GLD Rising. Is this the move we’ve been waiting for?

Updated version of an article published on sharpspixley.com on Monday.  To read original article click here

In a post a few weeks ago we suggested monitoring inflows or outflows of gold into or out of the big SPDR Gold Shares gold ETF (GLD) as a way of judging big money sentiment on gold (See: Watch GLD for gold price guidance) and for a corresponding gold price direction. And, after a series of consistent gold withdrawals from the ETF, this does seem as if it may have turned around sharply last week at almost exactly the same time as the big fall in the equities markets commenced. Last Tuesday, for example, 8.82 tonnes of gold were added into GLD – the first increase since July – and after a couple of days of zero movement in the ETF, another 5.65 tonnes of gold were added into it on Thursday. the additions continued over the weekend with a further 4.12 tonnes added.  These are not insignificant amounts. 18.59  tonnes of gold is equivalent to around the annual production of the world’s 32nd largest gold producer last year – and this amount was added only over a 6-day period. This week’s continuing GLD figures will thus be particularly worth watching to see if the build-up continues – and if it does watch out!

Many observers have suggested that for a sustained increase in the gold price this would be accompanied by a significant downwards correction in the general equities markets which are seen by many as overbought, with such a correction perhaps overdue and inevitable. But beware of a really big downward move in equities should this happen, as some commentators suggest. Such an occurrence could bring precious metals down in price too as happened in 2008. The prospect of this may have lightened somewhat in comparison with the last big downturn as many institutions are out of any substantial precious metal holdings given they have been somewhat out of favour as an investable asset in the past several months. And even if they do drop in price alongside equities they will likely recover far faster – as in 2008/2009.

Today has seen a bit of a pick-up in equities in most markets, although gold has pretty well held on to its gains.  What is too early to tell though is whether today’s equity recovery is a shortlived bounce, or a start of the continuation of the bull market in general equities.  It’s perhaps worth reading the transcript of the Stephen Leeb interview published on this site a day or so ago.  Despite a slightly rambling interview, Leeb is one of the smartest guys around and he reckons that if this recent move in equities is not the start of the long-awaited crash, the latter is not far ahead.  We shall see in  the next few days.

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Looking for 3-digit silver and 5-digit gold!

Mike Gleason* of Money Metals Exchange interviews Dr Stephen Leeb of Leeb Capital Management on last Wednesday, the day the equities markets turned down very sharply.  To download the actual podcast of the interview and a general introduction by Mike click here. The transcript of the Leeb interview follows:

Mike Gleason: It is my privilege now to welcome in Dr. Stephen Leeb, Chief Investment Officer at Leeb Capital Management. Dr. Leeb has decades of experience in the financial markets and has even authored seven well regarded books, including best sellers The Coming Economic Collapse: How to Thrive When Oil Costs $200 a Barrel, and Game Over: How to Prosper in a Shattered Economy. He’s also the Founder of The Leeb Group, which publishes several financial newsletters. Among them, The Complete Investor, a publication that has received two awards for editorial excellence.

As such, Dr. Leeb is one of the foremost authorities on macroeconomic trends and commodities, especially when it comes to energy and precious metals, and has appeared on financial shows, on Fox Business, CNN, and several others, and it’s great to finally have him here on the Money Metals podcast.

Stephen, it’s a real honor to speak with you and thanks so much for joining us today.

Dr Stephen Leeb: Mike, it’s my pleasure.

Mike Gleason: Well, Dr. Leeb, I’d like to get your thoughts first on the equity markets, as we’re talking here on Wednesday, there’s some real fireworks going on, but stocks bottomed in early 2009 with the S&P 500 at 735. We’re approaching 10 years of a bull market now, with just a few bumps along the way. I guess the last week being one of those. But the S&P has nearly quadrupled.

On the one hand, we can see headwinds for equities building, interest rates are rising, the President’s tariffs are likely to disrupt trade and raise costs. Valuations are really stretched relative to earnings with average PE ratios at extreme highs, and this bull market and stocks is awfully long in the tooth as we both know.

On the other hand, there are some legitimate reasons for optimism. We’ve seen reduced taxes and some reduced regulation with hope for more of that to come, so what are you expecting for stock markets? Do you think we can get another year or two of rising prices?

Dr Stephen Leeb: I would say not two. I would say at most, into 2019. I think after that, we start really having problems. One of the reasons that you have events like today, I mean, the market’s down, wow, I’m looking at this trying to figure out exactly how much it’s down. The S&P is approaching 4% decline.

That’s a very big one day decline. I don’t remember the last time we had one like that, and it follows about four declines in a row. The reasons here I think are basically investors really don’t know what to expect. I mean, you did lay out all the reasons for why the market has been rallying, and rallying recently on the heels of the tax cut. More money in company coffers, etcetera.

But there’s a payback and part of that payback is going to be a whole lot of debt. Part of that payback is going to be, as the IMF said yesterday, lower growth. Especially going into 2019. Really, across the board. That’s going to make the debt problem in the U.S., I think a very, very serious problem. Where are we going to get the money? The administration now is talking about an infrastructure program. I don’t see it.

You see these strange things coming out of the administration. I’m not taking a political side, I don’t think this is a political issue, because these strange things, they go across administrations. It’s not just this administration where you see strange things coming out. It was the previous administration, and probably the administration before that, so I mean, this is not a pox on Democrats or Republicans. This is a reason why we should not be so partisan, though, I guess.

