Swiss Gold Exports in 2017 – Down but far from out

Another of my articles published on the Sharps Pixley website looks at total gold exports from Switzerland last year – the lowest level for 11 years, but still substantial at 1,600 tonnes.  As has been apparent throughout the year over 80% of the gold routed through Switzerland has been headed for relatively strong hands in Asia and the Middle East, and taken together with gold production in Asia in particular – mostly China, but also in countries like Indonesia which is a significant producer in its own right (No. 9 in the world in 2016) [see:World Top 20 Gold: Countries, Companies and Mines]– these areas probably account for the accumulation of more than 80% of all the world’s newly mined gold.  China in particular absorbs goldlike a sponge and doesn’t release it back into the global market place.

With Asian populations growing, gold demand will continue to rise there given the propensity for the citizenry to own gold, while peak newly mined gold is almost certainly already with us we are going to see supplies squeezed in the years ahead with a consequent positive effect on the price regardless of the powers that be trying to suppress it.  Switzerland’s re-refining and expoirt business thus remains an excellent pointer to current and future gold flows.

The Sharps Pixley article follows:

Swiss gold exports in 2017 lower but still 80% plus flowing east

The continued accumulation of physical gold in Asia and the Middle East goes on regardless as shown by gold exports from Switzerland – the leading national conduit for gold bullion.  Switzerland has achieved this position through its refineries specialising in taking gold in unmarketable forms and importing dore bullion from mines and refining, or re-refining it into the sizes and purities in demand in the eastern market place.  This is combined with the great reputation of Switzerland in the gold marketplace and as a conduit for such activities.

Although Swiss gold exports in 2017 were the lowest in 11 years they were still substantial at over 1,600 tonnes. That is equivalent to half the world’s annual new mined gold output, and with China the world’s largest gold miner already, and a known non-exporter, the Asian and Middle Eastern regions will have accumulated at least 65% of global gold output adding up the imports from Switzerland plus Chinese domestic production alone.  But other countries also export gold directly to Asian and Middle Eastern refineries and we would guesstimate that perhaps 80% of all the gold bullion moving around the world may be ending up in these regions – a huge proportion of what remains the world’s No.1 monetary asset (in our opinion at least).  With bitcoin continuing to crash – it has lost almost 60% of its value from its peak in December and could well crash much further as scared investors offload on the way down – gold may be again coming into its own as a key investment asset class in the minds of investors seeking to preserve their wealth.

In December, Swiss gold exports followed the pattern established over the year with India the no. 1 individual destination with 32.3 tonnes – or around 21.5% of the total – closely followed by China (25.7 tonnes) and Hong Kong (21.1 tonnes).  Assuming that most, if not all, the Hong Kong exports are also bound for the Chinese mainland, greater China was thus the biggest recipient of the Swiss gold.  Overall around 86% of Switzerland’s December gold exports (totalling 150.4 tonnes) was destined for Asian and Middle Eastern nations.

If we look at the full year 20i7 figures for Swiss gold exports – neatly laid out in the bar chart below from Nick laird’s www.goldchartsrus service – we see that these proportions pretty well mimic the full annual picture:

This chart shows that over the full year around 81.6% of the Swiss gold was headed for Asia and the Middle East with India the biggest individual national importer with 26.2%, but with China and Hong Kong combined taking 35.8%.

The other point which is apparent from the Swiss gold export figures is something we have stressed continually over the past year – that Hong Kong gold exports to mainland China can no longer be seen as a proxy for Chinese gold imports – or even a rough guide.  Mainstream media, and some analysts who should know better, still seem to equate the regularly published Hong Kong gold export figures as such, but as the Swiss figures show the greater part of mainland China’s gold imports now comes in direct – avoiding Hong Kong altogether.  This percentage of direct imports appears to be growing.

