following Yellen’s speech on Friday.
  • “The past 48 hours have been an interesting period for gold…” writes Steven Knight of Blackwell Global. “As the metal has again seemingly fallen sharply following the liquidation of a $1.5 billion futures position over the course of 60 seconds.” According to Knight, given the amount of gold derivatives floating around, the fairness of the COMEX exchange likely needs an additional level of scrutiny. In addition, the timing of this “flash crash” could potentially be revealing.

holmes 298

  • Goldcorp fell the most in six months, reports Bloomberg, on the back of retreating gold prices and the discovery of a leak at the company’s mine in Mexico. Less-than-stellar news was also reported from Kinross Gold Corp this week, as it suspended operations at a mine in Chile ahead of schedule due to a dispute involving water use (causing 300 workers at the Maricunga mine to be laid off as a result). Lastly, Orezone Gold Corp told investors on Monday that it will likely slash the gold resources at its Bombore project by a staggering 30 percent, reports the National Post.

Opportunities

  • When viewed against the aggregate balance sheet of the “big four” global central banks (Fed, ECB, BoJ and PBOC), the argument can be made if we view gold as a currency, that the metal is worth closer to $1,700 an ounce (versus the spot price of $1,326 an ounce USD), says Deutsche Bank. Over the same period that the aggregate central bank balance sheet expanded 300 percent, the bank continues, global above ground stocks grew by 19 percent in tonnage terms.
  • More than 500 million people are living in a climate of negative central-bank interest rates, according to a study by Standard & Poor’s cited by HSBC this week. This represents around 25 percent of global GDP and is a clear sign of “economic and policy desperation,” – a bullish factor for gold. Francisco Blanch of Bank of America agrees, stating that central banks “are very scared of hiking rates and that is a very good story for gold.”
  • “Although we have seen a significant rally in gold, I think investors should still consider an allocation to the precious metal,” Nick Peters, multi-asset investor at Fidelity, said. He continues by explaining that gold can function as a safe haven during times of market volatility and provide strong countervailing returns to equities.

Threats

  • The Reserve Bank announced today that sovereign gold bonds issued in February and March can be traded on stock exchanges starting Monday. Four tranches of the bonds have already been issued, with a fifth likely to be issued next month. Sovereign gold bonds provide an alternative to actual gold investing, offering investors a choice to buy bonds worth 2 grams of gold going up to a maximum of 500 grams.  The bonds are denominated in gold and pay 2.75 percent interest in physical gold.
  • Are the positive changes in the gold industry sustainable? This was the point of question from Gold Fields CEO Nick Holland during a keynote presentation on Monday, reports Mineweb.com. Holland points out that not only are companies cutting “fat,” but “muscle” as well. Stay-in-business capital (as a percent of operating expenditure) decreased from 46 percent in 2012 on a per ounce basis, to 26 percent in 2015. How can companies do this? “I believe that they have merely deferred capital that is going to come back, because if you want to sustain the business into the future, you need to spend the money,” Holland said. “That for me is a little bit of a concern.”  The Industry is going to play catch up, which could yield poor capital allocation decisions, particularly if the industry errors on the side of growing production ounces versus growing profitability.
  • In a note from BMO Private Bank this week, Jack Ablin points out that historically, options investors have been able to generate reasonable income by selling options to other investors looking for downside protection and upside opportunity. However, struggling yields have created an “outsized supply of yield-seeking options sellers who collectively outstrip buyers.”  The result is that implied volatility has declined. But just because yields are low, doesn’t mean that actual risk has gone away, the note continues.

Gold and silver blasted down by HFT

Gold TodayGold closed in New York at $1,321.10 on Friday after Thursday’s close at $1,322.50.  London is closed today.

    • The $: € was at $1.1187 from $1.1293 Friday.
    • The dollar index was at 95.60 from 94.63 Friday.
    • The Yen was at 102.14 from Friday’s 100.45 against the dollar.
    • The Yuan was weaker at 6.6687 from 6.6560 Friday.

 

  • The Pound Sterling was at $1.3107 from Friday’s $1.3200.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  08  29

2016  08  26

SHAU

SHAU

283.32

284.19

283.68

284.44

Dollar equivalent @ $1: 6.680

$1: 6.6687

$1,319.20

$1,325.49

$1,320.87

$1,326.66

As you can see Shanghai followed New York with lower prices and the lowest Yuan we have ever seen.

LBMA price setting:  There was no gold price setting today as London was closed. On Friday the setting was at $1,324.90.

The gold price in the euro was set on Friday at €1,173.20.

Ahead of the opening in New York the gold price was reported as trading outside the markets at $1,320.00 and in the euro at €1,182.37 up from €1,175.48.  

Silver Today –The silver price closed in New York at $18.64 Friday UP from $18.56 Thursday.  

Price Drivers

All currencies are weaker today than the dollar which jumped strongly after Janet Yellen’s comments indicating that a rate hike case is now stronger. Of course, the media tries to put us back on tenterhooks for a September rate hike and will continue to do so until it is seen and then do the same before the next rate hike or the next meeting of the FOMC. It is understandable as it is the main global financial story and, as we now see, in the stronger dollar. Will the dollar rise through 100 on the Index? We think not, simply because neither the Fed nor the Treasury wants this.

But, once again, there was no physical content to the fall in the gold price. No sales took place from either the SPDR gold ETF or from the Gold Trust. This makes the fall in the gold and silver price vulnerable. On Friday the gold price did begin to recover fast and hit $1,336 after hitting a low of $1,322. But then it was slammed down again quickly in a short time back to $1,322 where it closed. All of this fall was due to High Frequency Trading. But no buyers came in to take it back higher after the expiry on the months Options and Futures. The best way to summarize the action is that dollar strength hit all currencies and gold, but not silver!

Ahead of New York’s opening while London was closed prices were marked down by the off-market traders who decided not to have a holiday. They took it to $1,316, but it rose again to $1,320 before New York opened.

This engineered fall has taken the gold price down a relatively long way, leaving it in a position where we expect some strong volatility and wide price moves this week.

We must remember that we are moving into the busiest quarter of the year for gold. This is certainly not the time to drive gold prices down unless you believe that the physical gold market is completely disjointed from the ‘paper’ gold market of COMEX.

Gold ETFs – In New York yesterday there were sales of 1.781 tonnes  from the SPDR gold ETF but a purchase of 0.30 of a tonne into the Gold Trust. This left their respective holdings at 956.588 tonnes and 224.90 tonnes.

Silver –Silver prices rose 9 cents on Friday confirming that silver prices were not affected by the ‘paper bear raid’. On Monday ahead of New York’s close the silver price held at $18.61.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold and silver await Jackson Hole

Gold TodayGold closed in New York at $1,338.60 on Tuesday after Monday’s close at $1,343.40.  London opened at $1,341 again.

    • The $: € was at $1.1275 from $1.1335 yesterday.
    • The dollar index was at 94.67 from 94.39 yesterday.
    • The Yen was at 100.20 from yesterday’s 100.15 against the dollar.
    • The Yuan was weaker at 6.6536 from 6.6447 yesterday.

 

  • The Pound Sterling was at $1.3230 from yesterday’s $1.3184.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  08  24

2016  08  23

SHAU

SHAU

286.76

286.47

286.73

286.56

Dollar equivalent @ $1: 6.6536

$1: 6.6447

$1,340.51

$1,340.96

$1,340.37

$1,341.37

Once again, overall, all global gold markets, together with global currencies seem to be moving sideways today with an emphasis on a slightly stronger dollar. But this strength is small. So we have gold prices in the dollar falling and those in the euro rising.

Friday’s Jackson Hole comments by Mrs. Yellen of the Fed will be the focal point of the week with markets finely measuring the emphasis she puts on her words, looking for the smallest sign of what the Fed is going to do and when. This is what she doesn’t want, so how she is going to play it with so much influence each word will have, is a difficult one.

She would do well to repeat her last speech so as not to give room for wrong impressions. Unfortunately, unless she does repeat her last speech, any emphasis that inclines hearers to believe that a rate hike is due in September, or later this year, will have all financial markets moving strongly, one way or the other. This includes the precious metal markets.

LBMA price setting:  $1,337.90 after yesterday’s $1,338.50.

The gold price in the euro was set at €1,187.03 up €5.34 from yesterday’s €1,181.69.

