My posts on Sharpspixley.com so far this month

Readers of lawrieongold.com will be aware that I also write articles for the Sharps Pixley website.  In case you’ve missed these and would like to read them links to those I’ve published there so far this month are set out below:

Further thoughts on peak gold

18 May 2018 – Additional thoughts on peak gold following a couple of emails from Jeff Christian of the CPM Group which agree that Ian Telfer’s assertion that all major gold deposits have been found already is, at best, premature.

Lawrence Williams

Peak gold according to Ian (Telfer)

17 May 2018 – Goldcorp chairman and industry doyen, Ian Telfer, reckons we are at peak gold – or thereabouts – a view with which we would agree, but also says allthe mega gold deposites to be found already have been – with which we would take issue.

Lawrence Williams

Mixed forecasts on platinum

16 May 2018 – Two detailed reports on platinum at the start of London Platinum Week come up with differing opinions on some aspects of the market, although have broadly similar conclusions overall.

Lawrence Williams

Gold ETF inflows up sharply in April – WGC

14 May 2018 – While equity markets and the gold price have remained flat so far this year one area of encouragement for gold investors may be a reportedly high level of gold inflows into gold ETFs in April.

Lawrence Williams

China’s official gold reserves unchanged – again

08 May 2018 – The Chinese central bank has yet again released an unchanged gold reserve tonnage for the end of April, while its overall forex reserves have hit a five-month low, due – so officials say – to dollar strength against other leading currencies.

Lawrence Williams

Chinese gold demand way up in April

05 May 2018 – Using the latest Shanghai Gold Exchange gold withdrawal figures as a guide to demand, the latter is picking up nicely with April withdrawals well up on those of the past few years.

Lawrence Williams

Q1 gold demand lowest for 10 years

03 May 2018 – The latest Gold Demand Trends report from the World Gold Council sees Q1 gold demand at its lowest for 10 years due almost entirely to a fall in investment demand in key markets. Other demand sectors are somewhat similar or up on a year ago.

Lawrence Williams

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Randgold: Q1 Production and Profits Lower but Guidance Unchanged

As readers of lawrieongold will know, Randgold Resources is a gold mining company I cover more comprehensively than most as its stock is an important constituent of the FTSE 100 index here is London.  It has released its Q1 2018 financials and production data today and I will be attending CEO Mark Bristow’s presentation to analysts at the london Stock Exchange later today.  In the meantime, to keep readers up to date, here is the company’s own release on the Q1 figures, but bear in mind as a company press release it will present the data in the best possible light!  Hopefully more detailed analysis will be available following Bristow’s presentation later.  He is not a CEO who tends to bypass difficult questions!

KIBALI SHINES AS RANDGOLD MAINTAINS ANNUAL PRODUCTION GUIDANCE

London, 10 May 2018  –  Randgold Resources said today its 2018 production guidance remained intact despite a softer first quarter in which it contended with multiple challenges.

Following the full commissioning of its underground mine, Kibali in the Democratic Republic of Congoincreased quarterly production by 22% compared to the corresponding quarter of the prior year and is on track to achieve its 2018 target of 730 000 ounces.

In Côte d’Ivoire, Tongon’s production was impacted by a series of work stoppages.  With operations now back at full capacity, the mine is committed to clawing back most of the lost production.  Randgold’s flagship operation, the Loulo-Gounkoto complex, made a strong start to the year although changes in the mining schedule affected the underground grade, impacting on production.

Results for the quarter, published today, show group production lower at 286 890 ounces (Q4 2017: 340 958 ounces) and total cash cost per ounce higher at $720/oz (Q4 2017: $627/oz).  Profit was down at $66.5 million (Q4 2017: $87.1 million).  Cash and cash equivalents grew by 3% to $739.5 million while the company remains debt-free.  At the recently held AGM, shareholders approved the 2017 dividend of $2 per share, a 100% increase on the previous year.

Chief executive Mark Bristow said coming off a strong prior quarter and record performance in 2017 the company had anticipated a slower start to this year with a gradual build-up throughout the year.  Despite the issues that arose, it was still confident of meeting its annual production guidance of 1.30 to 1.35 million ounces.

“It was a very active quarter, in which we ramped up the underground production at Kibali, advanced the Gounkoto super pit project and the development of the Baboto satellite pit at Loulo, and prepared the Ntiola satellite deposit at Morila for mining,” Bristow said.

“At the same time we also successfully handled the difficult labour situation at Tongon, sorted out the sequencing at Loulo and continued negotiations relating to the new mining code with the DRC government.  This demonstrates the depth and competence of our management team, and its ability to deal with complex operational and socio-political issues on multiple fronts.”

During the quarter, exploration highlighted the potential to add ounces at Kibali, Loulo and Tongon as well as new reserve opportunities at the Massawa project in Senegal.  Bristow said Randgold was also aggressively hunting for its next big project in the African gold belts as well as further afield.

Gold Demand Looks Promising in India and China

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

Gold was up half a percent year-to-date through last Friday. This doesn’t sound very exciting, but over the same period, the S&P 500 Index was in the red—the first time in nearly a decade that stocks have been negative for the year through the beginning of May. The yellow metal is doing the one thing for which many investors have it in their portfolio—namely, it’s trading inversely to the market. This highlights its longstanding role as an attractive diversifier and store of value.

Gold bullion has outperformed the market so far in 2018
click to enlarge

Gold has been under pressure from a strengthening U.S. dollar, and May has historically delivered lower prices. As I’ve pointed out before, this makes it an ideal entry point in anticipation of a late summer rally before Diwali and the Indian wedding season, during which gifts of gold jewelry are considered auspicious. Demand in China for the remainder of the year also looks promising.

India Gold Demand Weakened, but a Healthy Monsoon Could Help Reverse That

India’s demand for gold jewelry in the first quarter was down 12 percent from the same period last year, according to the latest report from the World Gold Council (WGC). Consumption fell to 87.7 metric tons, compared to 99.2 tons in the first three months of 2017. Contributing to this weakness was the fact that there were fewer auspicious days in the first quarter than in the same period of the past three years, according to the WGC.

However, this followed a monumental fourth quarter 2017, when gold demand in the world’s second-largest consumer was 189.6 metric tons—an all-time record—so a decline was expected.

Looking ahead, it’s estimated that India will have a “normal” monsoon season this summer. This is good news for gold’s Love Trade. A third of India’s gold demand comes from rural farmers, whose crop revenues depend on the rains from a healthy monsoon. When the subcontinent experiences a drought, as it did in 2014 and 2015, gold consumption suffers.

The India Meteorological Department (IMD) reports that its forecasts suggest “maximum probability for normal monsoon rainfall” and “low probability for deficient rainfall during the season.”

Chinese Bullion Demand Off to a Good Start in 2018

In China, the world’s largest importer of gold, jewelry demand rose 7 percent in the first quarter to 187.7 metric tons, a three-year high. According to the WGC, Chinese retailers are working on improving the customer experience, providing consumers with “a more holistic retail solution.” The industry is expecting a strong 2018 after a relatively subdued 2017.

Except for a weak February, demand so far this year has been particularly strong, with monthly withdrawals from the Shanghai Gold Exchange (SGE) above the two-year average of 170 metric tons. April represented the third straight month of rising demand. Withdrawals were 28 percent higher than in the same month in 2017, according to veteran precious metals commentator Lawrie Williams.

China gol ddemand rose for the third straight month in April
click to enlarge

Williams writes that fears of a potential trade war with the U.S. could be driving Chinese investors into safe haven assets, including gold bars and coins. Indeed, the WGC reports that bullion demand in the first quarter finished at 78 metric tons, above the three- and five-year averages. (See: Chinese gold demand looks to have risen sharply in April)

I believe this all bodes well for the Love Trade going forward, meaning it might be an opportune time for investors to consider increasing their exposure to gold and gold mining stocks. As always, I recommend a 10 percent weighting, with 5 percent in bars, coins and jewelry, and 5 percent in high-quality gold stocks, mutual funds and ETFs.