The figures also show that there has been a major recovery in Indian gold imports last year after a very low 2016 figure, but still Greater China remains comfortably the biggest importer – and if you add China’s own gold production of perhaps 450 tonnes last year into the mix, as well as direct imports from a number of other countries, China remains easily the world’s No. 1 accumulator of gold – although the breakdown of where this gold actually goes internally is rather less certain – hence the seeming anomalies in the nation’s estimated consumption figures from the big precious metals consultancies like Metals Focus and GFMS.

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Randgold’s Loulo-Gounkoto update

West and Central African focused gold miner, Randgold Resources, invariably provides updates on its key operations in the runup to the big Mining Indaba meeting in Cape Town alongside which the company, now traditionally. announces it Q4 and prior year figures.  We’ve already reported here on the big new Kibali mine, which has been built in a remote part of the north-eastern Democratic Republic of Congo which is due to become the company’s largest gold mine, but up until now the Loulo-Gounkoto complex in Mali has been the company’s largest operation in terms of gold production.

Ehe company says its Loulo-Gounkoto gold mining complex is on track to improve on its record performance in 2016, with last year’s production expected to reach a new peak and at lower cash costs of production, Chiaka Berthe, the company’s general manager of its West African operations, said to the media in Bamako, the Malian capital..

Speaking at the quarterly update for local media, Berthe said this positioned the complex strongly to continue rolling out its 10-year business plan, which targets production in excess of 600,000 ounces per year.

Berthe announced that the Malian ministry of mines had approved the development of a super pit at the Gounkoto opencast mine.  The existing mining convention is being reviewed to accommodate this new investment.

Also at the briefing, Randgold chief executive Mark Bristow said the company’s continuing investment in Mali had shown the way for others to follow, and the current development of new mines would bring additional production on line and increase the already considerable contribution the mining industry makes to the country’s economy.

Group regional manager West Africa Mahamadou Samake also highlighted the importance of maintaining a fiscal and regulatory environment capable of attracting investment and re-investment in the mining sector.

“It is therefore imperative that the current mining code review is undertaken with this objective in mind, and any proposed changes should be made in light of the code’s relative attractiveness compared to surrounding countries which are competing for the same exploration and investment dollars.  This is particularly important in coping with the challenges inherent in developing and operating a mine in an infrastructurally challenged country like Mali, and the difficulty of finding replacement reserves.  The government should focus on working with the industry to maintain Mali’s position as one of the premier destinations for mining investment in West Africa,” Samake said.

Bristow also appealed to Mali to consult with its neighbours in finding a cross-border solution to the growing problem of illegal mining.  In some parts of Mali this was now out of control, he said, and the damage to property and resources, if it was allowed to continue, would discourage global investors.

He noted that Randgold and the Malian fiscal authorities were working together to resolve their outstanding tax and TVA issues.

The company’s full Q4 and FY2017 operational results and financials are due to be released next Monday, when Bristow will make his presentation in Cape Town.

Bitcoin Could Crash Another 50% or More, But Gold and Gold Stocks to Advance

My latest article on Seeking Alpha – under the Seeking Alpha terms and conditions I cannot publish full article here, but you can click on the link at the end of the Summary to go directly to it:

Summary
  • Rearguard action in Bitcoin may be too little too late – the cryptocurrency  could well see another 50% decline or more!
  • Gold and gold stocks would probably be the best investments in a general economic collapse if it occurs.
  • Governments are unlikely to remain on the sidelines and are likely to regulate bitcoin given its increasing use by criminals and in tax avoidance.

To read full article click on Bitcoin Could Crash Another 50%, or More, But Gold And Gold Stocks to Advance

Gold not allowed to close the week above $1,350.

My latest article on the Sharps Pixley website looks at gold’s performance over the past week with it affected positively and negatively by conflicting statements on U.S. policy on the dollar at the World Economic Forum in Davos, but culminating in gold being held marginally below the psychologically important $1,350 level at the week’s end through activity in the gold futures and currency markets.

