Gold Oversold: Due A Price Reversal

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

http://www.mjewelry.com/portals/1/images/services_sell_gold.jpg

In more ways than one, 2016 was a roller coaster year.  One need only look at gold’s performance to confirm this. After rallying more than 30 percent in the first half, the precious metal stalled in the days before the U.S. election, then retreated on a weekly basis, under pressure from a strengthening dollar and tightening monetary policy.

As you can see in the oscillator below, gold is now down more than two standard deviations from its mean, or average, dollar amount. The reason I show you this is because, in the past, this was a good time to begin accumulating, as mean reversion soon followed.

Gold vs. 2-Year Treasury Yield Percent Change Oscillator
click to enlarge

The 2-year Treasury yield, meanwhile, is looking overbought and set to correct, based on our model. I’ve explained several times before how gold has tended to share an inverse relationship with Treasury yields. The math suggests a nearly 90 percent probability that mean reversion will occur over the next three months, with yields falling and the gold price rising back to its mean.

Even though gold stocks have given up a large portion of their gains since the summer, they were still up close to 40 percent for the 12-month period, as measured by the NYSE Arca Gold Miners Index. Over the same period, blue-chip stocks were up 12 percent, with the Trump rally driving most of it. Therefore, a portfolio composed not just of S&P 500 equities but also gold stocks and bullion would likely have performed better than one composed only of equities.

Gold Miners Had a Phenomenal Year
click to enlarge

I always recommend a 10 percent weighting in gold, with 5 percent in gold stocks, the other 5 percent in gold bars, coins and jewelry.

Looking Ahead in the Near Term

U.S. debt dynamics are expected to turn positive for gold in 2017. That’s according to ICBC Standard Bank, which makes the case that the costs of higher yields are being overlooked. The Congressional Budget Office (CBO) calculates that net interest payments on the nearly $14 trillion of U.S. debt will amount to about $250 billion in 2016—or 1.4 percent of U.S. gross domestic product.

“If we apply an 80 basis point increase to the CBO’s net interest forecasts and keep the other variables unchanged, then by 2026 the Treasury would be paying an additional $185 billion in interest annually, and interest will have increased to 3.3 percent of GDP,” the bank writes, with emphasis my own.

Effect of 80 Basis Points Increase on U.S. Treasury's Interest Costs
click to enlarge

In the note, Tom Kendall, head of precious metals, stresses that the financing costs for the U.S. have already jumped. But under President-elect Donald Trump’s policies—which may or may not have a positive impact on U.S. growth—the effects will likely lag. Any disappointments on the growth front, then, combined with higher interest costs and contentious negotiations on raising the debt ceiling in the first quarter, could well result in a more bullish scenario for gold.

Looking Ahead in the Long Term

Gold’s rarity is one of the key reasons why it’s so highly valued across the globe and for most of recorded human history. Back in August, I shared with you that the precious metal makes up only 0.003 parts per million of the earth’s crust.

“Peak gold” has been a topic for years now, with major discoveries on the decline. According to a recent Bloomberg article, the number of new gold deposits discovered in 2015 was down a whopping 85 percent since 2006.

This means annual production is expected to peak in 2019, followed by a steady decline until at least 2025.

Global Gold Output Expected to Top Out in 2019 Before Declining

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SGE Becoming Global Gold Hub

Gold Today –New York closed at $1,140.90 28th December after closing at $1,132.00 on the 27th December. London opened again at $1,148.50 today.

 Overall the dollar is weaker against global currencies today. Before London’s opening:

         The $: € was weaker at $1.0450: €1 from $1.0436: €1 yesterday.

         The Dollar index was weaker at 102.91 from 103.21 yesterday. 

         The Yen was stronger at 116.45: $1 from yesterday’s 117.77 against the dollar. 

         The Yuan was stronger at 6.9366: $1, from 6.9578: $1, yesterday. 

         The Pound Sterling was stronger at $1.2259: £1 from yesterday’s $1.2226: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    29

     2016  12    28

      2016  12    27

SHAU

SHAU

SHAU

/

262.16

260.78

/

262.04

261.05

$ equivalent 1oz @  $1: 6.9366

      $1: 6.9578

$1: 6.9488

  /

$1,175.52

$1,165.77

/

$1,174.98

$1,166.97

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 Compare the close in New York at $1,140.90 against Shanghai’s $1,175 yesterday [the SGE only gives the Fix the day after now], then London’s opening of $1,148.50. Allow $5 for the difference in the quality of gold being priced in Shanghai and you can see that Shanghai is leading the way now, significantly! With few sales and no purchases from or into the gold ETFs in the U.S. in the gold price continues to reflect the dollar’s moves but with Chinese demand now having a direct input as gold flows from the sellers of gold ETFs to Shanghai. The price difference between New York and Shanghai is at $30 and between London and Shanghai at $22.

For New York to have the dominant impact on the gold price sales from the gold ETFs have to continue to be substantial on a daily basis.

SGE controls speculation – In a distinct departure from the western style of markets, where institutional or wealthy individuals can drive prices up or down at will, the Chinese authorities are taking steps to curb rampant speculation from happening. In a gold world where COMEX, with its low physical volumes [compared to demand and supply volumes globally] but huge non-physical [sometimes by High Frequency Traders] trading levels [London and New York account for over 90% of ‘gold’ transactions] dominate gold prices.  Shanghai has lowered the dealing size permissible on many commodities including gold. The exchange said in a statement it will halve its limit on transactions to 500 kg on some spot gold contracts starting Jan. 1. 

The move does not affect the amount traders can sell or buy in any one day, but it would likely force traders to carry out big transactions in multiple moves and prevent big investors from carrying out rapid-fire buying or selling to influence prices. It will certainly drive up the transactions costs on such speculative transactions.

We would expect this would increase the stability of the Shanghai gold market and considerably reduce volatility. In turn, we see gold producers and users preferring to base gold contract prices on Shanghai Fixes not London due to less volatility of gold prices.

While this will not reduce speculation in London and New York we see it as reducing the influence of London and New York on global gold prices, eventually.

For example, look back at 2013 when in April of that year the gold price dropped back over four hundred dollars in a few days due to a ‘raid’ by Goldman Sachs and clients. Such operations will prove far more expensive and likely be met with censure by the SGE itself. Bear in mind there are 10,000+ institutions operating on the SGE right now. It is the leading gold exchange in the world in terms of physical volumes.

We foresee it becoming the global gold hub. The Shanghai Gold Exchange is taking direct steps to enable gold investors to trade on the SGE in the same way as they do in London and New York, so promoting easy arbitrage operations, via the Yuan.

LBMA price setting:  The LBMA gold price setting was at $1,146.80 this morning against yesterday’s $1,139.75. 

The gold price in the euro was set higher at €1,087.43 after yesterday’s €1,092.55.

Ahead of the opening of New York the gold price was trading at $1,146.25 and in the euro at €1,096,16.  At the same time, the silver price was trading at $16.09.

 Silver Today –Silver closed at $16.03 at New York’s close yesterday from $15.72 on the 28th December. 

Price Drivers

With the rise in the gold price today the price of gold at $1,130 looks more and more like the bottom. Of course we could be wrong, as these sales from the gold ETFs could re-emerge in the New Year. But with Shanghai showing a greater influence on the gold price today as prices jumped $10 after not being able to break up through $1,140 for some time, is an indication of what lies ahead? Next week should add to this conclusion or dismiss it.

