2015 Black Swans proliferate – Safe Haven gold investment to benefit

2015 Black Swans proliferate – Safe Haven gold investment  to benefit

Totally unanticipated ‘Black Swan’ events are already having an impact and there could be more ahead, as well as more predictable ones all affecting global economics and seei ng a return to gold as a Safe Haven.  Article now up on Mineweb also.  Go to Mineweb.com to read a slightly edited and udated version of this articl and other news and comment on mining and metals.

Lawrie Williams

January 2015 has already been remarkable for the number of Black Swan (unanticipated) events which have hit the markets in such a short space of time.  Some of these have been totally unheralded like the Swiss National Bank’s decision to unpeg the Swiss Franc from the Euro – which really did take the markets by surprise – while others may, in hindsight have been a little more predictable.  These include the escalation of fighting in Eastern Ukraine as both sides appear to have used a recent ceasefire to boost their military arsenals and prepare for more fighting; the death yesterday of King Abdullah of Saudi Arabia – perhaps predictable in that he was 90 years old and in poor health – but nonetheless promoting new uncertainties in what is a particularly volatile part of the world; the apparent growth in strength of Boko Haram in West Africa which has the potential perhaps to spread to major gold producing areas if the rebel group is unable to be held back; the Charlie Hebdo massacre in Paris which threatens to unleash an anti-Muslim backlash throughout Europe, or stimulate copycat killings by other fanatical fundamentalists.  And all this within a three week period!  Who knows what else lies in store for us in the remaining 49 weeks that lie ahead?

There are some very predictable potentially destabilising factors coming up.  The latest opinion polls for Greek elections this weekend suggest the country is poised to put the left wing anti-austerity party, Syriza, into power, possibly with an overall majority sufficient to govern without a coalition partner.  Pre-election rhetoric suggests that Syriza, if in power on its own, would renege on Greek debt commitments and drop many of the austerity measures imposed on the nation by the IMF and Eurozone.  There are fears that this could lead to Greece’s exit from the Eurozone throwing the single currency system into disarray and a debt default could have a huge adverse impact on a number of major European banks culminating in a financial meltdown which could outdo that following  the Lehman collapse, which was seen as leading to the 2008 global financial crisis.

Further ahead, the U.K. general election could see the continued rise of right wing anti-Europe party. UKIP, or perhaps its fade back into possible obscurity should a general election see a polarisation of support for the established main political parties as has happened in the past.  A Conservative victory should start the runup to a referendum on EU membership and polls suggest now that a majority would favour a Brexit (British exit), but much could change in the two years before such a referendum is due given the huge amount of establishment propaganda which would probably be brought into play to try and keep Britain within the Community.

Meanwhile in the Middle East there is little sign of ISIL, which controls huge swathes of Syria and Iraq, including oil producing regions which give it revenue, being pushed back.  Indeed there is the prospect of ISIL-related fundamentalist Muslim militant organisations springing up elsewhere in the Middle East and North Africa, as it has with Boko Haram in West Africa.  The death of King Abdullah in Saudi Arabia brings more uncertainty into the Middle Eastern region as basically pro-Western policies there could be changed depending on the chosen new ruler and what his political leanings might entail.

But these are mostly at least semi-predictable factors.  Black Swan events are, by definition, totally unpredictable and who knows what might happen next in this respect.  But the chances are something will for which the global financial community is unprepared.

Fighting in the Ukraine is said to be escalating again for example and there is the definite possibility of much greater Russian direct involvement.  Some suggest that the recent build-up of the Ukrainian military in the disputed region will force President Putin to take a much more overt approach ‘to protect the ethnic Russian nationals’ in and around Donetsk, regardless of the economic consequences.  This has the potential to flare up into a major, and much more widespread, military conflagration, lead to a total shutdown of gas supplies through the Ukrainian pipelines.  Ukraine would run out of the wherewithal to support its troops without ever more Eurozone cash being pumped in to support it.  Russia seems to hold the military aces here.

Gold should thrive on uncertainty in terms of a big rise in safe haven demand – and we already look like having a very uncertain year ahead.  Gold may have come back from its recent interim peaks following the SNB decision in  particular and the much-heralded announcement of the ECB’s QE programme (although this turned out to be bigger than expected) and it seems to be having difficulty today holding on to the $1,300 level.  But this could be just a temporary hiatus.  As other geopolitical and economic factors come into play, there could be a huge boost – and that’s just from events which might be seen as predictable.  More Black Swans could further upset the applecart that is the global economy and lead to yet another gold price upsurge as a result.

Updated: Interesting times: Putin plays gas card, SNB cuts Euro link, gold surges

Lawrence Williams
Two reports on Thursday combined to drive the gold price significantly higher as early 2015 geopolitical events accumulate.  Latest article now up on Mineweb.com – Click here to read this article and many others on Mineweb
Lawrence Williams
A supposed ancient Chinese curse, almost certainly apocryphal*, which has been doing the rounds for many years is “May you live in interesting times.” These are interesting times indeed as a confluence of geopolitical events threatens to drive the gold price ever higher. Apart from the seemingly ever ongoing Russia/Ukraine disputes, which may, or may not, involve the Russian military, and ISIL’s apparent expansion of action from Syria and Iraq, where it controls vast swathes of territory, into Afghanistan (interestingly bringing it into conflict with the Taliban) a couple of reported events today suggest the scary start to the year is continuing with a potentially very positive effect on Safe Haven demand for gold. Add substantial nervousness in the general stock markets after a steady rise over the past few years and you have a recipe for a take-off in the gold price perhaps foreseen by the Elliott Wave analysts we’ve reported on in these pages in the past.
See: Elliott Wave analyst sees big gold and silver price surge ahead

Reports on Thursday suggest that Russia may have cut off much, if not all, of its flows of natural gas through the Ukraine, thereby effectively halting supplies to a number of European nations which depend on it for a significant proportion of their domestic power. Ostensibly the cutoff is reported to be because Russia is accusing Ukraine of siphoning off supplies of gas moving via the pipeline through its territories without paying for them, but the political motives may be much stronger – or this could perhaps just be a warning shot across the bows to the EU not to extend economic sanctions – or even to drop them and the taps could be turned on again after a short ‘warning burst’ of supply disruption.

There is some doubt about the accuracy of the above report, but there is little or no doubt about the veracity of Russia’s staed longer term policy in bypassing the Ukrainian pipeline system in favour of a pipeline through Turkey.  Russia thus says that longer term it will be re-routing the bulk of its supplies to Europe via a pipeline running through Turkey, and thence to Greece and then it is up to the European nations to organise how supplies are transmitted onwards from there.

According to a statement by Gazprom CEO Alexey Miller, quoted in Russian news agency Tass, the Turkish Stream gas pipeline project is to be in the future the only route for Russia’s future supplies of 63 billion cubic metres of natural gas to Europe that is currently delivered via Ukraine. (The Turkish route is the proposed replacement for the South Stream pipeline project across the Black Sea to Bulgaria which has now been cancelled).  Miller’s statement has since been confirmed as accurate by EU Commissioner for Energy Maros Sefkovic, who has been in discussions with Miller over the matter and describes the decision as making no economic sense – as if many of the geopolitical events today make any economic sense!

Miller went on to say further that Gazprom has notified its European partners about its Turkish Stream gas pipe plans and now their task is to create the necessary gas transport infrastructure from the border of Turkey and Greece Tass reports. “They have a maximum of several years for this. This is a very tight schedule. To comply with it, work for the construction of new trunk gas pipelines should be started in EU countries right now. Otherwise, these gas volumes may be redirected to other markets.” (see Gazprom to use Turkish route to substitute Europe-bound supply of 63 bcm via Ukraine)

With Russian natural gas providing around 25% of EU energy, and the greater proportion of this flowing through the Ukraine pipeline system, this is potentially very serious for the economies (already reeling) of a number of European nations which rely to an even greater extent on Russian gas supplies. Further the reports today that Russia has turned off the Ukraine pipeline altogether suggest a further escalation which the EU is ill-prepared to cope with.
A second event today is that the Swiss National Bank (SNB) has been forced to sever the Swiss Franc’s direct link to the Euro which had seen the nation’s currency fall even more heavily against the US dollar than it is obviously prepared to live with. The SNB statement said it is discontinuing its minimum exchange rate of 1.2 Swiss Francs to the Euro, where it has been pegged since September 2011. It is also moving interest rates into even more negative territory to help try and counter resultant Swiss Franc strength against other currencies. Even so trade saw the Swiss Franc appreciate quickly against the US dollar by as much as 15%! The gold price shot up too in U.S. dollars – and even more in the Euro – at one time reaching $1260, although it had fallen back to the lower $1250s at the time of writing – still a big increase on the overnight level.

So where do we go from here? The confluence of disturbing geopolitical events continues – and we’re only two weeks into the New Year. Short covering should be coming in as traders digest the events and the gold price pattern which could drive prices even higher still. As we said at the start – Interesting Times!

*The Wikipedia comment on the ‘Chinese curse’ is as follows: “May you live in interesting times” is an English expression purporting to be a translation of a traditional Chinese curse. Despite being so common in English as to be known as “the Chinese curse”, the saying is apocryphal and no actual Chinese source has ever been produced. The nearest related Chinese expression is (níng wéi tàipíng quǎn, mò zuò luànshì rén) which conveys the sense that it is “better to live as a dog in an era of peace than a man in times of war.”

Gold is far more than just a precious metal

Gold is far more than just a precious metal

Julian Phillips’ looks at today’s early market action and looks for further falls in the Euro against the dollar.  Will the Swiss National Bank intervene to follow the euro down?

New York closed Friday at $1,187.50 up $4.90 as the world goes back to business as usual and volumes rise on Chinese demand. Gold rose in Asia to $1,196.00 ahead of London’s opening. The AM Fix saw the gold price set at $1,192 up $7.50 and in the euro, at €998.81 up €15.46 while the euro was another cent weaker at $1.1934. Ahead of New York’s opening gold was trading in London at $1,188.60 and in the euro at €998.53.

The silver price was at $15.79 up 10 cents. Ahead of New York’s opening it was trading at $15.90.

There were no sales or purchases from or to the SPDR gold ETF or Gold Trust on Friday. The quiet holiday period appears to be out of the way now and Asia came in solidly.

Will further falls in the oil price affect gold and silver? Will Russia bring in Capital Controls as it watches the Ruble fall or are we looking at a different world than in the past? Are the rules governing exchange rates changing for good? Will the slowdown in China hurt the gold price? These are questions that will be answered in 2015 by the realities that will confront us. We continue to believe that gold is far more than just a precious metal, it is a metal that reflects so much of the perceptions of the financial world. 2015/16 will demonstrate this well. We will cover these in our work.

Early in 2014 we forecast the euro would fall to between $1.10 and $1.20. We are there now and the market tone tells us that it will fall further as the battle over Q.E. in the Eurozone continues. The euro price of gold is trying to make a solid break through €1,000 a signal that it is breaking out upwards. We see this as bringing in traders and speculators even in the U.S. The dollar price of gold has more work to do before it reflects the same prospects, but this week may see that work done. We expect to see the Swiss National Bank step into the market to weaken the Swiss Franc as it moves over 1.2 to the euro.

What QE really does is to protect the balance sheets of the banking system, but if, as we saw in the U.S. and now in the Eurozone, lending does not pick up as a result, we have to conclude that it is the entrepreneurial drive that brings growth back to an economy, as we are now seeing in the U.S., and not ‘cheap depreciating money’.  But the recovery we are seeing in the U.S. is not nearly as robust as we saw in the nineties and is barely discernible in the Eurozone continuing so for the next few years, because of its Socialist nature. The main drivers to growth, right now, are a cheap euro and oil. These directly impact that economy. The euro has already dropped 20% from its peak and yet deflation threatens at the door still. Europeans will turn to gold in 2015.

The silver price appears reticent to rise with gold at the moment, again waiting for direction from gold.

Julian Phillips is founder and editor of www.goldforecaster.com and www.silverforecaster.com