Ahead of the opening in New York the gold price stood at $1,338.15 and in the euro at €1,187.46.  It took a knock when the New York market opened falling back to the mid-$1,320s on renewed nervousness ahead of Jackson Hole, and on a slightly stronger dollar.

Silver Today –The silver price closed in New York at $18.88 yesterday down from $18.99 Monday.  Ahead of New York’s opening the price was trading at $18.90.  Like gold it fell immediately after New York markets opened.

Price Drivers

The market in gold has a very tight trading range around $1,340, but in London the gold price keeps trying to slip. Some have postulated that this is Venezuela selling off its reserves at $1,350 – 55. No one can say whether it is or it isn’t.

But we would have thought that any central bank still acquiring gold, such as China, would have negotiated a deal to take all available amounts direct, at a particular price, or with reference to the market price at the time of delivery. It does not make sense to open oneself up to the risk of either not reaching a particular price, or seeing prices fall. Selling directly into the market is a way to ensure a low price or a price that will go much lower if it becomes known that they are sellers in the open market. It hints at desperation!

On the buy side it would pay to take that gold off the market at say, $1,350 in one chunk and allow the overhang to be removed to see prices rise thereafter.

Gold ETFs – In New York on yesterday there was no change in the holdings of either the SPDR gold ETF or the Gold Trust. This left their respective holdings at 958.369 tonnes and 223.85 tonnes.

Since January 4th this year, the holdings of these two gold ETFs have risen by 384.604 tonnes.

Silver –Silver prices now holding around $18.87 showing that they will remain sensitive to even small moves in the gold price.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold only sensitive to exchange rates and ETF movements for now

Gold TodayGold closed in New York at $1,343.40 on Monday after Friday’s close at $1,341.00.  London opened at $1,341 again.

    • The $: € was at $1.1335 with a wide spread, from $1.1305.
    • The dollar index was at 94.39 from 94.64 Monday.
    • The Yen was at 100.15 from Monday’s 100.48 against the dollar.
    • The Yuan was weaker at 6.6447 from 6.6540 Monday.

 

  • The Pound Sterling was at $1.3184 from Monday’s $1.3144.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  08  23

2016  08  22

SHAU

SHAU

286.47

286.54

286.56

/

Dollar equivalent @ $1: 6.6447

$1: 6.6540

$1,340.96

$1,339.40

$1,341.37

$1,354.55

All global gold markets, together with global currencies seem to be moving sideways today.

The Yuan is trying to hold onto the 6.65 area, we presume because we are about to enter the month in which if finally becomes one of the currencies making up the S.D.R.  Thereafter we expect any restraint on the Yuan going weaker [gently] will be lifted.

The dollar, at the same time, continues to show a slightly weakening trend holding at lower levels.

LBMA price setting:  $1,338.50 after Monday 22nd August’s $1,334.30.

The gold price in the euro was set at €1,181.69 down €7.51 from Friday’s €1,189.80.

Ahead of the opening in New York the gold price stood at $1,341.65 and in the euro at €1,183.17.  

Silver Today –The silver price closed in New York at $18.99 on Monday down from $19.75 on Friday.  Ahead of New York’s opening the price was trading at $19.03.

Price Drivers

The market in gold remains sensitive to exchange rate moves and to purchases and sales in the gold ETFs There is little else of substance to move these prices currently.

Janet Yellen is due to speak today, but is expected to remain dovish on rate hikes. Hence the better tone in the gold market.

China has been given the OK to issue an S.D.R. bond, purchasable in Renminbi only, by the World Bank. This new bond issuance is 2 billion SDRs which is equivalent to $2.8 billion.

The precise timing of issue and individual bond terms will be based on favorable market conditions, at the time of issuance.

This is a bold move and one aimed at further internationalization of the Yuan.  It will also make the IMF very happy as the S.D.R. has not been credible money in use widely, itself. By issuing only in the Renminbi any international investor must purchase the Yuan. And this is China’s aim, to widen the use of the Chinese currency as far as possible.

Gold ETFs – In New York on Monday there were purchases of 2.375 tonnes into the SPDR gold ETF (GLD) but no change in the holdings of the iShares Gold Trust (IAU). This left their respective holdings at 958.369 tonnes and 223.85 tonnes.

Silver –Silver prices now holding around $19.00 and will remain sensitive to even small moves in the gold price.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

New FOMC framework gold positive – the Holmes Gold SWOT

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

Strengths

  • The best performing precious metal for the week was palladium, up 3.57 percent.  Speculators have been piling into platinum and palladium futures, largely based on improved car sales in China, but position sizes are approaching all-time highs for both metals.
  • Gold investment in the first half of the year broke previous levels, as seen in the chart below, with both coin and bar demand, as well as ETF product demand, soaring to record levels. Gold demand will get another boost in India as wedding season starts to heat up, particularly with the metal currently trading at a $40-$50 discount in the country, reports Bloomberg. Bullion traders noted persistent buying by jewelers at domestic markets to meet festive season demand.

aug23SWOT

  • Gold got a boost on Thursday on dollar weakness following the release of the Fed minutes, which showed that U.S. interest rates should stay low. According to futures prices compiled by Bloomberg, the odds of an increase in borrowing costs in December fell to 49 percent from 51 percent a day earlier. “From looking at the data, and looking at the minutes, I don’t think we’re any closer to a rate increase,” Chris Gaffney, president of EverBank World Markets said.

Weaknesses

  • The worst performing precious metal for the week was silver with a 2.05 percent fall, of which most of the losses came on Friday when we had renewed strengthening of the dollar.
  • There have been a number of mixed signals from Federal Reserve policymakers this week, sending gold lower on Friday. The jawboning from these officials include a comment from New York Fed President William Dudley, for example, who reinforced his confidence in a possible rate hike for the second time in a week, reports CNBC.  Bullion for immediate delivery fell 0.5 percent an ounce in London, reports Bloomberg, as other officials say the U.S. is strong enough to warrant an increase in interest rates sooner than markets expected.
  • Gold consumption in China fell during the first half of the year, primarily due to a surge in price by 24.6 percent, reports Bloomberg. The Asian nation did keep its top spot as the world’s leading gold producer, however, for the ninth-straight year. Similarly, as the foreign currency crisis deepens in Venezuela, the country’s international gold reserves slumped 25 percent in the first half of the year as they swapped gold for dollars.

Opportunities

  • According to a piece from SmarterAnalyst.com, the FOMC members see the futility in their tools and announced this week that the Fed is rethinking its monetary stance. President of the St. Louis Fed James Bullard explains that the old model was a long-run equilibrium which averaged past economic variables. The new model, however, includes a set of possible regimes that the economy may visit and are not forecastable. The Fed’s new framework would be positive for gold, the article continues, as it would lower market expectations of interest rate hikes and support the price of the shiny metal. It makes the Fed even more agnostic and less inclined to provide clear guidance.
  • CNBC reports that gold’s relationship with stocks reached an all-time low in the 60 sessions through Wednesday’s close. The correlation between gold futures and the S&P 500 was -0.63, the lowest ever between gold and stocks based on CNBC analysis of Factset data going back to 1984. This could be a reason for many investors to buy gold, as the “two unrelated assets will together have a smaller amount of volatility than two identical assets, all else being equal.”
  • Global central banks dumped a record $335 billion in U.S. debt over the past year, according to an article from Zero Hedge. While the author points out his expectation that Saudi Arabia would be one of the biggest sellers (or other “petrodollar-reliant nations”), China, Japan and Hong Kong were the largest sellers of Treasuries in June.  The largest buyer in June was the Cayman Islands with purchases of $28.3 billion – another name for “hedge funds,” the author states.

Threats

  • As Islamist militants pose a growing threat at mines in Burkina Faso, the government announced plans to deploy more than 3,600 soldiers and police to secure its mines, reports Bloomberg. According to Francois Etienne Ouedraogo, the head of the National Office for Securing Mining, the police and soldiers will be “deployed gradually” at the 18 mine sites in Africa’s fourth-largest gold producer. In a report from the IMF last June, the group said that fragile security is one of the main threats to the nation’s economic outlook.
  • Gold equities have re-rated to historical peaks or above, reports Morgan Stanley, with an average 24 percent upside to spot gold already priced in. Similarly, analysts at UBS believe that mining stocks have priced in the gold bull run, and that the underlying metal provides more upside than the stocks. Despite gold being one of the top performing assets year-to-date, the metal’s 26 percent gain pales in comparison to the 110+ percent average lift across the senior producers, UBS continues.