Gold ETFs – Yesterday in New York, there were no sales from the SPDR gold ETF.  Since January 4th this year, 218.485 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Holiday strength in gold, silver – and the dollar

Gold Today –New York closed at $1,132.00 24th December after closing at $1,128.80 on the 23rd December. London opened again at $1,140.00 today.

 Overall the dollar is stronger against global currencies today. Before London’s opening:

         The $: € was slightly stronger at $1.0436: €1 from $1.0444: €1 Friday.

         The Dollar index was stronger at 103.21 from 103.04 Friday. 

         The Yen was weaker at 117.77: $1 from Friday’s 117.37 against the dollar. 

         The Yuan was weaker at 6.9578: $1, from 6.9488: $1, Friday. 

         The Pound Sterling was weaker at $1.2226: £1 from Friday’s $1.2256: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    27

      2016  12    23

      2016  12    22  

SHAU

SHAU

SHAU

260.78

260.14

260.14

261.05

259.34

259.34

$ equivalent 1oz @  $1: 6.9578

      $1: 6.9488

$1: 6.9475

  $1165.77

$1,164.63

$1,164.63

$1,166.97

$1,161.05

$1,161.05

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 The Shanghai Gold Exchange’s much steadier gold price is now $28 above New York and $21 above London’s prices. With the Chinese New Year rushing towards us, we continue to see Chinese demand running high at retail levels encouraged by a falling Yuan. The fall in the Yuan will continue in 2017 we believe.

We do see the People’s Bank of China using continuing to use forex reserves to soften the fall of the Yuan, but making no attempt to prevent it. Just as the Euro, the Pound Sterling and the Yen attribute the recent weaknesses to dollar strength, so can China. All these nations are delighted to see the present low exchange rates, as what was called the “Currency War” had this objective from the start. The U.S. has helped them to this end.

LBMA price setting:  The LBMA gold price setting was at $1,139.75 this morning against yesterday’s $1,131.00. 

The gold price in the euro was set higher at €1,092.55 after yesterday’s €1,082.09.

Ahead of the opening of New York the gold price was trading at $1,138.25 and in the euro at €1,092.84.  At the same time, the silver price was trading at $15.86.

 Silver Today –Silver closed at $15.72 at New York’s close yesterday from $15.80 on the 23rd    December. 

Price Drivers

The dollar is stronger today and yet the gold price is now rising. Too much is often made of the link between the dollar and gold in dollar terms. There have been many periods when the dollar has risen alongside gold and we expect 2017 to see that happen often.

This also means the gold price will rise further in currencies weak against the dollar. We remain positive about gold going forward, so as we have said in the past, the professional is looking to see if we have seen the bottom and if so goes back in and is patiently holding his position ahead of the rise.

The markets are still in holiday mode ahead of the New Year, so we should not read too much into the markets this week. We see that in the small tonnage sold in the last day from the SPDR gold ETF. The amount is a strange figure but one we have seen many times before. It looks like a short term trader is trying to read the market on a daily or weekly basis and positioning himself, accordingly. If the price rises, we expect this amount to be purchased back in the days to come.

Monte dei Paschi

With Monte dei Paschi failing to attract new funds and the shares suspended, all efforts are now focussed on preventing ‘ripple’ effects across Europe and perhaps the Atlantic too. The E.C.B. has stated that the funds needed by the bank Monte dei Paschi should be doubled to rectify the Balance Sheet of the Bank. The Italian Government has agreed that it will use Taxpayer’s money to ‘bail’ the bank out. Now we wait for the details.

So an Italian bank crisis has been averted [UniCredit may go the same way?] but the terms of the bailout are important for the developed world banking industry. If Depositor’s funds are converted into shares in the bank we may see heavy shockwaves from investors holding bank bonds and loans across the banking industry. If this were to happen we would expect the gold price to rise.

Gold ETFs – Tuesday in New York, there were sales from the SPDR gold ETF of 1.186 tonnes of gold

but none were seen from the Gold Trust, leaving their respective holdings at 823.355 tonnes and 195.60 tonnes. 

Since January 4th this year, 218.485 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Gold and Silver – ahead of the holidays

Gold Today –New York closed at $1,128.80 yesterday after closing at $1,131.60 on the 20th December. London opened again at $1,132.00 today after yesterday’s $1,131.80.

 Overall the dollar is stronger against global currencies today. Before London’s opening:

         The $: € was almost unchanged at $1.0444: €1 from $1.0446: €1 yesterday.

         The Dollar index was stronger at 103.04 from 102.95 yesterday. 

         The Yen was stronger at 117.37: $1 from yesterday’s 117.67 against the dollar. 

         The Yuan was weaker at 6.9488: $1, from 6.9323: $1, yesterday. 

         The Pound Sterling was weaker at $1.2256: £1 from yesterday’s $1.2350: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    23

      2016  12    22

      2016 12     21   

SHAU

SHAU

SHAU

/

260.14

260.91

/

259.34

260.77

$ equivalent 1oz @  $1: 6.9488

      $1: 6.9475

$1: 6.9506

  /

$1,164.63

$1,167.56

/

$1,161.05

$1,167.45

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.] 

The Shanghai Gold Exchange remains $25 above New York and $24 above London. We see the New York and London discounts to Shanghai attracting arbitrageurs to smooth out the price. So long as there are sizeable sales from U.S. gold ETFs we see the Shanghai premium continuing.

LBMA price setting:  The LBMA gold price setting was at $1,131.00 this morning against yesterday’s $1,130.55. 

The gold price in the euro was set higher at €1,082.09 after yesterday’s €1,080.01.

Ahead of the opening of New York the gold price was trading at $1,131.75 and in the euro at €1,082.70.  At the same time, the silver price was trading at $15.77.

Silver Today –Silver closed at $15.80 at New York’s close yesterday from $15.95 on the 21st December. 

Price Drivers

For the last few weeks, while the U.S. digested the election win by Trump, the euphoria has bubbled over. But as we all know, while Trump’s businesslike objectives may be encouraging, they are against the background of an economy that while moderately expansive is far from vigorous, as demand for durable goods fell 4.6% in November and jobless claims rose in the same month. So President Trump has to produce miracles to achieve what the Market euphoria expects of him. So a calming process in the markets must happen and we see the beginning of that now.

Likewise in gold and silver, the falls have gone a long way further because of the euphoria over Trump. With sales of gold from the U.S. based gold ETFs slowing to a halt for the second day we ask, “Are we seeing such sales come to an end?” Of course this is not the same as the start of buying into the gold ETFs, but it may well be telling us the bottom may be coming into position.

With the festive season starting tomorrow, today should see position squaring, which could bring volatility to the gold and silver markets. Of course there is still another week in the month, so the position squaring could continue through next week too.

Monte dei Paschi has failed to attract willing investors and its shares have been suspended as they await the Italian governments rescue, which has been confirmed as on the way. What form will that rescue take? After all, the devil is in the detail! If badly handled the rescue could bring new worries to the E.U. banking sector.

In a year of surprises to be followed by another year of surprises [particularly from the E.U.] a triggering of banking crises there will hit developed world banks too. With shareholders of the world’s leading banks [Deutsche and Credit Suisse with Barclays left fighting the U.S. Department of Justice] having to fork out billions for bad mortgage practices, the banking industry in the developed world is far from sound, so a crisis in Italy could ripple across the Atlantic.

