Gold/Silver vs. Bitcoin Comparisons: A No-Brainer… or Brainless?

by: David Smith*

For most of the year, as Bitcoin soared, crashed, and soared again, cryptocurrency vs. physical gold-silver talking heads engaged each other in heated rhetoric about which of these venues is here to stay.

Some of the biggest names in finance, government, and the newsletter analyst space have made comments that – to be charitable – appear less-than-fully informed. Comments like “Even though bitcoin could rise to $100,000, it’s still going to zero!” don’t offer much insight. Some other questionable assumptions:

2017 percent price change comparisons: Relating this year’s gold and silver’s price range to that of bitcoin misses an important point. Yes, bitcoin (BTC) has risen by a much greater percent, but it’s also fallen more. I don’t recall gold dropping 40% this year, which bitcoin has… on a couple of occasions.

Bitcoins

Please note: Bitcoin has no tangible, physical form.

 

Trash-talking gold and silver as “antiquated”: Bitcoin is now considered legal tender in Japan, but at this time, its primary function is for use in the purchase and sale of the 900+ “alt coins” currently available.

Most of these exchange entries in the crypto-space are not really “currencies” at all and will never trade as such.

Rather they are “coins” or “tokens” digitally created and circulated to raise seed money, via initial coin offerings (ICOs) in order to solve some business application in a blockchain-connected manner. Many have no trading volume – possibly because the market is skeptical of their business plan – and have become more or less “dead” coins.

At present, a relative few have an actively trading market. Investors have dropped literally millions of dollars into scores, if not hundreds of entrants which have appeared on the scene like dragon’s teeth, in many cases only to see volume dry up soon thereafter.

At present, digital apparitions can be created and marketed by just about anyone. The following example demonstrates how easy it is (for now), and how gullible some people really are.

Can I interest you in a “Useless Ethereum Token”?

Earlier this year, the “Useless Ethereum Token” (UET) was “announced” online. The “Issuer” wrote:

You are literally giving your money to someone on the Internet and getting completely useless tokens in return. There are no ‘whitepapers,’ no ‘products’, and no ‘experts’. It’s just you, me, your hard-earned Ether, and my shopping list.

You would think this blatantly-stated scam would elicit exactly zero response, yet reportedly, the UET ‘Project” was able to raise more than $60,000!

By the same token, it’s a safe bet that many Venezuelans wish they had traded some of their bolivares fuertes (“strong Bolivar”) notes, rendered worthless over the last few years, for a few ounces of silver – or a single ounce of gold – which could now purchase respectively, six months of food, or a house.

Becoming a victim of “default bias”: We all have a tendency to operate through a lens which uses the past as a default setting.

We keep doing what we know, avoid taking new risks, and resist changing the way we think.

Default bias can cause lost opportunities – whether it involves learning about the blockchain or being hesitant to buy precious metals when they’re in boring “wear you out or scare you out” sideways action (another David Morgan homily)… as they’ve been lately.

Dismissing Bitcoin as “just digital”: Kim Iskyan (Stansberry Churchouse Research) addresses the criticisms leveled at bitcoin and the blockchain. Responding to the charge that it’s “purely digital,” he notes that fully 90% of all the money – or as David Morgan refers to it, “paper promises” – that exist around the world today are not physical either!

Doug Casey is always one to see beyond the next investment valley (or country), and he pegs what most people miss when they argue that bitcoin is “bad” for the future of precious metals. As he said,

When people buy these cryptocurrencies, even if they know nothing about hard money, economics, or monetary theory, they inevitably ask themselves, “Hmm, Bitcoin or the dollar?” They’re both currencies. Then they start asking questions about the nature of the dollar…the nature of inflation… and whether the dollar has any real value, what’s going to happen to it, and why.

People start asking themselves these questions – which wouldn’t have occurred to them otherwise… and it’s going to make them very suspicious of the dollar. It’s going to get a lot of people thinking about money and economics in a way they never thought about it before. And this will inevitably lead them to gold…

What I am doing: In addition to staying very active in metals and miners, I have placed “small money” into several coins and tokens having viable business models in hopes of making an asymmetric profit.

Gold Bull Market 1970s vs. 2000 to date

In spite of the current turmoil, I remain steadfast in the belief that the next few years will see gold and silver trading several times higher than their nominal 2011 prices of $1,900 and near $50 respectively. The blockchain is here to stay. As for bitcoin, only time will tell.

We may even see digital coins and tokens backed by precious metal. But these changes in the crypto space will not replace them. Indeed, gold and silver will almost certainly – to the surprise of many bitcoin bulls – markedly increase demand.

I plan to continue holding the majority of my investible funds in gold and silver. How about you?

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Palladium and Rhodium on Fire, is Platinum Next?

by: Clint Siegner*

Platinum was once the most precious of metals. For decades, it traded at a premium to gold. The other platinum group metals – palladium and rhodium – barely registered on investors’ radar screens.

Platinum lost its crown to gold in 2015. It was overtaken by the other PGM metals in recent weeks.

Given that platinum, palladium, and rhodium demand is largely driven by automobile manufacturing and the production of catalytic converters, one of these things is likely true; platinum is currently undervalued, or the other two have gotten ahead of themselves.

1 Oz Rhodium Bars

1 oz rhodium bars run about $1,455 each.

Which one is the correct assessment will depend on whether the current optimism for economic growth in both developed economies and emerging markets has been well placed. Either way, investors inclined to speculate on the PGM metals have some interesting market action upon which to trade.

Platinum does look remarkably underappreciated. It is hard to imagine it trading at a significant discount for too long.

Auto makers should bid for whichever metal offers the lowest cost as all three are somewhat interchangeable.

Platinum offers the largest and most liquid market of the group. It is widely available in a variety of coins and bars. For investors, platinum’s liquidity is a consideration.

However, momentum traders may want to take a look at rhodium. It is traded in relatively tiny quantities and has a history of making big moves. Rhodium saw a top near $4,000 in the early 1990s and it made a run north of $2,000 about 10 years later. It peaked at $10,000 per ounce in 2008.

Although rhodium has doubled in the past year, it currently trades just over $1,300.

The metal’s pattern of having a sharp spike roughly once every 10 years is interesting. It is possible we are in the middle of another of those massive moves now.

New York Price for Rhodium Chart

Rhodium is available primarily in 1 ounce bars. While the quantity of rhodium traded is by far the lowest among precious metals, market liquidity for that metal has seen a boost since 2008. There are now a couple of ETFs focused on the metal. Those ETFs may in fact be driving a good portion of the recent demand.

Editor’s note:  The Platinum Group Metal  pricing patterns are primarily based on supply/demand fundamentals, not on rarity of the metals in the earth’s crust.  Rhodium and palladium are running high as they are both in a substantial supply deficit situation while platinum supply and demand are much closer balanced.  Palladium, with a little rhodium, is currently the preferred catalyst for gasoline-powered internal combustion engine emission control catalytic converters, having largely succeeded platinum in this usage, but this was due to palladium being substantially less costly than platinum – that is until palladium’s (and rhodium’s) recent run.  The big question now is: is platinum, being the cheaper metal, going to make a dent in palladium’s current predominance as the catalytic metal of choice for gasoline powered engines.  It is already the dominant catalytic metal for diesel exhaust emission control.  

Randgold’s Kibali U/G section on track despite possible political pitfalls ahead

In a statement to local media Randgold Resources CEO, and driving force, Mark Bristow, reported excellent progress at its 45%-owned Kibali gold mine in the DRC, which it operates.  It built the mine ahead of schedule as an open pit operation with the underground section to follow, despite it being located in one of the most remote parts of the African continent in the northeast of the mineral rich Democratic Republic of Congo (DRC) close to its border with South Sudan.  The construction logistics were daunting with virtually all the heavy equipment needing to be trucked to the site from ports far away on Africa’s east coast.

Kibali is also owned as to 45% by the much larger Anglogold Ashanti, which ceded construction and management to Randgold because of the latter’s strong prior expertise in constructing and operating gold mines in Mali and Cote d’Ivoire and in maintaining good relations with the governments in those nations – even through some major political changes. The balance of 10% of Kibali is owned by DRC parastatal, Sokimo.  However, while technical progress has perhaps exceeded expectations there are obviously some potential political pitfalls ahead if they cannot be warded off through negotiations with government, Bristow also warned.

The Kibali gold mine, nowadays one of the largest such operations in Africa, remains on track to achieve its production target of 610,000 ounces this year as its underground operations and the integration and automation of the vertical shaft enters the final commissioning and automation stage, Bristow told the audience at an event in DRC capital, Kinshasa.  The mine is anticipating a significant increase in production once the final shaft commissioning, which remains on a tight schedule, has been completed.

At a briefing for local media, Bristow said in spite of the high level of activity at the mine, there had been a significant improvement in the safety statistics, with its total injury frequency rate continuing to decrease and lost time injury frequency rate down to 0.31 per million hours worked in the September quarter.

Following the anticipated completion of the underground mine in the fourth quarter, the only major capital project still in the works would be Kibali’s third new hydropower station, currently being constructed by an all-Congolese contracting team.  Bristow said the availability of self-generated hydropower and the mine’s high degree of mechanisation and automation were important factors in Kibali’s ability to sustain its profitability throughout the ups and downs of the gold price cycle.

To date, over $2 billion has been spent on acquiring and developing Kibali, of which the majority had been paid out in the form of taxes, permits, infrastructure and payments to local contractors and suppliers.

“With capital expenditure tapering off, Kibali should now be preparing to pay back the loans taken to fund its development.  We are concerned, however, that its ability to do so will be impeded by the increasing amount of debt – currently standing at over $200 million – owed to the mine by the government.  TVA refunds, excess taxes and royalties in violation of the country’s mining code, make up the bulk of this amount,” Bristow said.