Chinese gold demand looks to have risen sharply in April

An edited version of an article first written for the Sharps Pixley website – to see original click here

Despite the latest analysis from the World Gold Council (WGC) which suggested a poorish start to the year for gold demand (See:  Q1 gold demand lowest for 10 years), Chinese demand as represented by gold withdrawals out of the Shanghai Gold Exchange (SGE) appears to have picked up well in April coming out at 28% higher than in 2017 and 24% higher than in 2016 (see table below).  They are still around 9% down on the record 2015 figure for the first four months of the year, but at least the trend appears positive when some other demand statistics appear to be slipping.

Indeed April 2018 gold withdrawals were actually comfortably higher than those in April 2015 too, but in the latter year gold withdrawals out of the SGE were particularly strong in the second half and totalled almost 2,600 tonnes for the full year – around 80% of total global new mined production.  We don’t expect this figure to be matched in the current year, but the latest Chinese figures look to be off to a good start and we could be heading for the best demand figures since 2015.

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  212.65  165.78 171.40  +28.3% +24.07%
May  138.08 147.28
June  155.51 138.51
July  144.71 117.58
August  161.41 144.44
September  214.24 170.90
October*  151.54  153.25
November  189.10  214.72
December  185.21  196.37
Year to date   749.07 690.68 687.32 +  8.45% +8.98%
Full Year  2,030.48  1,970.37

Source: Shanghai Gold Exchange.  Lawrieongold.com

*February and October tend to be anomalous months because of week long holidays when the SGE is closed

Of course, as we have pointed out here previously it is a contentious issue as to whether SGE withdrawal figures are truly an accurate indicator of total Chinese gold demand.  The major precious metals consultancies come up with all kinds of differing reasons why this is not the case.  But in support of our views on this we should point out that SGE gold withdrawal figures seem to relate far better to the sum of China’s own gold production plus known gold imports, plus a reasonable figure for scrap supply and unquantified imports, than these same consultancies’ rather narrower estimates of Chinese annual gold demand.

The latest SGE figures thus do suggest that Chinese investment demand for gold bars and coins may be picking up – particularly as the gold price will have appeared weak at times which could have appealed to bargain hunters.  The prospects of a trade tariff war developing with the USA may also be driving Chinese citizens with disposable income (a part of the populace which is increasing all the time) to safe haven investment.  Furthermore,the huge falls in the value of cryptocurrencies will also have diminished interest in these as a safe investment asset which again may have turned the gold-loving Chinese back to the yellow metal.

The WGC Q1 report noted above does suggest that gold jewellery demand in China is picking up too and points to a continuing sharp global growth in technological demand – and China is at the forefront of the latter in that its high tech industries are becoming world dominant.

4 Big Reasons Why You Might Want to Consider Gold Stocks Right Now

The price of gold has been feeling the pressure lately from a stronger U.S. dollar, which is at a four-month high, and rising Treasury yields. Nevertheless, the yellow metal eked out a positive March quarter, returning close to 1.3 percent, while the S&P 500 Index posted its first negative quarter since 2015. This tells me the investment case in gold and gold mining stocks remains as strong as ever.

Below are four more reasons why I think you should consider adding gold stocks to your portfolio right now.

1. Gold mining stocks look inexpensive.

Billionaire investor Warren Buffett once said: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

Compared to the broader equities market, gold mining stocks, as measured by the NYSE Arca Gold Miners Index, look incredibly “marked down” right now. They’re far below the average gold miners-to-S&P 500 ratio of 0.7 for the nine-year period, and nearly as undervalued as they’ve ever been.

Gold mining stocks are incredibly undervalued relative to broader equities
click to enlarge

I believe that for investors with a long-term horizon, this makes gold miners look especially attractive as we await valuations to revert their mean, or average. Hopefully this can be achieved without a significant decline in the S&P.

2. Rising inflation has historically lifted gold prices.

Inflation can be understood as the destruction of wealth. Every time consumer prices head higher, a dollar loses some of its value, whether in your pocket or your savings account. Inflation can also weigh on stock prices, as some investors anticipate it cutting into corporate earnings. They might therefore decide to move their money into other assets.

That includes gold, which has enjoyed a long history of being an attractive store of value during times of higher inflation.

After being mostly stagnant for several years, inflation looks as if it’s ready to stage a strong comeback, thanks to rising oil prices and new trade tariffs imposed by the Trump administration, among other factors.

But which measure of inflation is most accurate? The Federal Reserve prefers the consumer price index (CPI), but there are others, including the New York Fed’s Underlying Inflation Gauge (UIG) and ShadowStat’s Alternative CPI.

no matter which gauge you use, inflation is on the rise
click to enlarge

From the chart above, we can surmise that inflation could be highly understated right now. According to the official CPI, prices rose 2.4 percent year-over-year in March. But if we use the Fed’s methodology from 1980, as ShadowStats does, it’s possible prices advanced more than 10 percent from a year ago.

Regardless of which measure you trust the most, it’s clear that inflation has been heating up at a faster pace—meaning it might be time for investors to consider adding to their gold exposure.

3. Gold supply is shrinking while demand continues to grow.

Like most hard assets, prices of gold and other precious metals respond to supply and demand. If supply goes up but there’s little demand, prices tend to struggle to gain momentum. But if the reverse happens—if supply can’t meet demand—prices have a better chance of increasing.

It’s possible we could see the latter scenario in the coming months.

That’s because many explorers and producers went into cost-cutting mode after the price of gold broke down from its record high of around $1,900 an ounce in August 2011. Exploration budgets were slashed, and partially as a result, there have been fewer and fewer large-deposit discoveries.

What this all means is that if gold demand were to spike unusually high, there’s a strong probability that not enough gold would be available. We would expect the metal to be traded at a premium.

gold supply crunch ahead?
click to enlarge

In the chart above, you can see how a smaller number of projects have been added to the pipeline in some recent years, thanks to a decrease in exploration budgets. Meanwhile, demand has continued to grow as incomes rise in emerging markets that have a strong appetite for the yellow metal—India, China and Turkey chief among them.

4. Gold prices have historically tracked government debt—which appears to be increasing dramatically.

I think what’s also driving gold demand right now are concerns over the U.S. budget deficit and ballooning government debt. The Congressional Budget Office (CBO) recently said it estimated the deficit to surge over $1 trillion in 2018 and average $1.2 trillion each subsequent year between 2019 and 2028, for a total of $12.4 trillion.

Believe it or not, servicing the interest on this debt alone is expected to exceed what the government spends on its military by 2023.

Now, the International Monetary Fund (IMF), in its April “Fiscal Monitor,” says U.S. government debt will continue to expand as a percent of gross domestic product (GDP), even surpassing levels we last saw during World War II.

gold supply crunch ahead?
click to enlarge

This is a cause for concern, the IMF writes, because “large debt and deficits hinder governments’ ability to implement a strong fiscal policy response to support the economy in the event of a downturn.”

You can probably tell where I’m headed with all of this. Savvy investors and savers might very well see this as a sign to allocate a part of their portfolios in assets that have historically held their value well in times of economic contraction.

Gold is one such asset that’s been trusted as a store of value in such times. As I’ve shown elsewhere, gold has tracked U.S. government debt up since 1971, when President Richard Nixon ended the gold standard.

 

Randgold still investing in Malian gold

As noted earlier this week,Randgold Resources CEO, Mark Bristow, has been on a tour of the company’s operations – all in West and Central Africa – ahead of the release of the company’s Q1 2018 results announcement in just under a week’s time.  The latest visit was to its Loulo-Gounkoto complex in Mali, which in combination is currently the largest gold producer in Africa, although this position may soon be usurped by the Randgold-operated, and 45%-owned, Kibali gold mine in the DRC.

In an announcement Randgold confirmed that it continued to see Mali as having potential for further growth and is continuing to invest there – Loulo-Gounkoto is already the single biggest foreign investment in the country.  The compzny says Q1 output will fall back from Q4 2017 levels due to scheduling production from lower grade areas – although we will have to wait for the quarterly announcement to find out by how much.

Randgold (LSE: RRS and NASDAQ: GOLD) has arguably been the No.1 global gold growth stock over the past several years, despite all its operations being in what the investment community sees as difficult investment environments.  It has been particularly adept in continuing to grow its gold output while maintaining mostly good relationships with its host governments, which is presumably why the much larger Anglogold Ashanti, which also owns 45% of Kibali, ceded construction and operational management of the DRC’s largest gold mine to Randgold.