In 1933 it was a severe U.S. banking crisis that precipitated the confiscation of gold. Today, cash and gold are the only way to avoid such crises. That’s why there is so much talk of a cashless world where there is absolute dependence on banks under the thumb of governments.

Gold ETFs – Yesterday in New York, there were no sales from the SPDR gold ETF or the Gold Trust, leaving their respective holdings at 824.541 tonnes and 195.60 tonnes. 

Since January 4th this year, 219.671 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance   

 

Weaker dollar, no GLD sales, gold price recovers a little

Gold Today –New York closed at $1,131.50 yesterday after closing at $1,139.3 on the 19th December. London opened again at $1,133.80 today after yesterday’s $1,132.55.

Overall the dollar is slightly weaker against global currencies today.

         The $: € was weaker at $1.0398: €1 from $1.0384: €1 yesterday.

         The Dollar index was slightly weaker at 103.22 from 103.41 yesterday. 

         The Yen was weaker at 117.50: $1 from yesterday’s 118.19 against the dollar. 

         The Yuan was stronger at 6.9506: $1, from 6.9460: $1, yesterday. 

         The Pound Sterling was slightly weaker at $1.2335: £1 from yesterday’s $1.2373: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    21

      2016  12    20

      2016  12    19

SHAU

SHAU

SHAU

/

263.02

262.67

/

262.19

262.78

$ equivalent 1oz @  $1: 6.9506

      $1: 6.9460

$1: 6.9510

  /

$1,178.16

$1,176.59

/

$1,174.06

$1,176.70

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.] 

The Shanghai Gold Exchange appears to be in the process of updating its website, which needs some more work as today,s prices are not yet accessible.

LBMA price setting:  The LBMA gold price setting was at $1,134.40 this morning against yesterday’s $1,132.75. 

The gold price in the euro was set higher at €1,086.59 after yesterday’s €1,091.39.

Ahead of the opening of New York the gold price was trading at $1,135.35 and in the euro at €1,087.50.  At the same time, the silver price was trading at $16.05.

 Silver Today –Silver closed at $16.059 at New York’s close yesterday from $15.99 on the 19th December. 

Price Drivers

Today the dollar is pausing in its rise and gold too is consolidating with a slightly stronger bias right now. There were no sales from the gold ETFs yesterday, which has assisted the consolidation. If heavy ETF sales come in now the gold price will fall, if not we expect the gold price to continue rising.

Monte dei Paschi looks as though it is failing to convince bondholders or other investors to buy into the bank as shareholders, leaving the burden on the Italian government. We will know by the end of the week if the government will call for a bail-in or carry the burden themselves. The fear is that unless the state does buy in, an E.U. wide banking crisis would be triggered. If that happens gold will rise strongly.

Gold ETFs – Yesterday in New York, there were no sales from the SPDR gold ETF and no sales from the Gold Trust, leaving their respective holdings at 828.098 tonnes and 195.60 tonnes. 

Since January 4th this year, 223.228 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance  

Gold Sidelined as Trump Equities Rally Continues and Yields Surge

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

For only the second time since 2008, the Federal Reserve raised interest rates last week, surprising no one. Although the 25 basis point lift was in line with expectations, markets took some time to digest the news that three rate hikes—not two, as was earlier expected—were likely to happen in 2017. Major averages hit the pause button for the first time since last month’s presidential  election, but the Trump equities rally quickly resumed Thursday morning.

The two-year Treasury yield immediately jumped to a nominal 1.27 percent after averaging 0.80 percent for most of 2016, an increase of 58 percent. In real, or inflation-adjusted, terms, the yield is still in negative territory, but it’s clearly heading up following the U.S. election and rate hike. Thirty-year mortgage rates, meanwhile, hit a two-year high.

Real 2-Year Treasury Yield Heading Up Following Election and Rate Hike
click to enlarge

Gold retreated to a 10-month low. As I’ve explained many times before, gold has historically had an inverse relationship with bond yields, performing best when they’re moving south.

It’s worth pointing out that the most recent gold bull market, which carried the yellow metal up 28 percent in the first six months of 2016, was triggered last December when the Fed hiked rates.

Will Gold Respond Similarly to Fed Policy?
click to enlarge

Again, as many as three rate hikes are expected in 2017—unlike the one this year—with Fed Chair Janet Yellen commenting that economic conditions have improved well enough to warrant a more aggressive policy. If true, this should accelerate upward momentum of Treasury yields and the U.S. dollar—currently at a 14-year high—which could dampen gold’s chances of repeating the rally we saw in the first half of this year.

More Than $10 Trillion in Negative-Yielding Bonds

Other gold drivers still remain in place, though, including negative-yielding government bonds elsewhere around the world. The value of such debt has dropped considerably since the election of Donald Trump, but it still stands at more than $10 trillion, supporting the investment case for the yellow metal. And many of Trump’s protectionist policies—opposition to free trade agreements, imposition of tariffs on Chinese-made goods—are expected to heat up inflationary pressures in the U.S., which could serve as a gold catalyst.

What’s more, gold is looking oversold, down two standard deviations for the 60-day period, which has historically signaled a good buying opportunity. With prices off close to 12 percent since Election Day, I believe this is an attractive time to rebalance your gold position. I’ve always recommended a 10 percent weighting, with 5 percent in gold stocks and the other 5 percent in bullion, coins and jewelry.

Big gold sales from GLD Friday but having little price impact

Gold Today –New York closed at $1,133.40 Friday after closing at $1,127.4 on the 15th December. London opened again at $1,140.85 today.

 Overall the dollar is slightly weaker against global currencies today.

         The $: € was weaker at $1.0415: €1 from $1.0441: €1 Friday.

         The Dollar index was stronger at 103.09 from 102.95 Friday. 

         The Yen was stronger at 117.11: $1 from yesterday’s 118.17 against the dollar. 

         The Yuan was much weaker at 6.9510: $1 from 6.9463 $1 yesterday. 

         The Pound Sterling was weaker at $1.2373: £1 from yesterday’s $1.2430: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    19

      2016  12    16

      2016  12    15

SHAU

SHAU

SHAU

/

261.65

263.55

/

261.75

263.45

$ equivalent 1oz @  $1: 6.9510

      $1: 6.9463

$1: 6.9352

  /

$1,171.59

$1,181.99

/

$1,172.04

$1,181.54

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 Shanghai prices were not available when we produced this report.

LBMA price setting:  The LBMA gold price setting was at $1,137.60 this morning against Friday’s $1,134.85. 

The gold price in the euro was set higher at €1,092.11 after Friday’s €1,085.31.

Ahead of the opening of New York the gold price was trading at $1,139.75 and in the euro at €1,093.71.  At the same time, the silver price was trading at $16.10.

 Silver Today –Silver closed at $16.09 at New York’s close Friday from $16.00 on the 15th December. 

 Price Drivers

This week’s performance by gold and silver will be the result of two factors:

  1. The dollar.
  2. Gold ETF sales or purchases.

We feel that the dollar has run too far, for too long on the back of hopes under the Trump administration. It is certainly against the interest of the U.S. to have a strong dollar at this point in the U.S.

With the Yuan continuing to fall we may well see our forecast of 7.00 against the dollar reached by the end of this year. In 2017 we expect more falls in the Chinese currency. Let’s be clear on this, if the dollar continues to strengthen much more, the likelihood of import controls via stringent tariffs increases.