Another troubling development was the recent re-introduction to parliament by the Ministry of Mines of a proposed new mining code which is exactly the same as the one the government withdrew in 2015 after it was comprehensively demonstrated that it would seriously damage or even destroy the Congolese mining industry.

“Randgold has proven and continues to prove that it is committed to the DRC and to the development of a gold mining industry capable of making a substantial and lasting contribution to the country’s economy.  Despite all the challenges, including the volatile political climate and a deteriorating economy, we continue to invest here.  Our exploration teams are searching for our next big discovery in the greenstone belt of the north-eastern DRC.  In line with our local supply strategy, Kibali spent approximately $40 million with Congolese contractors in the past three months alone.  We are developing substantial agribusiness and other community projects.  And perhaps most important, we invest in the training and empowering of Congolese nationals, who already make up most of the Kibali management team, thus making a contribution of incalculable value to the expansion of the country’s skills base,” Bristow said.

“The DRC has all the materials for building a sustainable mining industry but that will require a fully committed partnership between the government on the one hand and the mining companies on the other.  Despite recent indications to the contrary, we remain confident that such a partnership is within reach, and that the government will see the critical importance of maintaining a stable, investor-friendly fiscal and regulatory environment for the country’s mining sector.  In this regard, we would welcome the opportunity to work with the government in jointly selecting an independent group of experts to benchmark the DRC mining code and its fiscal framework and to model the impact of the new proposed code, which we believe will be damaging to the development of the industry.”

These are, in effect, dire warnings by Bristow and illustrate some of the potential problems arising when working with the DRC government.  The DRC has enormous mineral potential for the production of many strategic metals and minerals, but the kinds of problems noted by Bristow could have a serious impact on further potential inward investment in the mining sector and could also adversely affect ongoing operations in the country.  The country had a hugely successful mining industry back in the mid 20th Century, but this largely fell into disrepair in the latter half of the century as foreign expertise was shunned.  One hopes this will not happen again.  The world needs the metals and minerals the DRC can supply.

The Germans: Now the world’s biggest gold buyers

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

Germans Have Quietly Become the World’s Biggest Buyers of Gold

When I talk about Indians’ well-known affinity for gold, I tend to focus on Diwali and the wedding season late in the year. Giving gifts of beautiful gold jewelry during these festivals is considered auspicious in India, and historically we’ve been able to count on prices being supported by increased demand.

Another holiday that triggers gold’s Love Trade is Dussehra, which fell on September 30 this year. Thanks to Dussehra, India’s gold imports rose an incredible 31 percent in September compared to the same month last year, according to GFMS data. The country brought in 48 metric tons, equivalent to $2 billion at today’s prices.

As I’ve shared with you many times before, Indians have long valued gold not only for its beauty and durability but also as financial security. Indian households have the largest private gold holdings in the world, standing at an estimated 24,000 metric tons. That figure surpasses the combined official gold reserves of the United States, Germany, Italy, France, China and Russia.

 

A New Global Leader in Gold Investing?

But as attracted to gold as Indians are, they weren’t the world’s biggest investors in the yellow metal last year, and neither were the Chinese. According to a new report from the World Gold Council (WGC)that title shifted hands to Germany in 2016, with investors there ploughing as much as $8 billion into gold coins, bars and exchange-traded commodities (ETCs). This set a new annual record for the European country.

Gold investment demand in Germany Hit a New High in 2016
click to enlarge

Germany’s rise to become the world leader in gold investing is a compelling story that’s quietly been developing for the past 10 years. Before 2008, Germans’ investment in physical gold barely registered on anyone’s radar, with average annual demand at 17 metrics tons. The country’s first gold-backed ETC didn’t even appear on the market until 2007.

But then the financial crisis struck, setting off a series of events that ultimately pushed many Germans into seeking a more reliable store of value.

“While the world fretted about Lehman Brothers, German investors worried about the state of their own banking system,” the WGC writes. “Landesbanks, the previously stable banking partners of corporate Germany, looked wobbly. People feared for their savings.”

To stanch the bleeding, the European Central Bank (ECB) slashed interest rates. Banks began charging customers to hold their cash, and yields on German bunds dropped into negative territory.

All of this had the effect of rekindling German investors’ interest in gold. As I’ve explained before, gold prices have historically surged in that country’s currency when real government bond yields turned subzero. What we saw in Germany was no exception.

gold price jumped when German government bond yield turned negative
click to enlarge

Weakening Faith in Paper

As the WGC points out, Germans are acutely aware that fiat currencies can become unstable and lose massive amounts of value. In the 1920s, the German mark dipped so low, a wheelbarrow overflowing with marks wasn’t enough to buy a single loaf of bread. In the past 100 years, the country has gone through eight separate currencies.

It’s little wonder, then, that a 2016 survey found that 42 percent of Germans trust gold more than they do traditional money.

This is where Germans and Indians agree. The latter group’s faith in the banking system has similarly been eroded over the years by regime changes and corruption, and gold has been seen as real money.

It’s not just individual German investors who harbor a strong faith in gold. The Deutsche Bundesbank, Germany’s central bank, spent the past four years repatriating 674 metric tons of Cold War-era gold from New York and Paris. The operation, one of the largest and most expensive of its kind, concluded in August. Today the central bank has the second largest gold reserves in the world, following the U.S. Federal Reserve.

Room for Further Growth

With Germans’ demand for gold investment products having already reached epic proportions, what can we expect next? Will interest continue to grow, or will it recede?

Analysts with the WGC believe there is room for further growth, citing a survey that shows latent demand in Germany holding strong. Impressively, 59 percent agreed that “gold will never lose its value in the long-term.” That’s a huge number.

Regardless of whether or not investment expands in Germany, this episode shows that gold is still seen as an exceptional store of value, and trusted even more so than traditional fiat money. For gold investors, that’s good news going forward.

Gold vs Bitcoin: Are they competitors?

Mike Gleason* of Money Metals Exchange interviews Frnak Holmes of U.S. Global Investors

Mike Gleason: It is my privilege now to welcome in Frank Holmes, CEO and Chief Investment Officer at US Global Investors. Mr. Holmes has received various honors over the years, including being named America’s Best Fund Manager for 2016 by the Mining Journal. He is also the co-author of the book The Goldwatcher: Demystifying Gold Investing and is a regular guest on CNBC, Bloomberg, Fox Business as well as right here on the Money Metals podcast. Frank, welcome back and thanks for joining us again. How are you today?

Frank Holmes: Excellent. Thank you, my friend. Thank you.

Mike Gleason: Well, to start out here, Frank, I know you recently attended and spoke at the Denver Gold Show and I always like to talk to insiders like yourself following those sorts of events because you can always glean some good insights on the mood of the industry and how things are really going in the precious metals community. Now the mining industry has taken a pretty good beating over the last few years and it continues to struggle a bit even as we seem to be in a new bull cycle that began in late 2015. You’ve got your new gold fund now, GOAU, so you’ve got lots on insights into the mining industry and know lots of gold bugs. So, what did you glean from the conference Frank? What was the mood in general? Give us some highlights there if you would.

Frank Holmes: Well I think my presentation was well received when I explained how the quant world and data mining, and these other what they call alternative investment research companies, are providing new insight the way investing is taking place. Understanding the paradigm shift on that data collection and that analysts love their old reports on mid asset value, are irrelevant. They’re not relevant to picking stocks today. And you have to go with the forces of physics either as electromagnetic rebounding to the mean is a cheap stock and math says it will rebound or has strong momentum. And you can take a universe of 88 gold stocks and take it down to 28 and far outperform the GDX or GDXJ.

Using data that was foreign to a lot of these analysts and recognizing … the other thing I think worth commenting on was gold and this whole thing on Bitcoin, is it a competition for bullion? It is not. First of all, without electricity Bitcoin is not worth any money. It needs electricity. Gold is always gold. It conducts electricity and it will always have its materiality for currency in addition to being jewelry. But I think that’s really important is to recognize that it’s so much easier, this idea of crowdfunding, to go and open up an exchange and trade 24/7 all these different currencies all around the world than it is to open a brokerage account. And I think that this excessive regulations is basically seeing people migrate over to angel investing, crowdfunding such as into cryptocurrencies, et cetera. And I think that’s the bigger danger is to overall investing in trading in the capital markets. So they’re the comments that I made and that seem to have come back with many written messages to me regarding the quants and how they’re changing the landscape.

But I think the other part that’s important for your listeners is that there were 1,100 people there. Now they don’t allow investment bankers in. Research analysts, traders, CEOs, gold analysts from the buy and sell side, they’re allowed to participate and there were 1,100. The week before there was a big event for the juniors (junior miners) but this event is the premiere event of the world. And I was impressed with it. The conversations looking for companies that are going to be taken over. What’s the probability. Because the seniors are desperate for future production and where is that growth going to come from because they’re just not finding the gold as fast as they’re mining. So, the Newmonts of the world have to go and strike deals like they did with Continental in Columbia to get a foothold into high grade big geographic footprints. So I thought that was interesting. I think that in the next 12 months there’s going to be lots of M&A work. And the other part was the royalty companies seem to get a new sort of respect for how their positioned in the capital markets in that gold space.

Mike Gleason: Yeah definitely. Sounds like there is a wave of optimism there and some good things ahead. Now I wanted to get back to some of the cryptocurrency conversation here. Your firm, Frank, US Global Investors, recently made an investment in HIVE Blockchain Technologies and you have been appointed chairman of the board there. Given you are heavily involved in the cryptocurrency space now, we’d like to get your take on a topic of growing interest in the metals community. You alluded to this a moment ago but cryptocurrencies, Bitcoin in particular, have been seen by many as another form of honest money. You’ve obviously maybe shot a little bit of a hole in what it is that is needed in order to continue the cryptocurrency world, that being electricity. But since you’re a fan at least in part of both metals and blockchains. What are your thoughts on how metals might fit in with this emerging technology, Frank?