With potentially conflicting comments re. the weakness of otherwise of The U.S. dollar from U.S. Treasury Secretary Steve Mnuchin and President Trump, the gold market didn’t know which way to run.  Mnuchin had to backtrack, but not particularly convincingly, on his weaker dollar being beneficial to the U.S. economy statement lest he be accused of talking the dollar down in conflict with U.S. assurances that it would not do so.  President Trump’s Davos statement suggested he was in favour of a stronger dollar, contrary to his earlier position on the currency, and following this the dollar rose, and gold fell on Thursday.  But then the former reverted to lower levels in Friday afternoon trade in the U.S. and gold rose back above $1,350 before activity in the futures markets  and gentle dollar support brought gold back to heel and the yellow metal ended the week a fraction under the key $1,350 level.

To an impartial (relatively) external observer of the market the gold price did appear to be trying to rebound back above $1,350 but kept being knocked back again.  Whether it can build sufficient momentum to breach the $1,350 level permanently next week remains to be seen, but one suspects it will do so barring any major adverse news or data.

So far this year precious metals have all done well as Nick Laird’s bar chart from www.goldchartsrus.com shows (below).  The bar chart shows the relative performances of the four major precious metals, the HUI (the NYSE ARCA Gold Bugs index) and Nick’s Silver 7 index tracking seven major silver stocks and the stock indices have generally outperformed the metals which are their key drivers.  As can be seen platinum is by far the best performer year to date, but all have done pretty well given the year is only just over 3 weeks old.  We suspect that Silver and the Silver 7 Index will ultimately outperform the others – however we would have said that in 2017 too – and ever-unpredictable silver ended the year as performing far more poorly than gold, and particularly palladium which was far and away one of the best assets of any type to hold last year.

As readers of my writings here will know I am anticipating precious metals to do well this year – except perhaps palladium which may have risen too far too fast in 2017.  But I don’t anticipate any of them doing spectacularly well with rises pretty much in line with gold’s 2017 performance (See:Precious metals price predictions for 2018 – gold, silver, pgms, but this year stocks may comfortably well outperform the metals assuming the general trajectory for both is upwards.  The key may well be dollar strength and if the Trump Administration sees exports picking up, and imports falling, due to a weaker dollar, then the engineered decline in the dollar index may be allowed, or even encouraged,  to continue.  This process may well be mitigated though by similar effective currency devaluations among competitor nations or areas as others seek to contain any competitive disadvantage with their own export businesses.

GFMS – latest gold outlook – Gold price to peak at $1,500 this year

Here’s GFMS’ latest outlook on gold from the new update for their 2017 Gold Survey incorporating 2017 Q3 results:

Gold prices started 2018 on an upbeat note, benefiting from a sinking dollar on softer economic data and concerns that the United States may pull out of NAFTA.

We believe that the geopolitical climate and equity markets will continue to support gold’s role as a risk hedge.

In the physical markets, Indian demand is set to remain at levels similar to 2017, while Chinese
investment demand will likely to pick up if we see gold’s price momentum going forward. We expect gold prices to average $1,360/oz and hit a 2018 peak of over $1,500/oz later in the year.

Our forecast discounts three Fed rate hikes, although a potential overheating from the effect of the new tax reform could lead to more aggressive tightening, limiting gold’s upside.

The full GFMS survey may be downloaded free of charge to corporate email addresses at the following link:

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Bitcoin no substitute for gold – World Gold Council

In its latest analysis, The World Gold Council concludes that bitcoin is no substitute for gold as a long term store of wealth – it is altogether too volatile.

We have seen bitcoin collapse from close to $20,000 to below $10,000 at one stage and it seems to be trying to make a recovery, but could be stalling at current levels – still way too high in our opinion.  A return to the rising pattern needs confidence in its growth potential and that will have been dented very severely.

A summary of the World Gold Council’s findings follows with a link to the full report at the end:

Bitcoin’s parabolic price rise was the big story of 2017 – putting the spotlight on the cryptocurrency market. While gold’s performance was a solid 13%, it was a fraction of the 13-fold increase of bitcoin by the end of the year.

Some commentators went as far as to claim cryptocurrencies could replace gold. Cryptocurrencies may become an established part of the financial system. But, in our view, gold is very different from cryptocurrencies, as gold:

  • is less volatile
  • has a more liquid market
  • trades in an established regulatory framework
  • has a well understood role in an investment portfolio
  • has little overlap with cryptocurrencies on many sources of demand and supply.

These characteristics underpin gold’s role as a mainstream financial asset that will likely continue to resonate in today’s digital world.

Chart 1: Bitcoin’s price saw a parabolic rise in 2017*

Cryptocurrencies and gold – competitors or complements?

Despite anecdotal comments from well-regarded financial commentators that gold prices and gold demand are suffering at the expense of cryptocurrencies, there isn’t any quantifiable evidence that gold holdings are directly suffering from competition from cryptocurrencies. The weakness in physical demand in 2017 – for example, the paltry sales of US Eagles – is largely explained by the steady march higher of the S&P 500. Other established gold markets – such as China – saw healthy levels of demand. Overall, the level of the gold price in 2017 appears to be consistent with drivers of the past few years and is showing no signs of suffering from crypto-competition.

Another factor to consider is competition within cryptocurrencies themselves. There are currently over 1,400 cryptocurrencies available and, while bitcoin is the largest by far, new technology could have devastating effects on the value and supply of any of the cryptocurrencies, including bitcoin.

Blockchain technology, the distributed ledger mechanism that underpins cryptocurrencies such as bitcoin, is genuinely innovative and could have wide-ranging applications across financial services and beyond. In the gold market, various players are exploring blockchain in the context of transforming gold into a ‘digital asset’, tracking gold provenance across the supply chain, and introducing efficiencies into post-trade settlement processes. Such applications are typically built on private blockchains operated by trusted parties rather than using bitcoin or other ‘public blockchains’.

Chart 2: Bitcoin’s price volatility is very high

Gold and Bitcoin supply

At a high level, there are some similarities between the supply profile of gold and cryptocurrencies. The stock of bitcoins, for example, increases in number at a rate of approximately 4% per annum, and is engineered to slowly decline to zero growth around the year 2140. While gold can be mined without a date limit, its production rate has been quite small and steady. Approximately 3,200 tonnes of gold have been mined on average, each year, adding about 1.7% to the total stock of gold ever mined. Bitcoin’s future diminishing growth rate and ultimate finite quantity are clearly attractive attributes, as is gold’s scarcity and marginal annual growth.

Analysis and insights on why cryptocurrencies are no substitute for gold

Download the full WGC report

 

 

Another Positive Year Ahead for Gold, Says the World Gold Council

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

Another Positive Year Ahead for Gold, Says the World Gold Council

In a year when the S&P 500 hit all-time highs, gold also held strong, finishing 2017 up 13.5 percent, according to the World Gold Council. Gold’s annual gain was the largest since 2010, outperforming all major asset classes other than stocks. Contributing to this gain was a weaker U.S. dollar, stock indices hitting new highs and geopolitical instability, all of which fueled uncertainty. Investors continued to add gold to their portfolios to manage risk exposure, with gold-backed ETFs seeing $8.2 billion of inflows last year.

gold outperformed major asset classes in 2017
click to enlarge

The World Gold Council (WGC) recently released its annual outlook on the yellow metal identifying four key market trends it believes will support positive gold performance in 2018, and we agree. Below I summarize the report for you and add some of my own thoughts on gold’s trajectory.

Key Trends Influencing Gold in 2018

1. A year of synchronized global economic growth
Economies are on the rise with global growth increasing in 2017 and on track to continue the trend this year. China and India, two of the world’s largest consumers of gold, will see their economies and incomes grow due to the implementation of new economic policies. WGC research shows that as incomes rise, the demand for gold jewelry and gold-containing technology tends to rise as well. Investment and consumer demand for the yellow metal results in a lower correlation to other mainstream financial assets, such as stocks, making it an effective portfolio diversifier.

there's a positive relationship between gold demand and wealth
click to enlarge

2. Shrinking balance sheets and rising interest rates
Expectations are for the Federal Reserve to raise interest rates three times this year and shrink its balance sheet by allowing $50 billion in Treasuries and mortgage-backed securities to mature each month. Over the past decade, central banks pumped trillions into the global economy and cut interest rates, allowing asset values to break records and market volatility to reach record lows.

With these banks reining in expansionary policies in 2018 and hiking rates as global debt increases, market volatility may go up again, making gold a more attractive asset. According to WGC research, when real rates are between zero and 4 percent, gold’s returns are positive and its volatility and correlation with other mainstream financial assets are below long-run averages.

3. Frothy asset prices
As the WGC points out, not only did asset prices hit multi-year highs around the world in 2017, but the S&P is still sitting at an all-time high. This rosy environment saw investors seeking out additional risks, hoping for additional returns. A continued search for yield has “fueled rampant asset price growth elsewhere,” the report explains. This includes exposure to lower quality companies in the credit markets as well as investments in China.

Although the bull market could very well continue throughout 2018, some analysts and investors alike are understandably cautious about just how much risk exposure to continue taking on. That’s where gold comes in. As you can see in the chart below, the price of the yellow metal tends to increase during periods of systemic risk. Should global financial markets correct, investors could benefit from having an exposure to gold in their portfolio. Historically, gold has reduced losses during periods of distress or instability in the markets.

the gold price tends to increase in periods of systematic risk
click to enlarge

4. Greater market transparency, efficiency, and access 
Financial markets have become more transparent and efficient over the past decade, with new products broadening access for all kinds of investors. Last year the London Bullion Market Association launched a trade-data reporting initiative and the London Metal Exchange launched a suite of exchange-traded contracts intending to improve price transparency, according to the WGC.

In fact, momentum is building in India to develop a national spot exchange to make the market less complicated and fragmented. In addition, more progress in gold investing might be seen in Russia this year with the current 18 percent VAT on gold bars possibly being lifted. More easily accessible gold-backed investment vehicles should lead to more gold investors and transactions worldwide.

Now Could Be a Good Time to Add Gold to Your Portfolio

World Gold Council’s Chief Market Strategist, John Reade, said in his 2018 outlook for gold that, “Over the long run, income growth has been the most important driver of gold demand. And we believe the outlook here is encouraging.”

We couldn’t agree more. Gold has historically helped to improve portfolio risk-adjusted returns. It is a mainstream asset as liquid as other financial securities and its correlation to major asset classes has been low in both expansionary and recessionary periods, as the WGC points out.

I’ve always advocated a 10 percent weighting in gold in a portfolio – with 5 percent in bullion or jewelry and 5 percent in gold stocks or well managed gold mutual funds and ETFs. If you’re interested to learn more about gold, I encourage you to sign up for my blog, Frank Talk. Happy Investing!

Falling dollar, rising gold – where will that take us?

Here’s my latest article published on the Sharps Pixley website earlier today looking at the collapsing US Dollar and its impact on the gold price.  While gold is very definitely sharply higher in dollars, the fall in the dollar index means that in some other significant currencies – notably the British pound which finds itself at its highest level against the dollar since the Brexit vote a year and a half ago – the gold price may actually have fallen.

Dollar drops, gold soars as U.S. starts to lose control

If gold trading this morning in Europe is anything to go by, gold is headed for US$1,350 an ounce, and not before time.  But before non-U.S. gold-owning citizens get carried away with euphoria they should also be aware that the dollar index has dropped below 90 for the first time since early 2014 and the gold price in many other key currencies like the British pound (easily at its highest level against the dollar since the Brexit vote) the Swiss Franc and the Japanese yen, has actually fallen.  Silver though has been somewhat left behind with the Gold:Silver Ratio at well over 78, but we do anticipate, if gold stays in the high $1,340s, or breaks through $1,350, that silver will play catch-up.  It usually outperforms gold when the latter is rising sharply.

The performance of the dollar gold price level, though, does suggest that the big money into the gold futures markets, which had been successful in keeping the shiny yellow metal price down below $1,340, may be losing control.  It could thus see discretion as the better part of valour and allow gold to find a new top and then work hard again to keep it there.