Trump’s rhetoric, via Tweets against China, are not stopping, making the divisions between the U.S. and China ever greater.  While China is pragmatic it also understands the many ways it can retaliate to its advantage.

As such we do expect to see gold demand increase from China and for a strong dollar to be capped in 2017. In a divided world, under tension, gold sees greater demand as history has shown throughout the ages.

2017 will see such tension and happenings that are the unforeseen, unforeseen. It will not be a quiet year. With gold prices at current levels we see gold not being far from its bottom. This next fortnight will confirm this, we think.

Gold ETFs – Friday, there were sales of 5.333 tonnes from the SPDR gold ETF and sales 0f 0.75 of a tonne from the Gold Trust, leaving their respective holdings at 836.991 tonnes and 195.60 tonnes. These sales were again large, but had no impact on the gold price. It would appear that when sales are ONLY as large as this, the buoyancy of the market is stronger than such sales.

The influence of the dollar exchange rate seems greater than physical sales at the moment!

Since January 4th this year, 232.121 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

The Demonization of Putin.  Is it Justified?

To be honest we just don’t know, but given that the U.S. is just as adept at political spin as Russia – indeed probably even more so – there has to be a strong suspicion that accusations by the Obama administration of President Putin’s personal involvement in hacking into the Democratic Party’s National Committee emails – indeed of any involvement all by Russia in such hacking activity, has to be taken with a pinch of salt.  Not only is the U.S. Administration smarting from a perception that Putin’s alliance with Syria’s President Assad is making inroads into that nation’s civil war that the U.S. has not been able to achieve with its military actions, but the U.S. Democratic Party, led by President Obama, is desperate to find a scapegoat for the defeat of Hillary Clinton in the Presidential race from a seemingly impregnable position – and who better to fill this role than Russia and President Putin himself.

Of course since the American accusations in the UK pro-Remain Labour MP, Ben Bradshaw, has now accused Russian hackers of positively influencing the Brexit vote in June’s referendum.  He appears to offer no element of proof to back up his accusation other than his view that such a hack was ‘highly probable’, but on absolutely no evidence beyond his own supposition.  The word bandwagon comes into mind.

Indeed, even in the U.S., where the statements on Russian hacking have been flowing thick and fast, the CIA which has made the allegations of the Russian hack into the DNC emails, will only say that there is ‘convincing circumstantial’ evidence (which Bradshaw described as ‘proof’ in his statement to the UK House of Commons) and there is certainly no ‘proof’ out there of any direct Putin involvement, even if Russian hackers were involved.

Russia and Putin have, unsurprisingly asserted that the American accusations are ‘ludicrous’.  Even Julian Assange, the founder of Wikileaks – another U.S. bête noire – which released the hacks to the public says the Kremlin was not the source – but, in the slightly misquoted words of Mandy Rice-Davies (for those who remember the Profumo political and sex scandal in the UK of 55 years ago) ‘he would say that wouldn’t he’.  But in modern-day spin if accusations are repeated often enough, and particularly by well-respected figures like President Obama, they tend to be taken as the truth even though there is possibly no firm evidence to back them up.

No doubt when a Trump administration, which appears to be less paranoid about Russia and President Putin, takes over in a month’s time, such accusations will be confined to history and we’ll never know the truth one way or the other.

Two gold and silver stock tables showing some of the huge gains made YTD

The two tables shown below were prepared by me for an article which has now been published  on seekingalpha.com.  (Click on link to read full article) .The article looks at the companies included in the tables, some of my investment suggestions made a year ago on seekingalpha.com and some ideas for future investment in the sector.

What the tables show is the huge price leverage which can be achieved from investing in the right gold and silver mining stocks rather than the precious metals themselves in a year like 2016 where gold and silver transitioned from being totally out of favour to being prime asset classes with institutions and investors playing catch-up.  It also shows that some stocks are still showing triple digit gains this year despite the recent falls in gold and silver prices.

Note:  The tables only cover top tier gold and silver stocks.  Selected juniors may have done even better, but others will have crashed and burned – junior mining is always a risky sector!

World Top 10 Gold Mining Companies with U.S. stock quotes (US$)

Stock Price Jan 1 Price Dec 16 Rise YTD Peak Fall from Peak
Barrick (ABX) 7.38 14.28 93.5% 23.16 38.3%
Newmont (NEM) 17.99 31.66 76.0% 45.86 31.0%
Anglogold (AU) 7.10 9.51 33.9% 22.65 58.0%
Goldcorp (GG) 11.56 12.53 8.4% 20.15 37.8%
Kinross (KGC) 1.82 3.03 66.5% 5.74 47.2%
Newcrest (NCMGY) 9.47 12.37 30.6% 20.06 38.3%
Gold Fields (GFI) 2.77 2.67 -3.6% 6.45 58.6%
Sibanye (SBGL) 6.09 6.61 8.5% 20.78 68.2%
Agnico Eagle (AEM) 26.28 37.34 42.1% 58.77 36.5%
Freeport (FCX)* 6.77 13.83 104.3% 16.21 14.7%

*Primary copper producer but still one of the world’s top gold miners

Source Yahoo Finance  and lawrieongold.com

Some other U.S. quoted relevant precious metals miners and indexes (US$)

Stock Price Jan 1 Price Dec 16 Rise YTD Peak Fall from Peak
Yamana (AUY) 1.86 2.64 41.9% 5.90 55.3%
Randgold (GOLD) 61.93 68.74 11.5% 125.41 45.2%
Harmony (HMY) 0.93 1.89 103.2% 4.76 60.7%
Eldorado (EGO) 2.97 2.75 -7.4% 5.07 45.8%
Coeur (CDE) 2.48 9.08 266.1% 15.96 43.1%
Hecla (HL) 1.89 5.39 185.2% 7.24 25.6%
Pan American (PAAS) 6.50 14.71 126.3% 21.46 31.5%
XAU Index 45.30 73.41 62.1% 112.83 34.9%
HUI Index 111.18 165.32 48.7% 284.14 41.8%
GDXJ Index 19.21 29.86 55.4% 51.70 42.2%

Sources: Yahoo Finance  and lawrieongold.com

 

Deliberations on the U.S. Fed rate rise and gold

Two articles published by me on sharpspixley.com in the aftermath of this week’s FOMC meeting announcing a 25 basis point U.S. interest rate rise and looking ahead to three more in 2017.  Despite virtually every analyst and commentator predicting the increase which should have suggested that the rise had already been discounted in the recently weaker gold price the news precipitated a further $20 plus fall despite this.  This totally disregarded the Fed predicting three rate rises in 2016 the last time it increased rates by 25 basis points, exactly a year ago, and then failing to raise rates at all until now.  How short memories are – particularly in the financial world.  And how poor the Fed’s record has been in predicting the path of the U.S. economy.  Perhaps it will be all-change in 2017 under the somewhat unpredictable President-elect Trump, but we see some hopes being damped.  Whether gold will benefit, or continue to weaken, will probably depend on the big money which is likely to continue setting paper gold prices which still dominate, although Shanghai is doing its best to bolster prices – so far to little avail.

The first of the two Sharps Pixley articles written a couple of hours after the rate increase decision was announced, and the accompanying Fed forecast can be read by clicking on this link: Gold hammered on U.S. Fed rate decision.

The second was written the following morning (UK time) as the gold price continued to weaken and the dollar index to strengthen.  Indeed much of gold’s fall could be put down to dollar strength rather than gold weakness, although offloading of gold from the big gold ETFs did continue which will not have helped sentiment.  To read this article click here: Gold and silver dip further as dollar continues on upwards path.