Mike Gleason: Stephen, I know you’ve had some really interesting things to say on the rare earth elementals and how that could really impact things on the trade war, talk about that because I thought that was really interesting.

Dr Stephen Leeb: The Pentagon issued what they might call a whitepaper the other day, telling us how dependent we are on China for certain critical materials. In particular, heavy rare earths, which are really essential for many of our technologies and especially important is that they’re essential for our military technologies. The only real source of those heavy rare earths is China. Well, let me just qualify that. There is a company domiciled in Australia, called Lycas, and they do have a huge ore body of rare earths, including heavy rare earths, but they have to send them to Malaysia in order to be refined.

Because it’s a very, very elaborate process, and recently the Malaysian government has been making noises, very strong noises that they may shut down that refinery. That would leave the world essentially dependent on China for what are really essential chemicals and elements for our high defense, our high technology products. And that’s not a great situation to be in. But what is really upsetting to me is that this is something I wrote about in 2011, in my book Red Alert. I’m doing another book on China right now, and it’s not going to be as optimistic as that.

I mean, I thought we would catch up by this point, and when I wrote about it in 2011, let me be clear, I don’t want to take credit for being the first to realize how important rare earths were. I mean, it was known then, so there’s probably a decade of unwillingness to address this very, very serious problem. And then you see Vice President Pence giving a speech I think within the last week or so, saying that we’re going to go into the South China Sea, we’re going to make a scene, exercises there.

We’re in no position to be able to handicap those kinds of exercises, because it’s not clear that we have the kinds of technologies that we need. I hate to say this. I mean, if we were fighting a world war against China, yes, I would give heavy odds that the U.S. would win. We have a much bigger military presence throughout the world, but China has not really geared itself to fighting a world war. They’ve geared themselves to defending critical territories. And they’ve used these technologies.

I can cite chapter and verse from people that are in our own armies, our Air Force, our Navy, our Army, and that have done this research. They’re paid researchers. This was from circa two years ago. China’s progress in these areas have been startling, while we’ve been hung up in our own bureaucracies. This was pre-Trump, so it was maybe three years ago, three or four years ago.

We still haven’t done a thing about it, and I think this is probably about the third or fourth whitepaper that I’ve seen on rare earths, and then you have, and this I do have to say, I don’t want to take a political stand here because it’s a pox on everybody. But when you hear the president saying that all these tariffs are going to mean tremendous taxes paid by China into U.S. coffers, well, that’s not how tariffs work. It’s the U.S. that are paying the taxes, so that they won’t buy the Chinese products.

There seems to be a lot of disconnection within administrations over what America needs, and this has led me to really think that we probably need a new monetary system, a way for the world to cooperate and come together. We’re just not getting there, and if you’re not going to get there, it’s going to continue to be rough and ready. Most countries have stuff that other countries need.

I think China has been first to recognize this, and they’ve done a pretty good job becoming independent, but they’re not completely independent. I mean, they have their own issues. We have our own issues. We’re just going about this the wrong way. I mean, this is probably the worst time to be as partisan as we are. You just saw this with this debate over the Supreme Court. Who can say who’s right? It’s a question of are you Democratic, are you Republican?

I mean, it was to me, a little bit horrifying to watch what was going on. Supreme Court nominees are not, they don’t get in by one vote and that one vote being based upon what party you’re from. I mean, something has to change or else I fear that it could get worse, and just giving you my feeling that I talk the talk, but I’m also walking the walk in that I’m writing a book that basically will have to do with China, and gold.

I don’t see how you can continue with the kind of situation that you have right now. I think China at this point is doing as much trading, apart from the dollar, as they possibly can. Will that speed up? I would guess it would.

So, you’re in a very unique, historical situation right now, and it covers all sorts of areas. The center point I would probably say would be oil. I mean, what I was talking about earlier, rare earths, that’s certainly a very, very important boldface sidebar, in this whole discussion. But we’ve got to come to some sort of agreement and this stuff with tariffs, I understand it. I understand that China’s done a lot of horrible things, but I think that they will listen to reason.

China from my point of view, I’ve studied them, they’re not a bellicose country, basically. I mean, the last war they fought, I don’t know when the last war they fought, but they’ve fought a lot fewer wars than we have, and they lost wars. I think that’s something that really informs what they’re doing. They don’t want to lose another war. They’re not seeking worldwide hegemony, they don’t have a military that can challenge us across the globe, but they do I think have a military that can well defend the areas that they consider critical to their survival and that’s most of the developing world.

I mean, we’ve got to try and work this out with them, or else we’re going to see a lot more days and a lot more volatility in this market. I think we had a lot of good times, a lot of it was due to the fact that commodity prices dipped and fell, and you had a tax cut more recently, but now it’s going to get a little bit harder. Now you’re seeing all of a sudden, costs rising, and things like that. I think we have our work cut out for us, and I think that every investor probably should own some gold.

Mike Gleason: Talking about gold here, Stephen, it seems to us that it’s actually doing pretty well. I know a lot of people are probably pretty disappointed by the price action, but given how well the stock market has done, prior to this week of course, and how strong the dollar has been in the currency markets, you’ve got to feel pretty good about how gold has hung in there, don’t you?