A piece from All Africa Global Media this week points out that the lethal toll of informal gold mining is on the rise. Although deaths at formal mines have come down (fatalities numbered 77 in 2015, making it the least deadly year on record), “zama-zama” or informal fatalities have gone up. By 2015, the official number of informal mining fatalities reached 124 (a 150 percent increase in reported informal mining deaths from three years prior).

GLD and the GSR guides to gold and silver price direction?

Where will the gold price be heading once the U.S. institutions and traders get back from their summer breaks in the Hamptons, the Caribbean and elsewhere and the market gets fully back on track after a relatively thin trading market over the peak of the northern summer?  That is the question which many precious metals investors will be asking themselves as the end of the holiday season approaches with memories of 2011 in mind, when gold soared over the summer, reaching new highs and with the expectation that prices would continue onwards and upwards.  This was just not to be as the gold price then stuttered and started turning downwards heralding the start of a four and a half year bear market in precious metals.

I commented on this in a little more detail in an article on sharpspixley.com and an edited verison of this article, with some additional comment, is included below:

This year the gold price has been rising ever since the beginning of January, accompanied by a big rise in the holdings in gold ETFs.  This has been notably so in the biggest of them all, SPDR Gold Shares (GLD), which had added a massive 340 tonnes of gold peaking at around the July 4th Independence Day holiday in the USA at a total of 982.7 tonnes, the highest level since June 2013 – then a time when holdings were falling quite sharply.  But since July 6th this year, atlthough the holdings have fluctuated up and down, the predominant movement has been downwards and has seen sales out of the biggest ETF of 24.3 tonnes.  (It did add 2.38 tonnes yesterday so the movement has not only been downwards, but that has been the general trend.)

The overall fall in GLD has also coincided with a sharp fall in retail purchases of gold coins and bars in the U.S. in particular and the worry for the gold investor is whether this has been due to weaker seasonal demand because of the northern hemisphere summer holiday season, or whether it represents a change in overall sentiment from being gold positive to gold negative or gold indifferent!.

Recently, gold researcher Koos Jansen writing on www.bullionstar.com looked at the statistical relationship between the gold price and gold demand in the West and in Asia.  He concluded that when Asian gold demand has been strong and Western demand weak, the gold price has fallen and conversely when Western demand has been strong and Asian demand weak the gold price has risen.  We think this may be something of a misinterpretation in our being uncertain how relevant Asian demand has been at all in this respect.  Whereas strong Asian demand may well have meant that the gold price did not fall as far as it might have done without it, we would suggest that up until now it has very much been Western demand which has been influencing the gold price most strongly and the sharp fall-off in Asian demand we have seen this year has been largely irrelevant, given that it still seems to be the Western gold futures markets – notably COMEX – which have been the prime gold price drivers.

While this may be the case up until now, it seems to be becoming increasingly apparent that the GLD holdings are in a current downwards trend, although whether this is due to the northern summer holiday season when many of the big fund and institutional managers are away and markets are consequently a little thinner, remains a possibility.  We will have to wait until after Labor Day on September 5th – which is seen as the end of the holiday season in the USA – to see whether this is the case.  But while many see the return of the markets to full swing as being potentially a positive for gold, one only needs a short memory span of 5 years to recall that it was effectively Labor Day in 2011 that saw the true beginning of the recent bear market in gold after an abnormally strong summer for the yellow metal.  Could this happen again?

Unlike 2011 though, this year the gold price has also taken something of a summer holiday.  After the post Brexit surge it has actually remained in a fairly tight trading range which some see as price consolidation.  But again we will have to wait for the market to become fully functional again before we  can see a new trend developing.

With markets jittery again over the possibility of a Fed rate rise in September – perhaps still unlikely with December, if then, perhaps a more possible timing – we could well see continuing gold price uncertainty until after the September FOMC meeting which takes place September 20-21 and a volatile market for the yellow metal continuing in the meantime.  If the recent moves in price are indeed consolidation then general prospects for the precious metals could be seen as positive given that the really big drivers of unprecedented global debt and the seemingly increasing imposition of negative interest rates around the globe are well set.

At the moment gold seems to have been pressuring downside resistance at around $1,330, but riding this particular storm fairly well.  For silver it is also notable that the Gold:Silver ratio (GSR) has risen back to over 70 after falling to below 65 but some see this too as an indicator of where the gold price is headed.  We could well be in for a very uncertain month ahead for precious metals. But keep an eye on GLD movements and the GSR.  They could both be giving us a guide as to whether the medium term outlook is positive or negative.

When gold breaks over $1,400 it’s going to spike toward $2,000 – Gerald Celente

Mike Gleason* of Money Metals Exchange interviews Gerald Celente of the Trends Journal. With his always hugely controversial opinions, Gerald has some extremely interesting comments on the upcoming presidential election, the bizarre disconnect between some dismal economic reports and the roaring stock market, and the key level he’s looking for for gold to break through on its way to new all-time highs.

 

Gerald Celente: Worst Market Crash, Gold Spike to $2,000

Mike Gleason: It is my privilege now to be joined by Gerald Celente, publisher of the renowned Trends Journal. Mr. Celente is a highly sought-after guest on these programs throughout the world and has been forecasting some of the biggest and most important trends before they happen for more than 30 years now. And it’s a real honor to have him on with us today. Mr. Celente, welcome back and thank you so much for joining us again.

Gerald Celente: Well thank you, Mike.

Mike Gleason: I want to start out by asking you about this massive disconnect between what the economic data is telling us versus what the stock market is saying to the investment world. For instance, we have the lowest rate of expansion in the U.S. economy since the 1940s. China is slumping, as are many other major global economies… not to mention the economic issues over there in Europe. Yet the equities markets continue to make new highs nearly every week with the S&P and the DOW continuing upward into uncharted territories. So what’s going on here? Are the economic numbers really better than what we’re being told, or is the stock market being propped up?

Gerald Celente: The stock market’s being propped up. We said this beginning with Quantitative Easing when it began, and we said that this is not a recovery. It’s a cover-up. The numbers don’t lie. The liars lie, and the markets are lying. You look at the facts, and here are the facts. You had a stretch of merger and acquisition activity unparalleled in world history because they’re borrowing money for nothing and they’re buying up companies. Then you look at the other facts, and the facts are that stock buy-backs are at record highs. What was it, like the first 3 months of this year, you looked at about, what, $160 billion worth of stock buy-backs.

And all this has done is boosted the equity markets. Again, these are the facts, and I know that the people listening to your show want the facts. Ninety-five percent of the wealth created since 2009 in the United States went to that famous 1%. It’s a fact, a fact worldwide. 62 people… everybody knows at least 62 people… imagine the 62 people that you know having more wealth than half the world’s population combined.

All this has done is juiced the equity markets. You look at fact after fact, the numbers don’t lie. All this is doing, again, it’s boosting up equity markets that should have failed a long time ago. The P/E ratios are out of line. Oh, how about this one? Hey, let’s look at corporate earnings. Why not? How many quarters have they been down in a row? Again, it’s gambling. It’s Ponzi-nomics. It’s not capitalism. They better start getting rid of that word, starting with Economics 101. This is not a capitalist society in the West. It’s bankism. Nothing’s changed from the days that Jesus Christ chased out the money changers out of the temple with a whip. It’s just a different group of names, man, doing the same dirty deals, propping up the markets to enrich themselves.

Mike Gleason: When we had you on back in the spring, I asked you if we were going to see another interest rate increase from the Fed following the paltry 25 basis point hike they did, and you said they couldn’t raise them because the market couldn’t handle it. You said the banks simply can’t operate without the continuance of low rates from the Fed, and just like you predicted, the Fed did nothing.

Hardly a week goes by without some Fed governor jawboning about plans to hike soon. What are you expecting now as we enter the final few months of the year, Gerald? Are they finally going to have to follow through and raise rates at least somewhat? And what about the possibility of a surprise? Maybe they follow Europe and Japan and go to negative interest rates or even helicopter money.

Gerald Celente: I think they’ll go to helicopter money before they go to negative rates, because the negative rates aren’t working at all. You look what’s going on, the numbers coming out of negative rate countries like Japan. What do they have Abenomics now, since 2012 basically that it began, and you’re looking at no growth coming out of Japan at all. Quite the opposite, in fact.