Today the rise in the U.S. dollar index appears to have halted and precious metals prices appear to have stabilised.  Whether that will continue into next week we do not know given the gold bears appear to be in the ascendant, but there is an impression gold has been oversold, the dollar overcooked and maybe, just maybe, something of a precious metals recovery is already under way.

Are gold and silver stabilizing?

 

Gold Today –New York closed at $1,127.40 yesterday after closing at $1,142.60 on the 14th December. London opened again at $1,133.85 today.

 Overall the dollar is stronger against global currencies today.

         The $: € was stronger at $1.0441: €1 from $1.0478: €1 yesterday.

         The Dollar index was stronger at 102.95 from 102.54 yesterday. 

         The Yen was weaker at 118.17: $1 from yesterday’s 117.81 against the dollar. 

         The Yuan was much weaker at 6.9463: $1 from 6.9352: $1 yesterday. 

         The Pound Sterling was weaker at $1.2430: £1 from yesterday’s $1.2520: £1

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    16

      2016  12    15

      2016  12    14

SHAU

SHAU

SHAU

261.65

263.55

264.98

261.75

263.45

264.99

$ equivalent 1oz @  $1: 6.9463

      $1: 6.9352

$1: 6.9025

  $1,171.59

$1,181.99

$1,194.58

$1,172.04

$1,181.54

$1,194.08

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 Shanghai prices fell around 1% today, after New York’s fall of 1.3% signalling a calmer market despite the fall caused by ongoing ETF sales.  When translating Yuan prices into the dollar equivalent we see the ‘discount’ of New York to Shanghai prices rising to $44.19 the highest ever seen. Against London’s opening of $1,133.85 the London ‘discount’ was $38.19, again the highest we have ever seen. Once again this is accounted for by the dollar’s ongoing strength.  

This confirms that the moves in gold prices in the different markets are a reflection of currency movements not sales and purchases of gold so much. The arbitrage opportunities are huge for those selling gold to sell into China, not London or New York.

LBMA price setting:  The LBMA gold price setting was at $1,134.85 this morning against yesterday’s $1,132.45. 

The gold price in the euro was set slightly lower at €1,085.31 after yesterday’s €1,085.45.

Ahead of the opening of New York the gold price was trading at $1,135.00 and in the euro at €1,086.12.  At the same time, the silver price was trading at $16.08.

 Silver Today –Silver closed at $16.00 at New York’s close yesterday from $16.80 on the 14th December. 

Price Drivers

After the Fed’s announcement comes the discounting of the best possible scene in markets. Then comes rumination on the realities of life. Likewise in markets! The Fed’s confidence in the economy and the hopes that the future under Trump will see “America great again” are being discounted. The bond market is diving, as future rates will be much higher.

The euphoria is taking the U.S. equity market higher despite the interest rate future that we will see next year through 1919.

Such an immediate discounting of such a bright future will bring us close to the bottom in the gold price as U.S. sellers dump the gold in gold ETFs and turn to equities and the exported funds which sought greener pastures comes home. Once this process is complete and the dollar’s rise exhausted the bottom in the gold and silver price will be established.

Now balance these expectations against the real expectations, across the world and one sees the future for currencies, debt, stability and uncertainties painting a different picture. After the initial reactions to Trumpanomics and interest rates being seen now, the markets will settle down and the dollar’s rise [against U.S. interests] will be stabilized and likely fall back. Likewise, gold and silver prices will see a rally as Asia gobbles up the gold thrown up by the selling in the U.S., with prices moving back up to Shanghai prices, as the Yuan continues to fall.

The scene in the E.U. is worsening as interest rates are being held down through Q.E. for another year. Apart from the Italian banking crisis moving towards dramatic events [Monte dei Paschi] the Greek debt crisis is back on stage as well. 2017 promises to see the E.U. and the euro in trouble as a result.  Either of these could spark an even bigger crisis than markets are currently factoring in for the euro and E.U.

A President Trump may defy all expectations of his international behaviour and do the unforeseen. We will have to wait until the end of his first ‘100 days.’ – around the end of May.  We could be in a completely different world then with global power held by a very small number of people. We have looked at the potential scene being in place then and all of them include a solid place for gold with gold and silver prices looking to rise!

Gold ETFs – Yesterday, there were sales of 7.118 tonnes from the SPDR gold ETF and no sales from the Gold Trust, leaving their respective holdings at 842.327 tonnes and 196.35 tonnes. As the ripples from the Fed’s statement diminish we expect the selling to slow to a trickle. This will remove the downward pressure on the gold price, leaving only the dollar affecting the price negatively.

Since January 4th this year, 238.204 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust.  So far this year over 162 tonnes have been sold out of these two funds.

Julian D.W. Phillips GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Global Gold Price (1 ounce)
  Today yesterday
Franc Sf1,166.72 Sf1,163.78
US $1,135.00 $1,129.50
EU €1,086.12 €1,083.66
India Rs.76,914.98 Rs. 76,676.11
China Y 7,898.01 Y 7,833.76

 

Gold and silver thumped by Fed statement

Gold Today –New York closed at $1,142.60 yesterday after closing at $1,158.6 on the 13th December. London opened again at $1,136.80 today.

 Overall the dollar is much stronger against global currencies today.

         The $: € was stronger at $1.0478: €1 from $1.0649: €1 yesterday.

         The Dollar index was stronger at 102.54 from 100.87 yesterday. 

         The Yen was weaker at 117.81: $1 from yesterday’s 114.95 against the dollar. 

         The Yuan was much weaker at 6.9352: $1 from 6.9025: $1 yesterday. 

         The Pound Sterling was weaker at $1.2520: £1 from yesterday’s $1.2656: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    15

      2016  12    14

      2016  12    13

SHAU

SHAU

SHAU

263.55

264.98

265.04

263.45

264.99

264.93

$ equivalent 1oz @  $1: 6.9352

      $1: 6.9025

$1: 6.9009

  $1,181.99

$1,194.58

$1,189.20

$1,181.54

$1,194.08

$1,194.08

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 Shanghai prices held $33.94 higher levels than prices in New York. London opened at a higher discount to Shanghai of $39.74.  In the last day London and New York gold prices have dropped in the dollar around 11% whereas Shanghai gold prices in the Yuan have dropped only 0.5%. This is an important point, we feel pointing to volatility in London and New York continuing then doing so both ways. i.e. Shanghai is implying that gold prices are falling too far too fast, despite the rising dollar..

This confirms that the moves in gold prices in the different markets are a reflection of currency movements not sales and purchases of gold. The arbitrage opportunities are huge for those selling gold to sell into China, not London or New York.

LBMA price setting:  The LBMA gold price setting was at $1,132.45 this morning against yesterday’s $1,160.95. 

The gold price in the euro was set higher at €1,085.45 after yesterday’s €1,090.45.

Ahead of the opening of New York the gold price was trading at $1,129.50 and in the euro at €1,083.66.  At the same time, the silver price was trading at $16.11.

Silver Today –Silver closed at $16.80 at New York’s close yesterday from $16.91 on the 13th December. We see it falling further than gold now, but also rallying, thereafter, faster than gold.  

Price Drivers

The gold price in the Yuan and the euro only fell slightly. It was a strong dollar rising against gold that brought the price down in dollar terms. We do not expect to see the dollar continue to get stronger over the next few weeks, as that is against the U.S. interests.