Dr Stephen Leeb: Yes and no. Yes, you do, but what you have to realize Mike, if you took a chart of the gold priced in yuan, you would see it looking not quite a straight line. If you took a 200-day moving average, it would be pretty close to a straight line. A 52-week moving average. Over the last 12 months, see this is I think part of China’s plan, gold and the yuan have traded very, very close together. Very, very close together.

I think what China is trying to say, and I’m not necessarily accusing them on manipulation or anything like that. I’m not really a conspirator, but as I said, I think back when you first started asking me questions, that if you’re in China, and you have yuan, you can trade your yuan for gold. And if you have gold, you can get yuan for gold, you can get gold for yuan. If you’re trading oil, you can do that.

Now, it’s not an easy thing to do. I mean, you have to go over to another pit. I don’t know what it’s involved. I’ve never really traded commodities on that level. I trade them on the phone, I’m not in the pits etcetera, I have no idea, but I do know that de facto yuan and gold are exchangeable, and oil trading in yuan is oil trading in yuan, de facto backed by gold. So what the Chinese arbitrage or whatever it is, what’s happened is if you look at gold priced in yuan, it’s been very, very steady for the past I would say over a year. At least since they started trading that oil contract.

I think China’s message to the rest of the world is that the yuan is as good as gold. That doesn’t mean it’s as good as the dollar. It has not been as good as the dollar, but it has been as good as gold. My guess is that gold, here we’re talking about a hypothetical, I honestly think gold would probably be higher, had this yuan/gold effect not been in place.

I mean, I think there’s enough uncertainties in the market right now, in the economy right now. There’s a lot of people that are not happy with Trump, profoundly not happy, and there are a lot of people that are profoundly happy. I come from a family where I’m scared to talk to my son and I’m scared to talk to my wife. When I talk to my wife, I have to say one thing, when I talk to my son I have to say something else, or else I’ll be an orphan. I’ll be thrown out. People have very, very strong emotions right now, and I just wish I could bring people together.

But there are these kinds of partisan uncertainties. Can you ever remember a time where you had a partisan division deciding the Supreme Court nominee? I do think Kavanaugh’s a perfectly acceptable nominee, but the way he got in by appealing to partisanship. I mean, this is nuts. I think that gold probably would have been stronger, that’s just my guess. This is highly speculative, had it not been for the fact that it’s now linked to the yuan.

Now, there’s a good reason for the yuan to be weak, because we’re administrating these massive tariffs, so that by weakening the yuan and the dollar staying relatively strong, at least gives China time to transition from exporting to the U.S., to exporting to the developing world in the East. One thing with is true is that China’s trade with the Belt Road Initiative right now is something like 1.6 trillion dollars a year. Much, much more than the U.S.

I think China’s goal would probably be lessen their dependence on the U.S. Our goal should probably keep them dependent on the U.S., so that it’s easier to create a world war, but you do have these blasts of uncertainty coming forward. And how is the high debt going to affect us next year? Etcetera. So, I would have expected gold, everything else equal, to be higher, closer to $1,300-$1400. But look, that’s not an argument anyone can win.

If you tell me you think it’s good around $1,200, I’m not going to get into any sort of debate about that. But I do know that if you look at the yuan and you look at gold, they’ve been basically straight lined. I mean, it’s ironic, because if you look at the yuan by itself, it’s been incredibly volatile, and if you look at gold by itself, it’s always pretty volatile.

But if you look at them together, to have their volatility so matched together, it is really a very, very, very low probability, statistical phenomena, so low that you just have to guess that they are somehow interlinked. But again, I don’t have proof of this, and I don’t want to raise the thought of conspiracy or anything like that, because it could be happening very naturally, because of the arbitrage with oil and gold, vis-a-vis the yuan.

So, yes, I think that gold is holding up with respect to the dollar pretty well, but I think that it probably could do better. There have been a number of periods in history in which gold has done very well in the face of a strong dollar. Typically, if the dollar gets crushed, it means that something’s gone wrong in the U.S., which for most of our lifetimes has been the strongest economy in the world, so it stands to reason that gold would rise.

But there have also been times where the dollar has done well, the U.S. has done well, and there’s been inflationary pressures, and gold has done well, too. So, I think gold is acting according to a different dynamic at this point.

Mike Gleason: Well, we’ve touched on gold a little bit there. How about silver, Stephen? We’ve got a ratio of 83:1 as we’re talking here on Wednesday afternoon. What kind of value do you see in silver in the months ahead? Because silver can be a very interesting metal. It’s got this push/pull situation going on. Sometimes it’s hurt by lack of industrial demand during a slowing economy, but it can also catch a bid during such an environment due to its monetary status as a safe haven. So, what do you have to say about silver here as we begin to close?

Dr Stephen Leeb: I think silver could be, and again, if you’d asked me this a couple of years ago, I would have said it could be a $100 metal. I haven’t changed. I think that silver basically for reasons that you put so well, and it’s an industrial metal, it’s also a monetary metal, and its industrial uses I think in some cases are probably not replaceable. Right now we need it for photovoltaics, and I think that has to play a major role in future energies.

It’s the most conductive metal on the earth, it’s more conductive than copper so it has a major role in all of these car information systems, because you need incredibly good conduction in certain cases. Its industrial uses are starting to really expand, and as you see the electric vehicle take off, I think you’ll see a greater demand for silver. It’s more volatile than gold. I mean, if you find your stomach turning watching gold, which sometimes I do, don’t watch silver.