So what’s going to happen? There’s no way out. The central banks have run out of juice, and the only thing, again, they’re pumping up are these fake markets. Japan’s exports, for example, they just dropped 14%. Then you can say, well, you know, that’s because their Yen is strong and their products aren’t competitive. Then I would say, okay, then if their Yen is strong, they should be buying more. Correct?

Well how about this? Their imports tumbled 24.7%. Same thing in China, exports down, imports down. This isn’t boosting… and they have negative rates. Remember, they have negative rates in Japan. The other reason, Mike, they can’t raise rates is because look what’s going on now with the emerging markets. The MSCI Index is, boom, they’re popping back up from their lows, because all this hot money’s flowing back into them.

If the Fed raises rates, all of these emerging markets that borrowed this money when the quantitative easing and the dollar was really cheap, all that hot money that flew into there, countries and companies borrowing trillions, now they have to pay it back. They pay it back as the dollar value rises, as their currencies go down. What does that mean? More problems. So they can’t pay the debt back, and they won’t be able to pay it back, even worse, if there’s such a thing, if their currencies continue to decline and the dollar gets stronger.

I believe if the Fed raises rates, it will be after the election. And even at that point, it will be only 25 basis points, and look what happened the last time they raised them, last December when they raised them 25 basis points. You woke up, Happy New Year, the DOW opened up the first 2 weeks the worst in its history. Then you saw on a global index, you’re looking at about $6 trillion worth of equities are wiped out the first month of January. The Ponzi scheme cannot continue if they raise rates.

Mike Gleason: I want to shift to gold here because we’ve seen that this extremely low and/or negative real interest rate environment has been very bullish for the metals. We’ve got gold up over 25% so far this year, and silver is doing even better and is up about 40% year-to-date. All of the corrections in the metals have been very shallow as lots of money continues to flow into the sector, especially on the dips. Have the precious metals gotten a little ahead of themselves here maybe, or will we continue to see strength here in this sector?

Gerald Celente: I don’t think they’ve caught up to themselves. I think they have a lot more to go. Again, it’s like what you said before about these FOMC people coming out, all these Fed cats coming out saying, “Well, you know, the economy is strong and it looks like we’re going to be raising rates.” They keep BS-ing that. Go back to May, they never stopped. Then, poof, they shot down the price of gold, and that’s what they’re doing. That’s what all the central banks are doing. They’re talking up strength. They’re talking up probabilities of raising Fed rates to push down the price of gold, because once the price of gold breaks …

Here’s our forecast, by the way. We believe when gold breaks over $1,400, and I’m saying $1,400 strongly, $1,400 in terms of $1,480, $1,470, $1,460, that kind of range, we believe it’s going to spike toward $2,000. The greatest fear that the central banks have is that people see that their digital currencies backed by nothing and printed on nothing are worth nothing. That’s why they’re going to do everything they can to push down the price of gold, but at some point, it will be out of their power.

Mike Gleason: It does seem like the longer this goes on, the less control they do have over it. Obviously, we’ve seen a pretty big rise in the gold price this year, but you think that once it takes out some overhead resistance levels, it could be just off to the races and they could completely lose control. Is that what you’re saying?

Gerald Celente: Yes, because this next crash that happens will be the worst crash in modern financial history because of all the reasons I began with, all of this cheap money pumping up equity markets, pumping up mergers and acquisition activity, and one I forgot, pumping again up the housing bubble worldwide. So when this bubble bursts, it’s going to be one that we’ve never seen before.

Look, here’s the numbers, for example. Take China, go back 20 years to 1996. What was China’s total debt? About $500 billion. Now it’s over $30 trillion. Look what’s going on with Europe, with the ECB. What a bunch of slime with their negative interest rates and buying back not only government, but corporate bonds at the tune of, what, 80 billion Euros a month. Take a look what’s going on with the Bank of England. What did they lower interest rates to? Oh, only 322-year lows and now buying corporate and government debt.

So this bubble, when it bursts, we’re going to see gold prices hit through levels they’ve never hit through before. And remember, even when gold hit its high back in the autumn of 2011, it still didn’t reach the high it left back when it hit the high in 1980, when you adjust it for inflation.

Mike Gleason: Switching gears here a bit. I want to get your thoughts on the social unrest that we’ve been seeing here lately. Certainly, the last few years here in the U.S., and especially the last few months have been very emotionally charged. This past week we saw some disturbing images coming out of Milwaukee, the latest location to grab headlines in the growing and apparent war between minorities and police. What do you make of all of this and what are some of the repercussions of these kinds of events, because we have some very polarizing issues emerging here?

Gerald Celente: You said the word, polarizing issues. And I began by saying the polarizing wealth effect. Is that all of it? No, of course it’s not, but that’s a big part of it. There’s no middle class, the middle class is shrinking out. When people lose everything and have nothing left to lose, they lose it. This is what we thought would have happened back when the markets crashed, when the panic of ’08 hit, when we saw all those disturbances going on. What they’ve been doing is you don’t have bread lines anymore, so they keep shooting the people to keep them off the bread lines. Now, they’re going to levels where they can’t pop up at all.

Then you have huge drug issues on top of that. America is consuming, 80% of the world’s opiates and we’re only 5% of the world’s population. Look at all the prescription drugs people are on. Again, you have no future. It’s a futureless future. Then you have a militarized society. The fish rots from the head down. Look at the wars America is waging overseas. Look at how we glorify militarization, and we have a militarized police. The whole system is rotting out at all the levels.

This may be the last time you ever have me on your show because I may say this word and it may offend people, morality. It doesn’t exist anymore. Look what’s going on in this presidential election. I call it we’re getting “Crumped” between Clinton and Trump; 320 million people, this is it? This is the best we can do? And it’s a reflection of who America is and what it’s become, as we see it, as trends forecasts, as political atheists. I’m an American. My blood is Italian; my heart’s American. I launched Occupy Peace here from the most historic four corners in the United States at Kingston, New York, last September, and we own 3 of the most historic buildings in America. So when I say this, I say it because of my love of America and my heart breaking to see what’s going on.

There’s ways out of this, and Trump hits on some of them, but he goes off on a deep end on others. Of course, one of them is trade. They sold us out with NAFTA, and it keeps going on and on. There’s other ways out, too. It was one of our Top Trends and you saw it with the Brexit. The people voted for it. It’s direct democracy. Let the people vote for what they want. Now what can they do? How about Made in the U.K. with Pride? How about Made in America? How about a self-sustaining economy of 320 million people? Are we too stupid to make our own shirts, shoes, computers, and anything else?

There’s ways out of it, but we have a corrupt political system and how much more proof do people need? They start wars based on lies and they steal all our money, in the names of “Too big to fail” and any other words that they can make up. So there’s ways out, but not under the current system.

Mike Gleason: You touched on it there. The presidential election cycle is about to enter the home stretch here. It’s certainly provided a lot of entertaining theater so far and the best entertainment may be yet to come. Of course, we’re dealing with some really serious challenges as a country, and I don’t want to trivialize it, but give us your thoughts on Trump versus Hillary and what you’re expecting to see there this fall.

Gerald Celente: Well the cover of our Trends Journal in the spring of 2015 was “Cowards, Liars, Freaks and Fools: Welcome to the Presidential Reality Show.” That was two months before Trump got into the race. At that time, we picked Clinton. Then we went back and we picked Trump, and we picked Trump because of the issues, as what I talked about, it’s the bottom line. Most people care about jobs. You look at the polls. They care about income. They care about the future. Trump was trumping Clinton on that, and Clinton has no ground to stand on on that, considering that Bill Clinton gave us NAFTA and these trade agreements. Trump was winning on that issue until he put his foot in his mouth a number of times and is destroying his own candidacy.

Running political elections is not rocket science. I began my career out of graduate school. I ran a mayoral campaign. I was the campaign coordinator, number-2 guy at graduate school. And Yonkers is a city like what, 300,000 people. I ran political campaigns in Westchester County. I was the assistant to the secretary of the New York State Senate and designed and instructed American Politics and Campaign Technology at St. John’s University. Just to give you a little bit of my background. This isn’t rocket science. You stick to the script. When you need to change the script, you change it. Trump can’t do it.