A lightly edited version of Randgold’s statement on its Malian operations is set out below:

Randgold’s Loulo-Gounkoto gold mining complex in Mali, already one of the largest of its kind in the world, is still expanding, with the Gounkoto super pit and the new Baboto satellite pit joining its Yalea and Gara underground mines.

Speaking at a site visit for local media, chief executive Mark Bristow said the complex’s all-Malian management team, which steered it to a record performance in 2017, had made a good start to this year, although production was expected to be lower than the previous quarter on the back of forecast lower grades, reflecting the sequencing of mining lower grade blocks at both Loulo and Gounkoto.  Although slightly delayed, mining of the Baboto satellite pit was now well on track to support the complex with softer oxide ore feed.

“We expect grades to pick up and production to increase through the rest of the year to deliver our production guidance of 690,000 ounces for 2018,” said Tahirou Ballo, the GM of the complex.  Mr Ballo noted that production from the underground mines continued to show a steady improvement since Loulo took over the mining from contractors in 2016.

Chiaka Berthe, the West African GM of operations, said the Loulo-Gounkoto complex represented the largest foreign investment to date in the Malian economy.  After all these years it was still investing in new mining projects like the Gounkoto pushback and the new Baboto satellite pit he said.  The country is rich in other gold opportunities, and Randgold continues to search for extensions to the known orebodies as well as new discoveries in its extensive Malian landholdings.

On its sustainable development policy in the areas around its mining operations, Randgold also continues to invest substantially in its host communities.  Some 5,000 students are enrolled at 17 schools built by the company, and last year 52 of them were awarded bursaries for further study.  Randgold is also advancing the development of commercially viable agribusiness enterprises, to mitigate the socio-economic impact of the complex’s eventual closure.  The project already includes five incubation farms and an agricultural college with 70 students.

WGC: Q1 gold demand lowest for 10 years

On a day with gold trading around $1,310 and stock markets almost universally in the red, the World Gold Council (WGC) issued its latest Gold Demand Trends quarterly report and it doesn’t make for great reading for gold investors.  According to the WGC’s latest figures Q1 gold demand was the lowest for 10 years, primarily due to a fall in gold investment demand led by China, Germany and the USA – usually the principal investment demand centres.  Altogether the WGC reckons that global bar and coin demand fell by 15% quarter on quarter and ETF inflows were softer too, although still positive at 32.4 tonnes.

God followers in the USA certainly won’t be too surprised at these figures given the extremely weak reported gold coin sales from the U.S. Mint – see chart from www.goldchartsrus.com below:

Compared with say 2015 and 2016 U.S. Mint coin sales have been pretty subdued for two years now and they won’t have been helped by the lacklustre performance of the gold price over the past month or so.  Gold has remained range-bound mostly in the low $1,300s largely due to a sharp pick up in dollar strength as represented by the dollar index, which has risen around 4.5% from its low point this year – and gold is down a somewhat similar percentage from its high point of around $1,365 at the time of writing.  The gold price is generally inversely related to U.S. dollar strength and this suggests the correlation is holding up well.  The dollar appears to have turned down a little today and if this is the start of another downwards leg then the gold price could benefit accordingly.

The WGC report is not wholly negative for gold.  It does suggest that jewellery demand is holding up reasonably well with strength in China and the U.S. counterbalancing a decline in Indian jewellery demand, while industrial demand for the precious metal in the tech sector has seen six consecutive quarters of growth.

So where does that leave us now?  Equities are still looking nervous with falls almost across the board, bitcoin appears to be picking up a little with BTC back over $9,000 and Ethereum pushing up above 700, although we remain dubious about long term strength in crypto currencies.  One commentator – I forget who – described bitcoin as like Candy Crush vouchers, or in other words has parallels to computer gaming, and we wouldn’t disagree seeing it crashing back to near zero as definitely a possibility – we shall see.

If equities continue their weakness – and even at its current depressed level gold has outperformed th Dow and the S&P 500 so far this year.  All are in negative territory so far but gold is only down around 0.75% whereas the DJIA is down over 4% since the beginning of the year and S&P 500 down over 3%. (By comparison bitcoin is down over 30% since the beginning of the year and over 50% from its heady peak.) In other words, year to date gold has done a better wealth protection job than U.S. equities and way better than bitcoin!

Register at, or log on to, www.gold.org to download the full report.

Above article lightly edited version of one first published on Sharps Pixley website on May 3rd

MARC FABER: Holding Nation’s Gold Reserves in the USA Always a Risk

The latest podcast guest for Mike Gleason* at Money Metals Exchange is Dr. Marc Faber whose financial predictions are always of strong interest to the investment community everywhere.

Mike Gleason: Coming up we’ll hear from the one and only Marc Faber of The Gloom, Boom and Doom Report. Dr Faber has some alarming things to say about how America’s foreign policies may have disastrous implications for the U.S. and global economies, and for the dollar. He also weighs in on which asset class, crypto-currencies or precious metals, will ultimately will be the major benefactor of all of the pending geopolitical unrest. Don’t miss a tremendous interview with Dr Doom, Marc Faber, coming up after this week’s market update.

Precious metals markets suffered a big setback this week as the U.S. dollar gained strength. The dollar rose to a three-month high on interest rates and upbeat economic data, including strong durable goods numbers. The dollar’s rise against the euro was also boosted by the European Central Bank’s decision Thursday to maintain its ultra-loose monetary policy.

Precious metals traders responded by hitting the sell button. Gold prices are down 1.0% on the week to bring spot prices to $1,323 an ounce as of this Friday recording. Silver currently checks in at $16.52 after falling 3.6%. Platinum is down 1.5% this week to $917, and palladium is off 4.2% to come in at $988 per ounce.

Metals markets could continue to face selling pressure if the U.S. dollar continues to rally. Dollar bulls note interest rates continue to look relatively attractive in the United States, with the European Central Bank showing no signs of trying to catch up with the Fed in raising its benchmark rate. Some currency analysts describe the dollar as the best looking house in a bad neighborhood.

Dollar bears counter that the Federal Reserve’s nominal interest rate hikes are lagging behind rising inflationary pressures. Moreover, rising deficit spending makes the U.S. fiscal house one of the worst looking in any neighborhood. The current debt to GDP ratio of close to 100% puts the United States in a danger zone.

Other countries that have seen their government’s debt balance exceed the output of their economy went on to experience political upheavals, defaults, and hyperinflations. The most notable example currently playing out is Venezuela.

The bolivar has lost more than 99% of its value since the socialist economy collapsed, sending prices up thousands of percent. The Venezuelan stock market is up some 1,600% so far this year alone. Of course, that doesn’t mean you can expect to get rich quick buying Venezuelan stocks. They are moving largely just as a side effect of inflation.

That’s easy to see in an extreme case like Venezuela. It’s less obvious when inflation is rising at a relatively low annual rate, as it has been in the United States in recent years. But over time the stock market has gotten and continues to get artificially inflated while politicians and mainstream media outlets cheer on what they want us all to believe is a true bull market.

But those who believe the Dow would be sitting at over 24,000 without the inflationary stimulus of the Fed is simply fooling themselves. A rising stock market can actually be a symptom of a systemic problem leading to a currency crisis. Investors don’t see it that way right now, which is why they aren’t running to gold in a big way. But it won’t take much for the powers that be to lose control and for investor perceptions to shift.

It’s a question of when, not if. When will the unsustainable growth in government debt reach a tipping point that sends a shock into the financial system?

The most recent omnibus budget deal virtually guarantees trillion dollar deficits going forward. President Donald Trump reluctantly signed it into law and in so doing may have sealed the dollar’s long-term fate. The Trump administration is trying to pare the spending back by a few billion dollars… certainly not enough to change the country’s fiscal trajectory… but even that likely won’t happen. GOP leaders Paul Ryan and Mitch McConnel promised Congressional Democrats they’d get all the spending they want. And that promise apparently supersedes the promise Republicans made to voters about getting spending under control.