Frank Holmes: Well let’s just focus on this emerging technology. We go back to the internet and it was actually very boring when it first come out because it was very slow and it used to be a joke that it was just porn and dark things. And now it’s fast porn. No, I’m kidding. But the real catalysts for the internet exploding in usage were emails, AOL. And long before Yahoo came out to give you free email. And then people saw the incredible capacity for this channel of distribution of information. Well I think that the Bitcoin and Ethereum are doing that for blockchain technology and that there’s a huge scramble to be able to apply this so that you’ll be able to trade stocks 24/7.

And when I was doing my research and I went to the largest cryptocurrency event, that used to be where the gold show used to be held in New York at the Marriott. I was just shocked to see how many young people were there. Many more than ever when gold was peaking. And two is that they weren’t drinking scotch and whiskey at the bar and beer, they were drinking Pepsi and coffee. That really threw me off to just watch those young people and how they’re looking at it. And then to find out that the keynote speaker was a CEO of Fidelity. Fidelity is a massive multi-trillion dollar asset management company and they have all their employees on Bitcoin. They have a wallet and you can buy goods in the store. And seeing that she’s the keynote and that the New York Stock Exchange when it was launching GOAU they were commenting that they had put money into Coinbase along with USAA in San Antonio.

So, at Coinbase you can open an account so easily and they will now let your 10,000 or 50,000 or 100,000 of coins show up as an asset over all in your portfolio. USAA and all that should do that at Fidelity. So I said well it’s something really that’s not mainstream and then in the summer it came out in the Wall Street Journal that Fidelity is doing it. But really it didn’t seem to captivate a lot of people’s interest. And I think that the big part with the New York Stock Exchange is just their worry of being Uberized the way taxi cabs were with having stock trading 24/7 and a lot cheaper.

So, I think that that’s the big trend and along I was trying to launch a cryptocurrency, ETF, or a product with that and I just kept bringing up cul-de-sacs. Had to back that car out, back that truck out. It didn’t matter if it was the U.S., the SEC, or Canada with the OSC. They’re just so consumed that AML (Anti Money Laundering) supersedes, even though you can track Bitcoin, supersedes anything else. So that’s why you’ve not seen anything come out directly where you can trade Bitcoin into an ETF.

So I’ve been working on this and then all of the sudden I hear from my friend Frank Giustra saying, “Look, we have this deal. Do you know much about this space?” And I said “Oh, yes. I’ve been working on it. And I just keep running into cul-de-sacs.” And he said, “Well, why don’t you explore it” and explored it and I said, “You know what, I’ll be come your third biggest shareholder, and I will go on the board,” because I think that HIVE is so special and unique because it’s the mining business.

And the company behind HIVE is Genesis Mining and Genesis Mining is the largest cryptocurrency miner in the word. They have a million people give them 500 bucks a year and one of the things I learned was that if you want to do mining of cryptocurrency you need to have cheap energy like two cents a kilowatt hour. So you find that a lot of these big dealer centers are in Iceland where it’s cool and you have cheap electricity. Google is there. Facebook is there and so is Genesis. And you need to have computer graphic cards because the processing power to validate a transaction. So, you found that NVIDIA stock has taken off because the cryptocurrency companies like Genesis have been massive buyers of their computer graphics cards.

And so, with that, I said, “You mean, we’re going to be investing in a company that’s mining and validating transactions all over the world, and we create new coins, fresh coins, mint coins, virgin coins” … however you want to characterize them. We are not trafficking on the silk road. We are not buying and selling a coin that could have been painted et cetera. No. We’re the creator because we validate transactions and you get paid every time you validate a blockchain transaction. So, I became extremely excited about this opportunity and so far we’ve made for our shareholders more than 500% on their money.

Mike Gleason: That’s fantastic. Now I’d like to get your take on the U.S. dollar. The dollar had a miserable performance through the first eight months of the year and bottomed in early September at 91.5. The greenback then bounced and has enjoyed a very good rally since then. What is driving this rally in your view and are you expecting the dollar to keep moving higher in the months ahead, Frank?

Frank Holmes: Well, historically it does get a bit of a rally going into the year end. That’s one. Two is the 5-year government bond. The 5-year government bond is positive now, the yield. So, the CPI number is 1.9 and you just take whatever the government is trying to entice you to buy their 5-year government bond, subtract the CPI number… it recalibrates every month and it gives you a good idea for where fund falls are going for real rates return. And whenever the five year government bond and the two year government bond are negative, gold is positive. And so, we went from a 1.4 to 1.5 5-year government bond to a 1.93. Now it’s just slightly positive but that was enough to sort of have the dollar rally and gold come off in the past month.

But I think that unless you really get change, you get fiscal change, trying to get the tax code streamlined and trying to get other parts of the legislation body in its Beltway to streamline regulations. We need to have the TSA preferred, how you can fly much more quickly now, rather than those two hour waits to fly and to go and catch your flight. You know most people in San Antonio were driving to Houston rather than going to wait two hours for an hour flight. And so, you’re seeing now this TSA preferred. That’s just streamlining processes and this has to be done for the movement of money, for opening a trading accounts, for opening up investment accounts, et cetera. If we don’t get those things, we’re going to have to have negative real interest rates to keep the economy going. Or you’re going to have to a very weak dollar to drive exports.

And I think that Trump has been a master disrupter. He’s so disruptive to the Beltway Party, which is the regulatory regime that’s been their professional regulatory. I’ve listened to other people like Bernanke spoke about the difficulty for Jimmy Carter and Trump to take on the Beltway Party. But he’s different and so he’s trying to push for the streamline of regulations. If he can, rates can trade higher and I think that the dollar will just trade with the real interest rates relative to the rest of the world.

But I remain very positive on gold. It’s amazing to see how well gold has done this year. The gold stocks have had a great run until the GDXJ blew up. Basically, they captured 95% of all fund flows. Therefore, they had to be concentrated owning more than 20 companies 20% means they had to do a force takeover. They had to back out of that one and they blew out three billion dollars. They brought in five billion dollars over 12 months and then they did an exit in only a matter of weeks of three billion dollars. And that really damaged the bid side and bruised people. It’s like getting hit by Mike Tyson. You just don’t heal quickly when he hits you and it’s the same thing with the gold stocks. But I think there’s some just fabulous gold stocks out there that are ripe to be taken over, that have very strong positive cash flow. The weaker dollar in the U.S. and the higher gold prices, there’s very strong margins for companies like Klondex.

Mike Gleason: Yeah, certainly can be interesting as we go towards the latter part of the year here to see what might be sustained in this correction in gold or if it can rebound and get back to where it was maybe a month ago or so. We did have a good first half of the year in the metals but the markets obviously have hit some of those headwinds here recently, a rising dollar and so forth that you alluded to. If you would, give us your bull case for metals in near term and then also if you would maybe a bear case as well and then kind of expand more on which side you’re betting on, as we begin to wrap up here.

Frank Holmes: Well, there’s the two drivers for gold: love trade and fear trade. And the fear trade dominates the psychic of Americans and the same thing with Europeans in that’s predominantly negative real interest rates. So whenever the government has to monetize most of their debt, and basically negative real interest rates are losing money and buying their government bonds, gold does well. I don’t think that they can raise rates significantly without a massive streamlining of regulations and the government is doing everything to try to stop Trump from doing that. So, I think we’re going to end up still living with negative interest rates.

Now, the other positive part, for the U.S., is that the dollar is down but the exports are up. So we have our strong industrial base. And it’s showing up in PMI, that’s Purchasing Manufacturer’s Index, which is a forward looking index. It’s not like GDP, which is looking out the rear view mirror. This is like looking with headlights looking down six months. And the one month is above the three month, and that’s really positive for global growth. So I remain positive and constructive towards it. What could derail it? North Korea could derail it. China’s policies could derail it. And I think that if rates were to surge dramatically in the U.S., that could derail it.

But I don’t think that’s going to happen. We’re in a very constructive mode and it’s a great opportunity for stock picking. I just spoke at a conference in Vancouver yesterday, and I commented on … By the way, I commented on HIVE. I was asked and I said, “You know, if you’re a value investor, HIVE is extremely overvalued.” But if you are a first mover advantage in the first public company where funds can go by and get exposure to crypto-mining. It is not. It’s like Tesla, it’s like Amazon. They will always trade at lofty valuations. And so, it’s extremely attractive that way when you look at it as being first mover advantage.

Mike Gleason: Well that’s great stuff as usual. Thanks as always for joining us. It’s a real honor to hear your thoughts and we appreciate your time as always. Now before we let you go, please tell our listeners a little bit more about your firm and your services and then also mention the Frank Talk Blog so people can learn more about that if they’re not already checking it out.

Frank Holmes: Well, we are USfunds.com, makes it so easy, just go to USfunds.com, sign up for investor alert. It’s right in the middle of the page. And we write every week and we do a game film analysis, three strengths or weaknesses for last week and opportunities and threats that can come out next week. Sort of forward looking like game film and looking back.

And the Frank Talk is my global travels and I try to be insightful and learn about how we’ve applied quant math. What’s called quantamentals to stock picking. And especially we launched our GOGO Canadian gold ETF and we’ve launched one here in the U.S., which we’re really proud of because the ten year index based on those smart factors, both performs of GDXJ say 94% of the time are rolling 12 month periods. So we think that GOAU, we’ll write about it, we’ll tell you about the changes. And we also have unique products like JETS which is also an ETF listed on the New York Stock Exchange.