I mean, then you’ll have to knock yourself out with Valium or something. I mean, it can be really a crazy metal, but if I were a betting man, I would say in the early 2020s, it would not surprise me —I don’t want to make a prediction – but it would not surprise me to see three-digit silver. It would not surprise me, incidentally, to see five digit gold, because you’re going to need a high price of gold in order to back up a lot of the trade that I think you’re going to see in this world.

I just again want to emphasize, in writing this book, I started talking to my editor etcetera, I said, “I don’t want the last chapter to be a doomsday chapter about the U.S. I want it to be a hopeful chapter that this still can be a win/win situation.” There doesn’t have to be a number one country in the world. I mean, there has to be a number one world, a world that can be united and share and do things. I mean, everybody has things that everybody else needs. I don’t want to sound like an idealist, or some sort of spiritual nut, I’m not by any stretch of the imagination.

But I think if you look around and see, the world was doing okay for a while, but we lost it here when everything speeded up for us after we went off the gold standard in the early ’70s. We went from a country that looked forward and invested for what was going to happen in the future, to a country that is now trading in terms of nanoseconds. We’ve got to get back to the Bell Lab days. I mean, we criticized the hell out of China because of these state owned enterprises, which I think is probably right to a certain extent.

But I’ll just cite one state owned enterprise, or state controlled enterprise that we have in this country, and it’s called AT&T. This is before the breakup and everything else. It was when AT&T controlled Bell Labs, and it was basically a government run utility that was allowed a certain rate of return. But they were also allowed Bell Labs, and out of Bell Labs, we got our transistor, we got laser, we got the internet, we got so much out of that. We have to get back to what really made us successful.

In 1957, Sputnik was launched, and three years later, instead of battling Russia, which we were to some extent, but our major focus, our major reaction to Sputnik was what? It was multibillion in today’s dollars, grants for science, education, and everything else, to get us going on. Now you’ve got this thing with rare earths, there’s a massive deposit of rare earths in Canada which could be developed. But we’ve done nothing about it.

It’s been a decade, and we’ve done nothing about it. Incidentally, I’m not saying this to brag, about seven years ago when my last book came out, Steve Bannon did a half hour interview with me, talking about rare earths. The only reason I’m saying that is because this has been known. I was not the first one to discover it. But maybe the first one to write about it in a book. There are so many good things that we could be doing. There are Manhattan Projects around, like rare earths would be one example.

But there are others that we could be using to develop not a hydrogen bomb, but rather things that could help our technologies, help our well-being, and help the wellbeing of a lot of other people. We’ve got to get the right religion, we’ve got to all become Americans. I’ll be happy when someone says to a typical person, “What’s your political persuasion?” If that person says American, he has my vote, or she has my vote. But until we get to that point, I fear you’re going to have a tremendous amount of volatility. Market’s now down 3%, incidentally.

I had the numbers wrong before, but now unfortunately, I have ’em right, and it is down about 3%, the S&P. Maybe a shade less. And I don’t think that this is the big one yet. Could be wrong. I think it’s a time to be cautious. Incidentally, if I can make one correction, I don’t publish these services anymore. They’re published by an outfit called Investor Daily, out of Virginia.

They do a very, very good job and I want to make sure they get credit for it. I’m the editor. Everything that goes into my publications is me. It’s me, my wife, and other people that help me, but I do manage money. That is true. But lately, in the publications we’ve been getting more cautious. Now, of course, I look at it day like today and I say, “Why didn’t I get even more cautious.” But anyway, I would stay cautious right now. I don’t think I would make a big bet that this is the start of a massive decline, unless we see something show up, some big bank in trouble etcetera, then you know that you’ve got to act very, very quickly.

I don’t even think gold would be the best way to act right then. I think it would probably be zero coupon bonds. That’s what worked better for us in 2008, and then you saw gold shoot up. But yes, I think everybody should have gold in their portfolio, at least up to 10%. Silver, as a portion of that, precious metal division, which could again be run up to 15%, and be cautious. Look at value stocks. They tend to do better in situations like this. That would be my general advice. I do think that we’ll probably get a recovery.

New highs in January, it wouldn’t shock me. But it wouldn’t shock me if the market continued to go down. I mean, these are turbulent times. And in turbulent times, things that are unpredictable sometimes happen. When you’re in a situation where you have almost no excess oil supply, you could get a spike in oil. Even from the $82 area, and that would be really very, very serious. Oil spikes have proceeded every major market correction, and I think every major economic decline since the Arab embargo in the early ’70s.

One thing to keep your eye on is not necessarily $100 oil, but if you saw oil find a home above $100 for let’s say a month or so, I would really get super cautious. That would be one sure sign that things are really out of whack. I think times are going to be very turbulent. You’ve got to stick with gold, you’ve got to stay on your toes, and you’ve got to take very much for granted.

Mike Gleason: Yeah, well that’s very well put, we’ll leave it there for now, and thank you so much for joining us, Dr. Leeb. We hope we can do this again in the future. We’ve been following you for quite some time and really value your insights. It was great having you on. Before we let you go, please tell people how they can find you and follow you if they’d like to do that.

Dr Stephen Leeb: Okay, sure. Basically, you can just look me up on the internet, Stephen Leeb. And the place that publishes my publications right now is called Investor Daily. It’s right there. There’s a Wikipedia thing on me, which is actually pretty true I think. And I would look up Investors Daily. I do two or three publications for them. They’d be happy to have you.