We see the fall in the gold price as coming to an end ahead of a rally soon. Shanghai and the silver price points to this. The sale of 6+ tonnes from the SPDR was a large amount but not one likely to cause such a fall. Once the Fed’s announcement is fully digested, then we see gold rallying.

The Fed’s announcement rocked all markets including gold and silver not because of the hike of 0.25% but for the three year forecast pointing to three hikes in each of the next three years. No more the waiting for data to guide them? This was a vote of confidence in the U.S. economy, where they clearly see the economy reaching a self-sustaining momentum, if not there already. Inflation is rising through their 2% target and pointing higher. Trumpanomics was certainly factored in by the FOMC which adds tremendous fiscal stimulus to the formula. If they stick to these rate forecasts [and they don’t have to] and they are too optimistic such rate hikes will hurt the economy and it will turn down fast. But will ‘real’ interest rates go positive?

Take a robust U.S. economy against a weak EU & Japan still in their QE phase and the prospects for exchange rates outside of the U.S. down strongly, something they have wanted for years. The race to the bottom in currencies will produce a very volatile currency world for several years. Right now the “Carry Trade” are racing to unwind their positions, strengthening the dollar and taking it back into its ‘bull’ market. Unless the Treasury takes action to restrain the dollar we expect several currency crises in the next three years. That’s the rosy picture for the future. Of course the Fed expressed intentions, not certain realities, so this picture could easily turn bad if the reality is very different.

Outside of the U.S., difficult times lie ahead as the U.S. will become solely interested in what benefits the U.S., likely at the cost of its current trading partners. We do see a trade war but against a robust ‘enemy’, China. China is on course to eliminate poverty by 2020 and by then should also have a robust, self-sustaining economy too.  With their interests diverging we see more division in the world. This will directly impact the currency world to the detriment of the dollar as a reserve currency.

As to gold and silver in this environment we say this;

  • Currency turmoil will benefit gold and silver prices as it brings instability and uncertainty.
  • Trumpanomics will lessen the value of the dollar and all other currencies, [as they try to remain lower than the dollar], as rising debt and inflation benefits gold and silver prices.
  • A multi-currency monetary system is inevitable, which will benefit gold and silver.

Gold ETFs – Yesterday, there were sales of 6.818 tonnes from the SPDR gold ETF and a sale 0f 0.6 of a tonne from the Gold Trust holdings, leaving their respective holdings at 849.441 tonnes and 196.35 tonnes. Under these circumstances we would expect more sales today as the Fed’s announcement is digested.

Since January 4th this year, 245.322 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

Julian D.W. Phillips – GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

Gold and silver holding up ahead of Fed announcement

Gold Today –New York closed at $1,158.60 yesterday after closing at $1,162.20 on the 12th December. London opened again at $1,160.00 today.

Overall the dollar is slightly weaker against global currencies today.

         The $: € was weaker at $1.0649: €1 from $1.0643: €1 yesterday.

         The Dollar index was slightly weaker at 100.87 from 100.97 yesterday. 

         The Yen was stronger at 114.95: $1 from yesterday’s 115.30 against the dollar. 

         The Yuan was weaker at 6.9025: $1 from 6.9009: $1 yesterday. 

         The Pound Sterling was slightly stronger at $1.2656: £1 from yesterday’s $1.2672: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    14

      2016  12    13

      2016  12    12

SHAU

SHAU

SHAU

264.98

265.04

264.34

264.99

264.93

264.12

$ equivalent 1oz @  $1: 6.9025

      $1: 6.9009

$1: 6.9138

  $1,194.03

$1,194.58

$1,189.20

$1,194.08

$1,194.08

$1,188.21

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 Shanghai prices held $30.48 higher levels than prices in New York. London opened at a higher discount to Shanghai of $29.08.  

It is again reported that the requirement for importing gold into China is a ‘licence for each batch’ of gold imported. Yes, the PBoC can restrain these licenses to limit imports, but it is unlikely that they would hold back such licenses. There is no confirmation of the refusal to issue licenses by the PBoC to gold importers, so we would question such control until there is evidence.

The withdrawals from the SGE were at record levels in November and the declining Yuan would boost demand in December too, but we would like to see the SGE withdrawals for December before we accept that the PBoC is holding imports back.

Some report the ‘premium’ of SGE prices over London is entirely due to such restraint and this would be logical, but take a look at Yuan prices  and you will see the declining prices on the SGE and the relative stability of  Yuan prices argues for steady to declining demand. That’s why we see Shanghai reflecting prices of physical gold as opposed to those of ‘paper’ gold.

This stability of prices is shown in the unwillingness of Shanghai prices to decline when London and New York declined, not in rising prices in China.

LBMA price setting:  The LBMA gold price setting was at $1,160.95 this morning against yesterday’s $1,157.35. 

The gold price in the euro was set higher at €1,090.45 after yesterday’s €1,090.40.Ahead of the opening of New York the gold price was trading at $1,161.95 and in the euro at €1,091.75.  At the same time, the silver price was trading at $17.10.

Silver Today –Silver closed at $16.91 at New York’s close yesterday from $17.07 on the 12th December. 

 Price Drivers

The Fed’s announcement is what will move markets today, not the rate hike itself, as this has been discounted already. If there is no rate hike then that’s a different matter.

Gold markets are marking time ahead of the announcement later today. This is the last statement they will make before Trump takes power. Will that change things, or some part of the statement, reflect this? We doubt it, but nothing is certain these days. Trump has already pointed fingers at the Fed saying they are the cause of the current ‘bubbles’ in markets.

What is likely is that the Fed will continue to wait to see the evidence on which it will act and that points to no more hikes until the second half of 2017. On balance the slow pace of interest rate hikes is positive for gold, particularly in the light of the cuts in production put forward by oil producers. Higher oil prices will spur [bad] inflation making it likely that interest rates are lower than inflation as growth will be badly impacted by higher oil prices.

As you see below, even the sellers of gold have paused waiting for the Fed. Do not be surprised to see a surprising gold market today!

Gold ETFs – Yesterday, there were no sales or purchases from or into the SPDR gold ETF but a sale 0f 0.51 of a tonne from the Gold Trust holdings, leaving their respective holdings at 856.259 tonnes and 196.95 tonnes. The slowing of sales to such low levels is proving supportive of the gold price.

Silver –Silver is continuing to look solid above $17.00 but this could change in a heartbeat.  

 Julian D.W. Phillips GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

To ensure you can benefit from the future higher gold prices we will see then, you need to hold it in a manner that makes sure it can’t be taken from you. Contact us at admin@stockbridgemgmt.com to buy physical gold in a way that we feel, removes the threat of it being confiscated. We’re the only storage company that offers that! – We’re Shari’ah compliant!]

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Global Gold Price (1 ounce)
  Today yesterday
Franc Sf1,173.28 Sf1,174.28
US $1,161.95 $1,158.70
EU €1,091.75 €1,092.29
India Rs.78,379.34 Rs. 78,297.99
China Y 8,021.75 Y 7,998.51

 

Deutsche Bank’s metals price rigging evidence

By Clint Siegner*

Some say there is honor among thieves. Perhaps, but apparently not among international  bankers when they are under serious legal and regulatory pressure.

Bank Heist

German behemoth Deutsche Bank agreed last spring to assist plaintiffs and regulators by exposing their co-conspirator banks in a wide ranging scheme to rig prices and cheat clients.