It’s difficult to believe they will have a better opportunity to do so after this fall’s elections, when Democrats are likely to pick up seats – and quite possibly the majority in Congress. Investors would be wise to prepare for the end of the Trump rally and the ultimate inflationary consequences of bipartisan debt spending.

Well now, for a closer look at America’s politics internationally and what it all might mean for gold and silver, let’s get right to this week’s exclusive interview.

Marc Faber

Mike Gleason: It is my privilege now to be joined by a man who needs little introduction, Marc Faber, editor of The Gloom, Boom and Doom Report. Dr. Faber has been a long-time guest on financial shows throughout the world, and is a well-known Austrian economist and investment advisor, and it’s a tremendous honor to have him on with us today.

Dr. Faber, thanks so much for joining us again, and how are you?

Marc Faber: Well, it’s my pleasure to be on your show. Thank you.

Mike Gleason: Let’s start out here with the equities Marc. Now the U.S. stock markets peaked in late January and made their lows for the year in early February. Stocks have been trading in a range since, but are currently pushing back towards those lows as volatility has certainly picked up. If you had to guess about which way the markets are likely to break from here, what would it be, and do you think we’ve seen the top for 2018 or can speculators keep pushing the markets higher for a bit longer?

Marc Faber: That’s a good question and I think everybody’s interested in the answers and everybody has a different view, but I have maintained that the January 26th high for the S&P up 2,872 was like a mirror image of the low on March 6th, 2009 when the S&P was at 666. At that time, everybody was bearish and leading strategy and I don’t want to name who, but they were predicting for the S&P to fall to 400. And what happened is that, because sentiment was so negative, and the market was so oversold, the market turned around and actually on very poor earnings, started to go up. And now, we have, in January, a high, when everybody felt that the market would go higher and what then happened is that on good earnings, stocks didn’t move up, but started to go down.

So, I think we are in a situation where it is likely, it’s not yet a hundred percent sure, in order to get a clearer picture, if a major bear market has started, we would have to make a low below the February low, but that hasn’t happened yet. But looking at the market and the market action and the momentum and the number of stock that are actually making new lows, I’d say there is a fair probability that the market will disappoint very badly.

Mike Gleason: Dr. Faber, it seems to us that the fate of precious metals markets is tied pretty closely to stock prices, at least in the near term. We lack either fear or greed to drive any trend change. Here in the U.S. there’s very little demand for safe-haven assets. If you look at sentiment in the metals markets you’ll find that the greed factor is also missing. Now that could all change if gold and silver can catch investors’ attention by significantly outperforming stocks for a while longer or if we get the long overdue correction stocks.

Now Marc, you wrote recently about two items you feel would signal a major top in the equity markets. The first had to do with the public going all-in, coupled with an excessive amount of speculation. The second would be the revelation of a major fraud. Those items will be familiar to anyone who had taken a good look at the 2008 financial crisis. Are you expecting history to repeat itself here?

Marc Faber: Well, I think there is a lot of disinformation, and usually when stocks go down, some fraud comes to the surface. And I expect it to happen, and I mean in a major way. Whether the fraud is related to some corporation, which I think is quite likely, or whether it’s related to the fraud that is going on in the pension fund system, where pension funds are grossly underfunded, and, in the future, will either have to increase contributions or reduce distributions. I think these are items that could happen. Secondly, the public may start to lose faith in the system because of the political situation. I think the political situation in the U.S. is very bad, and If you read about what has been happening at the FBI, the CIA in Washington, you have to scratch your head whether that is all possible in a system that is supposedly functioning.

It’s like Watergate, but actually magnified. So, I think there is a possibility that investing public loses interest in financial assets. You talked about precious metals. I think there has been, just recently, a huge short position in the dollar. In other words, speculators, 15 months ago, they were heavily long in the dollar, and now they are very heavily short dollar. I think the dollar may rebound and as a result, precious metals may not move up right away. I think, eventually, they’ll move up, but for the next, say, one or two months, I don’t see how precious metals would rally significantly.

Mike Gleason: Getting back to politics here for just a moment, it does appear that we may be on the verge of a global trade war. What are your thoughts on the tariffs being imposed by the Trump administration on China, and how do you envision that playing out?

Marc Faber: My view is that, actually, the Trump administration, for which, I would have voted for Mr. Trump, but he proves every day that he’s a completely clueless individual. He says one thing and then does something totally different. He changes his view all the time. And I think, quite frankly, there is a trade war which maybe won’t happen, but if there is one, the U.S. will be the big loser, because consumer prices in the U.S. will go up and that is not desirable at the present time, as the Fed is already tightening and interest rates have been rising, so what it will mean is, if there is a trade war, initially the dollar will actually rally. But this is precisely what the U.S. shouldn’t have, a very strong dollar.

Mike Gleason: Turkey is the latest nation to announce that they will repatriate their gold, joining a number of other countries who have declared they will do the same. What does this say about the confidence in the system, and then what do you think these countries are positioning themselves for? Basically, why are they doing this?

Marc Faber: Well, I think the question should be: why did they actually hold gold in the U.S.? I personally think that, to hold your assets that are like a safe-haven, in another country is a risk by itself… so I understand all these countries. And secondly, I think for the first time in Bretton Woods, we have less confidence or less faith in the U.S. dollar as a reserve currency. I think the U.S. policymakers, especially the Neo-cons, had the talent to antagonize Mr. Putin and also Mr. Xi in China.

By doing that, they have actually managed to get them closer into an economic and political alliance. And the goal of these two countries, Russian and China, is probably to gradually move away from a dollar system. I’ll tell you, I personally, I’m not a U.S. citizen, I’m just an international observer of economic, financial, and political trends. I cannot imagine a foreign policy that would be worse for the U.S. itself than what the Neo-cons have engineered. I just can’t imagine.

Mike Gleason: Yeah, that’s a very fair point, there. Speaking of oil and the petrol dollar, oil prices have been moving up steadily for a while now. Do you envision a broader commodity rally taking place here, and then maybe could that benefit precious metals in the long run?

Marc Faber: Well, a lot of industrial commodities have been rallying because of commodities-related circumstances, like aluminum rallies because of the trade embargo against Russia, and so forth. But if I look at industrial commodities, I rather have the feeling that they will come down. Why? I think the increase in interest rates in the U.S. on the 10-year treasury note from 1.38 percent in the summer of 2016 to the current level of over three percent, in other words, we more than doubled in the yield in the bond market. And for the two-year treasury, we have been going up between 10 and 20 times depending how you measure it.

I think these interest rate increases will slow down the U.S. economy, and probably bring about a recession.

Mike Gleason: We talk a lot about the appetite for gold in other parts of the world. Do you ever see the tide changing when it comes to the importance of gold ownership? We know Asians are buying it relentlessly and so are many folks in Europe. On the whole that mindset definitely hasn’t made it here to the U.S. yet, but do you sense that may be coming, and if and when it does, do you foresee any problems with being able to get the physical metal once the masses do finally decide to pour into it as the ultimate safe-haven?

Marc Faber: That’s a good question. We had a total neglect of gold and other commodities in 1999, and then gold rose from $255 to a peak in September 2011 of $1,921. At that time, there was a lot of speculation in gold and in other precious metals and other commodities. And since then we’ve been at a bear market until December, 2016, when gold approached $1,000.

Since then, as you know, we’ve been up something like 30 percent, and it is true, there is some speculative interest in gold, but nothing compared to crypto-currency. People that look for an alternative to paper assets like bonds and equities, they’re all gambling on cryptos. I don’t think that cryptos are safe. Now they may move up and they may move down but I, as an investor for the ultimate crisis, I prefer to be in physical precious metals, gold, silver, platinum.

I think, eventually, these precious metals will come back into the investment portfolios of major institutions and individuals. The major institutions of the world, they hold practically no gold. They have more money in Apple, they have more money in Amazon, than, say, in gold. And I think that will change over time, but I don’t know whether it will be tomorrow or in three years’ time, but my view would be that if you really look at the financial situation, the unfunded liabilities, the government deficit, the inflated asset prices, the conclusion is central banks will have to continue to print money, otherwise the system collapses. That, in my opinion, will boost precious metals prices.