Mike Gleason: Yeah, it’s great stuff. Certainly the Go Gold fund is looking very good from what I’ve been reading about. Obviously performing just as you were hoping it would and continued success there. We always appreciate it and good luck with the other endeavors that you have going on and keep up the good work on those market commentaries and we’ll certainly look forward to our next conversation. Take care, Frank.

Frank Holmes: Take care, my friend.

Mike Gleason: Well that will do it for this week. Thanks again to Frank Holmes, CEO of US Global Investors and manager of the recently launched GOAU Gold Fund. For more information, the site is USfunds.com. Be sure to check out the previously mentioned Frank Talk blog while you’re there for some of the best market commentary you will find anywhere on gold and other related topics. Again, you can find all that at USfunds.com, and you can also go to GOAUETF.com for more information on that new gold fund.

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

World Gold Council: Market Update: German gold investment market

The impact of German gold investment on the global market over the past few years is often overlooked, thus the World Gold Council has just released a special report on German gold investment since the 2008 global financial crisis – as linked below

Germany’s gold investment market has boomed in the past 10 years. In the face of successive financial crises and loose monetary policy, German investors turned to gold to protect their wealth. In response, new product providers entered the market making it easier for people to invest. Last year, more than €6bn was ploughed into gold investment products in Germany and, encouragingly, there is room for further growth: consumer research indicates there is latent retail demand which the industry can tap into.

In 2016, €6.8bn was ploughed into German gold investment products

Download (pdf, 717.67 KB)

 

Metals Focus’ Precious Metals Investment Focus still sees gold averaging $1,400 next year

I recently attended Metals Focus’ launch of its latest publication on Precious Metals Investment and while its overall conclusions were somewhat mainstream the group’s analysts are looking for the gold price to AVERAGE US$1,400 next year which suggests at times spot prices will go higher than this.  I published an article on this on the Sharps Pixley website on this which is set out below:

Metals Focus still sees gold hitting $1,400 average in 2018

Yesterday saw the launch of London-based precious metals consultancy Metals Focus’ second annual Precious Metals Investment Focus publication which, in its 90+ pages, goes into considerable detail on the current prospects for gold, silver, platinum and palladium.  The consultancy also yesterday published its latest Precious Metals Weekly newsletter, which emphasised some of the findings of the longer report and, perhaps, what it sees as the potentialimpact of the increased likelihood of a U.S. Fed small interest rate rise at its December meeting.  However some others – notably Jim Rickards in a recent interview – would disagree feeling that the most recent U.S. economic data would scare the Fed into delaying any further rate increases into 2018, if then.

Metals Focus has a dedicated team of analysts looking at all aspects of the Precious Metals sector – and also nowadays provides the statistical element of the World Gold Council’s regular quarterly analysis of global gold supply and demand.  The group was initially put together as a break-away from the longstanding GFMS analytical group when the latter was acquired by Thomson Reuters in 2011 and a number of its analytical team previously worked for the latter and some of the methodology of its analysis mirrors that of GFMS, although the conclusions do sometimes differ slightly.

Looking at gold as the prime driver of the precious metals complex – although increasingly the other precious metals are to a major extent dependent on their demand as industrial metals particularly in the case of the platinum group (pgms) – the report does see potential for further positive price growth given the supporting underlying macroeconomic and geopolitical outlook.

In his presentation at the launch of this latest publication, Neil Meader, the group’s Research and Consultancy Manager, reflected on a slightly disappointing performance for the complex, despite great promise earlier in the year.  The report thus suggests only a 2% average rise in the metal price this year compared with 2016.  An earlier 5 year analysis of the precious metals complex by the consultancy had predicted $1,400 gold this year, and while this has not been totally ruled out, the latest analysis suggests that this price level may now not happen until next year unless some worrying geopolitical event (North Korea looks to be the most likely instigator) causes the metal price to spike again.

Writing here a week or so ago, we had suggested keeping a close eye on the largest gold ETF (GLD) to see the trend in institutional investment in gold in North America, which seems to be a great indicator of U.S. investment demand and thus of the overall trend in the global gold price level.  After a strong couple of months, the past two days have seen 10.35 tonnes withdrawn from the ETF which is perhaps indicative of weak institutional demand for gold in the light of the recent price falls, although much of these can be put down to some recovery in the dollar index over the past few days.

In today’s trading gold is, so far, up a few dollars from yesterday’s low point although has not retained some of its earlier price gains seeing a degree of profit taking (or an engineered decline depending on who one believes) after it moved briefly back above $1,280.  Silver is pretty flat while platinum and palladium are trading at broadly similar levels after the latter’s high flying move of last week. In later trading palladium again moved slightly ahead of platinum, although not significantly so.  Thus so far this week platinum has moved up a little and palladium down a little more.  Metals Focus favours platinum over palladium into next year.  We may disagree given the latter’s better current fundamentals but all the North American precious metals markets are managed by the big money to a greater or lesser extent and, ultimately the markets each tend to move in the way the bullion banks and major institutions determine as the prime players in these market.

What the Metals Focus Investment Focus publication does do is set out its price forecasts in the light of what it sees as the supply/demand parameters for the current year and next.  For gold it sees a surplus, albeit a slightly smaller one of 22 tonnes in 2018 and an average price for that year of $1,400 as against a $1,275 average for the current year, itself up from $1,251 in 2016.

Silver is seen as outperforming gold next year, as it usually does in a rising gold market and again sees a supply surplus of 72 tonnes this year and 66 tonnes in 2018.  The consultancy analysts see silver, like gold, benefiting from a recovery in investor interest in safe haven assets.  Here the analysts are looking for a $20.60 average price for the year which some may see as optimistic, but if you are a silver investor optimism usually rules.

The analysts also see some kind of recovery in platinum, despite a 450 million ounce projected surplus. leading to  an average price of $1,090 in 2018 – due largely to platinum’s historic correlation with the gold price.  However it sees palladium as underperforming its fellow pgm despite a 1.44 million ounce projected deficit and are predicting an average price of only $880 an ounce.  That is around $30-40 below where it is at the moment, although the 2017 average price is seen as only $830 an ounce.  We would probably disagree here with, in our view, palladium having the distinct possibility of maintaining a premium over platinum given the disparities in fundamentals supply/demand data.

 

U.S. Mint Bullion Coin Sales Dip As Buyers Take Advantage Of Secondary Market

by: Clint Siegner*

Alt

In all but one year thereafter the Mint set a new record. Sales peaked in 2015 at 47,000,000 Silver Eagle coins – 5 times the number sold before the world discovered just how rickety the global financial system actually is.

Memories are short, however, and investor complacency is setting in.

Sales to date in 2017 are just short of 16 million coins and are set to finish the year very close to the 2008 totals.

U.S. Mint sales are viewed as a proxy for bullion sales in the broader market. There isn’t much else available in the way of published data. However, Mint statistics don’t tell the whole story.

While retail buying activity is still stronger than retail selling, we’ve seen a meaningful increase in customer selling of coins, rounds, and bars over the past year. A lot of the American Eagles traded today are therefore resale coins which don’t show up in the Mint’s reporting of new minting activity.

Government Mint Bureaucrats Don’t Respond to Market Conditions

Private mints and refiners are responding to weaker sales by lowering premiums on rounds and bars. The government bureaucrats which run the sovereign mints, including the U.S. Mint, largely ignore these competitive forces. To date, they have not adjusted pricing.

Demand for government-minted products therefore suffers the most as buyers take advantage of significant premium discounts available in other products and secondary market items.

While retail bullion demand in the U.S. is certainly weaker overall, it is way better than the Mint’s statistics might imply. In a sense, the bullion markets are more balanced. National dealers like Money Metals Exchange make more of a two-way market, both buying from and selling to clients.

That is good news for buyers. The days when new production Silver Eagles were strictly allocated and supply fell hopelessly short of demand are behind us, at least for now. Investors can get those coins for around $2.50 over melt value, instead of paying up to $6.00 and waiting for delivery – which has been the case on a few occasions over the past 5-7 years.

Any buyer who doesn’t have to have a sovereign coin will find plenty of other silver products with premiums under a buck – such as rounds and bars. Gold premiums and availability are also improved.

Premiums could go even lower if retail demand does not increase despite the renewed bull market in precious metals that began in late 2015.

Much will depend on spot prices. Many people are impatient with the seemingly gradual rise in gold and silver prices off the 2015 bottom. If prices accelerate upwards, investors will finally start believing in the new bull market.

Perhaps an even bigger variable is the atmosphere of complacency in the markets and how much longer that will persist. Our view is that virtually all markets are severely underpricing risk. More investors should be buying safe-haven assets rather than selling.

It is hard to reconcile the world we find ourselves in today with record stock market prices, at least not without the artificial forces of central bank stimulus in massive amounts and algorithmic trading. Those forces are formidable, to be sure. But how much longer can bankers (both central and Wall Street) forestall the ultimate reckoning for all of their excesses?

Investors asking the same question should take advantage of the buyer’s market in metals while it lasts.

Investors Should Brace for the Fed’s October Tightening Gambit

by: Stefan Gleason*

September’s Federal Reserve meeting left interest rates unchanged but sounded a hawkish tone. The Fed seems intent on hiking interest rates again come December.

Following Fed chair Janet Yellen’s remarks this Tuesday, interest rate futures markets bumped up the odds of a year-end rate hike to 81%.

The more immediate – and perhaps more important – policy move pending from the central bank is its plan to gradually reverse its Quantitative Easing bond buying program starting in October.

Yellen calls it “balance sheet normalization.” She is right in acknowledging that there’s nothing normal about the $4.5 trillion balance sheet the nation’s currency custodian has built up following the financial crisis of 2008.

Whether the Fed’s bond portfolio ever will get “normalized” to pre-crisis levels will depend on how markets react to the Fed’s attempt at Quantitative Tightening beginning next month.

The Fed technically won’t sell bond holdings into the market. Instead it will let bonds mature without rolling them over. The effect on the market will be as if a regular, reliable, very big customer stopped buying.

Initially, the Fed will allow $10 billion in Treasuries and mortgage-backed securities to mature off its balance sheet per month. Over the next year, the pace of “normalization” will accelerate. It is slated to eventually reach $50 billion per month.

Quantitative Tightening, if it goes through as planned, will withdraw hundreds of billions of dollars’ worth of liquidity from the financial system. Fed chair Yellen thinks the impact on long-term interest rates will be minor.

She has to know that the risks to the equity markets are huge. After all, her predecessor, Ben Bernanke, touted the bond buying program as an effective way to boost the stock market. Since 2009, the stock market has followed in roughly the same direction as the Fed’s balance sheet.

The latest run-up in stocks since the 2016 election has been different in character. The Fed’s balance sheet hasn’t expanded during this period. Instead, optimism toward the prospects of stimulus in the form of tax cuts has helped lift equity valuations.

Monetary Tightening and Another Failure on Capitol Hill Could CRUSH the Stock Market

This fall, investors could get hit with political disappointment on the tax front (if recent legislative let downs are any indication) coupled with monetary tightening. We may soon find out how much the stock market can take… until it finally breaks.

Stock Market

As for precious metals markets, they are less sensitive to changes in interest rates than bonds or equities. Conventional wisdom is that quantitative tightening and higher rates will be bad for gold and silver. That conventional wisdom seems to be confirmed by the pullback in metals since the Fed’s September meeting.

A pullback, however, does not make for a trend!

Gold and silver prices are still up since Janet Yellen first raised rates back in December 2015. In fact, that rate hike coincided with a major cyclical bottom in the precious metals.

It’s worth recalling what happened back when the third round of Quantitative Easing (“QE3”) was announced in September 2012. At the time, many analysts assumed that QE3 would provide an immediate boost to gold and silver prices. Instead, the metals markets responded counterintuitively. They declined for several months following the Fed’s announcement.

The lesson is that precious metals markets don’t move in direct sympathy with Fed easing or tightening. Nor are they necessarily hurt by rising long-term interest rates, as is the conventional wisdom (at least among precious metals naysayers and ignoramuses).

Gold and Silver Have Almost No Correlation to NominalInterest Rates

Metals show virtually no correlation to nominal interest rates. What matters is real interest rates – which is to say, interest rates relative to the inflation rate.

Interest Rates

There is also the safe-haven factor. Demand for physical precious metals has been soft since the “Trump rally” began. As the stock market hits record after record and the bond market chugs along, conventional investors see no need to seek the safety of sound money.

Of course, it’s inevitably the case that the masses will be extremely bullish at market highs (and extremely gun shy at market lows).

It’s been a long time since any real fear has entered the conventional markets.

Nobody on Wall Street seems terribly concerned about the Fed’s plans to tighten in the fourth quarter. But the bond market is starting to reflect some preemptive selling.

October and November are known for their potential to get volatile. A jump in volatility would mean downside for stocks. Precious metals markets could go either way. Given the risks to conventional financial assets posed by the Fed, owning gold and silver is a smart way for investors to hedge themselves.

Diwali, Lord Rama, and the Return of Gold from Exile

By J.P. Cortez*

October 19, 2017 marks an important holiday in the Indian culture. Diwali begins.

Diwali is one of the biggest festivals for Hindus, Sikhs, and Jains. It is a lavish celebration of the victory of light over darkness with its gleaming candles, luxurious works of art, and opulent feasts. Diwali is also characterized by gift giving. Buying and gifting gold is considered auspicious during Diwali.

Given the nature of the holiday and the number of people who celebrate it, according to CNBC, the past few years have seen a tendency for the gold price to rise around Diwali. Last year during Diwali, Mihir Kapadia, founder & CEO of Sun Global Investments, said “As heavy consumers, the festive seasons always tend to surge the demand, and considering the current low prices, this should increase the market activity and thus push the prices a little.” Kapadia continued, “We do not expect it to boost prices significantly as the overall market is subdued due to the worries about rising interest rates.”

There is no shortage of economic analysis during the buildup to this year’s celebration as The Economic Times reported “bullion has climbed almost 10 percent on the Indian market this year as world prices increased on… reduced chances of a further hike in U.S. interest rates in 2017.”

However, history shows that rising interest rates do not necessarily make bonds and cash more attractive or push the demand for (and therefore the price) gold down. Interest rate hikes are usually a gold bullish event.

“Gold prices going down after rate hikes is a myth propagated by the financial establishment and portfolio managers who may be intellectually lazy or have a vested interest in scaring people away from gold,” says Stefan Gleason, president of U.S. precious metals dealer Money Metals Exchange. “In reality, central banks are almost always behind the curve, and real interest rates may be going in the opposite direction despite the rate hikes.”

Slaying the Beast Takes Multiple Blows

Diwali is a grand, extravagant multi-day festival celebrating many things by many different groups of people. One of the more popular tales remembered and celebrated during Diwali is that of the brave Lord Rama. According to legend, he returned from exile after having saved his kidnapped wife and slayed the evil demon Ravanna.

This tale of glory and triumph evokes the sound money camp’s monetary hero, gold, facing the evil government and its minions, the “professionals” who often have a cynical bias against the yellow metal.

In the grand battle, Rama fights fiercely against Ravanna and his footmen. After a long and taxing battle, Rama delivers a blow that decapitates Ravanna’s central head. Unfortunately, another head appears in its place. Finally learning that Ravanna’s secret was an immortality nectar held in his stomach, Rama fired an arrow that finally laid Ravanna to rest.

Like Rama, gold finds itself fending off attacks from all sides. The federal government has been striking blows at gold since 1933, when Roosevelt banned all private possession of gold and required it be handed over in exchange for paper money. Gold has had all sorts of taxes levied against it. Gold and silver coins were stripped of their constitutional role as the only forms of money states could recognize as legal tender in payment of debts. Today, countless Wall Street types make a living trying to pierce the armor of gold in print and on television.

Fear not! It’s true that sound money’s lionhearted soldier hasn’t launched the fatal arrow that finally slays the fiat money system run by the world’s central bankers. But the battle is tipping further in the direction of our fearless hero every day.

In America, States are taking the necessary steps to unshackle gold from its bureaucratic chains. 36 states across the union have an exemption against sales taxes being levied in precious metals purchases. Arizona has moved towards widespread acceptance of gold and silver by recognizing its legal tender status while removing capital gains taxes on precious metals holdings, with Wyoming, Idaho, and Tennessee not far behind. Texas is setting an example on how to shore up pension funds using gold, not to mention creating its own bullion depository.

Step by step, hard money forces are making advances. They still have a long way to go, of course. But they can draw inspiration from previous epic struggles against powerful foes.

During Diwali, millions of people around the world will celebrate the victory of their courageous and valiant hero, Lord Rama. Meanwhile, we can all celebrate gold’s continued ability to not only survive the onslaught coming from gold-cynics everywhere, but also to steadily re-establish itself as constitutional money.

*J.P Cortez is the Assistant Director of Sound Money Defense League,

Investors may wait for big gains in gold and silver

By Clint Siegner*

Silver / Gold Demand Increase

Only the contrarians have capitalized
on gold & silver’s advance since 2015.

 

With strong gains both this year and last, metals prices have been responding to a host of issues – from unrestrained federal borrowing to the prospect of nuclear exchange. But they haven’t moved up as much as many expect.

After advancing dramatically in the prior decade, gold and silver have not responded as strongly to the explosive money creation and debt of the last few years as stocks have. And while predictions of crisis have been plentiful, the “Big One” hasn’t yet materialized.

Some honest money investors have even been drawn to Bitcoin and other cryptocurrencies. This is, in part, because of the tremendous run-up in prices in recent months (notwithstanding last week’s crash), and because cryptocurrencies might prove beyond the reach of Wall Street and central bankers to control.

Unfortunately, many investors will be sitting on the sidelines until precious metals are proven outperformers again, and in doing so, they will miss a big move up in prices. While we expect to see much higher gold and silver prices, the catalysts for that aren’t anything to root for. Serious geopolitical strife, a major correction in stock prices, or the U.S. dollar in free fall all mean hardship and pain.

Change is inevitable, and the U.S. economic expansion is getting long in the tooth. Even artificial markets must ultimately yield to actual physics.

The good news for investors with a contrarian bent is that buy premiums on bullion products are the lowest they have been in a decade – and inventory is plentiful. Down the road the opposite may be true, i.e. high premiums and shortages of the physical gold and silver in minted form.

Julian Phillips: RIP

We learnt today that Julian Phillips, whose informative regular reports on the gold and silver markets had been a continuing feature of our pages, passed away on August 26th.  Our thoughts are with his wife and daughters.  We will miss greatly such a strong follower of the precious metals markets and his regular contributions to our pages.

We reproduce below an obituary penned by Peter Spina of the Goldseek website who had been publishing Julian’s observations on the markets fo far longer than we have.  Peter’s views echo those of my own and I couldn’t produce a better summation of Julian’s character, life and work. His contributions to these pages will be sorely missed:

In Memory of Julian Phillips

By Peter Spina

Julian Phillips

It is with deep sadness that I share this notice of the sudden passing of Julian D.W. Phillips on the morning of August 26th. Julian was a much admired and a strong supporter of the gold and silver community, and a leading thinker who guided us for many years. His extensive work influenced tens of thousands of readers across the most recognized gold websites, media and subscribers and his passing is a big loss to many.

Over the past few decades, those who read Julian’s work know of his leadership in not just understanding the global gold, financial and monetary markets, but forecasting the major shifts to come. His work influenced many other precious metals commentators and assisted them to evolve their own understanding.  His important work provided guidance to many thousands of investors.

I met Julian shortly after the year 2,000 and he generously agreed to share his financial and monetary knowledge on GoldSeek.com during the very early days of the gold bull market. Not many authors were even covering gold at the absolute market bottom and very few had his global perspective from having lived on different continents. Julian’s weekly articles, then written under the publication Gold Authentic Money, brought incredible depth and knowledge to readers from around the world. He quickly became one of the top and most widely followed gold analysts on GoldSeek, with his expertise being highly prized by investment funds as well as the international media.

In 2005 his co-contributing technical analyst retired from Gold Authentic Money and Julian approached me to join him on a new publication, resulting in our launch of The Gold Forecaster – Global Watch. I was in my mid-20s at the time and felt quite honored to have been even considered by Julian, whom I consider one of my mentors. I was reluctant but Julian encouraged me to share my decade long experience in precious metals with my focus on junior mining companies and my technical forecasts.

In this way, our collaboration began and together we provided subscribers with an in-depth weekly newsletter forecasting the fundamental and technical aspects of precious metals with regards to the many markets and influences on its price. We produced nearly 600 weekly Gold Forecaster newsletter issues over these prior dozen years, through both the good and the difficult times, guiding thousands of subscribers through this evolving bull market. Julian’s strong fundamental knowledge truly made up the core contribution of the typically 20-30 long page weekly publication and I remain honored to have been able to work with him for so many years and sharing his insights with so many through GoldSeek.com.

Together we actively managed a multi-million dollar precious metals hedge fund for a wealthy family office, yielding millions in profitable returns in just the several months of management. But after our strong returns in the early phase of the bull market, the family office felt like gold was nearing its peak as it was running towards $800/ounce.

This then opened the door for Julian to create and develop an exceptional product for gold investors providing gold confiscation protection in the form of a storage fund. Using his experience helping families protect and move their wealth from Zimbabwe’s confiscation in the 1980’s, Julian spent the last several years creating The Ultimate Gold Trust with the assistance of skilled lawyers, bankers and bullion administrators. Now many years into its establishment, there still is no other product of its kind which provides such an exclusive gold protection structure against future confiscations.

The Ultimate Gold Trust has attracted numerous clients resulting in a large amount of physical bullion stored securely in Switzerland and all of the hard work Julian undertook to build this gold protection fund remains active today. Because of this, Julian’s legacy will endure for many years to come, providing critical confiscation protection to gold and silver investors.

Julian’s work is vast and he had an incredible amount of knowledge to share which included his daily Gold & Silver Market Mornings, the weekly Gold & Silver Forecaster newsletters, special feature reports, interviews, in addition to being an advisor to major investment funds from Hong Kong, London to New York City and not limited to organizations including GFMS. Yet unknown to most, over the past few years Julian had begun work on a book entitled “The Book on Gold” that was to “speak to all investors with a focus on the very basics of money.”

What is not known by most of the tens of thousands who followed Julian was the personal side of Julian. If you had the opportunity to ever speak with Julian, ever so generous with his time, you would quickly come to know Julian’s character. An honest man with such integrity, Julian had a wonderful wit and humor. He was a deeply caring man, a true gentleman with such class. He had such delightful analogies to describe not only financial concepts but also his perspectives on life, usually weaving his love of sailing into lengthy conversations I was privileged to engage in often over the many miles between South Africa and Colorado.

I feel honored and extremely blessed to have spent the past decade and half working with Julian. I hold him and his work in the highest regard. I will deeply miss our talks and his constant guidance which I was able to share with so many others. He was a wonderful person to have worked with and will miss him as dear, close friend as will so many.

I would kindly ask all those who were impacted by Julian’s work to please send us your messages to julian@goldseek.com

I would like to share them with his loving wife and daughters which he leaves behind.

Julian was a huge proponent of gold and a strong supporter of the gold community. In the coming months, I will be reviewing and releasing some of Julian’s vast and yet unreleased work and articles. Some of which was written for our Gold Forecaster subscribers, some of which was intended for his book, but much of it remains relevant to the gold community today.

You can subscribe to Julian’s email list here to receive them, but we will also publish and share them with the precious metals community on GoldSeek in the coming month(s).

Peter

Views on Chinese gold demand and official reserve data

Two more articles I’ve published on the Sharps Pixley website – the first looking at Chinese gold demand as represented by Shanghai Gold Exchange (SGE) withdrawals and the second on yet another monthe where China says it has not increased the volume of its gold reserves (we doubt the veracity of the Chinese ‘official’ figures.  Do click on tghe links to read the articles on info.sharpspixley.com.

The article on the latest SGE withdrawal data – Chinese gold demand heading for 2,000 tonnes this year

Latest Chinese gold reserves article: China says it adds zero to its gold reserves – again

 

Gold and Bitcoin Surge on North Korea Fears

Article written prior to the sharpish turndown in the gold price after the weekend.

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

bicion

If you’re familiar with ABC’s popular reality show Shark Tank, you should already be familiar with the concept behind the San Antonio Angel Network (SAAN). Select entrepreneurs and innovators pitch their startup ideas to accredited investors, who can choose to make early-stage investments in a potentially successful company.

I attended an SAAN meeting last week at Ferrari of San Antonio, and what struck me the most was how fluid and seamless the whole thing is. Other professionals in attendance, including lawyers and CPAs, had a similar opinion, with some of them saying it was because there wasn’t any bureaucracy or red tape to hamstring the presenters.

This is unlike the world of mutual funds, which I believe has become excessively regulated.

As I’ve said numerous times before, regulation is essential, just as referees are essential to a basketball game. No one disputes that, because otherwise there would be chaos.

Similarly, the new and very unregulated world of cryptocurrencies has grown dramatically, beyond bitcoin and ethereum. Did you know there are over 800 cryptocurrencies? These new initial coin offerings, called ICOs, are like initial public offerings (IPOs) but with little regulation or accountability. As I’ve commented before, if the refs get too powerful or too numerous, and the rules too complex, the game becomes nearly unplayable.

Cryptocurrencies Still Draw Investor Attention Following China Crackdown

Bitcoin, ethereum and other cryptocurrencies have had a meteoric year, with more than $2 billion raised in ICOs so far in 2017, according to Bloomberg. Approximately $155 billion in cryptocurrencies are in circulation around the world right now. Bitcoin by itself is at $78 billion, which is close to the $90 billion invested in all gold ETFs.

Cryptocurrencies have made red hot moves this past year
click to enlarge

Like gold, cryptos are favored by those who have a deep distrust of fiat currency, or paper money. Money, after all, is built on trust, and the blockchain technology that bitcoin is built on top of automates trust through an electronic ledger that cannot be altered. Every transaction is anonymous and peer-to-peer. The system is entirely decentralized and democratic. No monetary authority can see who owns what and where money is flowing.

This, of course, is a huge reason why some world governments want to crack down on the Wild West of virtual currencies, especially with bitcoin surging close to $5,000 this month.

China did just that last week, putting a halt to new ICOs and crypto transactions. In response, ethereum tumbled as much as 15.8 percent last Monday, or $55 a unit. Bitcoin lost $394 a unit.

China’s decision comes a little more than a month after the SEC said cryptocurrencies are securities and therefore should probably be regulated as such. At this point, though, the implications are unclear.

What’s clear to me—after seeing firsthand how easily and quickly transactions are made—is that there’s no going back. It’s possible cryptocurrencies will one day be regulated. But I’m confident bitcoin, ethereum and some other virtual currencies offer enough value to weather such a potential roadblock.

I also believe there has to be a happy medium between the excessively regulated fund industry and the potential chaos of the cryptocurrency. This is what I witnessed at the SAAN event I mentioned, which allowed the professionals in attendance to gain information, ask questions and make informed decisions.

Gold Trading Above $1,350 an Ounce

Speaking on cryptocurrencies last week, Mark Mobius, executive chairman of Templeton Emerging Markets Group, said gold could be a beneficiary of China’s decision to clamp down on ICOs. As more governments and central banks turn their attention to virtual currencies, investors could move back into the yellow metal as a store of value.

That’s a possibility, but I think gold’s price action right now is being driven by negative real Treasury yields and fears over a potential conflict with North Korea. Adjusted for inflation, the two-year and five-year Treasuries are both currently yielding negative amounts, and the 10-year continues to fall closer to 0 percent.

Real treasury yeilds fall further
click to enlarge

As I’ve explained numerous times before, gold and real interest rates share an inverse relationship. It makes little sense to invest in an asset that’s guaranteed to cost you money—which is the case with the two-year and five-year government bond right now. Investors seeking a “safe haven” might therefore add to their weighting in gold, especially with North Korea’s Kim Jong-Un raising tensions.

The yellow metal closed (last week) above $1,350 an ounce, more than a one-year high – (but has come down quite sharply this week as some of thge geopolitical fears eased – temporarily perhaps? – Editor).   

Gold price up more than 15 percent year to date
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Despite Efforts to Control Spending, National Debt Expected to Continue Growing: CBO

Similarly driving the gold Fear Trade are concerns over the national debt. Last week President Donald Trump sided with Congressional Democrats in raising the federal borrowing limit to allow Hurricane Harvey recovery aid to pass. An initial package of $7.85 billion for Harvey victims was agreed upon, but with total costs expected to be as high as $190 billion—more than the combined costs of Hurricanes Katrina and Sandy—and with Hurricane Irma the federal aid amount could eventually run even higher.

Trump partially ran on reigning in government spending, which I and many others would like to see. Even so, this might not be enough to control our runaway debt. According to an August report by the Congressional Budget Office (CBO), debt will likely continue to grow as spending for large federal benefit programs—Social Security, Medicare and the like—outpaces revenue. Interest payments on the debt will only continue to accelerate as well.

Below is a chart showing national debt as a percentage of GDP going back to the founding of the U.S. Although we’ve seen periodic spikes in response to national crises, the debt could soar to unprecedented levels within the next 10 years.

Federal debt expected to continue rising
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Financial writer Alex Green, the Oxford Club’s chief strategist, told me during my recent interview with him that he thought out-of-control spending posed a greater threat to our country than even North Korea.

I tend to agree with him, and that’s why I believe that investors should have a 10 percent allocation in gold, with 5 percent in bullion and 5 percent in gold stocks, mutual funds and ETFs.

Gold will go to $2,000 plus on coming central bank failure – Michael Pento

Mike Gleason* of Money Metals Exchange interviews Michael Pento.  Below is a transcript.  However the interview is also available on a YouTube video and if you’d prefer to watch the video here’s a link to it: https://www.youtube.com/watch?v=3QKushYDGH0.  The interview was recorded before North Korea conducted its H-Bomb test on Sunday and gold has moved up a few notches as a result, but that does not detract from Michael Pento’s overall message – it perhaps brings the timing scenario forwards.

Mike Gleason: It is my privilege to welcome in Michael Pento, President and founder of Pento Portfolio Strategies, and author of the book, The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market. Michael is a well-known and successful money manager, and has been a regular guest on CNBC, Bloomberg, Fox Business News, and also the Money Medals Podcast, and shares his astute insights on markets and geopolitics from the perspective of an Austrian school economist viewpoint.

It’s always a real pleasure to have him on with us. Michael, welcome back and how are you?

Michael Pento: I’m doing fine and thank you for having me back on Mike.

Mike Gleason: Well Michael, let’s start out here with the topic that is dominating the news. Hurricane Harvey has laid waste to Houston, and the Texas Gulf coast. But Wall Street doesn’t seem to be bothered. Gold and silver have got a bit of a boost, but the equity market shrugged it off. This all makes me think back of the parable of the broken window, which was introduced by the well-known 19th century economist, Frédéric Bastiat, where he described why the money spent to recover from destruction is not actually a benefit to society.

But Michael, it appears as though Wall Street and the financial world might be buying into the idea of the broken window fallacy and viewing it as truth, and that all the destruction will somehow be good for the economy. What are your comments there, and what do you makes of the market’s initial response here, to this terrible, terrible tragedy?

Michael Pento: I guess it’s part of the hyperbole and hysteria that encompasses Wall Street right now. Nothing can knock down the stock market. You didn’t even mention the fact that North Korea Kim Jung-un, his new regime, launched his 80th scud missile, and they’re ICBM’s, ballistic missiles, into the Sea of Japan and over Japan, and towards southern, south Sea of Japan. And nobody seems to care. As a matter of fact, the market rallied, from being down about 150 points in the pre-market to, I think, plus 58 on the DOW, yesterday (Tueday).

There’s nothing (that) can harm this market. The reason for that … The simple reason behind that, is that central banks have printed 15 trillion dollars’ worth of confetti and counterfeit money, leading out of the financial crisis, from 2008 to today. 15 trillion and counting. You know, don’t forget you still have 60 billion euros per month, over in Europe, and you’ve got the Swiss Central Bank. You’ve got the Bank of Japan, which is hopefully enamored with money printing in it, at least Mr. Kuroda, the head of the BoJ, understands that he can never, never, even think about, or hint about reducing his quantitative easing, or QQE program that he has.

Going back to Frédéric Bastiat … Wall Street, very low level of thinking, very idiotic group of individuals, who actually … I was listening to CNBC, comment about how … By the way my heart and my prayers go out to the people in Houston, and now in Louisiana. I heard a commentator on the show saying, “Hey, but let’s look at the good news here. Look at all the construction that’s going to happen, so this is actually a boom for the economy.” Well, you know, if you follow that philosophy, then we might as well just bulldoze all the houses, and all of the physical structures in the United States. That’s how you grow GDP. You don’t grow GDP through productivity, and you don’t grow GDP by increasing and boosting your labor force.

The new way of growing productivity now, is to break things, and to pray for catastrophic storms. Of course, they never think about where the money comes from. In other words, if I was going to fix this pane of glass, in the analogy that you brought up, the broken window analogy … Well, I was going to buy a pair of shoes, and now I have to spend that money on fixing the pane of glass. Or, if I have to just borrow that money, that money that’s borrowed, to fix the glass, would have been borrowed to, perhaps buy capital goods, and expand the economy. And of course, if that money is just printed, well then, we have the scourge of inflation. There is no magic. There is no free lunch, in anything, and especially in economics. That’s true.

Mike Gleason: When the flooding in Texas moves out of the news, the coming fight over the debt ceiling could be front and center. Now, it looked like, to us a fight was brewing with a contingent of conservative Republicans revolting on one flank, and Democrats looking to thwart Trump and his agenda, everywhere possible, on another. Trump and GOP leadership have their hands full, getting a bill to hike the borrowing limit passed. But it could be that Hurricane Harvey will be used to prevent a big fight here, relief for Texas, might be inserted into the bill to raise the borrowing cap. And few politicians will object for fear of being criticized. With that said, are you expecting a fight over the debt ceiling to be significant Michael? And any chance, we could see a government shut down here?

Michael Pento: Well, at first glance, a prima facie look at this, is that I expect more dysfunction in DC. I predicted this when Donald Trump was elected. I said that his massive reform of healthcare, his tax reform packages would be both, deluded, and delayed, and that’s exactly what has happened. And of course, Wall Street likes to look at every event as a positive. The glass is always half full. So, now they’re saying that we have hurricane that we have to pay for, that this is going to somehow make the passage of everything, tax reform, construction spending, infrastructure, the debt ceiling, the budget. Everything’s going to go smoothly.

I have my doubts. I run an actively managed portfolio. So, the base case scenario is dysfunction in DC. That has been very, very prudent, and a correct path to assume and to take. I believe it’s not going to go smoothly. I believe that we have to pass the budget by the end of September, and raise the debt ceiling by middle of October. Now, Mnuchin and Mulvaney, they were on opposite sides of this, but now they’re on the same talking points as Trump. They just want to raise the debt ceiling cleanly. But I don’t think the Tea Party Republicans, in the House of Representatives are going to go alone with that, so yes there will be a fight, even if they try to attach this hurricane spending bill, infrastructure bill to it.

Mike Gleason: The U.S. dollar isn’t looking too good these days. We’ve seen pretty steady decline, since the beginning of the year. Of course, the dollar is a terribly flawed instrument, and the fact that the DXY index traded at an all-time high late last year, was more a testament to just how bad other major world currencies must be. Where do you think we’re going from here? Is the dollar going to head lower?

Michael Pento: Well, we went from about 80 on the DXY … which is heavily weighted towards the euro … from 80 to above 100, in anticipation of what? Anticipation of Mr. Trump getting a lot of his agenda passed, rather quickly. And also the divergence between the two major central banks, between ECB and the Federal Reserve. And where, as we see now, things not shaking out that well at all. We see the dollar index has dropped from above 100, now at major support around 92. If it breaks through 92 on the DXY, I think it could head towards 80. All eyes are on the ECB. The ECB is primarily in charge here.

If Mario Draghi, on September seventh, announces a tapering of his 60 billion per euro a month, asset purchase program, I would expect the euro to skyrocket, and the dollar to fall precipitately, right through that 92, towards 80. And, of course if he does not taper his asset purchase program, then the dollar could catch a bid and head back towards 100.

That’s why, again, I run an actively managed portfolio, trying to guess the minds of these megalomaniac schizophrenics, that run central banks, is very, very difficult, so it’s best to have, not a passive ETF strategy, buy and hold, and then forget about your money. You have to actively manage your portfolio. So, I will react to, what Mario Draghi does. European GDP growth is not very strong, but getting stronger. They are missing on the inflation target, just as we are here in the United States, at least the way central banks measure inflation, if you don’t count everything that’s going up, like medical costs, and college tuition, and asset prices. So, who knows what they’re going to do, but you have to be reactive, rather than just proactive in this kind of environment.

Mike Gleason: Staying on monetary policy here for a moment. Any thoughts on where Trump goes with his Fed chair appointee early next year? Any chance Yellen get reappointed, or does he bring in somebody even more dovish? What do you think?

Michael Pento: Well, it’s hard to get someone more dovish than Janet Yellen, but … I guess, you know, I don’t have any special insight here. Gary Cohen would be my best guess, because Trump likes to put his fingerprint on everything, and he needs somebody in there who is going to really fight for low interest rates, and for deregulation policy. Yellen kind of submarines herself at Jackson Hole, talking about the importance of regulation in the banking system. So, my best guess is that, come February 2018, that we have a new Fed chair, and that person is Gary Cohen, who will really fight hard for low interest rates, and a weak dollar. Both those things espoused by our President Trump, not candidate Trump, President Trump, and there’s a difference.

Mike Gleason: Yeah. Very important distinction there, for sure. Let’s dig into the gold and silver markets here for a minute. Now, demand in the retail bullion market continues to be pretty soft. To our way of thinking. That can be largely attributed to a few factors. First off, bullion investors are more optimistic about a Trump Presidency, than the Obama Presidency.

Another is that, precious metals prices really haven’t been going anywhere for a while now. And then, also, those who have been buying gold and silver as a safe haven, have probably, just gotten exhausted. They’ve been on high alert, expecting significant fallout, resulting from ultra-loose Fed policy, massive Federal deficits, unlimited borrowing, et cetera.

But the reckoning, it never seems to come, so are bullion investors just going to have to live a while longer here, in purgatory, or do you see anything exciting developing in the months ahead for the metals?

Michael Pento: Oh. I see something very exciting developing. So, we have a condition here across the United States and in Europe – not in Japan as I mentioned – where we have central banks that absolutely believe they have solved all of the global, economic problems. And, what they have done instead, they’ve engendered, they’ve fostered a huge increase in debt. We have about a 70 trillion dollar increase in debt, coming out of the great recession. We have 230 trillion dollars of debt now in the globe. It’s about 330%, just about 330% of global GDP. And the entire global economy, as anemic as it is, and people talk about this global synchronized growth…

Global growth is not anywhere near where it was in the early 2000’s. We’re about – globally speaking, you look at the major developed economies – they’re about one percent, one to two percent. There is no big expanse in global growth, but whatever global growth there is, it totally and completely hinges on continued low interest rates. And central banks have now convinced that they’ve solved all our problems, as I said. And now, you look at the Fed, who entered QE in 2014, and now we’re getting ready for quantitative tightening, reverse QE to start this year.

And surely, I’m 100% convinced, if it doesn’t start in September, at least in the early part of 2018, Mario Draghi and the ECB, will start to taper, it’s assets. They were 80 billion. Now, they’re 60 billion. He’s going to be reducing his asset purchase program towards zero, certainly by the end of 2018. So, when that happens, you’re going to have … and the Fed likes to talk about tapering, they’re not selling assets, they’re just letting them roll off the balance sheet… assets do not roll off of a Fed’s balance sheet. When the Federal Reserve has a note due, what they’re going to do, is ask the treasury to pay them this note. Well, the treasury has no money.

So, the treasury has to sell an amount equal to the note due to the Fed. The treasury then, has to not only sell this debt, but has to now, service this debt, whereas before those interest payments were being refunded by the Fed to the treasury. And when the Fed gets this money, it’s retired. So, you’re talking about a draining of the money supply. You’re talking about that happening, not only in the United States, but also in Europe. And who’s going to buy all this debt?

Now, the debt has absolutely, as I said, skyrocketed, 70 trillion dollars increase. There isn’t any private source for this funding. No one is going to buy a German bund, yielding .37%, when there is no central bank around, and the central bank is getting ready to sell assets. There isn’t anybody who’s going to buy a U.S. 10-year note, yielding 2.2%, or 2.15 as we make this recording. Nobody is going to make that purchase, when the Federal Reserve is getting ready to sell trillions of dollars. They have four and a half trillion dollar balance sheet. If they take it down to two and a half, it’s two trillion dollars’ worth of mortgage backed securities and treasuries that are going to be adding to that a trillion-dollar deficit that we already have. Deficits go up huge, as interests rates go up. Interest rates rise. It’s a very vicious, counterproductive cycle.

If we have higher debt service costs for every one percent to 200 billion dollars. We have one trillion dollar in deficits, because of demographics. And if we have a recession, deficits will rise and buy an additional trillion dollars. We can have deficits well over two, approaching three trillion dollars, with no help from the government. This is going to cause, whatever relatively anemic economic growth to falter substantially.

And I will add this. We already have the automotive sector, and the real estate sector rolling over in this country. If we have a spike in interest rates, which will emanate from the ECB, whenever they decide to start tapering assets, and the German Bund rises towards nominal GDP, which is close to three percent, actually above three percent. You go from .37% to over three percent, that’s going to drag up yields across the globe, and that’s when the situations really going to be extremely pernicious.

And what’s going to happen then … now the gold market is already sniffing this out, by the way, as we breached $1,300 an ounce a couple of days ago … the gold market is sniffing out this: that central banks are going to have to get back into the QE programs, across the board. And when that happens, faith in fiat currencies – not just the dollar, all fiat currencies – is going to falter very dramatically. You see some of this, not only in the gold market, but you see this phenomenon in the cryptocurrency world.

There is going to be a dramatic watershed, trench and drop in the faith of central bankers. That’s the biggest bubble of all. And when that pops, gold’s going to go back to its all-time high, and well surpassing that level too. So, look for $2,000 an ounce gold. It’s going to happen rather quickly. I think it’s going to happen within the next couple of years, and you already see the beginnings of that happening today.

Mike Gleason: Well, we’ll leave it there. Fantastic stuff as always. Michael, it’s great to have you on, we respect your insights quite a bit. It’s excellent to have you join us every few months.

Now, before we let you go, as we always do, please tell people, who want to both read and hear more of your wonderful market commentaries, and also learn about your firm, and how they could potentially become a client, if they want to do that. Please tell them, how they can find out more information.

Michael Pento: Sure. You can email me directly, mpento@pentoport.com. My website is www.PentoPort.com. The office number here is 732-772-9500. Be glad to talk to you.

Mike Gleason: Well, thanks again Michael. Enjoy the Labor Day weekend. We look forward to catching up with you again later this year. Take care, my friend.

Michael Pento: Thanks again for having me back on Mike.

 

Mike Gleason

Gold price: Korean bomb test could see fireworks in the gold market

Edited and updated version of an article I published on the Sharps Pixley website at the weekend following the North Korean hydrogen bomb test confirmation.

When the world’s largest gold ETF – SPDR Gold Shares (GLD) – adds gold into its holding, the gold price usually rises – and vice versa, and perhaps the second most bullish pointer for gold is that between June 8th and August 7th, some 80 tonnes of gold were liquidated out of GLD with only a limited overall impact on the gold price.  For the first month of the two month sell-off period, gold did fall back, but in the second month of sales out of GLD the gold price reversed and actually rose.  OK, so without these sales perhaps the gold price would have risen more sharply.  Since August 7th though we have seen purchases into GLD and the gold price has indeed risen fairly substantially, despite what look like big ‘flash crash’ sales of paper gold knocking the price back sharply, but only succeeding to do so for a very short time.

 Another factor which has been apparent is that the trading volumes seen over the past few weeks have been particularly high for the end of what is a holiday period.  This suggests a raging battle under way between gold bulls and gold bears which the bulls appear to have been winning.  But – and it’s a big but – the holiday period is now coming to an end with the Labor Day holiday and the serious players will be back at their desks.  As we have pointed out before, major U.S. holidays seem often to provide inflection points in the markets, and observers will be keen to see whether Labor Day 2017 will prove to be one of these and see the gold price either take off strongly upwards, or be knocked sharply back yet again.

But the No.1 bullish factor for the gold price this week is probably the fact that North Korea is confirmed to have tested a new, more powerful, nuclear weapon (50-60 kilotons according to reports – some put it at 100-120 kilotons) over the weekend, and the claim by North Korea that it could be fitted to one of its inter continental ballistic missiles (ICBMs).  This may well sway any likely post-Labor Day inflection point towards the likelihood of a serious gold price boost this week, although initial upwards price movement has been limited – the powers that be have obviously been successful so far in damage limitation!

GLD liquidations or purchases may also provide a strong pointer to market direction for precious metals.  It tends to be bank and/or fund purchases or sales which account for major moves in GLD, so whether the ETF’s gold content bleeds or grows should be an excellent guide as to where the gold price may be headed.  Weak U.S. economic data has effectively removed the Fed’s prospective rate rise scenario from the gold price equation – at least for a couple of months although may have an impact again in November as speculation will reign over whether the Fed will implement another small rise in December, or kick the can down the road once more.  The U.S. dollar is looking weak and a weak dollar tends to see the dollar gold price rise. And it is the dollar gold price which the market judges to be the most important indicator, even though the gold price in other currencies, like the euro or the yen, should perhaps be just as relevant to the gold investor.

We have ignored silver in this scenario, but silver continues to be tied to gold.  The gold:silver ratio (GSR) has fallen back below 75 again and will undoubtedly fall further should the gold price get a boost after Labor Day and the latest North Korean bomb test.  We see the GSR coming back down into the 60s which would make silver a far better short term buy than gold, but beware silver’s volatility.  However neither would be much good in a nuclear wasteland!

While North Korea’s Kim Jong-Un may not be as unstable as the media makes him out to be, the bomb test is yet another serious escalation in the DPRK/US confrontation and the big danger for further escalation here is that President Trump may be forced into military action, having backed himself into a corner with his rhetoric.  Unlike Iraq it looks as though North Korea’s weapons of mass destruction (WMDs) are real and the U.S. may now feel it has to make a move, however costly this may be to the U.S. itself and its Asian allies within easy range of North Korea’s missiles, before the threat to the U.S. itself escalates further.   If North Korea has indeed developed a nuclear warhead for its ICBMs and they are capable of targeting U.S. mainland cities, the U.S. may feel the necessity to strike and try and curtail the programme before the threat grows to an uncontrollable level.

The seemingly increasing threat of war between North Korea and the USA, could well give the gold price a huge boost in the days and months ahead with safe haven demand escalating worldwide – and particularly in Asia and the U.S. itself.  It could also persuade those banks holding big short positions in gold and silver to cover and reverse their policies.  A gold price reset could be on the cards even sooner than those like Jim Rickards and Eric Sprott have suggested – see $5,000 gold – then $10,000. Gold bulls sing from same songbook.

Thus be prepared for fireworks when North American markets re-open this week, although one suspects the big institutional holders with enormous short positions in gold and silver amy do their best to limit rises while, perhaps, unwinding from these.   The latest North Korean bomb test is probably favouring gold moving upwards – perhaps strongly – once the markets are back in full swing.