They cut a deal to avoid even larger monetary damages and criminal prosecution. Executives there agreed to pay nearly $100 million to settle their legal troubles and share information. In return the bank gets to deny wrongdoing and keep its license to trade in markets. The other alleged cheaters, including the Bank of Nova Scotia, UBS, Barclays, HSBC, Fortis, Standard Chartered, and Bank of America, may not get off as easy.

More details are now emerging as to exactly what kind of evidence Deutsche provided, and it indeed appears to be damning. Plaintiffs in a class action suit looked it over and just filed an amended complaint with broader allegations of wrongdoing implicating more banks. The revised complaint describes what they found in the Deutsche materials this way:

Plaintiffs incorporate factual allegations based on the more than 350,000 pages of documents and 75 audio tapes that Deutsche Bank produced as part of the cooperation provisions of its Settlement Agreement with Plaintiffs (collectively, the “DB Cooperation Materials”). The DB Cooperation Materials provide direct, “smoking gun” evidence of a conspiracy among the Fixing Members and several other silver market makers, including at least UBS, Barclays, Standard Chartered, Fortis, and Merrill Lynch, to illegally manipulate the price of silver and silver financial instruments at artificial, anti-competitive levels through multiple means.

“Smoking gun” appears to be an apt description. Here is an example of a chat between a trader at Deutsche Bank and one at HSBC:

Deutsche Bank [Trader-Submitter A]: I got the fix in 3 minutes

HSBC [Trader A]: I’m bearish

Deutsche Bank [Trader-Submitter A]: Hahahaha

HSBC [Trader A]: Massively… Really wanna sell sil * * *

HSBC [Trader A]: Let’s go and smash it together

That’s clear evidence of illegal collusion to manipulate prices down. But will this hoard of evidence actually lead to anything meaningful in terms of cleaning up the marketplace? We know banks have been rigging all sorts of markets and sticking it to their own customers for a long, long time with little repercussion. Regulatory capture – the cozy relationship between Wall Street and the bureaucrats who often want nothing more than to land a high-paying job there – is a real problem.

The CFTC, which regulates futures markets, announced they were closing their investigation into silver manipulation in 2013. After spending more than 7,000 enforcement hours, officials there somehow managed to miss what appears to be institutionalized cheating over a period lasting years.

Bart Chilton, who spearheaded the CFTC investigation, left for greener pastures shortly after the investigation wrapped up. He got a much better paying gig at nation’s largest law firm, advising companies on the topic of regulation. Many have all but given up on agencies like the CFTC when it comes to keeping banks honest.

There is, however, reason for investors to hope. This class action lawsuit is the biggest civil litigation pertaining to metals market rigging to ever get past first base. The judge will allow discovery to proceed, based in large part upon the evidence provided by Deutsche Bank. Attorneys will start deposing traders and bank officials and attempting to find out just how deep the corruption goes. And, because it is a civil matter, the case cannot be derailed by inept or compromised regulators.

Deutsche Bank agreed already to fork over nearly $100 million as part of the suit. Other class-action suits are already pending and it is safe to say more victims will look at that jackpot and jump into the game.

The new evidence might even be too compelling for regulators to keep looking the other way. It is at least possible investors will see actual criminal prosecutions and banks losing their privileges to trade in these markets.

Metals market rigging has moved out of the realm of theory and into the realm of fact. Perhaps, for the first time ever, investors in the sector have a real shot at more honest markets and price discovery. Wouldn’t that be nice?

Inflation Expectations for 2017 Keep the Polish on Gold

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

Inflationary Expectations 2017 Keep Polish Gold

Inflation can be understood as the destruction of a currency’s purchasing power. To combat this, investors, central banks and families have historically stored a portion of their wealth in gold. I call this the Fear Trade.

The Fear Trade continues to be a rational strategy. Since President-elect Donald Trump’s surprise win a month ago, the Turkish lira has plunged against the strengthening U.S. dollar, prompting President Recep Erdogan to urge businesses, citizens and institutions to convert all foreign exchange into either the lira or gold. Most obliged out of patriotism, including the Borsa Istanbul, Turkey’s stock exchange, and the move has helped support the currency from falling further.

Gold Save Turkish Lira
click to enlarge

Venezuela, meanwhile, has dire inflationary problems of its own. Out-of-control socialism has led to an extreme case of “demand-pull inflation,” economists’ term for when demand far outpaces supply. Indeed, the South American country’s food and medicine crisis has only worsened since Hugo Chavez’s autocratic regime and the collapse in oil prices. The bolivar is now so worthless; many shopkeepers don’t even bother counting it, as Bloomberg reports. Instead, they literally weigh bricks of bolivar notes on scales.

“I feel like Pablo Escobar,” one Venezuelan bakery owner joked, referring to the notorious Colombian drug lord, as he surveyed his trash bags brimming with worthless paper money.

Because hyperinflation has destroyed the bolivar, the ailing South American country sold as much as 25 percent of its gold reserves in the first half of 2016 just to make its debt payments. Venezuela’s official holdings now stand at a record low of $7.5 billion.

Trump-Carrier Deal a Case Study in U.S. Inflation

visited Bloomberg TV studio today rates gold

The U.S. is not likely to experience out-of-control hyperinflation anytime soon, as the dollar continues to surge on bets that Trump’s proposals of lower taxes, streamlined regulations and infrastructure spending will boost economic growth. But I do believe the market is underestimating inflationary pressures here in the U.S. starting next year.

As I explained to Scarlet Fu and Julie Hyman on Bloomberg TV last week, inflation we might soon see is largely caused by rising production costs, which is different from the situation in Turkey and Venezuela.

Nevertheless, it still serves as a positive gold catalyst for 2017.

Consider Trump’s recent Carrier deal—the one that saved, by his own estimate, 1,100 jobs from being shipped to Mexico. We should applaud Trump and Vice President-elect Mike Pence for looking out for American workers, but it’s important to acknowledge the effect such interventionist efforts will have on consumer prices.

Trumps jobs Carrier indicative protectionist policies

As I see it, the Carrier deal is indicative of the sort of trade protectionism that could spur inflation to levels unseen in more than 30 years. The Indiana-based air conditioner manufacturer has already announced it will likely need to raise prices as much as 5 percent to offset what it would have saved by moving south of the border.

We can expect the same price inflation for all consumer goods, from iPhones to Nikes, if production is brought back home. That’s just the reality of it. Prices will go up, especially if Trump succeeds at levying a 35 percent tariff on American goods that are built overseas but imported back into the U.S. The extra cost will simply be passed on to consumers.

What’s more, Trump has been very critical of free trade agreements, threatening to tear them up after blaming them—NAFTA, specifically—for the loss of American jobs and stagnant wage growth. There’s some truth to this. But trade agreements have also helped restrain inflation over the past three decades. This is what has allowed prices for flat-screen, plasma TVs to come down so dramatically and become affordable for most Americans.

International Trade Deals Slowed Inflation
click to enlarge

In its 2014 assessment of NAFTA, the Peterson Institute for International Economics (PIIE) calculated that for every job that could be linked to free trade, “the gains to the U.S. economy were about $450,000, owing to enhanced productivity of the workforce, a broader range of goods and services, and lower prices at the checkout counter for households.”