Mike Gleason: As we begin to close, here, Dr. Faber, one of the things we value most about your perspective is that you don’t live in the U.S. More than most people, you’re tuned into what’s happening elsewhere, particularly in Asia and Europe. As for Americans, they can’t seem to get their eyes off the political theater in Washington, and to be fair, there’s never been a show quite like the one we have today, but is there anything of note that Americans are overlooking, and what stories are you going to be watching most closely as we move throughout the year?

Marc Faber: Well, I don’t want to criticize the U.S., because in other countries it is not much better. But the one thing I want to say is the following: Americans have been growing up and they’ve been brainwashed that America is a superpower and they have been educated in the belief of the American exceptionalism. And I just want to say that lots of countries in this world have a different perspective of the world. In particular, if you look at China, it has four times the population of America. Its industrial production is larger than in the U.S., their land mass is larger than the U.S., and they’re growing at a much faster pace. They have, in my opinion, no territorial ambitions, but they don’t want to be controlled by the U.S. that has, in Asia, countless military and naval bases.

They (China) look at the world from their perspective, and the U.S. would do well to consider other leaders’ perspectives, including Xi Jinping and Mr. Kim Jong-un, and Mr. Putin, of course. But if you only look at the world from your perspective, undoubtedly some trouble will arise. And what most Americans don’t see, they have kind of a tunnel vision where the tunnel starts in America and looks at the whole world, whereas other countries, they have another view of the world than the U.S.

And I think it’s very important, both economically and politically to consider the point of view of other countries that, by the way, have become very powerful.

Mike Gleason: Yeah, very well put. We’ll leave it there, and Dr. Faber, thanks so much for your time and for staying up late with us today in your home in Thailand. It was a joy to speak to you again. Before we let you go, please tell people how they can subscribe to The Gloom, Boom and Doom Report so they can follow your great commentaries on a regular basis.

Marc Faber: Thank you very much. I have a website called www.GloomBoomDoom.com. There, they can choose either a printed version of The Gloom, Boom and Doom Report or the website report, or both.

Mike Gleason: Excellent stuff. Once again, it’s been a real privilege to speak to you, Dr. Faber, and I hope we can do it again in not too distant future. Thank so much for joining us.

Marc Faber: It was a pleasure talking to you and to your listeners. Thank you.

Mike Gleason: Well, that will do it for this week. Thanks again to Dr. Marc Faber, editor and publisher of The Gloom, Boom and Doom Report, again the website is GloomBoomDoom.com be sure to check that out.

And don’t forget to 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.

*

Randgold’s Tongon to claw back lost Q1 gold production

As followers of the company will be aware Randgold Resources has had to overcome a succession of problems at its big Tongon gold mine in Côte d’Ivoire – initially by technical problems at the mill and most recently by work stoppages by its labour force.  Although a relatively short life operation – it has around three and a half years’ life remaining based on its existing resource, although the company is working to expand this through brownfields exploration around the current operation.

Randgold CEO, Mark Bristow, is a big supporter of new gold mining exploration in Côte d’Ivoire and the country’s government’s attitude towards mining investment and development and is working hard to try and find new projects there which fit in with its new mine development policies.

Bristow tends to visit all the company’s operations each quarter ahead of the quarterly financial announcements – 2018 Q1 figures are due in the next 2 weeks.  On a visit by Bristow to Côte d’Ivoire last week the company made the following statement on the latest situation at Tongon and the intent to make up any lost production stemming from the recent work stoppages.

 Production at Randgold’s Tongon gold mine was impacted during the first quarter of 2018 by a series of work stoppages which started with the employees of the mining contractor and then spread to other operations.

Management said while this would impact on the mine’s production guidance of 290 000 ounces for 2018, it was making a determined effort to recover most of the lost output, with operations now back at full capacity.  To mitigate the downtime effect and lost plant throughput, Tongon processed ore from the run-of-mine and scats stockpiles during the stoppages and also used the opportunity to upgrade parts of the plant to achieve a higher and more consistent throughput going forward.

Chief executive Mark Bristow told a local media briefing that the mine’s management had been supported in resolving the situation by the highest level of the government as well as parliament members and local authorities, and, along with the workers and union leadership, these parties had also agreed on a constructive process to workshop solutions and prevent similar issues in future.  It was encouraging to note, he said, that government fully acknowledges the importance of Randgold and Tongon to the Ivorian economy, and the fact that Tongon represents the single largest investment in the country’s mining industry.

“The history of Tongon has reflected the occasionally turbulent socio-political nature of its environment and a misunderstanding of the mining business which is a relatively new activity in the country, but management has dealt effectively with the challenges that have come their way.  The mine is managed by a majority Ivorian team and of its 1,700 employees, only 40 are expatriates.  Their record speaks for itself: since it was commissioned in 2010 Tongon has produced 2.7 million ounces of gold and in 2017 it posted record results, despite the slow start to the year,” Bristow said.

“Tongon has three-and-a-half years of life left as things stand but we are actively looking for means to extend this and a number of exciting near-mine opportunities are currently being evaluated by the exploration team.  We’re also exploring for new gold discoveries elsewhere in our large permit portfolio in Côte d’Ivoire, where we intend to retain a long term presence.”

At the same time, however, Tongon is planning for life after its eventual closure by developing an economically viable agribusiness to provide replacement income for former workers and the surrounding communities in line with its sustainable development policy.

We can probably expect a couple of further statements on the company’s other operations ahead of the release of the Q1 figures due on May 10th.  Randgold (LSE: RRS, NASDAQ: GOLD) has been one of the foremost gold mining growth stories with current annual gold production of some 40.9 tonnes putting it in 15th place among the world’s major gold miners, according to precious metals consultancy Metals Focus (See: Top 20 Global Gold Miners – Newmont narrows the No. 1 gap.  

 

 

Polymetal CEO, Vitaly Nesis, very bullish on silver

Slightly expanded version of article first published on the Sharps Pixley website:

Meeting with Vitaly Nesis, CEO of Russia’s second largest precious metals mining company, Polymetal (LSE: POLY), is like a breath of fresh air in relation to talking, if one can get a word in, with the CEOs of many equivalent-sized Western gold miners.  Straight answers to questions seems to be the Nesis mantra!

Polymetal is, according to GFMS, the world’s fifth largest silver miner but it should be ranked primarily as a gold miner, producing last year some 1.433 million gold equivalent ounces (44.6 tonnes) and its gold production by value dwarfs the value of its silver production by around 4:1 at the current gold:silver ratio of around 80:1.  It also produces copper and zinc which also come into the gold equivalent ounce figure at a ratio of 1.5 tonnes of copper equivalent to a gold ounce and 1.2 tonnes of zinc.  Metals Focus ranks it as 18th in its listing of the world’s largest gold mining companies but in terms of gold equivalent ounces it perhaps should be even higher up the listing according to its own latest figures.

The company is in the forefront of Russia’s drive to increase domestic gold output and has what will become its biggest gold mine, Kyzyl in Kazakhstan, due to come on stream in August this year which will add substantially to that country’s gold output too.  This new mine is due to reach full production capacity of around 320,000 gold ounces annually during 2019.

Kyzyl is a world-class asset (high grade by today’s standards with the a reserve grade of over 7 g/tonne gold)  and one of the best development-stage gold projects in the world and was acquired by Polymetal in 2014 for a total of $618.5 million. With its large high-grade reserves and low capital intensity, the asset is set to become the main source of medium-term growth and significant shareholder returns for the company.

Once completed, the project will comprise the Bakyrchik refractory gold deposit and the Bolshevik deposit and a state-of-the-art processing plant that is anticipated to deliver first concentrate production in Q3 this year. Mining has already started in the open pit with the ore being stockpiled ahead of the initiation of the process plant.  The deposits will initially be developed by open pit mining (10 years) and later be substituted by underground mining (a further 12 years). Mined ore will be processed via conventional flotation followed by third party off-take and/or pressure oxidation at Polymetal’s POX facility in Amursk.

The Project is located in north-eastern Kazakhstan in a traditional mining region with good infrastructure and easy access to grid power and the railway. Based in the Auezov Village, the site is approximately 750 km east of the capital city of Astana and 75 km west of the mining and metallurgical industry centre of Ust-Kamenogorsk (or Oskemenpopulation of approximately 300,000). Kyzyl is also in close proximity to the Russian (120 km) and Chinese (330 km) borders. The nearest railway station is 6 km away in the village of Chalobai, connecting Ust-Kamenogorsk to Shar, as well as Russia, China and Europe.