They’ll also try and sell you other publications, and those other publications I’m happy to say are very good as well. They do a very good job, so I think that would be the easiest way, instead of giving you a long internet address. Just Stephen Leeb, just Google that and you’ll come across a number of hits. Some of them will say good things about me, some of them will say not so good things about me, but there will be at least one of those things that says Investors Daily, and that’s the one I would hit, and I think they’ll give you free introductory offers. I got out of the publishing business, because it was just too much doing analysis and publishing.

I’m a better analyst than I am a businessman, which is not to say I’m a great analyst, but I’m much better at that than I am at running a business. They do the business stuff and that’s what I would look like, Investors Daily.

Mike Gleason: Well, excellent stuff. Thanks again Stephen. We really appreciate your time today. Enjoy your weekend and take care.

Dr Stephen Leeb: Thank you so much for having me, Mike. It was really a pleasure, you just got me on a roll.

Mike Gleason: Well, we really enjoyed having you, and thanks again.

That will do it for this week. Thanks again to Dr. Stephen Leeb, Chief Investment Officer at Leeb Capital Management. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until this, this has been Mike Gleason with Money Metals Exchange. Thanks for listening, and have a great weekend everybody.

HOLMES: 5 Charts That Show Why Gold Belongs in Your Portfolio Now

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

5 charts that show why gold belongs in your profile in gold we trust report 2018

The annual “In Gold We Trust” report by Liechtenstein-based investment firm Incrementum is a must-read account of the gold market, and its just-released chartbook for the 2018 edition is no exception.

The strengthening U.S. dollar has lately dented the price of gold, and rising interest rates are making some yield-bearing financial assets more attractive as a safe haven. But as Incrementum shows, there are many risks right now that favor owning gold in your portfolio.

Below I’ve selected five of the most compelling charts that highlight why I think you need gold in your portfolio now.

1. The End of Easy Money

To offset the effects of the global financial crisis a decade ago, central banks increased liquidity by slashing interest rates and buying trillions of dollars’ worth of government securities. Now, however, it looks as though banks are ready to start tightening, and no one is really quite sure what the consequences will be. The Federal Reserve was the first, in late 2015, to begin hiking rates, and it’s been steadily shrinking its balance sheet for about a year now. Other banks are set to follow suit. According to Incrementum, the tide will turn sometime next year, with global liquidity finally set to turn negative. In the past, recessions and bear markets were preceded by central bank tightening cycles, so it might be a good idea to consider adding gold and gold stocks, which have historically done well in times of economic and financial turmoil.

central banks to withdraw liquidity from financial markets for the first time since crisis
click to enlarge

2. Banks on a Gold-Buying Spree

While I’m on this subject, central banks have been net purchasers of gold since 2010, with China, Russia, Turkey and India responsible for much of the activity. Just this week, I shared with you the news that Poland added as much as nine metric tons to its reserves this past summer. If gold is such a “barbarous relic,” why are they doing this? As Incrementum writes, “The increase in gold reserves should be seen as strong evidence of growing distrust in the dominance of the U.S. dollar and the global monetary system associated with it.” Having a 10 percent weighting in gold and gold stocks could likewise help you diversify away from fiat currencies and monetary policy.

change in gold reserves held by emerging countries from 2007 to 2017
click to enlarge

3. Too Much Debt

Everywhere you look, debt is rising to historic highs, whether it’s emerging market debt, student loan debt or U.S. government debt. Meanwhile, higher rates are making it more expensive to service all this debt. As you can see below, interest payments will hit a record $500 billion this year. It’s forecast that the federal deficit will not only reach but exceed $1 trillion in 2019. How will this end? Earlier this year, I called this risk the “global ticking debt bomb,” and I still believe it’s one of the most compelling reasons to maintain some exposure to gold.

US government debt outstanding continues to rise rapidly
click to enlarge

4. An Exceptional Store of Value

In U.S. dollar-denominated terms, the price of gold is down right now. But in Turkey, Venezuela,Argentina and other countries whose currencies have weakened substantially in recent months, the precious metal is soaring. This alone should be reason enough to have part of your wealth stored in gold. Need further proof? According to a recent Bloomberg article, the cost of a black-market passport in Venezuela right now is around $2,000. That’s more than 125,000 bolivars, or 68 times the monthly minimum wage. A Venezuelan family that had the prudence to own gold would be in a much better position today to survive or escape President Nicolas Maduro’s corrupt regime. In extraordinary circumstances such as this, the yellow metal can literally help save your life.

gold does exactly what it is supposed to do protect purchasing power gold price increases in turkish lira and venezuelan bolivar
click to enlarge

5. A Sterling Time to Buy Gold?

Finally, a word about timing. According to Incrementum, some of the best gold buying opportunities have been when the gold/silver ratio crossed above 80—that is, when it took 80 or more ounces of silver to buy one ounce of gold. If you look at the chart below, you’ll see that such instances occurred in 2003, 2009 and late 2015/early 2016—all ideal times to accumulate. We see a similar buying opportunity today, with the gold/silver ratio at a high of 83 as of October 8. What’s more, gold stocks are the cheapest they’ve been in more than 20 years relative to the S&P 500 Index.

highs in the gold silver ratio were great buying opportunities for gold
click to enlarge

Is this the turning point for gold and silver?