So we believe that Trump should have been beating Clinton, and their campaign is not over yet. We believe that the debates are going to really be the turning key of this whole election, and they’ll be the most watched events probably of any TV event in history. So we’re going to wait until that happens, but the election was Trump’s to win or lose, again, based on the numbers. Go back to 1992. There was a campaign slogan they used to have in Clinton campaign offices around the country, “It’s the economy, stupid.” And that’s all it is. These other issues, the wedge issues, they’re side issues. It’s the economy, stupid.

Mike Gleason: Well as we begin to close here, tell our listeners what other developments you’re watching for in the months ahead. Your firm’s stock and trade is in identifying trends before everyone else becomes aware of them and helping your subscribers position themselves to take advantage. What are you expecting to see? What are you expecting to see in this coming 6 to 12 months? What will the headlines be looking like that people aren’t talking about yet?

Gerald Celente: Well two of the big ones, we still believe there’s an imminent market crash to happen. Then we’re also concerned about terrorism and war. People keep talking about terrorism, but nobody wants to talk about the cause and effect. So let’s say a foreign country came into the United States and hated our president and said they didn’t trust him with the nuclear button, and they invaded our country and killed everybody that you loved and destroyed the place. You think you’d want to get even with the people that did it?

So now, let’s take a trip to Iraq and Afghanistan. How about Libya and Syria? Look what’s going on with Yemen, the United States supplying all the weaponry, $20 billion last year under Obama, the Nobel Peace Prize winner. They should call that thing a piece of crap, the Nobel Piece of Crap. Twenty billion dollars’ worth of armaments to bomb the innocent people of Yemen given to the Saudis and America is part of the coalition.

We believe there’s going to be something that’s going to take the people’s mind off the economy, because when all else fails, they take you to war. We keep hearing the war drums beating louder, whether they’re against Russia or China, and they’re growing louder in the Middle East. So those are the 2 things we’re looking at, a market panic like we’ve never seen before and something, either a terrorist attack, false flag or real, that gets the people’s minds off the money.

And I say that… go back to 2001. America was in a severe recession. People forgot that. George Bush’s popularity rating was going below 50% and he had only been in office for several months. All of a sudden 9/11, poof, shot right back up and what did they do? Began lowering interest rates to 46-year lows. Juiced up the economy with a false infusion of cheap dough. That’s the kind of things we’re looking at.

On the technological end, boy, look for advances in robotization, virtual reality, and artificial intelligence. We’re really going into a new age and we don’t think in this level it’s going to be a dot-com bust. We think it’s going to be real and there’s going to be a lot of profit opportunities in it.

Mike Gleason: Well Mr. Celente, thank you so much for joining us again. I always love having you on and appreciate your candid insights as usual. Now before we let you go, as we always ask you to do, please let folks know how they can get their hands on the tremendous information you put out, both online and with the Trends Journal magazine as well as anything else that’s going on there at the Trends Research Institute that you want to mention.

Gerald Celente: We have the Trends Journal. We do a nightly broadcast, weekday broadcast, Trends in the News. We put out Trend Alerts each week and next week, our Trends Monthly. So it’s the only place we believe where you’re going to be able to read history before it happens. And we know people are having difficulties, so we have a discount request page, but even at that, the Trends Journal is only $99.00 a year for the digital edition. And it’s at TrendsResearch.com.

Mike Gleason: Well excellent stuff. Once again, have a great weekend, and I hope we can catch up with you again real soon. Appreciate your time, Mr. Celente.

Gerald Celente: Thank you. And thanks so much for having me on.

Mike Gleason: That will do it for this week. Our sincere thanks again to Gerald Celente, publisher of the renowned Trends Journal. For more information, the website again is TrendsResearch.com. Be sure to check that out.

And check back here next Friday for our next Weekly Market Wrap Podcast. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening, and have a great weekend, everybody.

The Huge Attraction of Gold and Silver Royalty and Streaming Companies

While many of the world’s major gold funds and gold stock ETFs invest in the gold mining majors, they also invest heavily in gold/silver royalty/streaming companies.  Frank Holmes tells us what makes them such attractive investments.

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

Why You Should LIke These Gold Medal Royalty Companies

In a note last week, UBS echoed its earlier assessment that gold has indeed “entered a new bull run,” as I shared with you last month. The precious metal had a spectacular first half of the year, with total global demand reaching 2,335 tonnes, the second-highest on record, according to the World Gold Council (WGC).

Despite this, gold is still under-owned, accounting for only 3 percent of total ETF assets under management, UBS writes. The group adds there is room for new or returning market participants who might have cleared out their gold positions during the recent bear market.

Driving the bull run, according to the group, are “a prolonged period of depressed real yields” and “elevated macro uncertainty.” These are themes I’ve returned to many times in the past six months, with global government bond yields continuing to drop below zero and economic and geopolitical unrest advancing following the Brexit referendum and ahead of the U.S. presidential election this November.

Confidence in monetary policy and appetite for government debt continues to erode. According to Zero Hedge, foreign central banks dumped a record $335 billion in U.S. Treasuries during the last year. The top seller in June was China, which cleared $28 billion in Treasuries off its balance sheet. Over the same period, the world’s second-largest economy added to its official gold reserves—500,000 ounces in June alone—in an effort to diversify its holdings.

China Winding Down U.S. Treasuries, Loading Up on Gold
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Investors should take heed of the fact that even central banks have become net buyers of gold. It’s always been my recommendation to maintain a 10 percent weighting in your portfolio—5 percent in gold bullion, another 5 percent in gold stocks.

A Superior Way to Gain Exposure to Gold

One of the best ways to play gold, I believe, is royalty and streaming companies. As a reminder, these companies serve as specialized financiers to explorers and producers. In return for upfront financing, they can receive one of two different types of payments. In one way, they can receive a royalty, or percentage, on whatever future sales the debtor company makes during the life of the mine.

In another way, they can buy a stream of precious metals at a low, fixed price. Discounts on gold, for instance, could be as much as 75 percent. This has typically been the preferred method for paying back the royalty company.

Some of our favorite names in this space include Franco-Nevada Mining, Silver Wheaton, Royal Gold and Sandstorm Gold, all of which have outperformed underlying gold for the 12-month period. Click the hyperlinks to read my special reports on Franco-Nevada and Silver Wheaton.

Royalty Companies Outshining Gold
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Better Allocators of Capital

Royalty and streaming companies show great opportunity on the upside but avoid many of the risks and operating expenses that explorers and producers must deal with.

Interestingly, they all employ a small group of technically skilled mining geologists, engineers, metallurgists and financial mining executives to analyze and monitor their investments.

Because they’re not responsible for buying mining machinery and building, operating and maintaining mines, they have a much lower total cash cost per ounce of gold than miners do. (In this context, cash cost refers to operational expenses that are paid using cash, rather than credit.) Their overhead is kept at a minimum, and they have some of the highest sales per employee in the world. As you can see below, their debt per share is much lower than senior miners Newmont Mining and Barrick Gold—the Army to royalty companies’ more agile and tactical Navy SEALs. Last year, Barrick cut $3.1 billion in debt last year and is on track to pay down an additional $2 billion this year.

We Believe Royalty Companies Have a Superior Business Model
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Their margins have typically been much larger than traditional explorers and producers, allowing them to remain profitable even during gold bear markets.

Take Sandstorm, one of the younger royalty companies. Its second-quarter cash cost per ounce of gold was a mere $261, giving it operating margins of $994 per ounce.

Compare this to Barrick, the world’s largest gold producer. Barrick reported cash costs of $578 per ounce, nearly double that of Sandstorm—and Barrick has some of the lowest costs compared to other miners, according to Motley Fool.

Royalty Companies: Capturing the Upside, Avoiding the Downside
Mining Companies Royalty Companies
Precious metals price upside X X
Exploration upside X X
Production rate upside X X
No sustaining costs X
No exploration costs X
No capital expense overruns X
Fixed cash costs X

Investors like royalty companies because they’re a skilled team of former miners and mining executives who generate substantially greater gross margins and have materially fewer employees, with less general and administrative expense.

Further, they offer spectacular optionality. They often buy an asset with a payload over 10 years. However, these deposits often extend for 30 years, so they have potential for a much bigger payback. If the mining company expands production, it’s free additional cash flow, and if they make a large discovery near the producing mine, the royalties have free upside growth.

For further reading, one of the strongest overviews of royalty companies is Streetwise Reports’“Precious Metal Royalties: The New Landscape.”

A New Entrant

Just as there still might be ample scope for gold investors to participate in the market, one CEO is betting there’s still room for another entrant into the precious metals royalty company space. Long-time precious metals commentator David Morgan recently helped found Lemuria Royalties, which reported in June that it had acquired its first silver royalty from a Peruvian mine operated by a subsidiary of Fortuna Silver Mines.

In January of this year, Morgan summed up his reasoning for establishing a new royalty company: “We favor the streaming and royalty companies a great deal because the risk is very low relative to, let’s say, an exploration company or even a producing company.”

This is precisely why we continue to find the royalty business model very attractive.

Fed member statements move gold price up or down. Should this be allowed?

First one US Fed leader says one thing regarding the possibility of a second interest rate hike this year and then another comes up with a different take on the U.S.’s overall economic position and gold and the dollar move up or down depending on what position is being taken.  We have commented before that why the gold price moves to the extent it does on the potential timing of what is likely to be a minimal interest rate increase of perhaps 25 basis points is somewhat of a mystery.  (See: Why does gold react so sharply to poss. Fed interest rate rise schedule?)  Real inflation is growing at a higher rate than official figures suggest and even if there is a small rate increase, the U.S. will effectively remain in negative rate territory, which is generally positive for gold, but this seems to be being totally disregarded.

Regarding a possible Fed rate increase, possible dates, if the Fed will raise them this year, are September, November and December.  We can probably rule out November as the Fed meeting is scheduled only a week ahead of the US Presidential election and the Fed wouldn’t want to be seen as doing anything which might be seen as impacting the result for whatever reason.  That leaves next month – probably too early, given the tone of the last FOMC minutes – and a more likely date of December, a full year after the last rate increase assuming economic indicators don’t turn down, which they well could.  But from a Fed credibility point of view one suspects that there will be added pressure to go for at least a December rate rise and we would rate that as the most likely date even though a number of top rated analysts do not believe the Fed will return to making small rate rises at all until next year – if then.

So what if the Fed does raise rates by perhaps another 25 basis points in December.  The biggest worry for the FOMC is perhaps that this will adversely impact general stock market growth.    There are many out there predicting a stock market crash as stocks are seen as overvalued and the worry is that it may only take a tiny adverse change in interest rates to trigger the start of a major downturn.

One doubts that the possible effects on gold will even be considered but it is worth remembering that after a very small adverse reaction given the rate rise was well forecast last December, within 3 weeks gold started on its upwards surge.  So much for adverse effects of a Fed rate increase on the gold price.

Personally one feels it would make sense to forbid Fed members from making statements suggesting whether or not rates will be raised sooner or later between FOMC meetings.  There’s always a knee jerk reaction in the U.S. markets following such statements with stocks, and gold in particular, moving up or down, sometimes quite sharply, on such statements which makes them potentially prone to abuse.  The Fed members who make these statements must be aware of exactly what their prognostications will do with respect to market movements.  Now maybe it’s Fed policy to promote such uncertainties, but if so it is a dangerous game to play, and an unfair one for the investment community

Strong Indian Monsoon to Boost Gold purchases

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

Since before recorded human history, the people of India have had an insatiable appetite for gold, treasuring it not only for its flawless natural beauty and religious significance but also as a superb store of value. This tradition carries on today, with India’s demand for gold jewelry in 2015 reaching more than 668 tonnes, nearly a third of total global demand and second in size only to China.

India and China Dominate Global Gold Jewelry Market
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I’ve pointed out many times before that the price of gold is largely driven by the Love Trade in India. Demand fluctuates year-to-year depending on several factors, the two most significant being the number of Indian weddings held in the fourth quarter and the amount of crop revenue that’s generated as a result of the summer monsoon season.

The wedding season is still three months away, but the June to September monsoon season is currently in full swing. It’s impossible to overstate just how crucial this period is to India’s important agriculture sector. During an average monsoon season, the Indian subcontinent can receive close to 80 percent of its total annual precipitation.

Most reports so far this year indicate surplus rainfall, with 12 inches being dumped nationwide last month alone, the fifth best month since the 1990s. This should come as welcome relief to Indian farmers, whose incomes have been squeezed by two long years of drought.

It’s also good news for gold consumption.

Converting Crops into Gold

Because of the above-average monsoon, gold spending in India is expected to increase 11 percent in 2016/2017 over the previous September to August crop season, according to Thomson Reuters. This would help reverse weak second-quarter jewelry demand in India due to a gold jewelers’ strike that closed the market for six weeks early in the quarter, a new 1 percent excise duty on jewelry and rising prices.

Gold has Rallied 26% Year-to-Date
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About a third of Indian gold demand comes from rural farmers, who have traditionally converted a percentage of all crop revenue into the precious metal to be held as insurance and sold in times of dire need. A GFMS/Thomson Reuters study conducted last year found that, between 1985 and 2014, there was a strong positive correlation between Indian crop revenue and spending on gold.

Following the crop season, we have Diwali and the Indian wedding season to look forward to.

Diwali, also known as the Festival of Lights, is arguably the most sacred holiday in Hinduism, celebrated by millions of people all over the globe. Much like Christmas, it serves as a major shopping season. Families splurge on expensive items such as cars, appliances, clothes—and gold jewelry. You can see how, in past years, the price of gold has ramped up in August and September as Indian merchants and jewelers restock inventories in preparation for the fall festival.

Gold has Rallied 26% Year-to-Date
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150 Million Indian Weddings Between Now and 2021?

The largest owners of gold in Indian are women, as it is auspicious to give them gifts of gold jewelry before their weddings. Because India lacks a formal social security system, it’s vital for women in particular to have some form of wealth preservation in the event of divorce or widowhood. This is what’s known as stridhan—a portion of a married couple’s wealth that is controlled exclusively by the wife and to which she is entitled, even after separation from her husband.

As World Gold Council CEO Aram Shishmanian put it during our joint webcast in June: “In India, a marriage is not a marriage without gold.”

Indian Weddings and Gold Infographic

So how many weddings are we talking about, and how much gold? Let’s look at the numbers. According to the Indian government, there are 300 million Indians between the ages of 25 and 29 from now until 2021. During this period, a projected 150 million weddings will take place. And for each wedding, roughly 35 percent to 40 percent of total expenses will be devoted to gold in the form of bullion, coins and jewelry.

Put another way, it’s estimated that the amount of gold purchased for a typical Indian wedding ranges between 20 and 2,000 grams—equivalent to a little over 70.5 ounces, or $95,457 at today’s prices. The wealthier the family, of course, the more gold they can afford to buy.

But gold is just as popular and valued—if not more so—among lower income families, many of whom depend on monsoon rains to nourish their crops. Here’s to a bountiful yield!

Fundamental change in gold price structure under way

Gold TodayGold closed in New York at $1,352.70 on Thursday after Wednesday’s close at $1,346.50.  London opened at $1,341 but immediately recovered to $1,346 before rising further.

    • The $: € was correcting at $1.1307 from $1.1329.
    • The dollar index was correcting at 94.52 from 94.35 Thursday.
    • The Yen was correcting slightly at 100.20 from Thursday’s 100.08 against the dollar.
    • The Yuan was weaker at 6.6517 from 6.6324 Thursday.

 

  • The Pound Sterling was slightly weaker at $1.3122 down from Thursday’s $1.3144.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  08  19

2016  08  18

SHAU

SHAU

288.02

288.80

288.68

288.84

Dollar equivalent @ $1: 6.6517

$1: 6.6324

$1,346.79

$1,354.36

$1,349.87

$1,354.55

New York closed higher than Shanghai’s whole day as Shanghai gold prices remain steady in Yuan!

It was a rapidly weakening Yuan exchange rate against the dollar that was responsible for dollar gold prices to fall. The combination of the Yuan price of gold and the move in the Yuan exchange rate affecting dollar gold prices this way, is just what the Shanghai Gold Exchange wanted. When they established the Fix an accompanying statement made it clear that it was not just to give SGE gold prices but to promote the use of the Yuan in such dealings. Here it is!

The Yuan throughout the week has being doing just that as it gyrated up and down.  The dollar, at the same time, while showing a weakening trend, has been comparatively steady.

We will watch this feature going forward as it indicates where pricing power lies.

LBMA price setting:  $1,346.85 after Thursday 18th August’s $1,347.10.

The gold price in the euro was set at €1,189.80 up €1.20 from Thursday’s €1,188.60.

Ahead of the opening in New York the gold price stood at $1,345.20 and in the euro at €1,187.55.  

Silver Today –The silver price closed in New York at $19.75 on Thursday down from $19.66 on Wednesday.  Ahead of New York’s opening the price was trading at $19.45.

Price Drivers

Long time readers of this daily report will know that we believe a fundamental change in the structure of the gold price is underway with pricing power slowly but surely headed eastwards to Shanghai.

With COMEX, a ‘paper gold’ market with the exception of between 1 & 5% physical dealings, yet controlling the dollar gold price and London, a secondary influence, despite it having a considerably larger measure of physical dealing in its midst, the fundamentals of gold demand and supply have become secondary to the influences of economic events on the gold price.

With China the largest physical gold market in the world and dealings based on physical content it overshadows the rest of the world’s gold markets already and yet this is not apparent. We know it will happen, so we follow the Shanghai Gold Fixings carefully to see the change in influence over the gold price come through and show itself in the price. What we have seen this week, in Shanghai and the Yuan gold price, is a shift away from the dollar in establishing the gold price. If the Chinese get what they want the main gold price will be a Yuan price and not a dollar price!

Gold ETFs – In New York on Tuesday there were sales of 1.781 tonnes from the SPDR gold ETF but no change in the holdings of the Gold Trust. This left their respective holdings at 955.994 tonnes and 223.85 tonnes.

Silver –Silver prices are dropping as they exaggerate gold’s small slippage, but, as always, will turn if gold breaks through resistance. If gold does not, we expect to see silver hold around these levels as they have already discounted a fall in the gold price.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Shanghai beginning to call the gold price tune?

Gold TodayGold closed in New York at $1,346.50 on Wednesday after Tuesday’s close at $1,346.10.  London opened at $1,352.

    • The $: € was very weak at $1.1329 from $1.1262.
    • The dollar index was weak at 94.35 from 94.96 Wednesday.
    • The Yen was stronger at 100.08 from Wednesday’s 100.76 against the dollar.
    • The Yuan was slightly stronger at 6.6324 from 6.6330 Wednesday.

 

  • The Pound Sterling was slightly stronger at $1.3144 up from Wednesday’s $1.3014.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  08  18

2016  08  17

SHAU

SHAU

288.80

287.60

288.84

287.39

Dollar equivalent @ $1: 6.6324

$1: 6.6330

$1,354.36

$1,348.61

$1,354.55

$1,347.63

In almost a repeat of yesterday Shanghai was much higher than New York’s closing but London decided to walk its own road opening lower at $1,352. Dollar weakness continues heavily, as seen in the dollar index as well as against the euro. We are in a time when a large number of experts are calling the dollar higher, but it consistently does the reverse.

With emerging and higher risk nations offering higher yields, their currencies are strengthening and will continue to do so until we do actually see a rate hike [which we don’t expect until next year].

LBMA price setting:  $1,347.10 after Wednesday 17th August’s $1,342.75.

The gold price in the euro was set at €1,188.60 down €3.05 from Wednesday’s €1,191.65.

Ahead of the opening in New York the gold price stood at $1,350.15 and in the euro at €1,191.3.  

Silver Today –The silver price closed in New York at $19.66 on Wednesday down from $19.80 on Tuesday.  Ahead of New York’s opening the price was trading at $19.75.

Price Drivers

Yesterday saw heavy sales from the U.S. gold ETFs and this pulled New York prices down a little. Overnight saw prices rise in Shanghai which is leading the way lately, in setting gold prices.

Is it right to describe higher prices in Shanghai as a premium over New York/London’s prices or should we say that New York is trading at a discount to Shanghai?

The physical statistics says the second, but COMEX, until recently, led the way on gold prices. We are watching carefully to see if the pattern persists and if global markets take the lead in gold prices from Shanghai. This would mean that pricing power is moving to Shanghai. This is significant in that it alters the factors influencing the gold price, making them more globally oriented, as opposed to U.S. oriented. It would then make for a more believable gold price, both in monetary terms and physical terms.

The Fed Minutes described a split in the FOMC, but where the ‘hawks’ sat was on the non-voting side and the ‘doves’, led by Janet Yellen, sat on the voting side. The factors affecting the ‘doves’ were global influences as well as productivity, alongside wages. We can see that while the U.S. economy appears solid, the growth is low and not accompanied by a ‘healthy’ level of inflation. Hence the market views a rate hike in September with only a 21% likelihood and a hike early next year at a 50% likelihood. This prospect heightens the impact a rate hike will have on all global financial markets.

Gold ETFs – In New York on Tuesday there were sales of 4.453 tonnes from the SPDR gold ETF (GLD) but no change in the holdings of the Gold Trust (IAU). This left their respective holdings at 957.775 tonnes and 223.85 tonnes.

Silver –Silver prices should continue around current levels until there is a breakout in the gold price, one way or the other.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

 

See what gold and silver stocks are being held by Deutsche Bank and Swiss National Bank

The following end-June data for stocks held by Deutsche Bank and Swiss National Bank are set out below.  Figures were as at end June when Deutsche Bank held around $2 billion worth of precious metals stocks and the Swiss National Bank about half that.  The precious metals stock holdings were dwarfed by holdings in industrials etc.  There’s further comment by me on these holdings on Seekingalpha.com – see In Which Gold And Silver Stocks Are Major European Banks Invested?

Table 1. Top 25 Deutsche Bank precious metals stock holdings as at June 30.

Rank Company Holding Value ($’000)
1. Newmont Mining (NYSE:NEM) 267,801
2. Barrick Gold (NYSE:ABX) 238,550
3. Goldcorp (NYSE:GG) 198,990
4. Agnico Eagle (NYSE:AEM) 177,349
5. Silver Wheaton (NYSE:SLW) 136,135
6. Franco Nevada (NYSE:FNV) 124,034
7. Yamana Gold (YAU) 72,107
8. Randgold Resources (NASDAQ:GOLD) 68,757
9. Pan American Silver (NASDAQ:PAAS) 58,713
10. AngloGold Ashanti (NYSE:AU) 57,534
11. Kinross Gold (NYSE:KGC) 54,180
12. Tahoe Resources (NYSE:TAHO) 49,923
13. Royal Gold (NASDAQ:RGLD) 44,415
14. Sibanye Gold (NYSE:SBGL) 43,508
15. Eldorado Gold (NYSE:EGO) 42,724
16. Gold Fields (NYSE:GFI) 38,988
17. Buenaventura (NYSE:BVN) 38,182
18. Pretium Resources (NYSE:PVG) 35,373
19. First Majestic (NYSE:AG) 34,597
20. Silver Standard (NASDAQ:SSRI) 28,511
21. Hecla Mining (NYSE:HL) 27,048
22. B2Gold (NYSEMKT:BTG) 25,389
23. Coeur Mining (NYSE:CDE) 24,066
24. New Gold (NYSEMKT:NGD) 24,065
25. Alamos Gold (NYSE:AGI) 23,392

Source: lawrieongold.com, holdingschannel.com

Table 2. Top 25 Swiss National Bank precious metals stock holdings as at June 30.

Rank Company Holding Value ($’000)
1. Goldcorp 171,557
2. Newmont 163,851
3. Franco Nevada 145,548
4. Agnico Eagle 125,933
5. Silver Wheaton 110,164
6. Kinross Gold 59,853
7. Yamana Gold (YAU) 50,589
8. Eldorado Gold 34,804
9. Royal Gold 7,944
10. Tahoe Resources 7,604
11. Buenaventura 5,160
12. Pan American Silver 4,211
13. B2Gold 3,881
14. New Gold 3,728
15. First Majestic 3,243
16. Hecla 3,158
17. Pretium Resources 2,798
18. Iamgold (NYSE:IAG) 2,753
19. Coeur Mining 2,747
20. Silver Standard 2,430
21. NovaGold (NYSEMKT:NG) 2,344
22. McEwen Mining (NYSE:MUX) 1,530
23. MAG Silver (NASDAQ:MAG) 1,469
24. Asanko Gold (NYSEMKT:AKG) 1,210
25. Sandstorm (NYSEMKT:SAND) 926

Source: lawrieongold.com, holdingschannel.com

Negative interest rates:  Great for gold but are they any good for the economy?