Overall group gold production is scheduled to increase to 1.8 million ounces by 2020 and further to over 1.9 million ounces by 2023 assuming the projects in its proposed forward pipeline go ahead as planned – but some of these do not yet have Board approval.

When questioned on what he felt were the prospects for precious metals going forward Nesis was fairly non-committal on the prospects for an increasing gold price, but admitted to being a strong bull on silver.  He pointed out, as we have also done in these columns, to the high level of the gold:silver ratio (GSR) which is currently at close to 80 (and has been as high as 81.5 recently) and is firmly of the opinion that a GSR of around 60 would be far more appropriate.  Even at what some regard as a particularly low current gold price level of around $1,320, a GSR of 60 would put silver at $22 an ounce – some 33% higher than it is today.  In our view, though, it would probably take a decently rising gold price to stimulate a re-rating of the GSR, in which case the gain in silver would be even higher.

Polymetal currently operates eight producing mines – six in Russia and one each in Kazakhstan and Armenia and has other development projects in the pipeline as well as Kyzyl.  However it has a policy of only managing two new projects at any given time and the current concentration is on Kyzyl and on de-bottlenecking its state-of-the-art pressure oxidation (POX) facility at Amursk in Russia’s Far East.  It won’t take a decision on building what is potentially its next new mine – Nezhda – until Kyzyl is up and running successfully.  Likewise it has a second POX line in prospect at Amursk, but won’t take the decision on that until the current POX debottlenecking programme is also seen to be successfully implemented – due to be in early 2019.

Further down the road will be the Prognoz new mine development in Russia but a go-ahead decision on this would not be made until Nezhda is up and running in 2021, assuming there’s a positive Board decision to go ahead with this.  Prognoz is the largest undeveloped silver project in Russia and one of the largest in the world.  The property comprises a very large high-grade resource of 292 million ounces oof silver at 586 g/t with excellent exploration upside estimated at 119 — 273 million ounces of silver contained at 469 g/t. Polymetal envisions a relatively low-capital and fast development approach for the asset that is based on open-pit mining and conventional processing. Production from the property is estimated at 20 million ounces of silver per annum should the project proceed, but go-ahead is only likely to be given in late 2021 with possible first production in 2024.

There is also a possible pgm project at Viksha as a potential long term prospect, but Nesis obviously thinks this is perhaps non-core and may be sold off,  as may be the barely profitable Maminskoye mine.  The currently unprofitable Kapan mine in Armenia is also under review.

Polymetal’s current priority is, like its Western counterparts, balance sheet improvement and cost control.  The new operations coming on stream will cut capital outlays and should reduce overall group costs.  Current AISC comes in at $893 an ounce putting Polymetal firmly in the mid tier among major gold  producers globally.

The current dividend policy might be seen as generous in comparison with most western gold miners and is to pay out 50% of underlying net income.  Current dividend yield is around 3.8% at the current share price of a little over £7 (its primary listing is on the London Stock Exchange).  It likes to compare its dividend policy positively against other key London-listed precious metals miners Randgold and Fresnillo!

Nesis confirmed that the company’s gold production is nearly all sold to Russian banks, which in turn sell it on the the central bank.  Last year the Russian central bank expanded its gold reserves by well over 200 tonnes and national domestic production was around 270 tonnes according to Metals Focus in its Gold Focus 2018 report, although the country’s Finance Ministry put the level a little higher at just over 300 tonnes.

Maybe because it is a Russian miner with its principal operations in Russia and Kazakhstan, Polymetal has to try that much harder to generate Western investment, but interestingly it has now exceeded its production guidance for six successive years and its current dividend policy, noted above, puts all the major western gold miners to shame. Nesis is of the opinion that investment in mining in Russia is probably less risky than investing in mining in Africa, pointing out that government is stable, there have been no property nationalisations or drastic changes in royalty and taxation policies – and in any case Polymetal is a Russian company working in an environment it understands in its home and allied countries.  It has no desire or intention of spreading its wings outside the areas it knows.

Gold Supply Concerns Highlight its Rarity

Article by Frank Holmes – CEO and Chief Investment Officer U.S. Global Investors – abstracted from a longer article suggesting that commodities in general are flashing a once-in-a-lifetime buy signal .  To read full article click here.

Gold ended last week down slightly, the first time in three weeks it’s done so. It looks as if gold investors took some profits late in the week after the yellow metal came close to breaching $1,360 on Wednesday.

I still believe gold could hit $1,500 an ounce this year on rising consumer and producer prices, which I think are understated. This is more than apparent when you compare the official U.S. consumer price index (CPI) and alternative measures such as the New York Fed’s Underlying Inflation Gauge (UIG).And as Dr. Ed Yardeni points out in a recent blog post, the word “inflation” appeared as many as 106 times during the latest Federal Open Market Committee (FOMC) meeting, a sign that Fed members could be getting more and more concerned about mounting inflationary pressures.

Recent reports also suggest gold production is slowing, which could help support prices long-term. Exploration budgets have been declining pretty steadily since 2012 after the price of gold peaked, and fewer and fewer large-deposit mines are being discovered.

Last week the China Gold Association announced that the country, the largest producer of gold, produced 98 million metric tons in the March quarter, down some 3 percent from the same period last year. This comes after total Chinese output in 2017 fell 6 percent year-over-year to 426 million tons. Granted, miners have been pressured by Beijing to curtail production as part of the government’s enforcement of tougher environmental protection policies, but the decline in output is part of a downward trend we’re seeing across the board, especially among major producers.

Take a look at the declining quarterly output of Barrick Gold, the world’s largest gold miner. According to its preliminary results for the first quarter, Barrick produced a total of 1.05 million ounces from its 10 projects. That’s only a 2 percent decrease from the same quarter last year, but a far cry from where it was seven years ago.

Barrick gold reported lowest quarterly output in 16 years
click to enlarge

Since the news hit April 11, shares of Barrick are up about 3 percent, even after a Friday selloff.

While some investors might view the lower output as disappointing, others no doubt see it as a reminder that gold is a finite resource, one of the many reasons why it’s remained so highly valued for centuries. As I’ve written before, the low-hanging fruit has likely already been picked, making the task of mining the yellow metal more difficult as well as expensive. Supply isn’t growing nearly as fast as it once did.

And yet demand continues to climb. Not only do the peoples of India, China, Turkey and other countries have a strong cultural affinity to gold—an obsession that will only intensify as incomes rise—but the metal still plays a vital role as a portfolio diversifier in times of economic and political uncertainty.

China Takes the Long View on Gold-Silver… and So Should You

Article by: David Smith*  First published on the Moneymetals.com website

A cursory look at Chinese history can convince you that China should not be underestimated when it sets its sights on a particular goal.

Even before Mao Zedong took over the reins in 1949, and the first Five Year Plan began in 1953, centuries of history demonstrated that long-term planning, while not always meeting expectations, is a core behavioral trait of the Chinese psyche.

And more often than not, it has enabled them to hit the mark.

Expect eventual success for the One Belt, One Road Initiative – the world’s largest construction project, estimated to cost $80 trillion dollars – linking the Asian mainland, (including Central Asia) with Europe via high speed rail, communications links and vibrant financial trading platforms.

And expect this project to be a major factor in bringing about what Doug Casey and others believe could become the greatest commodities bull-run that most of us now living are going to see.

The petro-yuan. A game-changer?

And oh, by the way, China recently officially launched a petro-yuan contract at the Shanghai International Energy Exchange. It marks the first time overseas investors have been able to access a Chinese commodity market – an oil futures contract – that can be settled, not only with U.S. dollars, but also Chinese Yuan, eventually a basket of currencies… and gold.