Additional tariffs and the inability to import cheaper goods are inflationary pressures that could result in a deeper negative real rate environment. And as I’ve pointed out many times before, negative real rates have a real positive effect on gold, as the two are inversely correlated.

Inverse Correlation Between Gold Real Fed Funds Rate
click to enlarge

Macquarie research shows that last year, ahead of the December rate hike, gold retreated about 18 percent from its year-to-date high. Afterward, it gained 26 percent in the first half of 2016. The decline so far this year has been about 15 percent from its year-to-date high. Gold, according to Macquarie, is setting up for another rally in a fashion similar to last year.

Central Bank Demand Could Accelerate on Growing Federal Debt

The U.S. government is currently saddled with $19.9 trillion in public debt. Since 2008, federal debt growth has exceeded gross domestic product (GDP) growth. And according to a Credit Suisse report last week, Trump’s tax proposal, coupled with deficit spending, could cause federal debt to grow even faster than under current policy.

After analyzing projections from a number of agencies and think tanks, Credit Suisse “estimates a federal debt-to-GDP of 92 percent by 2026, including a GDP growth offset from the lower tax tailwind, and 107 percent excluding the GDP growth offset.”

Higher US Budget Deficits Debt Spur Banks Increase Gold Buying
click to enlarge

The U.S. dollar accounts for about 64 percent of central banks’ foreign exchange reserves. With the potential for higher U.S. budget deficits and debt risking dollar strength, central banks around the globecould be motivated to increase their gold holdings, says Credit Suisse.

Waiting for Mean Reversion

As I mentioned last week, gold is looking oversold in the short term and long term, down more than two standard deviations over the last 20 trading days. Statistically, when gold has done this, a return to the mean has often followed. This has been an attractive entry point for investors seeking the sort of diversification benefits gold and gold stocks have offered.

In a note to investors last week, ETF Securities highlighted these diversification benefits, writing that a gold allocation has “historically increased portfolio efficiency—lowering risk while increasing return—compared to a diversified portfolio without an allocation to precious metals.”

As always, I recommend a 10 percent weighting: 5 percent in gold bullion, 5 percent in gold stocks, then rebalance every year.

Gold and robust silver starting to bounce?

Gold Today –New York closed at $1,162.20 yesterday after closing at $1,159.00 on the 9th December. London opened again at $1,158.55 today.

Overall the dollar is weaker against global currencies today.

         The $: € was weaker at $1.0643: €1 from $1.0634: €1 yesterday.

         The Dollar index was weaker at 100.97 from 101.40 yesterday. 

         The Yen was stronger at 115.30: $1 from yesterday’s 115.76 against the dollar. 

         The Yuan was stronger at 6.9009: $1 from 6.9033: $1 yesterday. 

         The Pound Sterling was stronger at $1.2672: £1 from yesterday’s $1.2585: £1.

 Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2016  12    13

      2016  12    12

      2016  12    9

SHAU

SHAU

SHAU

265.04

264.34

265.27

264.93

264.12

265.82

$ equivalent 1oz @  $1: 6.9009

      $1: 6.9138

$1: 6.9033

  $1,194.58

$1,189.20

$1,195.20

$1,194.08

$1,188.21

$1,197.68

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 Shanghai prices held $27 higher levels than prices in New York. London opened at a higher discount to Shanghai of $30.  

Shanghai has set a pattern of late, of walking its own road, with the price of a gold gram in Yuan on a steady path, reflecting the value of the Yuan relative to the dollar. It has not seen speculators driving prices too far each way. The stability of the gold market in China is a pointer to the future.

Meanwhile, in New York or London dealers and the banks try to anticipate the next move and change their prices accordingly, so as not to be stuck with too much stock in a falling market or too little in a rising market. The sheer volumes and number of entities and investors in Shanghai appear to have overwhelmed such speculation. The high level of liquidity tends to lessen the impact of speculation on prices.

If buyers and seller in both London and New York had the option of selling or buying their gold in Shanghai, from London or New York, then there would be one global price. Until then HSBC makes the differential. But while it is to China’s advantage to pick up stock at a discount in London the price differential will persist, steadily draining London’s liquidity.

The purpose of the Capital Controls now imposed in China is to slow the depreciation of the Yuan down. The news from China that its economy is growing steadily should have assisted the PBoC in this quest, but it is unlikely to do so.

We believe we are entering a time when Capital Controls will be imposed in many countries [including the U.S.] with the purpose of stabilizing their currencies. With Trump determined to rattle the global cage, as well as inside the U.S. such controls will have a greater impact on the value of currencies than the current ‘currency wars’. The currency world in 2017 and beyond will see the major blocs playing every man for himself.

LBMA price setting:  The LBMA gold price setting was at $1,157.35 this morning against yesterday’s $1,154.40. 

The gold price in the euro was set higher at €1,090.40 after yesterday’s €1,088.03.

Ahead of the opening of New York the gold price was trading at $1,158.70 and in the euro at €1,092.29.  At the same time, the silver price was trading at $17.04.

Silver Today –Silver closed at $17.07 at New York’s close yesterday from $16.85 on the 9th December. 

 Price Drivers

The fall in the gold price halted yesterday as the volume of sales from U.S. based gold ETFs became small. We have not seen a rally since the gold price broke down through $1,210 so one is overdue. But we expect to see no change in trend until the ‘honeymoon’ with Trump is over. That could be early in his Presidency as he is alienating his own party as well as many nations across the world. Until then, while we are seeing a bear market in bonds, a bear market in equities is yet to begin. When it comes, not a few eyes will be watering.

2017 – If we take a list of potential problems facing the world in 2017, which list is extensive, we see the most relevant to gold being currency volatility as well as any Capital Controls that will appear. In a de-globalizing world the ability of gold to remain immune to national problems will become increasingly attractive. We do not subscribe to the idea that gold has seen its best days, far from it. After the current euphoria over Trump has died down and reality has set in, gold will resume its upward trend. The art will be to get back in close to its ‘floor’. We will be writing on this extensively in the Gold Forecaster and suggest you look at www.Stockbridgemgmt.com where a system of preventing gold’s confiscation is in place.

India – Meanwhile in India, the currency debacle continues, as replacements to the now illegal tender remain insufficient. Just how badly the economy has been damaged remains to be seen. If the government fails in the implementation of destroying the ‘black money’ financial system in the country just how will they maintain such a system?

Of course ‘official imports of gold will plummet as they are replaced by smuggled imports. Until the cash crisis is resolved there is no cash with which to finance marriages or other reasons behind gold purchases. But you can be sure that the inventive Indians will find a way!

Gold ETFs – Yesterday, there were sales of 1.186 tonnes from the SPDR gold ETF and sale 0f 0.6 of a tonne from the Gold Trust holdings, leaving their respective holdings at 856.259 tonnes and 197.46tonnes. These sales continue to pull gold prices down.

Since January 4th this year, 252.74 tonnes of gold has been added to the SPDR gold ETF and to the Gold Trust. 

  • At the end of November, total holdings in physically-backed gold exchange-traded products (ETPs) stood at 2,240.5 (72.0 moz), down 120.7t from a month earlier. In value terms, total holdings stood at US$84.9bn, 12% lower than at the end of October.
  • Holdings succumbed to selling pressure across all geographical regions. North American and European funds dropped 87.3t and 23.4t to 1,252.0t and 872.1t, respectively.

Silver –Silver is showing a robust nature of late so we would expect its price moves to try to hold the $17 level for the present.  

Julian D.W. Phillips GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance