Gold Pricing Battle Playing Out. Silver Benefiting

My latest article on opens as below.  It looks at what is happening in the gold bull vs gold bear battle and the recent downturn in the gold:silver ratio which is beginning to see silver playing catch-up after a disappointing (relative to gold) performance to date.

The recent pattern in the gold price is making the yellow metals’ short term future somewhat unpredictable.  Was it ever thus?  There is perhaps, though, more of an equal battle between those pushing gold prices higher, and those looking to take it down, than there has been since the heady first three quarters of 2011 when the gold bulls were very much in the ascendancy, and the subsequent four years with the bears dominant.

This year has seen a significant change in sentiment towards gold, with the price up around 17% year to date.  Silver is up around 14% as well, but has only recently started to express its upwards volatility vis-a-vis gold and is still having to play catch-up, with the Gold:Silver ratio at last beginning to come down from its highest level in nearly eight years when it last settled above 80 at the heart of the 2008 financial crisis….

To read full article click here

Note:  The gold price and silver prices were driven down overnight last night after something of a surge put down to the Brussels bombings.  Whether this is indicative of a significant correction in precious metals prices, which many analysts think likely, or the big gold and silver short position holders manipulating the futures markets to protect themselves against what could be very large losses should the precious metals continue to surge, is as yet uncertain.

Gold pre- and post- Fed non-decision: Surge back to $1,270

Here are links to a couple of my posts which are up on the website.  The first was written prior to the latest U.S. Fed Open Market Committee meeting looking at the nervousness ahead of the meeting which had seen gold fall back to the $1,230s.  while the consensus had always been that the Fed would do little or nothing, which indeed proved to be the case, there were still some predicting a more hawkish stance which did ahave an adverse effect on precious metals.

See: Tense time for gold bulls

In the event, as noted above, the Fed was cautious on any progress on the U.S. economy and on potential global reaction to any suggestion that the next rate increase might be sooner rather than later.  The non-decision by the Fed boosted equities and saw gold as a major beneficiary shooting up to around $1,270 at the time of writing.  What this observer thinks this means for precious metals is covered in the article.

See: Gold back at $1270 level after cautious Fed statement

Goldman Sachs could be caught short on gold

The most recent call by Goldman Sachs to once again sell gold short has not, so far been a good move by the investment bank, and it comments in its latest research that it is down 5% on the call – with a stop loss indicated at 7%.  But, it also reiterates that it remains confident in its bearish viewpoint and that it still stands by its near-term gold price target of $1100 per ounce and longer term target of $1000.

Of course the big anomaly here is that Goldman and its followers between them have the financial clout to go a long way towards pushing the price back downwards in these days when the western gold price is still largely set on the COMEX paper gold futures market….

The above are the opening paras of my latest article on  To read the full article click here

What does this year’s PDAC tell us about the gold price?

Perhaps some might suggest the Prospectors and Developers Association of Canada (PDAC) annual mineral exploration exaggeration-fest should be renamed the Promoters, Deceivers and Carpetbaggers Convention given how few of those mineral explorers pushing their projects will ever see them brought into production.  Maybe that would be a little unfair, though, as those explorers and developers that grace the PDAC as exhibitors nowadays tend to be among the better of the many hundreds of juniors, but there’s little doubt even these harbour more than just a few dogs among them.

This year, the recent upturn in the gold price, gave the miners and explorers something to cheer them up.  Gold has bottomed, it is back in a bull market, they chorused, although there were quite a few words of warning from some of the more circumspect speakers at the convention – but not so from the explorers and promoters intent on talking their own pet projects up.  Promoters are like politicians – always looking to put a positive spin on things however dire their particular project may actually be.  Unfortunately this malaise also filters down to many of the actual mining companies (even some of the biggest) who seem to see themselves nowadays as primarily being in the business of keeping their investors happy through putting the best possible, but sometimes misleading, light on their latest sets of results and forward targets.  Some of this is human nature and thus deep seated in a mining CEO’s psyche – to run a mining company one has to be an eternal optimist.  If not one would be doomed to depression and worse.  I recall the CEO of a big Philippine mining and metallurgical company telling me a number of years ago that one has to be a masochist to be in the business!

But the PDAC is something else.  It is both a great Convention, but also one which can bring out the worst in delegates and even among the organisers who deep down give perhaps unwitting tacit support to a sector of the industry which perhaps attracts more than its fair share of carpetbaggers.   I was there the year an investor shot and killed a fellow attendee, who he felt had wronged him financially, on the escalators inside the Royal York hotel.  Indeed I even heard the shot from a distance, although it sounded like someone had banged a tin tray and thought nothing of it at the time. I was also there the year the Association’s highest award went to someone who’d recently been in jail on fraud charges – these were both in the days when the event was held in its entirety in the Royal York hotel.  This was before it moved to the Convention Centre more than doubling in size, and quadrupling in attendance through the ‘Investors Exchange’ section for the junior miners and some others to promote their projects from exhibition booths.  Presumably very profitable for the PDAC itself and for Toronto’s hotels.

This year’s PDAC saw attendance fall for the fourth successive year – see chart below borrowed from controversial and often extremely irreverent (some might say sometimes scurrilously accurate) mining blog Inca Kola News, which gets far more readership than does this scribe’s efforts.  (Perhaps Canadian libel laws are rather less demanding than UK ones).  It is great, though, at pointing out many of the reporting anomalies, and ego trips among some mining CEOs, that tend to tarnish this great industry.

PDAC attendance

The fall in attendance, though, is hardly surprising given the state of the industry and the huge turndown in mineral exploration activity for both precious and industrial metals and minerals which has resulted.  PDAC attendance is indeed a veritable barometer on the state of the industry as a whole.

Part of the problem with the junior mining sector is that the companies are largely run by geologists with no real business experience, often in league with promoters who have little technical knowledge, but do know how to hype shares and raise money from often gullible investors.  There’s nothing wrong with good geologists – but they have to be among the most optimistic of souls and often lack the nitty-gritty expertise of mining and metallurgical engineers who have to turn a promising project into profitable reality.  Indeed geologists tend to look down on mining engineers – and vice  versa .  Engineers tend to be pragmatists while geologists are often dreamers.

But so saying the PDAC is, as noted above, a great convention providing one can see through some of the hype surrounding the industry.  It demonstrates the enormous enthusiasm for an unpopular industry.  Unpopular with the general public that is, partly due to the environmental sins of modern-day mining’s forefathers and partly due to the often hugely exaggerated potential problems in bringing a new mine to production as expressed by NGOs and environmentalists around the world, who often may have hidden agendas which are seldom revealed.

The convention does nowadays – perhaps more so than it did historically – attract the real great and good of mineral exploration and mining, as well as the bad and the ugly, and in terms of a technical mineral exploration exhibition and conference has to be among the world’s best – if not the best.  Nowadays with the big investor attendance too, there are some great financially-oriented presentations at the conference itself, and commentary on its fringes, and most of these are thankfully free of the hype one hears on the convention floor.  Yes there are metals and minerals bulls making their cases, but these are usually well-reasoned, as indeed are those who may warn of impending doom and gloom.

But perhaps it is the sideline comments rather than pre-prepared presentations which are the best indicator of where the mood lies and which give the best advice.

As pointed out in an article I have written on this year’s convention for –  PDAC in retrospect. Is the recent gold rally sustainable? a number of these well-regarded observers express doubt that the recent rally in the gold price, which has seen the precious metal rise around 20% from its low of last year, is sustainable in the short to medium term, although most would agree that they feel the bottom has indeed been reached and longer term, without committing themselves to any real timescale, that gold is indeed on the way back up.

Of course there are still some pretty heavy hitting doubters out there, and some of these carry considerable financial weight behind them which will likely be utilised to protect their own positions.  Goldman Sachs for example has just put out a note that says “We also maintain our bearish view on gold that has rallied along with the other commodities. Our short gold recommendation (which we opened with a 17% upside, in line with our $1000/toz 12-m forecast) is currently at a c.5% loss, with a stop loss at 7%.”  An article on calculates that this stop loss position will be reached if gold hits $1291 – its back at $1270 as I write, after a pullback (correction some would say) to the $1240s.

Gold is indeed having trouble breaking out above this $1270 area, but some would put this down to the big money bears trying to protect their positions.  Many believe the big bullion banks, which may have the wherewithal to do so, are very much in cahoots with the U.S. Fed in trying to suppress, or at least control, the gold price as rising gold is seen as an indicator that all is not well with the dollar and the U.S. economy – contrary to the political spin of the day!

Interestingly, as pointed out in the Sharps Pixley article referenced earlier, Jeffrey Christian of New York’s CPM analytical group – an observer not exactly loved by the out and out gold bulls – suggested that the Goldman Sachs ‘sell gold short’ call and predictions of a gold price fall back to $1,100 and below was rather out of touch with precious metals fundamentals, although he was also one of the PDAC attendees suggesting that the recent rally was not sustainable in the short term but that gold would indeed start to turn up sustainably by the end of the year..

But, as always, the gold price is hugely difficult to predict.  At the PDAC it is easy to get carried away by the overall optimism – clutching at straws the bears would say – that the gold price is indeed on the turn, and for the better.  Time will tell if they are right this time.  They will be eventually.

In the writer’s view gold’s fundamentals are indeed looking stronger, but stronger fundamentals don’t necessarily mean the big gold price surge is yet at hand.  There’s too much big money out there which seems determined to hold it back.  The big question is whether this money can be overwhelmed by external forces as the global economy seeks to reset itself.

Gold cruising so far this year. Best 2016 asset class ytd

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

This is an exciting time for gold. After another annual loss in 2015, its fourth year in a row, the precious metal has plotted a new course, one that has ferried it to the lead position among all other major asset classes in 2016.

Gold the Best-Performing Asset of 2016
click to enlarge

I already shared with you that on Friday, gold signaled a “golden cross,” a bullish indicator that occurs when the 50-day moving average crosses above the 200-day moving average. As of February 29, just a day after gold Oscar statuettes were handed out in Hollywood, gold bullion has gained close to a phenomenal 17 percent year-to-date.

What’s more, this past month was its most impressive February performance since futures trading data began in 1975.

Gold Leaps to Its Best-Ever February Performance
click to enlarge

Many analysts now believe we’ve seen the final days of the gold bear market, which began after the metal touched its all-time high of $1,900 per ounce in 2011, with one analyst saying that “buying gold today may be comparable to buying stocks in April 2009.” (Between then and November 2015, the S&P 500 Index rose 145 percent.)

The metal’s surge is largely reflective of investors’ lack of faith in G20 central bankers and finance ministers’ ability to jumpstart global growth. The meeting held this past weekend in Shanghai was considered a major disappointment, with no clear resolution reached on how to address slow growth. But this is to be expected. As I’ve said before, G20 bankers seem more interested today in synchronizing global taxation and regulation than in balancing monetary and fiscal policies.

Ironically, though, one of the latest monetary tools—negative interest rates—has been a boon to gold prices. As rates have dropped below zero in Japan, Sweden, Switzerland and elsewhere, and with speculation they could be introduced here in the U.S., many investors have moved into, or increased their exposure to, gold. The metal has historically served as a dependable store of value.

Another driver of prices is the weak economic data that was released this Tuesday. China’s purchasing manager’s index (PMI) contracted even further in February, falling from 49.4 to 49.0. Meanwhile, the global PMI had a dramatic pullback, dropping to a neutral 50.0, which is its lowest possible reading before manufacturing begins to stagnate. We haven’t seen this level since 2012.

I’ll get into more detail on gold and PMIs in this Friday’s Investor Alert, which I encourage you tosubscribe to if you haven’t already. Until then, best wishes!

Gold’s golden cross as negative interest rates help boost price

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

'Golden Cross' for Gold
click to enlarge

Last Friday, gold experienced a “golden cross,” a technical indicator that occurs when an asset’s 50-day moving average crosses above its 200-day moving average. It’s the first such movement in nearly two years and is a sign that gold might have further to climb.

But there’s more exciting news involving gold. On the same day that New Jersey Governor Chris Christie endorsed Donald Trump for president, the precious metal received its own high-profile endorsement. In a note to investors, Deutsche Bank said it’s time to buy gold, writing: “Buying some gold as ‘insurance’ is warranted.” The bank also stated its opinion that gold “deserves to be trading at elevated levels versus many other assets.”

The metal is already up 15 percent so far in 2016, its best start to the year in decades. But it started 2015 strong too, if you remember, before prices began to collapse in February.

Inflation consumes the return on your five-year Treasury bond.So what’s the difference between then and now?

Gold owes a lot of its success this year to negative real interest rates, something it didn’t have on its side in early 2015. As I’ve mentioned many times before, the metal has historically done well when real rates turned negative (because then you essentially end up paying the government to hold on to your money). To get the real rate, you subtract the consumer price index (CPI), or inflation, from the five-year Treasury yield. If it’s positive, investors will be more likely to put their money in Treasuries, and if it’s negative, they’ll seek out other stores of value—including gold.

In January 2015, the five-year Treasury yield averaged 1.37 percent, while inflation, less food and energy, posted a tepid 0.2 percent. This resulted in an overall real rate of 1.35 percent—a headwind for gold.

But here we are a year later, and real rates have gone subzero. With the five-year yield at 1.51 percent and inflation at a healthy 2.2 percent—its strongest reading since June 2012—real rates have dropped to negative 0.69 percent. This has helped make gold much more attractive to investors. For the month, as of February 24, the precious metal has risen nearly 10 percent.

How Real Interest Rates Drive Gold

There’s another way of looking at inflation, though—the ShadowStats Alternate Consumer Inflation index. For years, economist John Williams’ site has reported actual, or “real,” economic data that often tell a very different story from the official government numbers.

Williams argues that at one time, the official CPI was useful in determining changes in consumer prices year-to-year. But government officials continued to tinker with their methodologies, in effect “moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.”

Below you can see the actual inflation rate, according to ShadowStats, based on 1980 methodologies. Whereas the official CPI is 2.2 percent, “real” inflation is running closer to 9 percent, adding to gold’s allure.

Official Inflation vs. ShadowStats Inflation
click to enlarge

Oil Rallies Following S&P 500’s Best Week of 2016

Following the S&P 500 Index’s best week of 2016, oil prices are strengthening on news that Russia and Saudi Arabia, the world’s two largest producers, are scheduled to meet next month to discuss possible production cuts. This, along with rising gasoline demand in the U.S., seasonality trends and supply disruptions in Iraq and Nigeria, has helped push both Brent and West Texas Intermediate crude comfortably above $30 per barrel. It was oil’s best week since August 2015.

The rally has given investors renewed confidence in domestic stocks after one of the largest equity selloffs earlier in the year. The correlation between crude and S&P 500 stocks is currently at levels not seen since 1990, according to the Wall Street Journal.

Brent Oil and Domestic Stocks Began to Decouple…But Have Been Trading Closely Together Year-to-Date
click to enlarge

Oil’s gain arrives at a time when President Obama announces plans to impose a $10.25 “fee” on every barrel of crude sold in the U.S. The details are fuzzy at this point, but the revenue would reportedly go toward clean energy initiatives such as electric cars, charging stations, public transit and high-speed rail.

These are all admirable goals, but charging oil companies what’s essentially a tax is the wrong way to go about it. The proposal has already been met with strong criticism from analysts and think tanks, who estimate that, if enacted, it would push up production costs, hurt employment and capital formation and lead to slower growth. The Congressional Research Service (CRS) concludes that oil and gas prices would rise, while the Tax Foundation writes:

[T]he annual level of GDP would be 0.3 percent less than otherwise (an annual loss of $48 billion in terms of the 2015 economy), private business capital stocks (e.g., equipment, structures) would be 0.6 percent lower, and 137,000 full-time jobs would be lost.

Again, affordable and reliable clean energy is a noble pursuit, but in the case of the $10.25 tax, the costs far outweigh the benefits. A much better and possibly more consequential strategy can be found in private sector efforts such as Bill Gates’ recently-founded Breakthrough Energy Coalition. Together with a couple dozen other billionaire businessmen and executives—including Richard Branson, George Soros, Mark Zuckerberg, Amazon CEO Jeff Bezos, Bridgewater Capital founder Ray Dalio and Alibaba CEO Jack Ma—Gates plans to invest billions into clean energy innovations over the next several years.

Cheniere Energy becomes the first-ever U.S. company to export liquified natural gas (LNG).

We’re encouraged by the fact that the U.S. just launched its first-ever shipment of liquefied natural gas (LNG) for export. The LNG, sold by Houston-based Cheniere Energy, left the Sabine Pass terminal in Louisiana last week and headed for market in Brazil.

This historic event confirms the U.S. as a major energy superpower, with the potential to be the world’s top supplier, and it should help support LNG demand around the world. The industry has a bright future.

Trans-Pacific Partnership the Cure for Sagging Global Trade

Here at U.S. Global Investors, we follow government policy closely because it’s a precursor to change. The political party matters little. It’s the policies that have the most significant ramifications, and both major American parties are capable of creating both good and truly awful policies.

Having said that, I might disapprove of Obama’s 10 percent oil tax, but I applaud him for continuing to put his weight behind the ratification of the Trans-Pacific Partnership (TPP). The TPP, as I’ve pointed out numerous times before, would help global trade by eliminating 18,000 tariffs among the 12 participating Pacific Rim countries. Last week the president said he planned to send the agreement to Congress for a vote sometime this year, and when that day comes, I urge our senators and representatives from both sides of the aisle to make the right choice.

Now more than ever, global trade needs a boost. According to the CPB Netherlands Bureau for Economic Policy Analysis, the value of goods traded across the globe, in dollar terms, fell a whopping 13.8 percent in 2015 after falling 2 percent the previous year.

Meanwhile, world trade volumes grew only 2 percent in 2015, the slowest year since the financial crisis, according to a recent report by the Organization for Economic Cooperation and Development (OECD).

Significant Slowdown in Global Trade Growth
click to enlarge

The OECD additionally trimmed its 2016 growth outlook to 3 percent, down 0.3 percentage points from its November projection.

Joining the OECD in downgrading growth projections is the International Monetary Fund (IMF), which lowered its forecast 0.2 percentage points to 3.4 percent. To strengthen growth, G20 countries should “reduce overreliance on monetary policy,” the IMF writes in a report ahead of the meeting among finance ministers and central bank governors in Shanghai past weekend. Further, “credible and well-designed structural reforms” are needed to “lift potential output” and provide some “coordinated demand support.”

I second the IMF’s calls for G20 nations to rebalance their monetary and fiscal policies and to reform rules and regulations that stand in the way of global trade. The TPP, which will involve countries that represent 40 percent of the world’s GDP, is a step in the right direction. But for synchronized growth to be achieved, more will need to be done.

Is this gold surge the real deal?

 Frank Holmes, CEO and Chief Investment Officer for US Global Investors gives us three reasons why he thinks the current gold price surge is sustainable, and perhaps the start of something bigger.

If you don't own gold, you know neither history nor economics. Ray Dalio.

Gold prices peaked at $1,900 per ounce in September 2011. It was the end of a spectacular, decade-long bull market, during which the precious metal’s value increased a phenomenal 645 percent.

Since then, gold has struggled to regain momentum as an ever-climbing stock market has drawn more and more affection from investors. But after posting three straight years of losses, it looks ready to shake off this trend.

Not only is the metal trading at seven-month highs, it’s also on course for its longest winning streak since the glory days of 2011. What’s more, it’s broken clean through its 200-day moving average, a key indicator of growth.

Breakout! Gold Rallies Above Its 200-Day Average
click to enlarge

In a recent report, HSBC suggests that we could be in the early stages of a new gold bull market, one that will “probably” usher the yellow metal back up to at least $1,500. This “forthcoming market,” says the bank, “has the potential eventually to exceed the speculative frenzy seen in 2011.”

Bold claims indeed, but there are signs that this gold rally is “stickier” than previous ones.

Stocks Are Making Investors Nervous

Historically, gold has had a very low correlation with stocks, meaning that in times of equity pullbacks, the metal has tended to hold its value well.

We’re seeing this unfold right now. While S&P 500 Index stocks have slumped nearly 10 percent so far this year, gold is shining bright at 12.7 percent. Even normally reliable tech stocks, including Netflix, Facebook and Amazon, have disappointed in 2016 so far.  [Ed: Since Frank penned this article, gold has surged further and is currently up around 16% year to date]

In addition, the number of companies trimming or altogether suspending dividends surpassed 2008 levels last year, according to Bloomberg. Nearly 100 more dividends were cut in 2015 than in 2008, suggesting further trouble could be brewing. Goldman Sachs reports that in the last three months alone, at least 20 oil companies have adjusted payouts down as crude prices continue to drag.

Dividend Cuts in 2015 Surpassed 2008
click to enlarge

The same pain is being felt in China, one of the two largest gold markets, alongside India. With the Shanghai Composite Index having lost 46 percent since June 2015, many investors are rotating back into gold.

Global Demand Is Scorching Hot

Speaking of China and gold, 2015 was a red-letter year for demand. Physical delivery from the Shanghai Gold Exchange reached a record 2,596 tonnes, representing more than 90 percent of total global output for the entire year.

Physical Gold Delivered from Shanghai Gold Exchange (SGE) vs. World Mining Output
click to enlarge

The country’s central bank also continues to buy gold at an impressive pace. Kitco News reports that the People’s Bank of China added 16.44 tonnes, or 580,000 ounces, to its official reserves in January as it seeks to support its currency, the renminbi.

In 2015, and so far in 2016, sales of gold coins in both the U.S. and Europe have been nothing short of breathtaking. Sales of American Eagle gold bullion coins reached 124,000 ounces in January, up 53 percent from a year ago. And last year at the Austrian Mint, one of Europe’s largest, consumers bought up 1.75 million coins, four times the volume sold in 2008 before the financial crisis.

I always say to follow the money, and right now American money managers and hedge funds are increasing their bets that gold prices will continue to climb. According to data from the Commodity Futures Trading Commission (CFTC), as of February 2, net long positions on the metal are at a three-month high of 100,566 after rising by 4,821 contracts in only a week’s time. Short bets, on the other hand, declined by 7,412 contracts during the same period.

Negative Interest Rates in the U.S.?

In December, the Federal Reserve bumped up interest rates 0.25 percent, the first time it had done so in nearly a decade. But that doesn’t mean it can’t reverse course, and there’s growing speculation that rates could be dropped below zero into negative territory.

We’ve already seen this occur elsewhere, most notably in Sweden, Switzerland, Denmark and Japan.More than a fifth of global GDP—23.1 percent, to be precise—is now produced in countries governed by a central bank with negative interest rates, according to the Wall Street Journal. In a world where you’re charged interest to put your cash into government bonds, holding gold as a store of value suddenly becomes much more attractive.

I’ve discussed many times in the past that the yellow metal shares an inverse relationship with real interest rates, which is what you get when you subtract inflation from the federal funds rate.

Real Interest Rates and Gold Share an Inverse Relationship
click to enlarge

Negative nominal rates in the U.S. might seem like a far-fetched idea, but the Fed has already hinted that banks should prepare for such monetary policy. (And JP Morgan suggests rates could fall to as low as negative 1.3 percent.) It would be prudent for investors to do the same.

For more, make sure to watch my interview this week with Alix Steel of Bloomberg Television.

Gold touches $1200 in dramatic surge

Despite the Chinese market being closed for the Chinese New Year, the gold price has opened this week very strongly.  After a small dip overnight down to the mid $1,160s, it rapidly recovered any lost ground from Friday’s close, and then surged upwards through what many considered to be a key resistance level at $1,180.  At the time of writing it had pushed up to $1,196 and now commentators and analysts see it as heading to the $1,200 psychological level – a level it hasn’t see since June last year.  Indeed, as I write the gold price has surged from the high $1,170s to touching $1,200 in under an hour, before falling back to around $1,190.  Is this sign of the breakout the ardent gold bulls have been waiting for?

Sentiment towards gold appears to have made a complete sea change in the first five weeks of this year, not only in the world’s two biggest markets for physical gold, India and China, but now also in Europe and the USA, where the price tends to be set.  To an extent this is due to continuing serious nervousness in global equities markets.  For the past two to three years analysts have reckoned that gold had fallen out of favour as an asset class as far better returns were being made in the equities markets, but last year equities were largely flat, and ever since the U.S. Fed. commenced its so called interest rates normalisation programme, albeit with a tiny 25 basis points increase in mid-December. after a brief hiatus period equities have tanked and gold has been on the up.

Today, European equities markets opened lower, as did their U.S. counterparts, with the Dow falling back below 16,000 – it peaked last April at comfortably over 18,000.  Markets can move strongly in either direction, even in a day, but the overall trend since the beginning of the year has been sharply downwards.  The market pessimists have long been talking about a forthcoming equities crash, and now people are beginning to see this as a real possibility, and they are nervous.

Gold has thus been becoming a safe haven again.  We have seen purchases into the big gold ETFs heading towards erasing last years big liquidations in a matter of weeks.  Last week gold moved back up through its 200 day moving average, which reinforced other ‘buy’ signals, while panicky covering by some of the big holders of short gold positions will be adding to the surge.

Before gold investors get too euphoric though, it should be remembered that gold started last year really well too, with a similar surge, which took the then price up to around $1,296 by January 22nd – after opening the year at around the $1,170-1,180 mark (a rise of around 10% in only three weeks).  This year gold has risen so far by around 11% over five weeks – so a similar kind of increase.  Has the speed of the price increase been overdone?  Time will tell, and gold can be a somewhat fickle investment class, although long term it has tended to hold its value well.

Silver has not been immune to gold’s rise.  It was fixed this morning at the somewhat discredited London benchmark pricing system at $14.94 (although to be fair this was around the spot price at the time), but at the time of writing only a couple of hours later it had surged to $15.40 before falling back a few cents like its yellow sibling.

What does peak gold mean for the gold price

Herewith intro paragraphs for a new article posted by me on website

Let us say, for argument’s sake, that the latest GFMS analysis of global gold production is correct and global new mined gold production falls by around 3% in 2016 – the first such fall in around seven years.  This would see, according to GFMS estimates, output fall by a little under 100 tonnes this year.  But would this fall make much, if any, difference to real supply/demand fundamentals and to the gold price itself?

On the margins maybe, and in terms of perception, but there are other supply and demand factors out there which are arguably far more significant than a 100 tonne fall in newly mined gold.  Indeed 100 tonnes, which only represents around 2% of total global annual gold supply, could be seen as a relatively small figure in terms of overall gold flows.  Other supply elements out there have a greater effect on global availability of physical gold and also in relation to total supply, which GFMS estimates at 4,274 tonnes last year.

Let’s take purchases and sales into the major gold ETFs to start with.  These have the potential to dwarf any new mined production changes.  For example we are only one month into 2016 and the major gold ETFs saw purchases of around 2 million ounces of gold – that’s over 60 tonnes – in January alone……..

To read full article CLICK HERE

Both Gold and Dollar boosted by Fed rate rise but Equities diving

While a month is a pretty short time in terms of global finance, the fallout from the U.S. Fed’s December rate rise has seen, as expected, a stronger U.S. dollar.  But what virtually all the major bank analysts had forecast – a consequent decline in the gold price in U.S. dollar terms – just has not come about.  In the event the reverse has been true and gold has been rising along with the dollar, contrary to generally accepted gold price theory.  This is pointed out beautifully in the latest chart from Nick Laird’s charting site and is shown below.

As can be seen from the chart, ever since around the time of the Fed increase of 25 basis points, small though that was, the dollar index has been on an overall upwards trend. Before the Fed increase gold and the dollar had been exhibiting their normal relationship – dollar up and gold down.  But since the rate rise – almost to the day – gold has also been rising overall.  Indeed it has even been rising far faster than the dollar.  Can this continue?

What the forecasters had not been taking into account has been the post Fed rate increase dive in general equities virtually across the board, as markets took the rate rise, together with Fed projections of three or four more similar increases this year, as a sign of continuing money tightening.  Indeed the stock market declines – perhaps further stimulated by something of a rout in Chinese equity markets, which are even more of a casino than their Western counterparts – look as though they could be in danger of turning into a true rout……..

The above is the lead into my latest article published on  To read the full article click on:  Fed Rate Rise has Boosted the Dollar AND Gold

Gold price at all-time high in some major gold mining nations

The following are some introductory bullet points for my latest article on Seeking Alpha:  To read the full article click on Currency Wars Keep Global Gold Miners In Good Shape:

  • While the US dollar gold price has fallen over 40% from its 2011 peak, the same is not true in major gold producing nations’ own currencies.
  • With most gold mining costs incurred in domestic currencies and revenues in US dollars, the economics of mining in most of the world’s top producers are not nearly so negative.
  • In Canada and Australia for example the gold price is only down 15% and 13% respectively from the 2011 peak.
  • In Russia – the world’s No. 3 gold miner – the current gold price is close to an all-time high.
  • In South Africa (the world’s sixth largest producer) and Argentina (world No. 14), the gold price is comfortably at an all-time high.

Booms, Busts, Asset backing (over Earnings) and what a 2016 Bust might mean for Gold

By Fraser Murrell

A contributed article from Dr Fraser Murrell in Australia, together with an added comment from me at the end on what Dr. Murrell’s thesis might mean for gold. Dr Murrell is an Australian mathematician and quantitative analyst with substantial experience in the financial sector as analyst, broker and trader.

Today, stocks are usually measured by the “Price to Earnings” or P/E ratio. For example, a P/E ratio of 20 means that each extra dollar of Earnings E (per share) increases the Price P of that share by 20 dollars. But this (on its own) is both a volatile and deceptive measure of value.

Another metric is the “Price to Asset”, or P/A ratio. This measures Price relative to the net Asset backing of the share. Assets are the things which companies use to generate Earnings and use to post as collateral to borrow money.

But since 2009, under ZIRP and the direction of Wall Street, many companies have chosen to consume both their Earnings and cheap debt to buyback their stock, rather create long term Assets. Of course, stock buybacks boost the (short term) share price and the director’s remuneration, but do nothing for the long term solvency of the company. With the increase in debt and the lack of Asset creation, most companies are now in a much weaker position than they were prior to the last downturn in 2009, despite that being a near-death experience providing reason to repair balance sheets.

My point is that when Earnings next falter and/or interest rates “normalize” the increased debt will not be serviceable and many companies may suddenly go bankrupt – because they don’t have sufficient unencumbered Assets to use as collateral for fresh borrowing. Equity raisings and the junk-bond market are the last resort for companies needing money and when these markets seize up (as is currently occurring), the collapse begins and then spreads through the economy as the dominoes fall. Only those with sound assets that generate reliable earnings survive.

A more useful investor model is : P = P/E  x  E/A  x  A
As a measure of solvency, some investors (like me) focus more on the quantity and quality of the Assets (A) and on the Earnings on the Assets (E/A) – rather than on the Price to Earnings (P/E), which can jump around (or disappear) from quarter to quarter.

But if we value SP500 companies today (or indeed the USA as a whole) by the metric P/A rather than P/E, then one comes to the conclusion that (because of the current debt levels), when the economy next falters and Earnings fall, the result will be far worse than in any previous downturn. This is because companies have run down or off-shored their productive assets to China and elsewhere and because available earnings have been squandered on share buybacks which fuelled the last boom.

This example makes the point clear. Suppose you buy a house worth $500,000 by borrowing 100% (as Wall St would do) at say a 5% interest rate. Then you have zero  net Assets A = $0 and a negative Earnings E = ($25,000). Now suppose create a business from home that generates an income $65,000, so that your net Earnings are now positive E = $40,000.

Regardless of the assets held, Wall St would (on average) price your enterprise using a P/E ratio of 20 based on your Earnings, making your net worth P = 20 x $40k = $800,000. Or in the case of Face Book and many other companies, it might use a P/E = 100 in which case your net worth is a staggering $4,000,000!  All with no Assets held and a business that could fold at any moment.

But then the next downturn comes and your business not only fails, but your house price drops by 10%, so that you now have both negative Earnings E = ($25,000) and negative Assets A = ($50,000). Which means you are forced to declare bankruptcy.

This is the miracle (or rather insanity) of Wall St – that a company with nothing (except a temporary earnings stream wholly consumed by the company) – can be sold to the public for billions of dollars – based on questionable “P/E ratios” using dodgy Earnings – only for that same company to go bankrupt because it never had or created any Asset backing. The money made by company directors and the losses taken by the general public over history are staggering. That said, there are a few (like Warren Buffet) who do focus on the assets and have been able to create long term value for their shareholders.

What this might mean for gold if markets collapse again

A very concise look by the editor at what could happen to the gold price if the implications of the above article lead to yet another collapse in equity prices as in 2007-9 – or perhaps worse!

The Great Global Financial Crisis of 2007-2009 should still be in the memory of most serious investors although we think the lessons that should have been learned from it have been largely forgotten in the Fed-fuelled euphoria of seemingly endless rising equity prices – well, seemingly endless until last year when prices flattened and have come back sharply in the first couple of weeks of 2016..  As pointed out in  my latest article here:Equities tank, dollar down, gold up, 201 6 is already showing the potential to become an annus horribilis for equity investors should the downturn continue – or horror of horrors, accelerate – particularly if the realisation of what Dr Murrell has noted above begins to sink in.

Let us go back to 2007 – the start of the GFC (although like now the seeds for massive declines had been sown in the years before.).  Here follows a chart taken from The Sovereign Investor website which shows the relationship between the performances of the S&P 500 and the gold price from the beginning of 2007 to the end of 2009.  This just about says it all.  Gold did take a dip in October 2008, mainly due to margin calls with institutions and investors having to sell good assets along with bad to stay afloat,    But it fell less, and recovered far faster, than general equities (and went on to double again in price in the following two years before retracing around 40% from late 2011 up until the present.)  Could we be heading for ‘deja vu all over again!’

sovinvjpgbeen sown in the


Equities tank, dollar down, gold up

Today (Friday) has seen some disturbing movements in the general equities sector with markets – led by China, which has moved into bear market territory leading the way.  Will the other markets follow – they are certainly heading in that direction.  Investors may have breathed a sigh of relief on Thursday when all the American indices opened lower, but then made good gains in positive territory, only to see all those gains wiped out and much morw in Friday’s trade.  The Dow had fallen down below 16,000 – 3% down on the day – (it was over 18,000 only as recently as early December) while the S&P 500 had fallen to below 1,870, also down 3%, while the NASDAQ had fallen over 3.8% to below 4450.  The markets are volatile and they may recover some but the trend has to be worrying – particularly those who have relied on a fed-fuelled equity boom which at one time was perhaps looking unending to the unwary.  The two weeks of the year to date have certainly provided something of a reality check.

The dollar was also down today per the dollar index – but in fact it only really fell against the three key currencies in the basket – the Euro, the Yen and the Swiss Franc (and marginally against the Yuan).  In virtually any other currency you care to name, including in those of the major gold mining nations, it was actually mostly around between 2-3% higher.

Gold however made something of a recovery from the downturns of the past couple of days and was heading back north of $1090.  Margin calls may reduce gold’s upside should equities continue to dive, as they did back in 2008, but once these were out of the way gold recovered fastest of all more than doubling in price over the following three years.

Are we in for a repeat?  It’s too early to tell, but with markets this nervous it wouldn’t take much to put them into a long downwards spiral.  Maybe the Fed raising interest rates (albeit by a pretty minuscule amount) has been all there was to set the process in motion.  Unintended consequences perhaps?

If the stock price rout continues next week it will once again enhance gold’s position as a safe haven investment in times of turbulence, perhaps reinforced by all the geopolitical flashpoints we are seeing developing around the world.  2016 could very well be an annus horribilis.

Gold and silver climate moving from winter to summer

The New York gold price closed Monday at $1.078.50.  In Asia it held there but in London it broke higher to see the LBMA price set at $1,083.85 up from yesterday’s $1,078.00 with the dollar index higher at 99.42 up from 98.94 yesterday. The euro was at $1.0741 down from $1.0902 against the dollar. The gold price in the euro was set at €1,009.03 up from €1,001.86 as the euro continued weakening. Ahead of New York’s opening, the gold price was trading at $1,086.25 and in the euro at €1,011.08.  

The silver price in New York closed at $13.99 up 13 cents.  Ahead of New York’s opening the silver price stood at $14.00.

Price Drivers

Please note that gold continues to rise with the dollar as the euro’s fall is heavy again! We continue to watch the Dollar Index and euro support at $1.07. It could slip to $1.05 which remains support as does $1.07.

The gold price has, at last broken through overhead resistance! This has been well over a year in coming. What is dramatic is that it has broken its relationship with the dollar and the euro and is rising as the dollar rises. This signifies that the monetary world perceives more is happening than a weakening euro and a falling/strengthening dollar. Something in the structure of the monetary system is in the process of breaking down. The next few weeks should clarify what.

The global sell-off in equities is contributing as is the exit of capital from emerging markets. The fall in the oil price too is pointing to the growing dangers of deflation.

We see considerable doubts about the recovery and general global financial markets across the world contributing to what is happening there today.

Yesterday saw no sales from the SPDR gold ETF but saw a sale of 0.03 of a tonne from the Gold Trust. The holdings of the SPDR gold ETF are now at 642.368 tonnes and at 152.55 tonnes in the Gold Trust.  Demand for gold in the U.S. via the gold ETFs is overwhelming the supply. This is not sufficient to affect the gold price either way.

We see the climate for gold and silver changing from winter to summer right now.

The silver price is moving up with gold now. –

Julian D.W. Phillips for the Gold & Silver Forecasters – and

Frank views on gold for the year ahead

Frank Holmes, CEO and Chief Investment Officer of US Global Investors has released his latest thinking on three asset classes which he feels should provide positive returns in 2016 – Gold, Oil and Airlines.  As a Precious Metals site we are republishing his views on gold for the year ahead, with a link to the full article at the end.


Going forward, gold prices will largely be affected by U.S. monetary policy. The Federal Reserve began its interest rate-normalization process with a small but significant 0.25 percent increase, and unless the Fed has reason to mark time or reverse course in 2016, rates should continue to rise steadily.

This will bump up not just the U.S. dollar—which historically shares an inverse relationship with gold, since it’s priced in dollars—but also real interest rates. As I’ve discussed many times before, real rates have a huge effect on the yellow metal.

Real interest rates are what you get when you deduct the rate of inflation from the 10-year Treasury yield. For example, if Treasury yields were at 2 percent and inflation was also at 2 percent, you wouldn’t really be earning anything. But if inflation was at 3 percent, you’d see negative real rates.

When gold hit its all-time high of $1,900 per ounce in August 2011, real interest rates were sitting at negative 3 percent. In other words, if you bought the 10-year, you essentially lost 3 percent a year on your “safe” Treasury investment. Since gold doesn’t cost anything to hold, it became more attractive, and the metal’s price soared.

But today, the U.S. has virtually no inflation—the November reading was 0.5 percent—so real rates are running at less than 2 percent.

Across the Atlantic, many investors are now realizing that Europe’s quantitative easing (QE) programs have failed to improve market performance in any substantial way. Earnings per share growth estimates in the European stock market have not budged. The lack of real growth in this market is a compelling argument for global investors to own gold for the long term.

Low interest rates, higher taxes and tariffs and more labyrinthine global regulations since 2011 are all contributing to the global slowdown. Neither QE3 in Europe nor QE3 in the U.S. has led to a marked improvement in growth. What markets need now to ignite growth are fewer taxes, tariffs and regulations and smarter fiscal policies.

European Earnings per Share (EPS) Growth Estimates Not Responding to ECB QE
click to enlarge

The chart below, courtesy of Evercore ISI, helps to illustrate some of the challenges we’ve faced in 2015 in terms of the investments we manage. Growth remains scarce globally. M2 money supply in the U.S. also looks dim.

Global Trade Volumes Are Declining
click to enlarge

Looking forward, we’re hopeful that these two indicators—global trade volume and money supply—will turn up. Both are necessary to improve commodity and emerging market investments.

On the upside, gold demand in China remains strong. It’s important to remember that more than 90 percent of demand comes from outside the U.S., in China and India in particular. Precious metals commentator Lawrie Williams reports that Chinese gold withdrawals from the Shanghai Gold Exchange (SGE) crossed above 51 tonnes for the week ended December 18.

Already Chinese demand is higher than the previous annual record set in 2013, and if total withdrawals for 2015 climb above 2,500 tonnes, as Lawrie expects, [latest figures suggest the full year total will come out nearer 2,600 tonnes with  a total already recorded of  2,555 tonnes up to 25th Dec – and China doesn’t close down for Christmas – See Chinese 2015 gold demand equates to around 80% of total global gold output – Editor] this will be “equivalent to around 80 percent of total global annual new mined gold production.” We expect demand to rise even more as we approach the Chinese New Year—historically a key driver for gold’s Love Trade—which falls on February 8 in 2016.

Gold: 24 Hour Composite Historical Patterns
click to enlarge

 If you wish to read Frank’s views on Oil and Airlines also click on:  Hope for the New Year: 3 Asset Classes for 2016

Gold and the Fed interest rate decision fallout

The initial reaction to the Fed’s first interest rate rise in nine years has been marginally positive for gold. Only time will tell if, on reflection by the market, its initial post-hike performance can be maintained, or improved upon.  It has already come down a little this morning trading in the mid to high $1060s after mid $1070s immediately post the announcement.  This fall from the initial reaction is very much in line with the strength of the US dollar which has continued to rise as the markets take in the rate increase.  Don’t be surprised if gold falls further as the day progresses.

The Fed will be encouraged by the initial reaction to the 25 basis point increase in rates. Equities have moved positively initially – even in areas of the world which have to be concerned about the effects of dollar interest rate rises on their own economies.  Whether this pattern will continue remains to be seen.  If domestic and overseas equities markets are not adversely affected by the interest rates rises and the strengthening dollar, then that will encourage the Fed to continue to raise rates, sooner rather than later.

Commentators and analysts remain mixed in their views, but perhaps overall more bearish than bullish with plenty still looking for $1000 gold or lower.  China probably remains the key player here so do look at my recent article on – Goode insights on China goldwhich offers some views on how China considers gold and why it may well not allow the price to fall any more.  It certainly has the wherewithal to manipulate the gold price should it so wish, either by direct intervention in the gold market utilising only a fraction of its massive foreign reserves, or even just through overt policy statements from senior politicians.

As for our own view on what is likely to happen.  In its statement the Fed was looking for perhaps three or four further small interest rate rises this year to around 1.375% and a similar number next with an overall 3.25% rate target representing ‘normalization’ by end 2018 and maybe higher beyond that.  But any delay in this program implementation – and given its record on interest rate rise prevarications over the past couple of years one would perhaps be surprised if this program can be adhered to, particularly given the Fed’s own record on missing predicted targets, could be gold positive.

But the overall problem with this scenario for gold is that the price will perhaps still fluctuate on the likelihood or not of the Fed keeping to its proposed rates rise program.  If the dollar continues to rise that could be another negative for gold, although here again the Fed will want to somehow control a dollar surge given its potentially negative impact on the U.S. economy. But with China signalling it will allow the yuan to float lower, and weaknesses in other emerging economies a dollar increase may be difficult to control.  Perhaps significantly though when the dollar index rose above 100 it was quickly brought back down (one suspects through Fed behind the scenes manipulation) but is now trending upwards again.

Some of the pro-gold analysts have been predicting something of a normalization in the gold market post the initial Fed increase, which had become inevitable possibly for all the wrong reasons because not to have increased rates would have sent some very disturbing signals to the markets.  However we are not convinced by this argument.  The price will likely still be very dependent on the Fed interest rate program and whether it will, or will not, be implemented as planned.  fundamentals still look good, though, and the wild card here may be shortage of physical supply as available inventories in London and New York are run down and sales out of the ETFs continue to diminish in the face of ever continuing strong demand from Asia, the Middle East and Russia.