Here follows a lightly edited and updated version of an article I published on the info.sharpspixley.com website earlier today.  (To read original article click here)

We wrote here recently about the short term headwinds facing gold and the longer term positives, but some of the short term negatives seemed as if they fell away at a single swoop yesterday!  Could the 800 point fall in the Dow be the start of the much predicted equities collapse?  Indeed the Dow and the S&P 500 were both down around 3% on the day and the NASDAQ down a massive 4%.  These falls have been mirrored by big falls in general equities in Asia and Australia, and this morning in Europe. The equities sell-off has continued today, but not, so far, as severely as yesterday.

As perhaps another indicator,  yesterday a massive 273,851 ounces of gold were added to the SPDR Gold Shares ETF (GLD) – that’s over 8.5 tonnes and is the first positive movement of gold into GLD for nearly 3 months, and a very sizeable amount to boot.  We have stated here before that one should watch GLD additions or withdrawals as a guide to institutional sentiment towards gold and since April we have mostly seen withdrawals – an enormous 141 tonnes of gold had been taken out from GLD from end-April until yesterday.  Again could this be a turning point for gold?  One day’s figures are perhaps not a sufficient indicator of what’s to come, but are a  and it is essential to monitor this indicator as a guide to precious metals sentiment.

Today we have seen a big rally in the gold price which has hit its highest level since the beginning of August, up over 2% at its intra day peak so far today.  Silver has seen a slightly stronger increase too, but not enough yet to see it break out from its correlation with the gold price.  But investor interest has been strong as witness the high level of silver Eagle sales out of the U.S. Mint.  It has the potential to outperform gold should the rallies in both metals continue.

As always commentators’ views are mixed on the likely effect of yesterday’s falls in equities valuations.  Some see them as a buying opportunity in an ongoing bull market pointing to a similar fall in February from which the major indexes made a fairly rapid recovery.  All eyes will be on the Dow and the S&P over the next few days to see if the falls will continue, or if there will be a bounce back.

We are entering a time where Fed tightening by raising interest rates may well be making markets nervous.  President Trump has been quick to lay the blame for yesterday’s fall on the Fed’s policy of raising interest rates thus leading to a stronger dollar (which has adversely affected the gold price in dollars if not in some other currencies).  This fall in other currencies against the dollar has had a counter-effect on some of the Administration’s tariff impositions.  Yet even so some U.S. manufacturers are already warning that the tariffs on Chinese goods in particular will have a negative impact on input and consumer prices.

So, we are likely going to see a steady increase in U.S. inflation, and unless there is a slew of positive data on job creation, wages and in PMI forecasts, we could see sentiment turning down which could further impact U.S. equities markets.  If equities are seen as likely to fall further this could see an increased move towards safe haven assets like gold and silver.

Although be warned, if equities markets really do tank as some are predicting, then precious metals prices could suffer too as individuals and funds/institutions struggle to maintain liquidity and are forced to sell off good assets with the bad.  We saw this happen in the 2008 market crash, although it should be noted that gold, in particular, was far quicker to recover than equities and climbed back to pre-crash levels while equities were still falling.

And what of silver?  This has had a pretty torrid time of late as represented by a gold:silver ratio (GSR) at around its highest level for around 20 or more years.  When the GSR has been this high in the past it has tended to precede either an economic crisis or a big stock market turndown, or both.  Is that what we are now experiencing?  We have often said we don’t anticipate a return to the supposed old average GSR of around 15 as the out and out silver bulls will suggest, but a return to the 70 level, or even 60, could be on the cards with a huge positive impact on the price of silver. vis-a-vis that of gold

This morning, gold has already regained the $1,200 level which had previously seen major resistance to an increase coming in.  And once U.S. markets opened the price shot up another $20.  If this level is sustained through the end of the week and equities continue to fall, then we could see a big surge in precious metals prices in the days and weeks ahead.  Chart followers had been pointing to a gold close above $1,215 as being the significant level from which gold might continue to appreciate and, as I update this article gold is sitting comfortably higher than this level.  it obviously remains to be seen whether it will stay there, but we think there is a good chance of it so doing and then move on to get some of its lustre back.

Bitcoin too has been stuttering with BTC down around 5% and the smaller cryptos, like ETH, mostly down more than 10%.  We have long warned that we have no confidence in the stability of a bitcoin investment and this kind of volatility perhaps makes the point for us.  Some observers reckon that BTC will fall to around $2,000 by the year end, or even lower, and some of the lesser cryptos to close to zero.  We wouldn’t be surprised if this were to come about!

 

Latest SGE figures could point to a Chinese gold demand turndown

Perhaps a week later than usual – due to the Golden Week holiday, China’s Shanghai Gold Exchange has just published its gold withdrawal figures for September, and they’ve come in around 12% down on the same month a year ago.  The question is does this represent a downturn in Chinese gold demand, despite the relatively low gold price with lower metal prices usually sparking an upturn in retail gold demand in mainland China and Hong Kong?  – See table below for monthly SGE gold withdrawals for the past couple of years:

Table: SGE Monthly Gold Withdrawals (Tonnes)

Month   2018 2017 2016 % change 2017-2018 % change     2016-2018
January   223.58 184.41 225.08 +21.2%  -0.7%
February*   118.42 148.24 107.60 -20.1% +10.7%
March  192.61  192.25 183.24  +0.2%  +5.1%
April  212.64  165.78 171.40  +28.3% +24.1%
May  150.58  138.08 147.28  +9.1%  +2.2%
June  140.59  155.51 138.51  -9.6%  +1.5%
July 137.41  144.71 117.58  -5.0%  +16.9%
August  190.59  161.41 144.44 +18.1%  +32.0%
September  188.12  214.24 170.90  -12.2%  +10.1%
October*  151.54  153.25
November  189.10  214.72
December  185.21  196.37
Year to date 1,554.55 1504.70 1406.03 +  3.3% +10.6% 
Full Year  2,030.48  1,970.37

Source: Shanghai Gold Exchange.  Lawrieongold.com

* Months include week long New Year and Golden Week holiday periods

A double digit percentage downturn for one month may in reality not be indicative of a downturn – yet – but taken into account with other factors  (not least the initial impact of the trade and tariff ‘war’ with the U.S.) we think it may be time to take note given the huge impact of Chinese gold consumption on global gold trade.

It is actually a somewhat contentious point as to whether SGE gold withdrawals are a real representation of Chinese demand.  The major gold consultancies dispute this and come up with far lower figures for Chinese  consumption, but, in terms of actual gold flows they do seem to be far closer to reality than the consultants’ estimates.  Known gold imports from those countries which break down their gold export figures by national destination, plus China’s own gold production, plus an allowance for scrap come far closer to the SGE withdrawal total than the consultants’ consumption estimates.  If we add in a small allowance for gold imports not detailed in national statistics we do end up with a sum total which equates to SGE withdrawals.  Regardless, though, the SGE figures given they are released monthly, are an easily accessed measure of trends in gold activity in the world’s largest gold consumer.

 

So we await future months’ SGE figures with particular interest given they will include demand leading up to the next Chinese New Year which falls on February 5th (a year of the pig), around 10 days earlier than the 2018 New Year.

Those with sharper eyes may note that this year’s February SGE gold withdrawal figures were some 20% lower than the previous year without prompting the kind of comment we are seeing here, but this is explainable by the comparative dates of the Chinese New Year, which fell mid-February this year and end-January in 2017 with much more of the corresponding holiday period, when the SGE is closed, falling within February this year.

I have added additional comment on the state of the Chinese economy and the impact of the SGE gold withdrawals in a post on sharpspixley.com which may be accessed directly by clicking here.

Suffice it to say that if the latest SGE gold withdrawal figures do presage a turndown in Chinese gold demand, this could have an important impact on global demand fundamentals given that China is the world’s largest gold consumer.

Two connected gold posts from me on Sharps Pixley

This past week I have published a couple of gold-relevant posts on the info.sharpspixley.com website which look at the current price pattern for gold and whether it has bottomed yet.

The first was:

Gold battles to hold $1,200

The first couple of paras  follow – to read the full article click on the linked title  above:

The past few trading days have seen the gold price hovering above and below the $1,200 mark in the light of a stronger dollar and a lack of Chinese data due to the nation’s Golden Week holiday this week.  Every time the gold price has nosed above $1,200 it has been taken down a few dollars again.

The hard right wing gold fraternity generally put this down to manipulation by the powers that be on the futures markets where at key times remarkable amounts of paper gold are offered for sale – although spoofing, where massive sales or purchase orders are placed on the futures markets, but with an intent to cancel orders before they can be implemented, may well be a prevalent cause. For example, the U.S. CFTC regulator has just fined Canada’s Scotiabank a paltry $800,000 for doing this on the COMEX futures markets for gold and silver from at least June 2013 to June 2016.  It makes one wonder how common this kind of market manipulation is among the other major bullion banks.  The profits that can be gained from playing the markets to their advantage in this manner far exceed any fines that may be imposed by the regulators and the banks may view the prospect of being caught out and fined just as a cost of doing business.  After all an $800,000 dollar fine is just peanuts to a major banking entity.  Who knows what huge profits were made by playing the markets in this manner ?

The Chinese Golden Week holiday suggests………….  To read full article click on the title above.

The second article looked at the weekend close above the $1,200 level, looks at the short term headwinds facing gold, and then the long term positives.  To read the full article click on the link below:

Gold ends week above $1,200. Is the bottom in yet?

The gold price managed to end the past week above the $1,200 level, but still a little below its 50 day moving average, although it did manage to breach that line intra-day, so it is close. But the big question is is it there to stay, or will it turn down again and test its recent low of around $1,183 again?

We have read a number of gold commentaries suggesting the bottom is in on numerous occasions during gold’s decline from above $1,350 earlier in the year, with most such forecasts being overtaken by further declines within a very short space of time. But this time around it does look like there may have been a firm bottom in the low $1,180s. But as we noted in an earlier article this past week, gold has been struggling to remain consistently above the $1,200 level, despite continuing buying pressure.

Gold has been range bound for most of the past few days between around $1,190 and $1,210 being unable to break out in either direction so far. There are certainly short term headwinds………

To read full article click on the title above

 

Latest In Gold We Trust Chartbook

Incrementum, which publishes the hugely comprehensive In Gold We Trust annual review of the global gold sector has just published a new chart-based analysis – almost equally comprehensive – packed with fascinating charts on various aspects of the global gold sector.  This is MUST reading for anyone interested in the world gold market.  It can be viewed here: https://bit.ly/2zUyVaL

Culture Clash In Barrick/Randgold Merger Could Be Hugely Beneficial For Both

Link to my latest article on Seeking Alpha on the proposed Barrick/randgold merger
Summary

Top gold miners Barrick Gold and Randgold Resources are planning to merge in an US$18 billion plus all-share deal.

Key operating management positions will be held by Randgold executives with the intent of applying Randgold’s leaner and meaner ethos to Barrick’s management and operations.

The merged company will majority own and operate five of the top ten Tier One global gold mining assets and will again become the world’s biggest gold mining company.

If I were a Barrick Gold (NYSE:ABX) shareholder, I would be enthused about the proposed merger of the company with Randgold Resources (GOLD). Not only would Barrick be merging with one of the most successful companies in the gold mining universe over the past several years, it will return it to being the world’s largest gold miner (eclipsing Newmont Mining (NEM) – which has only just become the current No.1) – but also by effectively buying new management with a totally different approach to the top tier gold mining sector. While Barrick’s current Chairman, ex-Goldman Sachs banker John Thornton, will be Executive Chairman of the combined company, two key executive management positions will be held by Randgold executives Mark Bristow as President and CEO and Graham Shuttleworth as Senior Executive Vice President and Chief Financial Officer. In some respects, the merger could thus almost be seen as a reverse take-over. According to a quote in the UK’s Daily Telegraph newspaper, the Randgold execs will have the brief to “implement the Randgold way” across the enlarged company…….

To read full article click here

Hong Kong an also-ran in latest Swiss gold export figures

Another of my articles on Sharpspixley.com emphasising the reduction in importance of Hong Kong as a conduit for gold flows into mainland China.  The latest gold export figures from Switzerland demonstrate this well.  For many year gold flows through Hong Kong were considered a proxy for those into China at which time ups and downs in the Hong Kong figures were indeed significant – but the Territory has for several years now been of diminishing importance in this respect but still some of the media considers them as the proxy for ups and downs in Chinese demand.  Such articles should thus be ignored as not presenting the true picture.

An excerpt from my Sharps Pixley article follows – and a link to the full article is available by clicking here:

Perhaps then biggest surprise was the enormous fall in gold exports to Hong Kong in the Ausuts Swiss gold export figures. The Chinese semi-autonomous administrative state imported only 3.4 tonnes of gold from Switzerland in August demonstrating in no uncertain terms that the Territory is being sidelined as an import routing for mainland Chinese gold imports in favour of mainland ports of entry like Beijing and Shanghai. Hong Kong gold imports can definitely no longer be considered a proxy for Chinese gold demand as we have been saying for some time, although global media still gives undue importance to the level of Hong Kong gold imports and to the Territory’s exposts to the Chinese mainland.

Mainland China was again the biggest recipient of Swiss gold in August at 45.2 tonnes, closely followed by India with 40 tonnes (see chart from Nick Laird’s www.goldchartsrus.com website below.), suggesting that gold demand in the two biggest gold consumers is holding up reasonably well, but perhaps the biggest surprises were the big rise in Swiss gold exports to Singapore (12.6 tonnes) and even more so Thailand (21.6 tonnes). Interestingly Turkey apparently imported no gold at all from Switzerland in August, but actually exported 12.8 tonnes to the small European nation at the centre of the global gold refining trade.

As usual, the Swiss figures show an ever-continuing flow of gold from West to East with Asia and the Middle East accounting for over 88% of the total export figures…..

To read the rest of the article and view a graphic of the latest country-by-country Swiss gold exports please click on this link

Could proposed Barrick/Randgold merger kick off new era for top gold miners?

My latest article on Sharps Pixley website

Where the leader goes, others will follow! Arguably Barrick Gold is the company other top gold miners aspire to emulate, so will its proposed merger with Randgold Resources to buy in an alternative management strategy see other top gold miners follow suit in terms of management direction? If the proposed merger goes ahead and the ‘Randgold way’ is successfully implemented at what will again be the world’s top gold miner, the answer is probably yes!

Barrick was very much at the forefront of the production growth at any cost strategy which worked well in a continuing rising gold price scenario, but once gold peaked in 2011 and started to come down from its highs, the company was left with some hugely expensive capital projects on its books and a mountainous debt position. Most of its capital projects were too far advanced to be halted, although the horrendously costly, and technically complex Pascua Lama development straddling the Chile/Argentina border was able to be stopped, but only after expenditures of around $6 billion had already been sunk into the project. When gold was strong and rising mega producers like Barrick could handle costs like this and the banks were still falling over themselves to lend money accordingly.

But when the gold price plateaued and started to fall it was another story altogether. Profits and any free cashflow were substantially reduced and big institutional shareholders who had been perfectly happy with the growth at almost any cost strategy pressured Barrick into top management changes and some fairly drastic cost cutting and debt reduction programmes. So it was with other major god miners too. They had been pursuing similar strategies to Barrick and found them selves in similar predicaments. In that period from 2012 to 2015 virtually all the gold major CEOs were ousted and replaced as were many others in exec management positions. The miners entered a period of unmatched austerity from which few have recovered to any meaningful extent. The industry as a whole has substantially reduced debt, has cut back drastically on capital projects and has cut, or reduced, various management tiers. But with a lacklustre gold price stock p[rices have continued to slip and shareholders with clout are not happy…..

But all the while one tier one gold mining company with operations all in the unfavoured regions of West and Central Africa continued to grow without incurring massive debt and managing at the same time to sharply increase its dividend payments by sticking to strict new mine investment parameters…..

To Read Full article click here

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.

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.