Asian Analyst, Pepe Escobar sees clearly where this is heading, saying:

As the yuan progressively reaches full consolidation in trade settlement, the petro-yuan threat to the US dollar, inscribed in a complex, long-term process, will disseminate the Holy Grail: crude oil futures contracts priced in yuan fully convertible into gold…

That means China’s vast array of trade partners will be able to convert yuan into gold without having to keep funds in Chinese assets or turn them into US dollars… Still, the whole petrodollar edifice lies on OPEC – and the House of Saud– pricing oil in US dollars; as everyone needs greenbacks to buy oil, everyone needs to buy (spiraling) US debt. Beijing is set to break the system – as long as it takes.

8 Gram Gold Panda

Meanwhile gold will continue rising to a level where at some point, Beijing decides to set a conversion rate. When this “golden moment” arrives, the effects on global oil trade – and U.S. continued supremacy in this arena – will be profound. Mining Analyst, Byron King doesn’t mince any words about it. Says he,

China’s vast array of trade partners will be able to convert yuan into gold without having to keep funds in Chinese assets or turn them into U.S. dollars. It’s a straight-up way to bypass the buck. And what if Saudi Arabia – among China’s largest oil suppliers – agrees to accept yuan instead of dollars? It’ll be a bomb-down-the-funnel for U.S. dollar hegemony in the world.

Gold-for-Oil is just one element which will take precious metals to new all-time highs.

For the last several years, we’ve discussed many of these factors, about which readers can fully test their understanding by perusing scores of reports and essays archived here at https://www.moneymetals.com/news You can also find a steady stream of informative, relevant, actionable information on “The Silver Guru” David Morgan’s Blog.

Once this trend fully gets under way – sooner than most expect – the price you’re looking at for physical gold (and silver with its 90% directional gold- correlation price movement) will quickly recede in the rear-view mirror.

Here are just a few recent commentaries that should give you a sense of the structural changes in these markets, making them increasingly subject to explosive moves on the upside – without sending you an invitation to board the train beforehand.

The bottom line is gold is nearing a major bull breakout above $1365. That will turn psychology bullish and bring traders back in droves. Gold is rallying ever closer to new bull-market highs as evidenced by its massive multi-year ascending-triangle chart pattern now nearing a bullish climax. Today gold is only a couple percent below that decisive breakout, which will finally blast it back onto the radars of investors. – Adam Hamilton, Zeal Speculation and Investment

“We see a massive base building in gold. Massive. It’s a four-year, five-year base in gold. If we break above this resistance line, one can expect gold to go up by, like, a $1,000. . .” Doubleline CEO, Jeff Gundlach, the “Bond King”

“With the growth of high-end consumption and the development in second and third-tier cities, the Chinese market will show its substantial demand, mostly unexplored, for physical gold, as more and more people start to realize gold’s stored and retaining values in the long term.” – Song Xin, China Gold Association, April 18, 2018.

So how should you consider handling this situation?

Yes, we’ve been waiting “quite awhile” for this trend to get underway, creating fireworks for metals’ holders. And yes, a few people have become impatient, and actually sold back their metal – which may have taken years to accumulate. But just remember, it’s less a question of if, rather than when this all comes together.

Successful metals’ owners who have prospered since the beginning of the bull run in 2000, got there – and stayed onboard – by following a few sensible rules.

Silk Road Countries have bought 30,000 Tonnes of Gold Since 2000

Does this look like an established trend? (Courtesy goldchartsrus.com)

They listen to the “experts” and pay attention to big changes, like the Chinese yuan-for-oil event we’re discussing here.

In addition, they look at what the charts tell them – that Asia continues to suck up gold and silver from the West like a proverbial vacuum cleaner. The Silk Road Gold Total Reserves Plus Demand chart nearby confirms this in spades. They touch base with risk tolerance, taking stock of their financial capability to participate. And acquire metal on a regular basis (without going ‘all in’ at any particular price point), regardless of that the price is doing that month.

They understand that profoundly positive things come to those who are patient, have a plan… and who then act on it. So, ask yourself today, “Am I willing – like the Chinese – to persevere for ‘as long as it takes'”?

Silver May Be Getting Ready to Shine Again

by: Clint Siegner – Money Metals News Service

The setup for higher silver prices is so good it’s scary. The relative positioning of speculators versus the bullion banks in the futures markets is extraordinarily lopsided.

A bet on silver moving higher from here looks a lot like a no-brainer. So much so that David Morgan, publisher of The Morgan Report and silver guru is advising just a bit of caution, as he told listeners in an exclusive interview on this past Friday’s Money Metals Weekly Market Wrap Podcast.

The bullion banks (Commercials) are almost certainly now betting for higher silver prices and have relinquished their concentrated short position.

Meanwhile, the large speculators are positioned increasingly short. The good news for silver bulls is the bullion banks dominate the futures markets, by hook or by crook, and they generally win versus the speculators.

In the chart below from Zachary Storella (Investing.com), the red line represents the “Commercials” which are the bullion banks and miners. It shows their collective position virtually even, or neutral. It is the first time this has happened since the Commodity Futures Trading Commission began publishing the more detailed Commitments of Traders report in 2009.

Silver: COT Futures Large Trader Positions Chart

One could argue that if the commercials are neutral, that isn’t exactly the same as the bullion banks being positioned long.

Remember though, the commercial category includes both the producers and the bullion banks. Miners are generally going to be short by default. It is typical for them to hedge their production by selling futures and delivering the physical metal later. This hedging allows them to raise funds for current operations and protect themselves from a drop in metals prices down the road.

If the miners are short, the bullion banks have to be betting long.

Meanwhile, the speculators are taking the other side of that bet. If history is going to repeat and the banks are going to once again take the specs back to the woodshed for a whipping, it is full steam ahead for silver prices, right? Not quite so fast says David Morgan.

The problem is in the lower of the two charts shown above. Open interest in silver — the number of open futures contracts — is near record highs.

In the past, when the commercial short position approached a bottom, open interest also tended to be near a low point

We are in uncharted territory with both an extreme in Commercial/Spec positioning and an extreme in open interest. That makes predictions about the direction of the price more uncertain.

The COT report isn’t detailed enough to remove all guesswork about how the banks are positioned, so there could be something important that silver bugs are missing.

But if the prop traders at JPMorgan Chase and the other banks who dominate metals trading are positioned heavily long, the huge open interest could fuel a dramatic move in price. If prices start moving higher, there are a lot of specs to be caught in a short squeeze.

Another bit of data supports the notion that silver investors are witnessing history in the markets with the bullion banks FINALLY long silver.

Craig Hemke, of TF Metals Report, noted on Friday that JPMorgan Chase added another 605,000 ounces of physical silver to their COMEX vault. That bank has been notorious for its short position, but it has been steadily building a physical position in recent months. Today it holds a whopping 53.7% of the COMEX bar inventory.

All of this extraordinary positioning in the futures markets could be foretelling something extraordinary is about to happen to the silver price.

Clint Siegner

Top 20 World Gold Producers 2017 – Countries and companies

A couple of tables from articles published on the Sharps Pixley website last week.

The first is from the article : World Top 20 Gold producing nations in 2017 – not peak gold yet!

Top 20 Gold Producing Nations 2016/2017 (Tonnes)

Rank Country 2017 Output 20 16 Output %  Change
1 China 429 464 -7.9%
2 Australia 289 288 +0.5%
3 Russia 272 253 +7.6%
4 USA 244 229 +6.3%
5 Canada 171 163 +5.0%
6 Peru 167 166 +0.3%
7 South Africa 157 163 -3.6%
8 Ghana 130 131 -0.8%
9 Mexico 122 128 -4.7%
10 Indonesia 114 109 +4.8%
11 Brazil 92 97 -5.1%
12 Uzbekistan 89 87 +2,6%
13 Argentina 65 58 +10.9%
14 Papua New Guinea 63 63 -0.1%
15 Kazakhstan 56 53 +7.1%
16 Mali 51 50 +1.2%
17 Tanzania 53.2 55.3 +4%
18 Colombia 49.2 51.8 +5%
19 Philippines 40 40 +0.6%
20 Sudan 40 37 +7.3%
Others 607 508 +3.1%
  Total 3,292 3,275 +0.5%

Source: Metals Focus

and the second looks at the world’s top producing gold miners: Top 20 Global Gold Miners – Newmont narrows the No. 1 gap

Top 20 Gold Mining Companies 2016/2017 (Tonnes) (1 tonne= 32150.7 troy ounces)