Central Banks have been viewing ultra-low, or in many cases directly, or effectively, negative, interest rates as being the panacea for all economic ills.  Deprive savers of interest, so the theory goes, and they will opt to spend their savings instead, thereby generating a boost for the economy.  Low interest rates also make borrowing costs lower for industry and, with supposedly additional availability of capital through quantitative easing programmes should thereby boost investment in necessary plant and equipment.

It is becoming more and more apparent that neither of these strategies are working, or at least not to the extent anticipated by the economists promoting this policy which is, unfortunately, being followed by many of the world’s major central banks.

From the savings angle, what the policy is really doing is driving savers away from traditional income generating securities and into assets like gold which may pay no interest – no interest is better than negative interest – but offers the possibility of capital accumulation.  Those in countries like the UK, where the currency first weakened against the US dollar post the Brexit vote, and then again when the Bank of England cut the base rate and re-introduced monetary stimulation, will have seen some substantial gains through moving into gold.  We advised, (See:UPDATE: Brexit in the balance.  Gold surges.  Silver may begin to fly where I commented “UK investors in particular should look to investing in gold as a wealth protector given that if the UK referendum, now only a week away, should result in a Leave vote – the Brexit option – there would be a knee-jerk reaction knocking the pound sterling down sharply against the dollar, while the gold price would likely rise on fears of considerable further economic disruption within the Eurozone ahead of the Brexit vote”) for UK investors to at least put some of their investments into gold for example as insurance against a ‘Leave the EU’ decision, and those who did benefited very nicely indeed, thank you, at least in terms of the pound sterling. The combination of the rising gold price in US dollars and the fall in sterling against the dollar had a multiplying impact on an investment in gold or in silver.

On the business front there’s little evidence that the huge move towards zero, or negative, interest rates has done much to stimulate activity.   Businesses are seen as reluctant to borrow, even when the cost of borrowing is so low, to put money into new plant and equipment, or services, when demand for their products is not seen as being positive in any case.  For many the imposition of such low interest rates is seen as yet another indication of a sick economy and an ultra low-growth environment.

Among the nations which have moved to the imposition of negative interest rates are, most significantly, the European Central Bank (ECB) and the Japanese Central Bank (BoJ), while Denmark, Sweden and Switzerland have also followed suit.  The Bank of England (BoE) is almost there too and with the prospect of another rate cut should the post-Brexit economy not pick up, could be in zero, or negative, territory by the year end.  And with inflation probably running higher than most governments will admit, all these, and more including the USA, are effectively in a below zero environment as far as bond investment returns are concerned.  All this is positive for gold, but of increasing worry for the Central Banking system which seems to have little more ammunition left with which to try and stimulate flagging global economies.

Just to emphasise the problem a recent survey, published in the UK’s highly respected Financial Times newspaper suggested that the universe of sub-zero-yielding debt – primarily government bonds in Europe and Japan but also a mounting number of highly-rated corporate bonds – has reached the enormous total of $13.4 TRILLION.

Another factor which is indeed worrying for businesses and which could see them look to deposit any spare cash in alternative investments is the looming possibility of bank bail-ins, whereby large holders of money in the banking system see some of their hard-earned cash effectively confiscated to help rescue an ailing bank.  This was brought to the fore a couple of years ago in Cyprus when a bail-in was imposed for major clients of the Bank of Cyprus which was close to failure because of its large holdings of Greek debt.  As the UK’s Daily Telegraph reported at the time: The imposed bail-in forced big savers to foot the bill for the recapitalisation of the nation’s biggest bank.  The bank said that it converted 37.5% of deposits exceeding €100,000 into “class A” shares, with an additional 22.5% held as a buffer for possible conversion in the future. Another 30pc was temporarily frozen and held as deposits.

Legislation was subsequently changed to permit bail-ins of this nature across the EU and now the spectre of something similar occurring in Ireland has been reported with one of the country’s biggest insurers said to have been moving its cash holdings out of the banking system into government bonds for fear of another property price crash putting the Irish banking system in peril.

There is thus something of a confluence in factors which would seem to be gold supportive in the medium term, while the increase in geopolitical tensions between the Ukraine and Russia, and China’s belligerent rhetoric over its de facto annexation of large sections of the South China Sea, and the uncertainties engendered by perhaps the most politically divisive US presidential election ever, is further adding to the positive environment for the gold price.  Whether the markets will recognise this after the Labor Day holiday, when the US traders, bankers, fund managers et al are back from their holidays, which has seen something of a volatile marketplace for precious metals over the past month, remains to be seen as there are a lot of big vested interests at play here, but we do see the overall pricing environment as distinctly positive.

Gold and silver prices steady in the euro weak in the dollar  

Gold TodayGold closed in New York at $1,346.10 on Tuesday after Monday’s close at $1,339.40.  London opened at $1,341.

    • The $: € was almost unchanged at $1.1262 from $1.1268.
    • The dollar index was almost unchanged at 94.96 from 94.94 Tuesday.
    • The Yen was slightly weaker at 100.76 from Tuesday’s 100.25 against the dollar.
    • The Yuan was weaker at 6.6330 from 6.6270 Tuesday.
  • The Pound Sterling was slightly stronger at $1.3014 up from Tuesday’s $1.2934.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  08  17

2016  08  16

SHAU

SHAU

287.60

287.48

287.39

288.47

Dollar equivalent @ $1: 6.6330

$1: 6.6270

$1,348.61

$1,349.27

$1,347.63

$1,353.92

Again Shanghai was higher than New York’s closing but London decided to walk its own road at the opening, opening lower at $1,341. The reason London pulled gold prices down before the opening in London was the continuing ‘strength of the euro/weakness of the dollar, as you can see in the euro gold prices below.

LBMA price setting:  $1,342.75 after Tuesday 16th August’s $1,349.10.

The gold price in the euro was set at €1,191.65 down €5.32 from Tuesday’s €1,196.97.

Ahead of the opening in New York the gold price stood at $1,343.75 and in the euro at €1,197.42.  

Silver Today –The silver price closed in New York at $19.80 on Tuesday down from $19.81 on Monday.  Ahead of New York’s opening the price was trading at $19.68.

Price Drivers

Yesterday saw more tonnage bought into the U.S. gold ETFs, but this had no effect on gold prices.  Gold had hit $1,354 during the day in both London and New York, but pulled back on little to no selling volume thereafter. It is reported that Stanley Drukenmiller has sold his holdings of SPDR gold ETF Call Options and this after his condemnation of the actions of central banks, justifying holding gold in May, not so long ago. We doubt he would have exited gold after that position statement.  More likely he would have found another way to hold gold. We would have expected him to change to allocated gold in physical form, if he was a serious long-term holder.

After all the SPDR gold ETF shareholders [which is what you buy when you buy into the ETFs] don’t own gold, the company owning SPDR does. And that rather defeats the purpose of owning such holdings. After all if central banks get into trouble one of the most likely sources of gold for them lies in SPDR gold holdings. So, it makes far more sense to own the gold directly out of reach of central banks in an allocated form [just holding it outside the country is insufficient to protect from confiscation] as no doubt Mr. Drukenmiller knows.

The market appears to be holding back ahead of the publication of the Minutes from the last Fed meeting for signs that a rate hike is in prospect. The markets have indicated that there is a 50% chance of a rate hike in December, not September, this year. But productivity in the U.S., a major factor in the decision remains at low levels and current data has been weak. As we said last yesterday, “On several fronts, developed world and emerging world bonds, equity markets and on the currency front, any lifting of U.S. interest rates would catapult these markets down, while the dollar would be catapulted higher. So the weight of responsibility on the U.S. Fed grows by the day. We at Gold Forecaster do not expect such a rise in rates for a long, long time because of this risk.”

Gold ETFs – In New York on Tuesday there were purchases of 1.781 tonnes into the SPDR gold ETF (GLD) and 0.96 of a tonne into the Gold Trust (IAU). This left their respective holdings at 962.228 tonnes and 223.85 tonnes.

Silver –Silver prices stumbled heavily pulling back from $20 to the mid-$19. Should gold rise through $1,360 you will see silver run ahead well over $20.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance