Banker admits gold price manipulation

By Clint Siegner – www.moneymetals.com

Gold and silver investors got a rare bit of good news on the enforcement front last week.

Manipulation

A trader from JPMorgan Chase pled guilty to rigging the precious metals futures markets.

John Edmonds admitted to cheating the bank’s clients and plenty of other people naive enough to expect fair treatment on the COMEX and other exchanges.

While this is by no means the first time a banker has been caught cheating, some aspects of this case are certainly worth noting.

Below is some detail on the who, what, when, why, and how of Mr. Edmonds’ activities at JPMorgan.

As part of his plea, Edmonds admitted that from approximately 2009 through 2015, he conspired with other precious metals traders at the Bank to manipulate the markets for gold, silver, platinum and palladium futures contracts traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc.

Edmonds and his fellow precious metals traders at the Bank routinely placed orders for precious metals futures contracts with the intent to cancel those orders before execution (the Spoof Orders), he admitted.

This trading strategy was admittedly intended to inject materially false and misleading liquidity and price information into the precious metals futures contracts markets by placing the Spoof Orders in order to deceive other market participants about the existence of supply and demand. The Spoof Orders were designed to artificially move the price of precious metals futures contracts in a direction that was favorable to Edmonds and his co-conspirators at the Bank, to the detriment of other market participants.

In pleading guilty, Edmonds admitted that he learned this deceptive trading strategy from more senior traders at the Bank, and he personally deployed this strategy hundreds of times with the knowledge and consent of his immediate supervisors.

Guilty JP Morgan Trader to Rat Out Other Gold Manipulators

Mr. Edmonds is ratting out some fellow traders, including more senior traders and immediate supervisors. It appears that JPMorgan will have trouble painting him as a “rogue” trader, as so often happens when an employee gets caught.

Maybe, just maybe, the trail uncovered here will lead to a high level executive spending some time in prison for rigging the metals markets. That would be a first.

JP Morgan

It is getting harder and harder for futures markets representatives to make the case that trading is even remotely free or fair. That is a good thing. We aren’t going to get honest markets in metals until confidence in the existing structure finally shatters and traders demand something better.

More guilty pleas, new convictions and additional evidence of systematic, widespread cheating is just what is needed for class-action lawsuits.

A handful of suits were launched when Deutsche Bank executives admitted to cheating and turned over piles of evidence in late 2016. Those efforts stand to get a nice boost from the Edmonds case, and perhaps we will see additional classes being formed.

Notwithstanding DOJ’s success here, private actions brought in the civil courts are more likely to hold crooked bankers fully accountable than the regulators who have been tasked with that job. The CFTC has yet to take responsibility for the complete and utter failure, so it is safe to assume that the agency remains captured by Wall Street.

It is telling that CFTC investigators spent five years investigating silver market manipulation, four of them during the time that Mr. Edmonds and his accomplices were operating with impunity at JPMorgan Chase. Yet that investigation was closed without asingle banker being charged with wrongdoing, to the dismay of silver and gold market whistle-blowers everywhere.

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Dollar to Get Whacked, Catalyzing Gold & Silver Rally- Greg Weldon

Mike Gleason of http://www.moneymetals.com interviews Greg Weldon of Weldon Financial:

Mike Gleason: It is my privilege now to welcome in Greg Weldon, CEO and president of Weldon Financial. Greg has over three decades of market research and trading experience, specializing in the metals and commodity markets, and his close connection with the metals led him to author a book back in 2006, titled Gold Trading Boot Camp, where he accurately predicted the implosion of the U.S. credit market and urged people to buy gold when it was only $550 an ounce.

He is a regular presenter at financial conferences throughout the country and is a highly sought-after guest on many popular financial shows, and it’s always great to have him on the Money Metals Podcast. Greg, good to talk to you again and welcome back.

Greg Weldon: Thanks, Mike. My pleasure.

Mike Gleason: Well, Greg, let’s start by getting your update on what impact trade policy and tariffs may be having on the U.S. economy. We last spoke in July. Tariffs were just beginning to actually take hold. Since then, the President has imposed additional tariffs. Anecdotally, we have seen some effect. We’ve recently ordered some steel storage lockers for our client storage vaults and the price was increased 10% based on the higher cost of imported steel. There are also wholesale price increases coming on one line of the preparedness products we offer on our SurvivalGoods.com website. We can assume lots of businesses are experiencing the same sort of thing. Do you think tariffs are now having a significant effect? Is any of the recent weakness in the equities markets attributable to trade policy, do you think?

Greg Weldon: Yes, no, and yes. First of all, in the sense of is tariffs having an effect, absolutely. But maybe not in the way you think and not in the way you couched the question. What I find really interesting is the Fed just published a really comprehensive survey last week in which they asked businesses, manufacturing firms, I should quantify, but this is where we’re talking about in terms of trade … Manufacturing firms in terms of the impact of tax cuts versus the impact of tariffs. And the results were fascinating, because the impact of tax cuts was dramatically positive, as you might suspect. But what you might not have suspected was the impact of tariffs, which were there a degree of percentage of firms which had negative impact from tariffs? Yes. I don’t remember the exact numbers, but it was somewhere less than 20%.

At the same time, there was roughly something like 13% of firms that said that tariffs actually helped their businesses in terms of generating high revenue and to whatever degree there would be benefits to certain businesses, so offsetting and mitigating the negatives of the 20%, the 13%. So the net-net negative was not as big as you might think and was overwhelmed by the positives still from the tax cuts. We know that to be true as it relates to labor, stock buybacks, and even wages.

I think from the U.S. economic slowdown perspective not a big deal, and that’s what Trump’s counting on. But the bigger picture, absolutely an impact, because it’s affected China so much, and China was already slowing. So the GDP numbers that came out, and you know that we look at most things from a mathematical perspective, and one of the knocks on China is the slowdown in retail sales, the slowdown in money growth, the slowdown in GDP growth, the slowdown in industrial production and FDI.

But the nominal numbers are so high in trillions of renminbi that of course you’re going to have a percentage slowdown, because you came from such a low base. So something like retail sales, you’ve gone from a 15% year-over-year rate to 9, and everyone’s up in arms because the consumer in China’s slowing. No, it’s a record number every month. It’s just a lower percentage gain because the nominal numbers are so huge now.

But right here, the third quarter numbers, were different. There was real weakness, and it’s kind of even ahead of tariffs, which are going to cause more problems for China. We already see inflation on the rise. We see commodity prices in renminbi breaking out here, big thing that nobody’s really talking about too much. And the renminbi’s about to take out 7, probably going to 7-1/4. So yes, major impact, but it’s on China.

Then you see the flow through to how this affects the U.S. and how this affects other global markets, and this coming at a time when you have a lot of other things going on: The Fed, what’s happening with emerging markets, how emerging markets, specifically Turkey, might flow into Spain, and how Europe is vulnerable. So, there’s a lot more than just tariffs going on. Yes, there’s a major impact, but it’s not on the U.S. economy. It’s in the market vis-a-vis what’s happening in China as a result.

Mike Gleason: That leads me right into my next question. The President has said he would prefer to have trade without tariffs. He is imposing them as a tool to negotiate more advantageous trade deals. What do you think of the strategy here? It looks like obviously the Chinese economy is in trouble and maybe they will be more willing to negotiate, but we aren’t sure the U.S. is in nearly as strong a position as the president thinks.

If you look at the balance sheet of trade on goods and services, yeah, it appears they need us more than we need them. But that is ignoring the fact that the United States is the world’s largest exporter of debt and inflation. We need trading partners to keep buying Treasuries and keep taking our dollars in exchange for stuff. So, how would you rate the President’s chances of winning, given what we have to go on so far?

Greg Weldon: Well, you hit on all the pertinent points there, Mike. We could have a three-hour conversation just on this one topic, this specifically. But I’ll give you the short answer, and we said this before potentially on your show, is the strategy here is pretty simple. I mean you have two guys, doused in gasoline, holding matches, lit matches. The U.S. match is longer than the Chinese match, so the dynamics here is do we get to the point where we’re self-immolating and you’re basically catching on fire here? The strategy in the U.S. is that as the match in China gets shorter they’re going to blink. The numbers support that thought process certainly from the trade perspective. There’s no doubt. The numbers are overwhelming, frankly.

But you then, of course, lead to the next phase. And it’s very much like the Cold War with Russia in the ’50s and ’60s, into the ’70s and into Star Wars. It’s the same thing. It’s called MAD – Mutually Assured Destruction – but that’s what you have. China relies still, even though they’ve grown their own domestic wealth, they’ve grown their own domestic income, they’ve done all these things, it’s such a wide gap still, it’s a race against time where time is quite much infinity to some degree. So that still leaves China somewhat dependent on the U.S. consumer, frankly. But at the same time as the net debtor nation and China holding a ton of U.S. Treasuries, therein lies the potential for Armageddon, so-to-speak, where China starts dumping. Already they’re not buying, so now the next move would be they sell.

But that means everyone blows up and everyone catches on fire. So how this plays out, I don’t know. One of the things to me, Mike, is actually you know how Trump is, and sometimes he’s his own worst enemy. Does he have a valid stance? Absolutely, against Canada, against Mexico, against Europe, against China. Yes, should be no tariffs. Free trade is free trade, and we’re really the only free free trader. So it is unfair and China’s taking advantage, so something had to be done. Is this too dramatic a step? Well, we’re going to find out, and we’re kind of starting to find out, because China’s kind of melting down and that’s having a bigger impact on global markets. But if the end game is China’s upset because they were called a currency manipulator a year ago at a time when renminbi was one of the strongest currencies in the world.

Trump, I think really, from what I understand (from) back-channels, this is still kind of a little bit adolescent at some level, because kind of Trump feeds into that and he brings that on himself by acting that way sometimes, by acting out instead of being more presidential. To some degree it works, but to the degree where China’s kind of pissed off, and China’s kind of like, “You know what? You insulted us. We don’t really care. We’re willing to go down to whatever degree.”

And you say China’s hurting and people look at it China is slowing. China is not slowing. The growth is slowing. So guess what? 6% on a level of GDP that’s now significant isn’t chump change. The U.S. would kill to have those numbers. So, yes, it’s Mutually Assured Destruction and you have to think that China will ultimately come to the table. They’re traders. This goes all the way back … You can bring up Marco Polo, for crying out loud. So they’re very astute. They are very smart. I mean, I’ve dealt with them for 30 years. They know what’s going on. So I think at some point they come to the table. That’s the hoped for. The question is, how much damage is done by the time that happens?

Mike Gleason: What is your take on the current volatility in stocks? October certainly has not been kind to equities. Metals investors are certainly watching the action closely. Unfortunately, with metals trading inversely correlated with equities for the time being, the road to higher gold and silver prices is likely through lower prices on the Dow. The total absence of safe-haven buying has hurt metals, at least as far as we see it. Do you think we have much further to go in this correction in stocks?

Greg Weldon: Yeah. I think it’s only begun. And I thought yesterday was a very dangerous day, yesterday being Tuesday, the 23rd I think it was. Because you have the setup for kind of like a crack, a big crack. It was almost, and I’ve been talking about this since the beginning of the year, there are correlations to 2007 and ’08, and that’s more macro in setup, but when you look at the market structure and some of the more overlaid type of correlations, there’s a lot of 1987 here.

We talked about this in the beginning of the year, where the bond market would come under pressure, particularly, and if you go all the way back to the piece I did in September over a year ago and called it Shrinkage, after Janet Yellen came out, dropped the word, “We’re going to normalize policy,” which I hated, because what does that mean? It means nothing, versus we’re going to go to a “neutral” policy.

That change was huge, because what it did was it exposed the two-year note for being way out of position, because it was way too low relative to where neutral would be a level that correlates to inflation. So immediately the two-year note was going to be the target, and it was, and you had a huge move. We actually said it was going to 265 when it was 140.

It got to 265. It was almost exactly the move. Why? It wasn’t rocket science. It was because the inflation rate was somewhere between 220 and 250 if you look at CPI, and that’s what I’m going to use. The Fed can use PCE. I’m still going to use PCI relative to the markets, because that’s what the markets still are going to look at frankly.

So, that move was easy, but then the thought process was even last September coming into now that if the Fed said they’re going to go further, which they did, Jackson Hole and then the September meeting, that would be a problem, because then you bring the bond market into play. Because you can push the two-year notes only so close to the bond markets, the yield curve is not going to invert here and that’s going to push the bond yield up, which it did. It broke 3-1/4 at the same time Turkey was melting down for a second time, when inflation jumped to the level of interest rates they just jacked 600 basis points to get to, that single day kind of precipitated all of this.

But if you look back, this has been a bond market buildup much like ’87, where in that case the bond market was under a lot of pressure, it was the long end then. It’s the short end now. Leading into August, when you kind of had some kind of denouement in the bond market, and then all of a sudden stocks started to feel it, emerging markets started to feel it. You saw emerging markets’ currencies crack in August. Same kind of setup, different era.

To me, this volatility was expected. We said at the end of August if the Fed moves in September you’d see a selloff in October. That’s exactly what’s happened, and I think it’s just beginning. I think you have much more volatility. This is nothing. The on-balance volume indicators, everything. You haven’t had any liquidation and that’s a dangerous accident waiting to happen, when if you go to sell somebody’s high priced stocks that have huge ownership and a diminished turnover in shares because the price is so high, you have a potential vacuum of buyers under this market. So I don’t think you’ve seen the worst of it by any stretch of imagination.

Mike Gleason: Just over the last week or two, we’ve heard a couple of former Fed chairs, Alan Greenspan and Paul Volcker, both coming out and talking about what a bad spot we’re in economically and that the chickens will be coming home to roost here before long. Talk more about this tough spot that the Fed is in, because it seems to us that they’re really stuck between a rock and a hard place here with rates. They want to keep inflation from getting out of control, but they also probably don’t want to kill the economy. And we both know how important, say, the housing and auto sales sectors are in the economy, for instance; And sales of those two big ticket items are very heavily linked to interest rates, and we can see that they’ve been starting to show signs of cracking here of late. How do you see the rising interest rates impacting the consumer drag, and what might that mean for the economy moving forward?

Greg Weldon: Well, I think that’s what the market is exactly telling us, because, again, in August we said if the Fed moves in September, you’re going to have a catalyst here. Because you want to chase inflation, but how far do you chase inflation when you put the consumer at risk? And the consumer is at risk; the consumer’s already stressed. You can talk about (how the) Target CEO says the consumer’s the strongest he’s seen in 30 years. The Fed even mentions, “guess what, consumer balance sheets are pretty “‘healthy'”. There’s nothing healthy about the consumer. This is a steroid-addled consumer that has lived for years on monetary steroids.

The correlations are precise in terms of balance sheet expansion, increases in retail sales. It went from QE1 to QE2 to QE3 to fiscal QE because you were flatlined in 2015 into the middle of ’16 until Donald Trump won the election. And then it was fiscal QE. You’ve run that out now, and everyone owns these shares. To the degree that the Fed keeps pushing here, it puts the consumer at risk because the consumer has borrowed against the stock market unrealized paper profits in a paper asset that they believe cannot go down in price. Doesn’t that sound familiar, 2007, 2008, housing, mortgage equity withdrawal, and huge consumer debt? They went upside down.

You have the same setup here. Different dynamics, but the same exact setup: over-leveraged consumer relative to the stock market. If the stock market gets hit, the consumer will go down. I think we’ve talked about some of these stats before. Before the September rate hike, the monthly payments on interest cost, in other words, paying the interest to carry the credit card debt, not paying down the debt., $325 billion per month it’s gotten up to. A record high, number one, and number two, 60% of total retail sales on a monthly basis, which is $510 billion a month. That’s number one.

Number two. Consumer credit card debt now accounts for 78% of all new consumer debt over the last 12 months. Further, that growth in that debt at $72 billion nominally over 12 months exceeds the growth in retail sales at $31 billion by more than two to one. Now, some of that is using credit cards for more things. But if you look at the Fed’s New York household survey, you see people under the median income of $58,000 a year are using credit cards and borrowing money to pay their bills. They don’t own stocks; the tax cuts are not huge enough with them. It’s more corporate.

This is why they’re talking of middle income tax cuts now, because they’ve kind of left behind that lower level. It’s half the economy. So, wow, to think that this is kind of the situation where you put the Fed behind the 8 ball. Do they keep chasing inflation higher at the risk of deflating the consumer and causing a collapse? That’s the big question. I don’t know how it plays out, but I think the Fed is very close to taking their foot off the brake. And that’s why we think there’s a new trade coming at some point in here, where it’s dollar down and gold rallies.

Mike Gleason: Before we get a little bit more into gold and silver, Greg, I know you keep close tabs on many different commodities and all the precious metals so I wanted to get your update on what we’re seeing in the PGMs, the platinum group metals, because I’ve really been fascinated by this widening gap between platinum and palladium because, my goodness, we’ve got about a $300 palladium premium versus platinum right now as we’re talking on Wednesday afternoon. What’s going on there, Greg, and should we expect palladium to reach parity with gold here soon?

Greg Weldon: You know what, honestly, it’s really hard to handicap what’s going on here, Mike. For the life of me it’s kind of in its own universe. Palladium has been. This has been going on really for the better part of a year and a half, two years, where palladium got up and then exceeded $1,000 and really came off hard. We actually got short, and we had some nice profits over a two-day period which then evaporated over the next two weeks. We didn’t catch this move because, frankly, I didn’t think this was going to be a situation where palladium was going to go off on its own like it has.

You can look at some of the mining situations. There are some reasons you can use, but they’re more excuses. Why this market is doing what it’s doing is not empirically evident to me, so I don’t know. I honestly don’t know. How far can it go? I don’t know. I mean, you know how these things are. You’ve been around long enough to know that you can never count on any kind of situation, any kind of parity, anything going to levels that you never thought possible before. You can’t think that way.

So, could palladium get to parity with gold? It’s pretty dang close already, so yeah. Sure, it could. Could it exceed gold? I mean, frankly, if you want to take it to its base level and strip away all the monetary, all the psychological, all the historic, all the emotional attachments to gold and, even to a lesser degree, silver, if you go to the heart of the matter, which is the supernova, which is where these elements are created. It’s why they’re the most rare elements in the universe, not just in the world, in the universe, because they are created at those last moments when a star collapses into itself. So palladium, from that perspective, is a more rare metal than gold. So maybe it should be priced higher.

Mike Gleason: Yeah, good point. It’ll be very interesting to see that play out. Well, as we begin to wrap up here, Greg, I’d like to have you share your thoughts with us, where do you think you think we go from here. Also give us any other insights on what you’re going to be watching here in the weeks ahead as we approach the all-important November elections and then the last couple of months of the year.

Greg Weldon: Yeah, the elections are kind of a wild card. It’s funny, you could actually say that having kind of a gridlock is actually when you get your best performance in stock market. So, I don’t give that a huge, high risk factor. If there were to be a surprise, it’s a risk, no doubt. But I don’t think that that’s the way that this next phase is going to play out. I don’t see that as the catalyst, per se. Not the highest odds, for sure.

I’m really watching Europe, Michael. I mean, I think that what’s going on with the banks in Europe, what’s going on with Italy and Spain, let’s not forget Spain. There’s a lot of focus on Italy, and we know… the Northern League and the Five Star Movement, they don’t want the euro. And they picked a guy that would appease the president to be their economics minister when it was almost potentially going to go back to another election when they could’ve actually lost their coalition. So they brought the guy in. It’s going to be, “Rah, rah, the euro.” They’re not, “Rah, rah, the euro.” We know they’re not.

And we watch the yield spreads in Spain and Italy relative to Germany, because they’ve widened. This is a risk yield spread. It gives you a sense for the risk. These are countries. I mean, we don’t have to talk about the debt, but we should because no one talks about it. It’s massive. It’s still huge. I mean, Spain, not in quite the situation as Italy but they’re above 90% of GDP. It’s still a crisis-like setup. So, that’s another huge risk factor, and if I’m watching anything right now that’s kind of what I’m watching.

And then the other thing, of course, is the high-flying tech shares in the U.S. because that could be an accident waiting to happen. That’s when you start creating real doomsday scenarios that are not macroeconomic and probably not long-lasting, but would have a major impact. If you have some of these stocks where there’s no buyers under them and people go to liquidate and it starts out innocently enough, let’s take profits, take some money off the table, I’m in Palm Beach County. You know where I live.

I’ve been approached more in the last month, and I’m not talking just last week or so. I’m talking back into September by some of my wealthy friends that are not in the business. I mean, this is one of the richest counties in the country and I’m at the low end of the scale over here compared to some of these people that I know, right? But they’re asking me, “I feel like I should take some caution here.” Yeah, returns are diminished. You’ve gotten all the good news from Trump priced in. You’ve had the big rally, and now people are a little nervous they’re going to let it slip away. That’s a dangerous situation. When these kind of people start asking me, I take notice because that is an accident waiting to happen. So the risk points are kind of like the U.S. high-flying tech shares, and then what’s going on in Europe to me is really where the manifestation of all this takes place.

Mike Gleason: Then, lastly, metals moving forward. What are your thoughts there?

Greg Weldon: Well, the release valve always has been and will be again the dollar. So when the Fed finally wakes up and realizes, “Hey, maybe we’ve pushed the consumer a little too far here and we’re at risk now of not meeting our GDP growth goals, which are 4 to 5% normally”; are you kidding me? For next year? You think that’s going to happen?” Let alone the fact that the Fed’s Dot Plot gives you 3-1/4 to 375 next year, the futures market is actually priced to imply some belief in the market that the Fed won’t even get to 3% with Fed funds.

And the market has been right throughout this entire time since 2014 versus the Dot Plot. They have under plotted the Dot Plot, and that has been the right move. If that plays out, and I think it will, it means that the Fed may be closer to taking their foot off the break than they’re going to keep moving for the next 18 months. I don’t see that. And when that slip takes place, the dollar is very vulnerable to me, technically speaking, because it’s a long-term pattern that goes all the way back to the ’70s and you’re in the zone here where the timing is perfect, the technicals are perfect, the Fed kind of eases off, the dollar gets whacked, and that’s going to be the catalyst for the next move in gold and silver. And we like gold and silver right here.

The risk is not insignificant because if the Fed goes too far and the Fed goes further, frankly, that runs the risk of bringing deflation. You see, some of the commodities are wobbling here. We’re bearish on crude oil, but that’s it’s own universe as a bonus for your listeners. But we like gold and silver; we just think dollar’s the release valve, it always has been, it will be again. And when that time comes, and we think it’s sooner rather than later, it may not imminent but it’s laying in wait, but when it happens you’re going to want to belong to metals.

Mike Gleason: Well, great stuff. Once again, Greg, we love having you on and appreciate your insights as always. Now, before we let you go, please fill people in on Weldon Financial, how they can find you, and any other information they should know about you and your firm.

Greg Weldon: Sure, yeah, I’ve been in the industry 35 years. Started in Florida Comex, worked at Moore Capital, one of the biggest hedge funds in the world in New York, and started my own gig 20 years ago. I’ve been doing this for 20 years. We provide Trade LAB as part of the WeldonLive service. It’s all-in service, one price. You come to the website, sign up, you can get a free trial. We have specific trades in every area: stock indexes, ETFs, bond futures, the currencies, the metals, the energies, the agriculture commodities. We really cover it all.

I’m a trader by trade, and the research is from that perspective, to help you navigate these markets and maybe even some money at the same time. We call it the research that pays for itself, and actually, right now we’re heading into the new year, we’re going to be raising prices, so we’re kind of running a special. This year’s price is still available, so anyone can take advantage of that by visiting the website. It’s WeldonOnline, or you can email me at any time, gregweldon@WeldonOnline.com.

Mike Gleason: Well, excellent. Thanks again for your time, and have a great weekend, Greg. I look forward to our next conversation. Take care.

Greg Weldon: Yep, you too Mike. You do a great job. Keep it up.

Mike Gleason: Well, that will do it for this week. Thanks again to Greg Weldon of Weldon Financial and WeldonLive. For more information, simply go to WeldonOnline.com where you can sign up for a free trial. Again, all of that information at WeldonOnline.com. Be sure to check that out.

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

How the Midterm Elections Might Affect Gold and Silver

by: Clint Siegner*

The outcome of the November 6th voting will be a big deal for investors, including gold and silver bugs. The metals, perhaps more than most other asset classes, are sensitive to geopolitics.

Let’s break down what the potential voting outcomes might mean for the factors currently driving the metals.

Election

Let’s start with the equity markets. Stocks got a boost from President Trump’s election and subsequent tax cuts. Last week, the President floated the idea of additional tax cuts and he wants to pass a major infrastructure spending bill.

Not much of what he wants will get done unless Republicans do well at the ballot box. Republicans retaining control in Congress almost certainly represents the best-case scenario for stock prices.

Perversely for metals investors who favor the President’s policies, a positive outcome for the GOP could negatively impact gold and silver prices, at least in the short run.

Rising stock prices and the pervasive “risk on” attitude on Wall Street limits demand for safe-haven assets. We will need plenty of inflation reaching beyond equity markets and real estate for metals to win in that scenario.

Alternatively, gridlock in Washington based on Democrats winning one or both houses may not be good news for stocks. The metals may get a boost, however.

Continual Fed Tightening to Inflame Conflict with Trump

Now let’s examine what the elections might mean for Fed policy…

Despite what officials at the central bank say, they are not independent. We wonder if they will respond to the President’s call to stop tightening, or if the cartel of private bankers which holds formal ownership of the Fed has something else in mind.

The President is blaming the recent weakness in stocks on the Fed’s move to raise interest rates.

Trump and the Federal Reserve

A further sell-off, perhaps sparked by a Republican defeat at the polls, could push Trump to replace Jerome Powell with someone more amenable – particularly if the FOMC stays the course and delivers another hike in December and beyond.

Metals markets would likely rally following a policy reversal at the Fed. Such a move would demonstrate markets are hopelessly addicted to stimulus and money creation.

That said, the alternative scenario is likely to prove the same thing. Markets are already beginning to struggle in the face of rising rates. If officials stay the course and hike again in December, the wheels could finally come off for equities.

The jig is about up, in our view. The bizarre combination of rising stocks, rising interest rates, near total complacency in the traditional asset markets, and the dollar getting stronger in foreign exchange markets can’t last forever.

The reason those conditions have persisted in unison as long as they have brings us to the last point for consideration; market rigging. While it looks like the central planners are reaching the end of their ability to manage performance across the spectrum, we have underestimated them before.

Unfortunately, manipulation is here to stay. There is absolutely no reason to expect the midterm elections will lead to more honest markets.

Nobody in Washington is talking seriously about reform. The President wants the Fed to return to stimulus. Congressional Republicans and Democrats both count on central bankers to support massive deficit spending.

The Fed will retain carte blanche to intervene in any and all markets regardless of who wins, unfortunately. We look forward to seeing what officials there have in mind for the US economy and how much longer they can avoid the sort of inevitable “policy error” which unleashes the next reckoning in our markets.


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1. The End of Easy Money

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

central banks to withdraw liquidity from financial markets for the first time since crisis
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2. Banks on a Gold-Buying Spree

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

change in gold reserves held by emerging countries from 2007 to 2017
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3. Too Much Debt

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

US government debt outstanding continues to rise rapidly
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4. An Exceptional Store of Value

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

gold does exactly what it is supposed to do protect purchasing power gold price increases in turkish lira and venezuelan bolivar
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5. A Sterling Time to Buy Gold?

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

highs in the gold silver ratio were great buying opportunities for gold
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Latest In Gold We Trust Chartbook

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

Gold accumulations could checkmate the petrodollar

by: Stefan Gleason*

President Donald Trump’s administration is playing a game of high-stakes international chess with Russia, Iran, Turkey, China, and other countries viewed as adversaries in trade and geopolitics.

It’s not necessarily the case that tariffs, sanctions, and blustering will result in a hot war. More likely, escalating strife between the U.S. and a bloc of much more populous adversaries will push them to unite more closely to undermine and ultimately dethrone King Dollar.

The U.S. has long been the grandmaster – the dominant player on the geopolitical board – owing largely to its unique reserve currency status.

Quite simply, the U.S. dollar is the go-to currency for world trade. Oil and gold are traded in dollars. Manufactured goods on the international market are traded in dollars. All other currencies are measured against the dollar.

Nations Anxiously Moving to Dollar Alternatives

But all that is in the process of changing. As Washington, D.C.’s international adversaries pursue contra-dollar alliances, it could soon be checkmate for King Dollar.

President Trump recently touted tariffs designed to punish Turkey. The tariffs triggered the biggest financial crisis Turkey has seen in decades.

That may well have been the intended consequence. But the unintended consequence is that Turkey is now being pushed to form stronger economic ties with Iran… which in turn is forming stronger ties with Russia… which in turn is forming stronger ties with China.

Russian Central Bank Gold Reserves

The countries being targeted with tariffs and sanctions have a much larger combined GDP and a combined population that is multiples of the United States.’ What if a contra-dollar bloc formed that was determined to isolate the U.S. from the world financial system?

Russian Deputy Foreign Minister Sergei Ryabkov recently told International Affairs, “The time has come when we need to go from words to actions and get rid of the dollar as a means of mutual settlements and look for other alternatives.”

Foreign Gold Buying Is Ramping Up

One of those alternatives is gold. The Central Bank of Russia is ramping up its gold buying and reducing its holdings of U.S. Treasuries. In recent years, in fact, Russia has been the largest official buyer of gold – followed closely by China.

Earlier this year, the Shanghai International Energy Exchange launched a futures contract for crude oil priced in Chinese yuan. Now Chinese and other international traders can trade the world’s most important energy commodity in a liquid market without using U.S. dollars.

China has also launched a pilot program to purchase oil from Russia and Angola (two of its top suppliers) using yuan. It’s another gambit in the currency war being fought by major powers that have been targeted by the U.S. administration for punishment.

Those calls turned out to be premature. The petro-dollar lived to fight another decade, boosted the perception of the U.S. dollar as a safe haven during the financial crisis and later by the shale oil fracking boom that saw North American oil production surge.

Whether this method of production is sustainable at current oil prices remains to be seen. What’s not sustainable is the U.S. government (officially $21 trillion in debt) being able to extend itself militarily and through punitive economic measures to prop up the petro-dollar.

According to Gal Luft of the Institute for the Analysis of Global Security, “The main front where the future of the dollar will be decided is the global commodity market, especially the $1.7 trillion oil market.”

The Dollar’s Dominance in Global Transactions May End on Trump’s Watch

If China wants to buy oil from Saudi Arabia in yuan, from Russia in rubles or from Iran in gold, then OPEC nations and other major energy exporters will surely figure out how to accommodate their biggest customers.

Dollar Weakens

Whether a new global standard emerges or multiple competing standards rise in tandem, the dollar’s multi-decade run as the world’s dominant transactional currency could end on Trump’s watch.

The trend in the value of the dollar versus other fiat currencies and gold is another question.

China doesn’t actually want the greenback to go down versus its yuan – at least not at this point in the currency wars.

The one alternative currency that stands to benefit as the major national currencies battle each other is gold. It’s the only monetary asset that has proven to be resilient against all economic and geopolitical threats.

What on earth is happening to platinum?

By Clint Siegner*

The bearish price action in platinum has some of our clients wondering just what to expect. We are always happy to give our take on the markets. Below you’ll find a recent customer question along with our answer.

Question: The platinum price has fallen well below gold’s price and it continues to underperform the other precious metals. What is happening in the platinum market?

Answer: We see a handful of factors driving the recent declines in platinum. For starters, it is facing the same challenges we find in the gold and silver markets.

The dollar has been getting stronger, interest rates are rising, and traders on Wall Street have rarely been more carefree. Mainstream investors are positioning for economic strength, not looking for safety.

Platinum is trading like the other precious metals, which is to say performing poorly. As of this writing, platinum is down 16% for the year.

Autocatalyst (Platinum)

Platinum is used in autocatalysts, coins, and jewelry.

Compare that to silver’s decline of 17% and the price action looks pretty much in-line.

There are some other fundamentals behind platinum’s underperformance in the past few years though. Demand from automobile manufacturers is weakening significantly – forecast to be down 6% this year.

The prognosis for diesel cars is even worse, and that has hurt platinum demand more than the other metals. Diesel vehicles demand primarily platinum for their catalytic converters, while gasoline exhaust systems use mostly palladium.

The 2015 scandal involving Volkswagen revealed that diesel is not nearly as clean as thought previously. The car maker had been gaming the emissions testing system, and platinum-based catalytic converters were less efficient at scrubbing out unspent fuel from diesel engine exhaust.

Those revelations have had a serious impact on platinum demand – particularly in Europe where diesel had widespread adoption based on the false assumption that it was dramatically more “green” than gasoline.

 

Platinum is currently in surplus. Experts anticipate supply will outstrip demand by nearly 300,000 ounces this year.

The foreign exchange markets may also be contributing to platinum’s lower price. Recently the South African Rand has fallen significantly. Miners, who are typically paid in dollars or euros, are realizing much higher prices when those funds are converted to Rand.

For bullion investors looking to speculate as well as diversify their holdings, platinum looks interesting at these levels.

The political environment in South Africa has long been a challenge for miners. It may be about to get far worse. That may mean even more weakness in the Rand, but it can also mean a serious disruption to supply.

We also question how much longer the platinum price will remain at a significant discount to palladium. The two metals are largely interchangeable in automotive catalytic converters. If car makers see a good opportunity to save by switching to platinum, look for them to do it.

The Fed’s big mistakes and their consequences

In our view Bill Bonner is one of the most interesting, and outspoken commentators out there so we are publishing one of his most recent commentaries here in full.  These are published on the Bonner & Partners website- www.bonnerandpartners.com  and also syndicated on a number of other associated sites.  Do take time to read this article and others off his website and you will understand why we rate him so highly.  Although the article reproduced below has a title relating to what Bill feels is the fraudulently reported American Oil Boom, none of this would be possible without the Fed’s policies which make borrowing so cheap which has fuelled the aforementioned oil boom as well as much of the tech boom -= all something of a house of cards!

America’s Oil Boom Is a Fraud

By Bill Bonner

PARIS – You’ll recall that Fed policy always consists of the same three mistakes

1) Keeping interest rates too low for too long, resulting in too much debt; 2) Raising interest rates to try to gently deflate the debt bubble; and 3) Cutting rates in a panic when stocks fall and the economy goes into recession.

Well, here comes the Big Bang: Mistake #4 – rarely seen, but always regretted.

Mistake #4 is what the feds do when their backs are to the wall… when they’ve run out of Mistakes 1 through 3.

It’s a typical political trade-off. The future is sacrificed for the present. And the welfare of the public is tossed aside to buy money, power, and influence for the elite.

Apocalypse Now!

Every debt expansion ends in a debt contraction. Stocks crash. Jobs are lost. The economy goes into reverse, correcting the mistakes of the previous boom.

Investors see their money entombed. Householders await foreclosures. The authorities scream: Apocalypse Now!

The more the feds falsify price signals in the boom, the more mistakes there are to correct. For example, this week, a report in The New York Times described the big mistake in the shale oil boom.

You’ll recall that it turned America from a big importer of oil to a major exporter… and revived much of the heartland with big fracking projects in woebegone regions of Texas and North Dakota.

The shale oil boom was even credited with having scuttled the oil market, which dropped from a high of around $130 a barrel in mid-2008 to under $30 in late 2016, thanks to so much new supply.

But guess what? The whole boom was fake. It didn’t add to wealth; it subtracted from it. Accumulated losses over the last five years tote to more than $200 billion, with $36 billion lost in the Bakken shale fields in North Dakota alone.

Had credit been priced properly, it never would have happened. From The New York Times:

The 60 biggest exploration and production firms are not generating enough cash from their operations to cover their operating and capital expenses. In aggregate, from mid-2012 to mid-2017, they had negative free cash flow of $9 billion per quarter.

These companies have survived because, despite the skeptics, plenty of people on Wall Street are willing to keep feeding them capital and taking their fees. From 2001 to 2012, Chesapeake Energy, a pioneering fracking firm, sold $16.4 billion of stock and $15.5 billion of debt, and paid Wall Street more than $1.1 billion in fees, according to Thomson Reuters Deals Intelligence. That’s what was public. In less obvious ways, Chesapeake raised at least another $30 billion by selling assets and doing Enron-esque deals in which the company got what were, in effect, loans repaid with future sales of natural gas.

But Chesapeake bled cash. From 2002 to the end of 2012, Chesapeake never managed to report positive free cash flow, before asset sales.

Turkeys Fly

Of course, the same thing could be said of the trillion-dollar companies, Amazon and Apple, whose market capitalizations are largely the result of cheap credit.

And it could be said of the whole tech sector – with its outrageous inputs of capital into companies that have never made a dime.

Or it could be said of emerging markets, which have managed to suck up the loose change spilling out of the financial industry. They promised slightly higher yields, and now, they owe far more than they can pay.

It could also be said of Silicon Valley carmaker Tesla, which now has an estimated $10.5 billion in debt – despite never having made a profit…

Or of the entire stock market, where trillions of dollars in cheap capital have produced very little real return.

“When the wind blows hard enough,” say the old-timers, “even turkeys fly.”

The wind never blew as hard as it did from 2009 to 2018. And overhead now are so many plump, money-losing birds that we suggest you take cover.

Mistake #4

But that’s just the beginning… As the turkeys fall to Earth, the Fed’s reputation is called into doubt. Its manhood is questioned. Congress and the Trump administration, too, are roused to action!

The feds will make the rational choice (for them). They will go for broke.

That is, they will do things that cause you to go broke… while the insiders continue to get rich, following the tried-and-true remedy of Mistake #4 – the refuge of scoundrels and the last resort of jackasses from Zimbabwe to Venezuela.

The essence of Mistake #4 is “printing” money – lots of it – to cover soaring deficits, prop up failing enterprises, reflate markets, rescue sinking households, save the bankers, reward the cronies, and keep the zombies from running wild in the streets.

All this money-printing will spark inflation… which will soon be blazing-hot.

The Fed, of course, is duty-bound to keep prices “stable.” But in the end-of-the-world hysteria, we predict the Fed will “print”… and worry about price stability later.

“When someone is trapped in a house fire… you try to get them out,” the feds will say. “We’ll worry about the fire insurance later.”

Two-trillion-dollar deficits?

Maybe more.

A breathtaking infrastructure boondoggle. A “space force” so far out that it is quickly lost somewhere beyond Mars.

New trade wars to protect U.S. industries from fair competition. A “guaranteed income” for everyone.

Bailouts… Subsidies… Grants… Contracts… Spend, spend, spend. “It’s good for the economy!”

Oh… and new controls on banking and cash… and perhaps gold and even bitcoin… closing the doors to prevent people from escaping the burning building.

Our advice: Run, don’t walk, to the nearest exit now.

What Would Impeaching Trump Mean for Precious Metals?

by: Clint Siegner,  Money Metals News Service

Robert Mueller appeared to be spinning his wheels for the last year and a half. But recent prosecutions of prominent Trump campaign figures now have Democrats giddy over the possibility of being handed grounds for impeachment.

Tasked with investigating whether or not Donald Trump and people working for him colluded with the Russians during the presidential campaign, the special counsel finally got some traction last week.

Metals investors are wondering if political turmoil ratcheting several notches higher might have ramifications for gold and silver prices.

Looking At Impeachment

The chances for impeachment did get a boost, although it would seem to hinge primarily on whether the Republicans lose the House and Senate in November.

Suddenly a number of people in Trump’s orbit have either fallen to prosecution or appear eager to cooperate with the investigation against him.

Paul Manafort, Trump’s former campaign chairman, was convicted of financial fraud and tax evasion early last week.

One of the president’s former attorneys, Michael Cohen, pled guilty to charges related to paying off two women who claimed to have had affairs with Trump.

David Peck, who owns the National Enquirer and is considered to be a friend of the president, was given immunity for whatever testimony he can provide on the subject.

And finally, Allen Weisselberg, the CFO of the Trump Organization also got immunity for whatever he might have to share about his boss.

Some are now speculating on how an impeachment effort might play out in the metals markets. But we’ll get a much better idea of which way the political winds are blowing for the White House after the crucial November mid-term election.

Last week isn’t even the first-time investors have contemplated the possibility of impeachment. So far, the markets seem to be ignoring the possibility.

“With McCain dead and Corker & Flake retiring, there are fewer Republican senators around obsessed with sticking it to Trump.”

It’s a very daunting political task. Only two presidents have ever been impeached – Andrew Johnson and Bill Clinton. Neither were convicted in the Senate and removed from office, however. That can only be done with a ⅔ majority vote.

Even the most optimistic Democrats are not expecting to win a majority of that size in this Fall’s midterm elections.

To convict, Democrats will need some help from Republicans – and with John McCain now dead and Bob Corker and Jeff Flake retiring, there are fewer Republican senators around obsessed with sticking it to Trump.

It could certainly be said Trump doesn’t have too many true friends amongst the Republican leadership in Congress. However, the President has plenty of loyalty amongst his base. It seems unlikely Senate Majority Leader Mitch McConnell is going to risk suiciding the party by collaborating with Trump’s enemies across the aisle.

Impeachment looks like a bad bet based on what we in the public know today.

If the threat of impeachment somehow becomes more credible based on the revelation of more serious crimes, then all bets are off. It will move markets. But, for now at least, it remains a longshot.

Major political turmoil is just one of many reasons to buy insurance in the form of gold and silver bullion. Investors can add upheaval in Washington to a longer list, which, at the moment, also includes:

  • Precious metals looking oversold.
  • Extremely bullish relative positioning of banks versus speculators in the Commitment of Traders data.
  • Several potential catalysts which could reignite safe-haven buying – not the least of which is a major correction in the exuberant stock markets.

Holmes: It’s Time for Contrarians to Get Bullish on Gold

By Frank Holmes – CEO and Chief Investment Adviser U.S. Global investors

It’s Time for Contrarians to Get Bullish on Gold

Gold can’t seem to catch a break. The yellow metal normally acts as a safe haven in times of political and economic strife, but in the face of Turkey’s lira meltdown, investors have taken cover instead in the U.S. dollar. On Monday, the stronger greenback pushed gold to end below $1,200 an ounce for the first time since January 2017.

The lira fell to its lowest level ever recorded against the dollar Monday, mainly in response to President Donald Trump’s call to sanction and double steel and aluminum tariffs on Turkey. This sent gold priced in Turkey’s currency to all-time highs. If you recall, we saw the same thing happen recently in Venezuela, where inflation is expected to hit 1 million percent by the end of the year.

Turkish lira down more than 45% for the year
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Turkey’s faith in gold was on full display this week as President Recep Erdogan urged his fellow Turks to convert their gold and hard currencies into lira in an effort to prop up the country’s hammered currency. The same strategy was used in December 2016, a month after Trump’s election sent the lira tumbling against the dollar.

The Love Trade Is Strong in Turkey

As I’ve discussed before, Turkey has a long and rich history with gold. Home to the world’s very first gold coins more than 2,500 years ago, Turkey still stands as one of the largest buyers of the yellow metal. In the June quarter, the Eurasian country was the fourth largest consumer of gold jewelry, following India, China and the U.S. Twelve and a half metric tons were purchased in the three-month period, up 13 percent from the same time a year ago.

Along with Russia and Kazakhstan, Turkey also continues to add to its official gold holdings. Its central bank’s net purchases in the first half of the year totaled 38.1 metric tons, up 82 percent from the same six-month period in 2017, according to the World Gold Council (WGC). This made it the second highest buyer, after Russia.

Time to Get Contrarian

Gold investors might be discouraged by its performance this year, compounded by news that hedge funds are shorting the metal in record numbers. A lot of this has to do with the fact that, so far this year, gold has had a very high negative correlation to the U.S. dollar—more precisely, a negative 0.95 correlation coefficient, according to gold research firm Murenbeeld & Co. What this means is that gold prices have been moving in nearly the exact opposite direction as the greenback.

I think it’s important to point out that, despite a stronger dollar, gold is still up for the 36-month period—and climbing even higher over the long term. The dollar has only recently broken even, whereas gold has continued to hit higher lows since its phenomenal breakout in December 2015.

despite a stronger u.s. dollar, gold is still up for 36-month period
click to enlarge

The dollar could be ready to peak, with the potential for even higher gold prices. The metal is currently down two standard deviations over the past 60 trading days, so the math is currently in our favor for gold to rally.

Gold: Lessons from Venezuela

Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, talks us through the cautionary tale of Venezuelan hyperinflation and how holding some gold  could have mitigated the financial disaster which has affected that country’s population.

Wait Until You See the Price of Gold in Venezuela Right Now

Paper Money eventually returns to its intrinsic value zero

Last month in Venezuela’s capital city of Caracas, a cup of coffee would have set you back 2 million bolivars. That’s up from only 2,300 bolivars 12 months ago, meaning the price of a cup of joe has jumped nearly 87,000 percent, according to Bloomberg’s Café Con Leche Index. And you thought Starbucks was expensive.

But that was July. Prices in Venezuela are doubling roughly every 18 days. The International Monetary Fund (IMF) now projects inflation to hit an astronomical 1 million percent by the end of this year. This puts the beleaguered Latin American country on the same slippery path as Zimbabwe a decade ago and Germany in the 1920s, when a wheelbarrow full of marks was barely enough to get you a loaf of bread.

Venezuela’s socialist president Nicolas Maduro—who only this past weekend survived an assassination attempt involving several explosive-laden drones—announced recently that the country plans to rein in hyperinflation by lopping off five zeroes from its currency. If you recall, Zimbabwe similarly tried to combat soaring prices of its own by issuing a cartoonish $100 trillion banknote—which in 2009 was still not enough to buy a bus ticket in the capital of Harare.

Without structural governmental reforms, a new bolivar is just as unlikely to steady Venezuela’s skyrocketing inflation or remedy its crumbling economy.

Gold Could Save Your Life

So where does this put gold? At some point, hyperinflation gets so ludicrously out of control that discussing exchange rates becomes pointless. But as of July 30, an ounce of the yellow metal would have gone for 211 million bolivars—an increase of more than 3.1 million percent from just the beginning of the year.

Gold priced in Venezuela Bolivars
click to enlarge

My point in bringing this up is to reinforce the importance of gold’s Fear Trade, which says that demand for the yellow metal rises when inflation threatens to destroy a nation’s currency—as it’s doing right now in Venezuela. A Venezuelan family that had the prudence to store some of its wealth in gold would be in a much better position today to survive or escape President Maduro’s corrupt, far-left regime.

In extreme cases like this, gold could literally help save lives.

Such was the case following the fall of Saigon in 1975. If not for gold, many South Vietnamese families might not have managed to escape the country. A seat on one of the thousands of fleeing boats reportedly went for eight or 10 taels of gold per adult, four or five taels per child. (A tael is slightly more than an ounce.) Gold was their passport. Thanks to the precious metal, tens of thousands of Vietnamese “boat people,” as they’re now known, were able to start new lives in the U.S., Canada, Australia and other developed countries.

Venezuela’s Once Prosperous Economy Destroyed by Corruption and Mismanagement

But back to Venezuela. Amid the corruption and mismanagement, the only thing helping the country pay its bills right now is gold. Two years ago, it had the world’s 16th largest gold reserves. Today it stands at number 26 as it’s sold off more than half its holdings since 2010. While countries such as China and Russia continue to add to their holdings, Venezuela has been the world’s largest seller of goldfor the past two years.

Venezuela began liquidating its gold after oil prices declined
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It’s hard to remember now, but as recently as 2001, Venezuela was the most prosperous country in all of South America. Like Zimbabwe, the OPEC nation is rich in natural resources, home to the world’s largest oil reserves and what’s believed to be the fourth largest gold mine. Oil exports account for virtually all of its export revenue.

In 2016, Venezuela was the third largest exporter of crude to the U.S. following Canada and Saudi Arabia, but with output in freefall, this is changing rapidly. For the first time ever in February, Colombia sold more crude oil to the U.S. than its eastern neighbor did. And in June, Venezuela’s state-owned oil and gas company, Petróleos de Venezuela (PDVSA), informed at least eight foreign clients that it would be unable to meet supply commitments. According to GlobalData, production is on track to fall to only 1 million barrels per day by 2019, down from 3 million a day in 2011, meaning the petrostate might soon have nothing left to deliver.

President Maduro now has the ignoble distinction of reigning over an economic recession that rivals the very worst in modern history. Last month, the IMF forecast that the country’s real gross domestic product (GDP) would fall 18 percent this year—the third straight year of double-digit declines.

Venezuelas recession among the worst in recent history
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A mass exodus of young, working-age Venezuelans, many of them college-educated, is unlikely to help. Estimates of the number of people who have fled the country in the past two years alone range from 1.7 million to as high as 4 million.

Their escape is no easy task, as numerous international airlines, citing rampant crime and a lack of electricity, have canceled all flights in and out of Caracas. The only U.S. carrier still operating in the country is American Airlines, which offers a single daily flight from the nation’s capital to Miami. Just two years ago, there were as many as 40 nonstop American flights, not to mention those of rival carriers, between the two cities—a sign of just how dramatic and swift Maduro’s mismanagement has been in crippling Venezuela’s once-robust economy.

The Diversification Benefits of Gold

The gold bears were on top last week, with the metal trading as low as $1,205 on Thursday. That’s the closest it’s come to dipping below $1,200 since February 2017. Friday’s lower-than-expected jobs report gave gold a modest boost, but it wasn’t enough to prevent a fourth straight week of price declines.

Gold delped stem the rout
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In times like this, it’s important to remember that, according to gold’s DNA of volatility, it’s a non-event for the metal to close up or down 1 percent at the end of each session, 2 percent for the 10-day trading period. And guess what? The S&P 500 Index has the same level of volatility.

Ten days ago, gold was trading just under $1,230 an ounce, or 0.6 percent more than today. The math is sound.

It’s also worth remembering that gold has traditionally had a low to negative correlation with other assets such as equities. This is why many investors over the years have used it as a portfolio diversifier.

Case in point: On June 26, Facebook suffered its worst single-day decline since the company went public in 2012. Its stock plunged 19 percent, erasing some $120 billion in market capitalization—the most ever in history for a single trading session.

Gold, meanwhile, held relatively steady, slipping only 0.62 percent.

Pelaez: Time to Position for a Decade-Long Bull Market in Natural Resources

Interview by Mike Gleason of www.moneymetals.com

Coming up we’ll hear a wonderfully fascinating interview with first time guest Samuel Palaez of Galileo Global Equity Advisors. Sam highlights what he views as a tremendous investment opportunity in commodities right now, and also talks about how the markets may be getting it wrong when it comes to the trade wars and the likely impact it will have on the U.S. economy, inflation and the dollar.

Samuel Pelaez

Mike Gleason: It is my privilege now to welcome in Samuel Pelaez, CIO and Portfolio Manager at Galileo Global Equity Advisors, a Canadian subsidiary of U.S. Global Investors. Sam manages Galileo’s Growth and Income fund as well as the Technology and Blockchain fund and also follows the natural resource and gold mining space quite closely. And it’s a real pleasure to have him on with us today.

Sam, thanks so much for the time and welcome.

Samuel Pelaez: Thanks, Mike. It’s a great pleasure to join you. I think this is the first time.

Mike Gleason: Yeah, absolutely. Excited to get a chance to talk to you finally. You’ve been talking about commodities being way undervalued. You published a chart back in the spring showing the value of the S&P GSCI Index of commodities companies relative to the broader S&P 500 Index. The ratio is near all-time lows. Since that chart was published in April not a great deal has changed, so talk about where we’re at here in commodities now and give us your thoughts on what the value proposition looks like today because they certainly have been laggards compared to the broader markets.

Samuel Pelaez: Yeah, absolutely. That’s my favorite all-time chart I think. I’m a big proponent of commodities and natural resource investing. Keep in mind, that chart goes over 60 years or so of markets. We’ve had cycles like this three times or this will be the third time. Twice in the past we’ve seen that sort of extreme rating where commodities are so undervalued relative to the broader market as measured by the S&P 500.

What that suggests is that we may be at a juncture here that provides an opportunity to invest in resources that we haven’t had for over 20 years. Last time this happened was coincidental with the NASDAQ 1990-2000 boom. That was the time when the commodities were as undervalued relative to the broader market. And what happened since was obviously the big industrialization of China commodities did very well for a decade up until 2008 and even a little bit further than that.

So, it was at least a decade of commodities out-performance relative to the market. And we’re in a similar predicament right now and that keeps me very excited. Now, if you think about short term especially since the spring, there’s been a lot of talk of the trade wars. Commodities have sunk most of them quite dramatically, especially those that are sort of core to development of China. I would call those short-term deviations in the bigger and broader context. I think this chart is a very powerful indicator for investments over the next decade.

That may not mean that today is the bottom or tomorrow, but as any responsible investor, I would suggest to start reallocating some of your broader market exposure towards commodities just on the back of what this chart is saying. Now, the short-term deviations that we’ve seen can be very material. Copper is over 20% drop from its highs. Same story with zinc. Gold has also under-performed quite dramatically. But in general, I believe we are approaching a situation with that under-performance is unsustainable.

Frank at U.S. Global put out a piece a couple of weeks ago that was actually very insightful. And it said, “Let science drive your investing.” It just shows how gold is two standard deviations below its mean. Copper is 3 1/2 standard deviations below its mean. And in statistical terms, that’s a very sort of powerful indicator for a rebound. Just to say in a little bit more plain language, what that suggests is, there’s a 95% probability that gold rebounds in the next 60 days. And in copper, it’s more like a 99% probability that it rebounds in the next 60 days.

So, maybe we’re just towards the tail end of this short-term trade war inflicted sort of under-performance. And then maybe we can start recapturing the uptrend that we’ve seen over the last year or year and a half that could, I hope, translate into a decade-long bull market for natural resources and commodities.

Mike Gleason: Of course, our focus here is on precious metals, you alluded to gold of course. They often trade like commodities. Particularly silver which has significant uses as an industrial metal. But gold and silver are also monetary metals. They can get more attention from investors looking to hedge against inflation or as a safe haven. Given that, what are your thoughts on where the precious metals might be headed? Do you think they will be pretty well correlated with commodities in the months ahead? Or, are you looking for them to perhaps behave differently, Sam?

Samuel Pelaez: The answer is yes. I expect them to perform very well. Gold is actually one of the more puzzling asset classes so far this year because it’s under-performed. With the whole trade war angle, China and the U.S. at odds. President Donald Trump being at odds with some of Canada, some of the U.S. allies including Canada. That should be a pretty good environment for gold. But what’s happened is the markets have interpreted the trade war as a positive economic impact to the U.S. and we’ve seen the U.S. dollar rise. And that’s generally negative for gold on the other hand.

That’s also been sort of turbocharged for lack of a better word, by the fact that the U.S. continues to raise rates at a much quicker speed than its peers in Europe or in Japan. The 10-year yield in Japan today is as close to zero as it gets. The euro is already at 3%. So that interest rate disparity has also helped the U.S. dollar be pretty strong year to date. I think that’s going to stall and I’ll tell you why.

Number one, inflation. Gasoline prices if you’ve been to the pump recently you’ve seen that from July 4th last year to July 4th this year, gasoline prices have on average risen about 50%. And that’s inflation. That measure is not captured by the inflation metrics that the markets use. But, it’s captured by the inflation that all consumers in the U.S. pay. So, inflation is creeping in so it’s going to be starting to chip away from that 3% 10-year yield that’s larger than that you can get in Japan and other places.

And the second one and perhaps more important is, I think gradually the markets are going to start turning and accepting the fact that the trade war angle could be detrimental to the U.S. We’ve seen General Motors come out with a profit warning. We’ve seen Alcoa come out and issue a profit warning on the back of the trade wars. And this is just the companies that have started reporting so let’s wait another couple of weeks where most of the S&P 500 reports and see how many times the chairman and CEOs of these companies actually comment on the trade war being a potentially negative impact to the U.S. economy and to corporate earnings.

And circling back to gold, that may take some of that very strong support that the U.S. dollar has had year to date, which conversely should be very positive for gold. If you correlate that to what I mentioned earlier about the charts that show gold being two standard deviations below its mean, then we’re in a predicament where over the next two or three months we may see a strong rally in gold prices.

Mike Gleason: Yeah, extremely well put. I agree that maybe the markets don’t quite have it right and there’s maybe a lot of pent-up inflation coming. Obviously, the U.S. economy has not really felt much of these trade wars and that may be coming. That’s very well summarized there.

Now, I’d like to switch gears a little bit and get your take on the overall health of the markets in general. Around here we wonder how “real” markets are these days. For starters, we have central banks here and around the world heavily involved in markets. Interest rates are centrally planned. And these days it is commonplace for central bankers to be buying corporate stocks and even bonds for that matter. Then there’s the mounting evidence of more underhanded activity. Bank traders colluding to rig prices in everything from metals to LIBOR and to cheat their clients. In recent years the advent of high-frequency trading has raised concerns that retail traders may not get a fair shake.

So, we have a pretty dim view when it comes to the honesty and fairness of markets. That said, we rely on exchanges such as the COMEX and want to believe they can still work. Give us your thoughts, Sam, on the integrity of markets since this is the first time we’ve had a chance to get your thoughts on the subject.

Samuel Pelaez: This is a subject that we discuss internally quite a bit. I do believe there is a fair amount of market manipulation. That’s a very strong statement to say, but there’s facts that support that, right? There’s multiple banks have been, for lack of better word just risk locked. LIBOR, the gold market rigging, FX. There’s factual evidence that some of the banks have been actively manipulating markets.

But that’s just one of the angles from it. I think a second angle which is not manipulation but just an effect of passive investing is ETFs continue to raise capital and ETFs, the majority of them, are market cap weighted so they only allocate money to the top of the market. And that creates a sort of self-fulfilling bias for certain stocks that become market darlings and they receive more dollars, so they out-perform so then they receive more dollars. And it becomes like a vicious circle of out-performance.

That’s because there’s a lot of academics who are very interested in the subject and are writing about it. I think the term they coined for this is the passive investment paradox because the more dollars that go passive, the less dollars that go active essentially. And we start getting into this complacent type of markets, which I think we started to see especially in the broader indices in the U.S. like the S&P 500 and the NASDAQ.

Now, that may have started to crack. I think we can talk about it in a second. But before or after I complete the answer to this question, but we think ETFs have become a problem. They’ve hit that sort of like momentum and size where they’ve started to disrupt the natural flows of money in the markets. I agree completely with you about the LIBOR and FX manipulations.

But then lastly, and you did mention COMEX and I’m glad you did, because I don’t know if people are aware and I don’t think they are, when you buy a gold futures contract on the COMEX, it specifically states that you can redeem in kind. Meaning you can actually show up to COMEX and demand to be paid in physical gold. The problem is… and this number fluctuates… but there’s about 400 contracts for every ounce of gold. Meaning if just one out of 400 people show up to reclaim their gold in physical form, the COMEX vaults would be completely empty.

So, there’s this false perception that this paper contract from the COMEX actually represents one ounce of gold. It actually represents one four hundredths of an ounce of gold. And that in a way is a form of manipulation as well because it inflates the number of contacts. It inflates the liquidity of the sector. It inflates the supply of gold that realistically in physical form is not there.

These things worry us. They concern us. But, what we’re really focusing on in our investing is allocating capital to sustainable companies that have higher than average return invested capital. We are supporting businesses. We’re supporting management teams and we believe that the better ones will be able to surface amidst this market manipulation and still be darlings for a lot of investors.

Mike Gleason: Sam, among other responsibilities you manage the Galileo Technology and Blockchain Fund. Cryptocurrency has been a big topic in the precious metals space. Many people who look at gold as sound money have taken interest in Bitcoin and other cryptocurrencies for some of the same reasons. We at Money Metals Exchange do significant business both selling metals and taking crypto in payment and vice versa, buying metal and making crypto payments. Do you think a cryptocurrency offers genuine potential for widespread adoption as money? What do you make of the comparison between Bitcoin and gold?

Samuel Pelaez: Let me turn the question around. I don’t believe that Bitcoin and gold are the same thing as has been purported by other market participants. I believe gold has a unique status and it’s had it for a long time and it has a lot to do with its physical properties. Gold is the only metal that you can store for decades and then come back to it and it looks exactly the same. It doesn’t rust. It’s essentially oxygen proof, rusting proof, among other things.

You cannot say that about Bitcoin or a paper wallet of Bitcoin or a physical wallet of Bitcoin. So, I’m not subscribing to that thesis that cryptocurrencies are a store of a value akin to what gold is. I do subscribe to the thesis that blockchain technology… and I think tokens are just one representation of blockchain technology… blockchain technology is transformational for multiple industries. The payment processing industry or the barter industry let’s call it, is obviously the most ripe industry for disruption from this kind of technology and that’s what Bitcoin has done and Ethereum in the field of crypto have done, is create a secondary market for transactions outside of the fiat world.

It’s much more efficient than gold at that because you can trade it instantaneously with people anywhere in the world which is something that you can’t really do with gold in its physical form. Now, what do I think about the technology going forward? I think it’s going to disrupt virtually every industry. And people probably heard it before. This is the internet all over again. We’re only starting to learn how deep this is going to get. And also, think about it from a consumer perspective. The internet came about very late. But, for decades now or least two or three decades, when you pay anything at the supermarket and show it to the cash register, that’s an Oracle machine with internet all through the back connected to a number of devices that make all of it possible. If you’re at Walmart, then it automatically connects to the suppliers and updates the inventories and the unit numbers so they can place orders.

The internet has been amongst us for a long time. And I think blockchain technology would be the same. Now, Bitcoin, Ethereum and the other ones we can see as consumers. But the real transformation I think is happening in the business to business world. We’re involved in a number of companies that are doing some incredible amount of work that will facilitate business to business. Not payment transfers but all sorts of technological processes that will completely disrupt the way things are being done right now.

What I’m trying to convey is that sense that this technology is not just limited to payment processing and money transfers. That’s just one of the sectors. There’s dozens and dozens of other sectors where these this technology will transform the way we do our business going forward.

Mike Gleason: Yeah, very interesting technology and that I think is the bigger story here: the blockchain technology much more than say, yeah, just Bitcoin as a cryptocurrency for instance. Well, as you know, we’ve had Frank Holmes on a number of times here on our podcast and he’s talked a lot about the gold royalty ETF, ticker symbol GOAU here in the U.S. and GOGO there in Canada. I know you played a big part in the research behind that. So talk about mining royalty space here, Sam, and why are you guys so excited it. And also, talk about the fund’s performance over the first year or two now.

Samuel Pelaez: Absolutely. We are big proponents of the royalty model. We think it’s a superior business model relative to the miners. They also fit one of the key characteristics in everything you look for which is return on invested capital. The return invested capital in the royalty companies is exceptional. I warn you though if you just calculate the ratio on Bloomberg or any other data source, the return capital may appear lower than it actually is.

And that is because these companies have spent so much money forward in projects that will generate cash flows in the future. But, if you take them on a project-by-project basis, any investment they did and what they’re deriving out of it, the returns are spectacular and they come at a very low risk. So when you sort of risk adjust then they’re even better than they are in absolute form. So, we’re big proponents of the model. We’ve been big supporters of the formation and the ongoing marketing of these companies. Frank was involved in the seeding of what became Wheaton Precious Metals which is the second largest royalty company out there right now.

So, what we decided to create was an ETF that offered investors that alpha generation that the royalty companies have offered us, over the full business cycle. We’ve noticed that many people only invest in gold when they think gold’s going up. We actually believe that everybody should have an allocation to gold throughout the business cycle because it has this diversification properties relative to the other components of your portfolio given to broader the market.

So, what product could we offer our investors in the market that would allow them to invest across the full business cycle and deride all the benefits of gold investing without some of the detriments? And we created this ETF that’s overweight the royalty companies because they offered that intrinsically and then after that it holds a number of gold producers that also have very high returns in invested capital and generally trade at a discount to their peers.

We believe that’s part of the magic sauce. There’s a few other factors that they’re clearly listed on the marketing materials, you could get those at the U.S. Global website or at the Galileo Funds website. And what we’ve been able to achieve and I want to make sure that this doesn’t sound promissory, it’s actually based on the one year of performance, is the data of the ETF to the upside as in how it moves to the upside relative to the gold sector is about one for one.

So when gold starts to go up, owning our product or owning any other product is about the same. It’s when the markets go down that our ETF goes down by a lesser amount than the competing products. And then when you bootstrap that difference over a long time, it creates a very big spread above performance. So far for the one year, our product beat the GDX by about 8%. That’s a pretty… I call it… a pretty impressive alpha generation. The fund also has a lower management fee and it has a lower standard deviation or pretty much every other risk metric is inferior.

So, we’re very confident that it will continue to do that. The back tests suggest that it can do over the full business cycle. And I encourage your listeners to go and have a look because we’re very proud of what we’ve created.

Mike Gleason: Yeah, you should be. It’s done very well and it’s exciting stuff and I love the model as well, you guys have done a great job putting that together and the research behind it. Well, as we begin to close here, Sam, any final comments? What will you be watching most closely in the months ahead? Maybe give us a final synopsis on commodities and metals as we wrap up.

Samuel Pelaez: I’ll give you anecdotal piece of evidence. I had some friends visit from Colombia, where I’m from originally. And the first thing they mentioned was, and they looked at all the cranes and they said, “Wow, there’s so much construction going on.” And I guess because we live in North America and we see it all the time, we don’t really recognize it every day. But, just think about all the wonderful things taking place in terms of… if you travel to New York often you’ve seen the big transformation that’s taking place at the airport at LaGuardia.

I’m sure in all your communities and your cities you’re going to see major projects being built. President Donald Trump has made a big focus of his presidency to roll out a major infrastructure plan. So, we’re going to need these commodities. It’s not like we achieved that peak moment of commodity demand. Commodity demand continues to go up every year. It’s almost like GDP growth. So we will need these commodities. And right now you have the opportunity to buy them at one of the cheapest relative valuations that you’ve had in the last 20 years. And if you’re like me, I wasn’t investing – I wasn’t old enough to be investing in the ’90s – this is the best entry into the resource market that’s ever been presented to me.

And because it only happens every 20 or 30 years, over the course of a professional life. You may only have one or two of this big macro cycles. So, I encourage listeners to follow that chart. We publish it very frequently every six or eight weeks as part of our marketing materials. I invite them to think seriously about reallocating some of the capital from the broader market. The S&P and NASDAQ have been a phenomenal investment over the last nearly decade, since 2009.

So, maybe it’s time to start rolling some of those profits and rolling some of that allocation from some of the sectors that have out-performed into the sectors that have under-performed. And I believe over the next decade you will be handsomely rewarded for that.

Mike Gleason: Very good way to wrap up, very well put. Really enjoyed the conversation today and appreciate you sharing your market insights with our audience. Before we let you go please tell people how they can learn more and how they can reach you and your firm if they’re so inclined.

Samuel Pelaez: Absolutely. The easiest way to reach is through our website GalileoFunds.ca. We’re based in Toronto, Canada. I do travel to the U.S. a lot to speak at conferences, I travel a lot with Frank at U.S. Global. You can find all of our contact information and our fund fact sheets on the website. You can also follow us with social media. We have a LinkedIn page. We have an Instagram account. We’re catching up to the times and finding all the new ways to reach the new demographics and to be out there for people to find us.

Mike Gleason: Well, good stuff. Thanks again, Sam. Keep up the good work. Continued success there and I hope we can speak with you again in the future. Take care.

Samuel Pelaez: Thank you, Mike. Bye, bye.

Mike Gleason: Well, that will do it for this week. Thanks again to Samuel Pelaez, CIO and Portfolio Manager at Galileo Global Equity Advisors. For more information visit www.GalileoFunds.ca.

How to avoid gold and silver investment scams

by: Stefan Gleason*

It could be undisclosed commissions and fees in an annuity, unwanted accounts opened up by a banker seeking additional fees, trades sabotaged by market manipulators, or any number of other schemes.

Rip-off artists, unfortunately, operate within the precious metals space as well.

Most recently, a scammer posing as a government agent in order to gain people’s trust was convicted of selling counterfeit gold bars and phony Morgan silver dollars. He took one investor for $11,000, according to reports.

You can avoid this type of scam as well as other common cheats when buying or selling precious by heeding the following guidelines.

1. Avoid “Too Good to Be True” Deals

If a price on a bullion product sounds too good to be true – or comes with exorbitant incentives or exaggerated claims – you should be suspicious.

Too Good to be True!

Gold and silver bullion products do not legitimately sell below spot prices. Individuals holding precious metals can visit a dealer and sell items immediately, for full value. Given that everyone has this option, it is highly likely anyone offering items well below actual value is trying to stick it to you.

Legitimate dealers cannot afford to offer items way below cost either. Dealers must charge small premiums above spot prices to reflect product minting costs and the costs of doing business. (One notable exception: 90% silver U.S. coins minted prior to 1965 (aka “junk” silver) which exhibit significant wear occasionally become available at melt value or even slightly lower.)

2. Choose a Reputable Dealer and Use Extreme Care Buying from Unknown Parties Online

Find a reputable dealer who offers prompt, reliable service, and fair prices. Customers who buy based solely on slick advertisements or low quoted prices risk getting left holding the bag when that dealer fails to deliver.

Every so often a dealer will come along that tries to undercut the industry with super-low prices. Only a few years back a “low price leader” called Tulving & Company went bust. A similar blow up occurred at the Northwest Territorial Mint in 2016.

In both cases, warning signs included delivery delays and rising customer complaints. A slew of customers ultimately lost tens millions of dollars when their orders went undelivered.

Bottom line – receiving actual delivery of your metals is way more important than getting the lowest price!

Take a few minutes to investigate a dealer’s online reputation before ordering. You should also expect the dealer to provide a firm estimate as to when the order will ship when the order is placed.

Customer reviews for Money Metals Exchange are overwhelmingly positive for a reason. Regardless of whether you’re a new customer with a small budget or an experienced stacker, you can buy with confidence from Money Metals.

3. Avoid eBay, Craigslist, and Other Online Bulletin Boards

You may be tempted to peruse sources such as eBay, Craigslist, or flea markets to try to find hidden bargains. But all to often, the only ”hot deals” being offered are from sellers with questionable or poor reputations.

Auction sites, including eBay, charge significant fees to the seller. That means reputable dealers must charge very high prices within that platform – passing along the fees eBay charges them. Better prices are usually available by going directly to dealers outside of eBay.

It is always better to know you are dealing with an established business with a reputation for fair dealing, rather than random individuals who can disappear in the night.

With underground sources, you can spend hours researching, bidding, emailing, phoning, driving, and waiting… only to still be left worrying that the product you bought might be counterfeit, stolen, or otherwise not as described.

4. Avoid Rare Coins and Other Hard-To-Sell Products PriceD Way Above Their Melt Value

Numismatics – coins that carry hefty premiums as collectibles – are a huge profit opportunity for dealers and scammers alike. Gold and silver bullion products do not legitimately sell below spot prices.

St. Gaudens Gold Coins

Only serious collectors and experts
are qualified to make wise investment
decisions in so-called rare coins,
so scammers love to peddle them.

If you are a bullion investor, you are more concerned with the number of ounces you hold than the supposed rarity or aesthetic value of coins.

Sometimes the dealer is the scammer – making false claims about a coin’s history, for example, or engaging in “bait and switch” tactics and outright lies to steer unwitting customers into high-premium coins.

There are prominent numismatic dealers that had paid for celebrity endorsements and TV commercials now face litigation over their dishonest sales tactics.

The numismatic market also attracts forgers. There’s little incentive to tamper with bullion coins that sell close to melt value when the value of a numismatic coin can be hugely inflated by altering its grade or appearance slightly.

5. Know Exactly What Something Is Worth to Sell… Before You Buy

Doing a bit of upfront due diligence to determine how – and for how much – you can sell the precious metals you are considering buying can help you steer clear of big mistakes.

It’s not unusual to find a seller of so-called “rare” coins would only pay you 60% of your purchase price if you were to sell it back to them the next day. Most coins being represented as “rare” are not particularly scarce or desirable. They do not bring much premium above the value of their metal content when it is time to sell.

Bottom line – avoid precious metals that are not actively traded. If the difference between the price you will pay to buy and the price you would receive to sell is more than 5-10%, you are likely paying too much.

6. Never Sell Coins, Rounds or Bars at More Than a 5% Discount to Melt Value

When the time comes to sell your bullion, the “cash for gold” sign displayed at your local strip mall represents a fast and convenient way to get paid a fraction of what your bullion is worth.

Whether it’s a jewelry store, a pawn shop, or a scrap gold middleman, you almost certainly won’t be offered anything near fair value. If you negotiate aggressively, you might get closer. But you’ll almost always get a better upfront offer from a large national bullion dealer like Money Metals Exchange (which happens to have the best “sell to us” prices in America).

Some coin dealers will offer more than others, of course. A small local shop that doesn’t carry much inventory may only be able to serve as a middleman for your bullion (and lower the buy price accordingly). Or they may not be able to make an offer at all. A large national dealer will be generally able to accept bullion in larger quantities and varieties – and with narrower buy/sell spreads.

7. Treat Your Bullion Purchases Confidentially and Store Your Metals Securely

A precious metals stash will be at higher risk of theft if you don’t secure it. One of the very best ways to secure your gold and silver is to keep your mouth shut. Loose lips really do sink ships.

Confidentiality

A good home safe that is hidden from view and embedded in or bolted into concrete will go even further to minimize the chances of a burglary.

It can also be a good idea to keep a separate, larger stash in a professionally secured storage facility. A bank safe-deposit box is not suitable for this purpose. Nor are pooled bullion programs offered by brokerage firms.

A few years ago, MF Global lost clients’ gold when it co-mingled their assets with those of the firm…and the firm’s bad derivatives bets caused it to go bankrupt.

Insist on fully segregated storage for maximum security. Money Metals Depository offers this service, as do a few other dedicated bullion storage facilities (albeit at higher storage fees than MMD).

8. Know When Your Bullion Order is Expected to Ship and Monitor the Dealer’s Follow Through

A dealer who is repetitively slow to ship orders is, at best, a poor operator.

At worst, late shipments are a signal that the dealer is in serious financial trouble. They are selling inventory they don’t have and can’t pay for without waiting for funds to come in from future buyers.

Very occasionally there can be legitimate reasons for a delayed shipment.

For example, there have been a few short periods in recent years when mints and refiners were not able to keep up with the huge demand for coins, rounds, and bars, and extended lead times for delivery were not uncommon. But reputable dealers will explain any expected shipping delay upfront, so the client knows what to expect.

With the current glut of inventory in the market, however, there is no excuse for delivery delays at the present time. So if you do not receive prompt delivery, you are most definitily taking more risk by placing another order with that particular dealer.

While performing your due diligence on a dealer, it is wise to look for regular customer complaints about late deliveries. The Better Business Bureau website is one good place to search for what people have to say.

Silver and Gold Bludgeoned in Controlled Market

Sound Money Needed Now More Than Ever
Ron Paul and the Tea Party advocated for limiting government and ending the Federal Reserve system. Sound money advocates made real inroads in recruiting Americans to their cause based on evidence that the nation is headed for bankruptcy.

The implications of the most recent financial crisis went way beyond budget and finance.

Many Americans grasped the more significant lesson. The perpetual expansion of government spending lay behind the corresponding decline in personal liberty for them, their children, and their children’s children.

National Debt 1940 - 2008

Dishonest money is a dream for politicians and bankers, but it is a nightmare for citizens. Charts showing the final abandonment of the remnants of the gold standard in 1971 and the exponential rise in government debt helped people make the connection between dishonest, unlimited fiat money and unlimited government.

Here is one example from the Daily Caller…

The trend shown on this chart has not changed or improved. The red bar on the right hand side of the current chart now stands more than twice as high with total government debt north of $21 trillion.

There is no credible effort in Washington to limit spending. It is safe to say U.S. deficits and the corresponding borrowing will continue to rise exponentially. It will continue until confidence finally collapses; either in the nation’s ability to repay, or in the dollar, or both.

The nation needs sound money more desperately now than ever.

Unfortunately, the debt chart above isn’t the only chart that tells a damning story. Below is a chart from TF Metals Report which shows the regular beatings given to silver in recent months. The picture for gold looks similar.

Silver Daily Chart

This is what a controlled market looks like!

The bankers and central planners hated the lesson Americans got following the 2008 financial crisis. They are using the markets to condition people to respond differently. Buy stocks, buy bonds — any conventional “paper” securities. And, for the love of Pete, keep borrowing.

For gold and silver investors, the conditioning is delivered in the form of a regular bludgeoning each time the metals start to show strength.

Any who still question whether markets are manipulated, simply aren’t paying attention. Or they rely upon CNBC for all of their investment news. The topic has been covered extensively on alternative news sites, including by Money Metals.

Crooked and relentlessly painful markets, combined with optimism surrounding Donald Trump, is a potent combination.

Yes, there was some grumbling when Trump signed the latest budget and expansion of government.

However, many fewer Americans feel the sense of alarm that prevailed when the Federal government was running trillion-dollar deficits under Obama. Others may be alarmed, but they question whether gold and silver will work as honest money given the price never seems to reflect the reality of the nation’s finances.

Too many Americans are effectively tuned out when it comes to the message of sound money and limited government. That is tragic. Few will be ready and a whole lot more will be caught by surprise when the inevitable reckoning finally arrives.

Precious Metals Contrarians See Opportunity in Negative Sentiment

by: Stefan Gleason*

Gold and silver markets entered this summer with sentiment toward the metals in something of a deep freeze.

For several months, precious metals prices have gone essentially nowhere. No sustained rallies to attract momentum traders; no washout plunges to attract bargain hunters. The long, protracted stalemate between bulls and bears has frustrated metals investors and, frankly, bored the public.

Sell, Sell, Buy

As a consequence, bullion buying volumes dipped.

The U.S. Mint’s sales of gold and silver Eagles in the first half of the year lagged far behind the pace of 2017, when it sold 302,500 ounces of gold and 18 million ounces of silver.

As of this writing, the U.S. Mint sold just 6.5 million 1-ounce silver coins and 110,000 ounces of gold – a collapse in sales from levels seen in recent years.

Another measure of the public’s disinterest in owning precious metals is declining internet search volumes.

Google Trends data for May show the fewest searches for the phrase “buy gold” since July 2007. Back then, gold traded at around $670/oz – a pretty good price at which to buy amidst public apathy.

Some beleaguered gold bugs are taking the lackluster market conditions as a sell signal. Bullion selling by the public has increased since the start of the year. Money Metals Exchange saw a marked increase in customers wishing to sell, particularly since we offer the best “bid”prices in America.

The silver lining in a depressed bullion market is that buyers can obtain most popular products at low premiums. In some cases, premiums over spot prices have dropped to historically low levels.

We are happy to facilitate either sell or buy orders, but our experience is that when lots of people want to sell, it’s an opportune time to buy – at least for those with a long-term perspective.

The futures market bears this out time and time again. When speculators are lopsidedly positioned on the short side, that usually serves as a contrarian indicator that the market is close to bottoming. By May, speculators had piled in on the short side in the silver futures market in a bigger way than they had in several years.

Investors in the Far East aren’t worried about the ups and downs on the charts. They are concerned with acquiring more ounces.

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Sentiment turned extremely negative in both the paper and physical markets even as gold and silver prices maintained their trading ranges. Although both gold and silver came close to suffering major technical breakdowns this spring, no longterm damage was done.

Given the negative sentiment and the strength of the U.S. dollar in the spring, the downside in metals markets could have been far worse. The fact that it was minimal suggests underlying technical strength.

It appears that growing demand among the world’s central banks is helping to put a floor underneath prices. In recent years, Russia and China have been steadily accumulating gold. Over the past decade, Russia has more than tripled its gold reserves from 600 tons to nearly 2,000 tons.

China’s gold reserves have also grown dramatically. It’s difficult to get exact numbers, as the Chinese government has acquired much of its gold in secret. But it could be as high as 4,000 tons.

Smaller players on the global stage are accumulating physical gold as a way of countering U.S. sanctions and U.S. dollar dominance in global trade. In the first quarter, Iran’s gold bullion purchases surged.

Iran’s Islamic neighbor Turkey, surprisingly, was the second largest state buyer of gold for the first quarter.

Clearly, many countries that count the United States as an adversary are turning to gold as a means of gaining greater independence and leverage in international trade. The ultimate goal of the emerging Russia-China-Middle East economic alliance may be to dethrone King Dollar.

It won’t happen overnight. But gold is gradually rising as a credible counterweight to the U.S. dollar and other fiat currencies.

Far East countries like China are known for their long-term time horizons. They aren’t worried about the ups and downs on the charts. They are concerned with acquiring more ounces. They are happy to buy on price dips when they come. Disciplined long-term investors should be as well.