Rank Company 2017 Output 2016 Output %  Change
1 Barrick Gold 165.6 171.7 -4%
2 Newmont Mining 163.8 158.1 +4%
3 AngloGold Ashanti 116.8 112.8 +4%
4 Goldcorp 79.9 89.4 -11%
5 Kinross Gold 78.6 83.3 -6%
6 Navoi MMC (est) 75.5 75.5
7 Newcrest Mining 71.1 76.7 -7%
8 Polyus Gold 67.2 61.2 +10%
9 Gold Fields 62.6 63.0 -1%
10 Agnico Eagle Mines 53.3 51.7 +3%
11 Freeport McMoran 49.1 33.8 +45%
12 Shandong Gold 43.9 37.0 +19%
13 Sibanye Gold 43.6 47.0 -7%
14 China National Gold 42.4 42.0 +1%
15 Randgold Resources 40.9 39.0 +5%
16 Zijin Mining 35.8 42.6 -16%
17 Harmony Gold 34.0 33.2 +2%
18 Polymetal 33.5 27.7 +21%
19 Glencore 32.1 31.9 +1%
20 Yamana Gold 30.4 39.5 -23%

Source: Metals Focus,

a third article published on Seeking Alpha looks specifically at the top North American gold mining companies with notes on their individual performance: Mixed Results And Prospects For North America’s Top Gold Miners

DRC – Mining code proposals from mining companies

Mining companies operating in the Democratic Republic of Congo have submitted their own proposals regarding the recently announced new mining code which has raised some contentious issues.  However, given that the companies had been in discussion with the Mines Ministry ahead of the ratification of the new code without their proposed view being taken into account, we fear that the proposals will fall on deaf ears.  Should the new mining code remain in place, as we feel it will, it could seriously affect new mining investment in one of the world’s most mineral rich areas.

The mining companies have issued a press release regarding their proposals for constructive adjustments to the new code as follows:

Mining industry representatives* in the Democratic Republic of Congo have submitted a formal proposal to the country’s Ministry of Mines that is designed to address concerns about the recently revised mining code as well as the government’s revenue needs.

Among other things, it proposes linking a sliding scale of royalty rates to the prices of the key commodities, which industry representatives believe would be a more effective mechanism than the windfall tax introduced in the new code and at current prices would immediately give the government a higher share of revenues than what is provided in the new code.  It also deals with stability arrangements, state guarantees and mining conventions.

Along with the stability afforded to convention holders, enshrined in the 2002 mining code is a 10 year stability clause which provides that the holders of mining and exploration titles will continue to be governed by the terms of the 2002 mining code for such period in the event of the implementation of any new law.

Article 276:
“The State guarantees that the provisions of the present Code can only be modified if, and only if, this Code itself is the subject of a legislative amendment adopted by Parliament.

The rights attached to or deriving from an exploration licence or mining exploitation licence granted and valid on the date of the enactment of such a legislative modification, as well as the rights relating to or deriving from the exploitation licence subsequently granted by virtue of such an exploration licence, including among others, the tax, customs and exchange regimes set forth in this Code, remain acquired and inviolable for a ten-year period from the date of:

  1. the entry into force of the legislative modification for the valid exploitation licences existing as of that date;
  2. the granting of the exploitation licence subsequently granted by virtue of a valid exploration licence existing on the date of entry into force of the legislative modification.”

However, the proposal accepts 76% of the articles in the 2018 code and suggests changes to the rest only to ensure the effectiveness and legality of the code.  The mining industry representatives believe these changes will resolve issues with the code and contractual relationships while giving the DRC and its people increased participation in the proceeds of mining.

* Issued on behalf of members of the DRC mining industry representing more than 85% of the DRC’s copper, cobalt and gold production and most significant development projects: Randgold Resources, Glencore, Ivanhoe Mines, Gold Mountain International/ Zijin Mining Group, MMG Limited, Crystal River Global Ltd and China Molybdenum Co, Ltd (CMOC), AngloGold Ashanti.

 

All fall down? Is the predicted crash starting to hit?

Edited and updated article which first appeared on the Sharps Pixley websire earlier i n the week

As I switched on my computer this morning I was faced with a sea of red ink!  Equity prices were down across the board – in the U.S., Asia and Europe and no doubt elsewhere too. Most major stock indices were down by between 1 and 3% yesterday and in early trade today with the NASDAQ being particularly hard hit.  The markets are currently mostly moving on whether a trade and tariff war between the U.S. and China is imminent or not and prospects and views on this are mixed.  Tech stocks too, which have been responsible for much of the peaking of the markets earlier this year, have also been falling out of favour.

Bitcoin (BTC) was this morning stuttering down below the $8,000 level (it has since fallen to the low 7,000s) – around 60% off its high point achieved only a month and a half ago – and if Ethereum is a pointer, with it down at $450 as I write, the next leg down for BTC could well be to around $6,000.  (When Bitcoin and Ethereum were at their respective peaks early in the year BTC was trading at about 14x the Ethereum price.)

In the precious metals, gold, silver and the pgms were all down as well, although perhaps not by nearly as much in percentage terms as the equity markets.  The dollar Index was one of the few positives showing a tiny gain but it was still stuttering well below the 90 level and thus around 13% lower against other currencies than it was when President Trump came into office some 14 months ago.  Obviously a strong dollar is not part of ‘making America great again’.

So what has changed?  The U.S. Fed seems to be committed to raising interest rates perhaps at a faster rate than had previously been anticipated with higher rate targets for 2019 and 2020.  Wall Street may not be liking this prospect.  But perhaps it is the sudden recent downturn in the FAANG stocks (Facebook, Apple, Amazon, Netflix, Google), following Facebook’s problems, which is a primary cause of the falls in the Dow, S&P and NASDAQ (in particular). High flyer Tesla is also a significant contributor to the Wall Street sell-off and when Wall Street falls equities worldwide tend to follow its lead.

Is this the start of the equities crash many commentators have been predicting – and if so how will it affect gold and the other precious metals?  It’s probably too early to say, but after almost nine years of virtually uninterrupted rises in the equities indices we suspect something will have to give – indeed it may already have started.  We’ve already seen the bitcoin bubble burst and, as noted above, we feel the cryptos may yet have further to fall until the bottom is reached.  Are equities next?

What will have changed with the latest downturns is investor sentiment.  Equity increases look to no longer be the ‘sure thing’ that they were, buoyed up by the Fed’s Quantitative Easing policy which poured increased liquidity into the markets.  Now the Fed’s policy is in reverse with what many observers now refer to as Quantitative Tightening.  If history is anything to go by, equities markets may well suffer as a consequence of a rising interest rate path, at least initially.

Precious metals have moved up from their lows, but down again from their subsequent interim peaks, with gold reaching around the $1,355 mark which has proved to provide strong resistance on the upside.  It has since fallen back to the low $1,320s and is still looking vulnerable, with silver following a somewhat similar pattern.  The pgms seem to be treading a slightly different path as befits their industrial metal status.  The gold:silver ratio (GSR) remains above 81 which usually suggests silver is a better buy than gold – the late Ian McAvity used to say buy silver if ratio above 80, but buy gold if ratio 40 or below which has proved to be pretty wise advice over the years, although the 40 level hasn’t been seen since 2011 when it touched 33.7.  We’d probably suggest a range of buying silver with a GSR of 80 and above and gold with a GSR of 60 and below as being good advice under more recent price patterns and with more modest expectations!

Where are we now?  If I were an investor in U.S. equities or in bitcoin I’d be nervous and with global markets tending to follow Wall Street that nervousness would tend to extend to any major global markets.  Watch U.S./China trade negotiations and don’t necessarily trust either side to keep to any promises made to the other.  I would prefer gold and silver as safer investments than equities and see bitcoin as pure speculation with the potential to crash much further than it has already.  Precious metals may well see some falls but these are unlikely to be of the kind of magnitude which could befall equities so we’d continue with the theme of using gold, and perhaps silver, as wealth insurance.  They may not see major gains if equities collapse, but they shouldn’t see major falls either and, as in 2009 in the aftermath of the last big financial meltdown, they will probably recover far faster.