The key though looks to be U.S. dollar strength and it remains to be seen whether the recent decline is an engineered one in an attempt to make U.S.-manufactured goods more competitive (a policy that had had been signalled by President Trump some time back – although since denied).  If so a dollar decline may have gained more steam than intended, as these things do.  On the face of things the U.S. economy is in a decent growth stage, unemployment is at a low level – both things that might normally lead to dollar strength, not weakness.  But perhaps massaged government-produced statistics are beginning to be doubted and the huge U.S. debt level is beginning to come home to roost as some countries seemingly (reportedly) are beginning to reduce their reliance on dollar denominated securities in their foreign exchange holdings.  Perhaps the Trump Presidency is not making America great again – at least in terms of dollar dominance of global financial markets –  but having the opposite effect globally.

Could all this herald the start of the much predicted crash.  Stock markets appear to be stalling, bitcoin has come off nearly 50% from its peak – maybe the speculators and wealth protectors are at last beginning to see gold as an answer.  It’s probably too early to tell yet, but signs don’t augur well for the seemingly unending bull markets in equities we have been seeing in the past few years.  Market growth is all about confidence.  Once that starts getting eroded it can turn into a desperate downwards spiral.

The problem of course for gold is that, should markets collapse, it too could suffer collateral damage as institutions and funds struggle for liquidity and have to sell good assets to stay afloat.  We saw this in 2008 in the last big stock market collapse, but the comfort for gold holders, perhaps, is that gold was far faster to recover than equities and went on to perhaps its strongest bull market ever taking the price up to around $1,900-plus over three and a half years, nearly tripling its price from its October 2008 nadir.

As I write the spot gold price has indeed briefly hit the $1,350 level.  Whether the U.S. market will allow it to stay there when it opens in just over 3 hours time remains to be seen.

Gold market consolidates as U.S. Government shuts down

By Stefan Gleason*

The gold market has been mired in a four-and-a-half year basing pattern. The rally that began late last year has taken prices up toward a major resistance zone. It’s make or break time!

Gold - Jan. 19, 2018 (Chart)

Also on the cusp of a potentially big move is the bond market.

Bonds haven’t been making headlines like the stock market, but where the bond market heads next could be crucial for stocks as well as metals (not to mention housing and lending).

The 30-year Treasury bond is forming a potential head and shoulders top. A sustained break below the major support line would confirm a new bear market in bonds. Lower bond prices would mean rising long-term interest rates – a potential precursor to rising inflation rates.

Bonds - Jan. 19, 2018 (Chart)

The government shutdown doesn’t do anything to inspire confidence in the creditworthiness of the U.S. Treasury.

Although no immediate threat of default exists, brinksmanship could escalate in future showdowns.

The government shutdown of 2011 caused the U.S. to suffer its first ever credit rating downgrade.

Senate Democrats pulled this latest political stunt over DACA – a controversial amnesty program for children of illegal immigrants. DACA affects very few Americans directly. It barely registers as a line item in the $4.1 trillion federal budget. Yet it caused the government to lock up and threatens to lead to a constitutional crisis down the road.

The investing implications of gridlock, dysfunction, and chaos in Washington aren’t immediately clear. Past shutdowns have seen volatility pick up, but neither equity nor precious metals markets have shown any consistent tendency to trade in a particular direction during or following shutdowns.

According to Bank of America Merrill Lynch analysts, when gold prices and bond yields are both rising in tandem, that spells danger for the stock market. The Black Monday crash of 1987, for example, was preceded by rising gold prices and bond yields in the months leading up to that fateful October.

The U.S. stock market and economy have been fueled by easy money for the past several years and are now extremely leveraged. Margin debt balances are at record levels. And despite recent strength in employment and GDP numbers, the U.S. government is headed for trillion-dollar deficits. A rise in borrowing costs threatens to unwind leverage in the equity markets and hit Uncle Sam with huge increases in debt servicing costs.

Rising bond yields (falling bond prices), rising stock markets, and rising precious metals rarely co-exist together for long. One or more of these trends can be expected to soon break the other way. If gold rallies above resistance and bond prices fall through support in the days ahead, then stock market bulls will have cause for concern.

Randgold’s Kibali on track to produce 700,000 gold ounces this year

Africa-focused gold miner, Randgold Resources has a remarkable track record in developing gold mining operations in a part of the world most of its Tier 1 gold mining peers avoid – West and Central Africa  It has built up a major gold production base in Mali and Cote d’Ivoire, but it deserves particular credit for its development and operation of the Kibali open pit and underground operation in one of the remotest parts of the African continent in the far northeast of the Democratic Republic of Congo (DRC), close to the border with South Sudan.  The logistics of building what is probably now Africa’s single largest mine about as far from the coast as any mine could be, will have been daunting, yet Randgold brought Kibali on stream ahead of schedule and within its estimated cost parameters.

Kibali is owned 45% by Randgold and 45% by the far larger gold miner, Anglogold Ashanti, with the balance owned by DRC parastatal SOKIMO.  Even though Angolgold is the much larger company it ceded development and management of the Kibali mine to Randgold due to the latter’s particular expertise in running mining operations in remote areas of Africa and, perhaps most importantly, maintaining good working relationships with the host governments – a skill where many of the other gold majors fall short.

It is now eight years and $2.5 billion since Randgold started developing Kibali, and the giant gold mine is expected to be in full production this year following the successful commissioning of its underground operation’s integrated automated ore handling and hoisting system.

Randgold chief executive Mark Bristow, who is touring his company’s African mines en route to Cape Town for this year’s Mining Indaba Conference,  told local journalists in Kinshasa in the DRC that the mine was on track to produce its targeted plus 700,000 ounces of gold in 2018, making it Africa’s largest gold mine and one of the largest of its kind in the world.

Its high level of mechanisation, which features multiple driverless loaders operating with full automation as well as a single haulage drive with a high-strength surface, is believed to be a first for the gold mining industry in Africa.

“The past quarter has been a particularly busy one for Kibali.  In addition to completing the underground haulage and hoisting system, the team has settled the processing challenges, improving the recovery while keeping throughput above the plant’s nameplate design level.  At the same time, the mine’s conversion to the latest ISO 14001:2015 environmental standard was successfully certified and it readied itself for alignment with the new, and yet to be published, ISO 45001 safety standards,” Bristow said.

“All that now still remains to be done is to ramp-up the underground production and complete the construction of Azambi, Kibali’s third new hydropower station, which is scheduled to be plugged into the grid by the middle of this year.”

Bristow noted that with development expenditure tapering off, Kibali should now be in a position to start repaying its capital loans.  Unfortunately, Bristow commented, due to the continued non-repayment of tax credits to the tune of $192 million, Kibali’s shareholders have had to inject more money into the operation during the past year to enable the mine to pay its creditors.

“Over the past eight years, while Kibali was still a work in progress, it has paid $2.25 billion to the state and people of the DRC in the form of taxes, permits, infrastructure, salaries and payments to local suppliers.  Its shareholders, on the other hand, have not as yet received a return on their investment,” Bristow said.

“The surprise re-tabling of the controversial new draft mining code, which takes no account of the industry’s very serious concerns about the negative impact it will have on any prospect of further investment in this sector, is particularly disappointing.  I appeal again to the government to engage with the industry in the formulation of a code that will stimulate this key component of the DRC’s economy instead of crippling it.” said Bristow.

Bristow stressed that Randgold remained committed to a future in the DRC, and was already hunting for new development opportunities there.  In the DRC as in its other host countries, Randgold regarded itself as a partner of the government and the people, and its view on this issue should be seen not as unconsidered criticism but as a plea, from a major investor, for an outcome that will benefit all these partners equitably.

So the Kibali development has not been without its problems, but Bristow has a major point in that if the DRC does not put its mining code and its government-industry relations in order it could dissuade future external investment in the further development of the country’s very substantial mineral potential.  Geologically it is one of the world’s richest nations with enormous resources of precious, base and key industrial metals just waiting to be exploited.

We should learn more about progress at Kibali and the company’s dealings with the DRC Government, as well as on Randgold’s other operations and exploration progress when CEO Bristow presides over the release of the Q4 and FY 2017 financial and operational results on February 5th in Cape Town.

Rickards: Gold only place to go in coming financial panic

In the latest podcast from Mike Gleason* of  Money Metals Exchange Jim Rickards  warns of a huge financial crash ahead and that gold and precious metals will provide the only real way of protecting one’s wealth.

Listen to the Podcast Audio: Click Here or read the transcript below:

Mike Gleason: It is my great privilege now to be joined by James Rickards. Mr. Rickards is Editor of Strategic Intelligence, a monthly newsletter and Director of the James Rickards Project, an inquiry into the complex dynamics of geopolitics and global capital. He’s also the author of several bestselling books including The Death of Money, Currency Wars, The New Case for Gold and The Road to Ruin. In addition to his achievements as a writer and author, Jim is also a portfolio manager, lawyer and renowned economic commentator, having been interviewed by CNBC, the BBC, Bloomberg, Fox News and CNN, just to name a few. And we’re happy to have him back on the Money Metals Podcast.

Jim, thanks for coming on with us again today. We really appreciate your time as always and, how are you?

Jim Rickards: I’m doing great Mike, great to be with you. Thank you.

Mike Gleason: Well Jim, I figure a good place to start here is with one of your most recent books. We want to get your take on the state of the world economy. In your book titled The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis, you make some very interesting comments. Now while the financial media is talking about booming stock markets and accelerating GDP growth, you aren’t quite as optimistic. We both know that most of the growth we’ve seen in recent years has been built with huge amounts of central bank stimulus and the fundamental problems that drove the last financial crisis have hardly been resolved. In fact, you think the next financial catastrophe isn’t too far away and many among the elite are getting ready for it. If you can, briefly lay out some of what you’ve been seeing.

Jim Rickards: Sure Mike, you touched on two different threads. One is, let’s call it the short to intermediate term, which is how’s the economy doing? What would the forecast be for the year ahead? What do I think about stocks and so forth? That’s one part of the analysis, but the other one is a little bigger and a little deeper, which is what about another major financial crisis, a liquidity crisis, global financial panic and what would the response function be to that.

Let me separate. They’re related because, I mean the point I always make is that there’s a difference between a business cycle recession and a financial panic. They’re two different things. They can go together, but they don’t have to. For example, October 29, 1987, the Stock Market fell 22% in one day. In today’s Dow terms that would be the equivalent of 5,000 Dow points, so we’re at 26,000 or whatever, as we speak, a 22% drop would take it down about 5,000 points. You and I both know that if the Dow Jones fell 500 points that would be all anybody would hear about or talk about. Well, imagine 5,000 points. Well, that actually happened in percentage terms in October 1987. So, that’s a financial panic, but there was no recession. The economy was fine and we pulled out of that in a couple of days. Actually, after the panic, it wasn’t such a bad time to buy and stocks rallied back. Then, for example in 1990, you had a normal business cycle recession. Unemployment went up. There were some defaults and all that, but there was no financial panic.

In 2008, you had both. You had a recession that began in 2007 and lasted until 2009 and you had a financial panic that reached a peak in September-October 2008 with Lehman and AIG, so they’re separate things. They can run together. Let’s separate them and talk about the business cycle. I’m not as optimistic on the economy right now. I know there’s a lot of hoopla. We just had the big Trump Tax Bill and the Stock Market’s reaching all-time highs. I mean, I read the tape. I get all that, but there are a lot headwinds in this economy. There’s good evidence that the Fed is over-tightening.

Remember the Fed is doing two things at once that they’ve never done before. They’re raising rates. I mean, they’ve done that many times, but they’re raising rates, but at the same time, they’re reducing their balance sheet. This is the opposite of QE. I’m sure a lot of listeners are familiar with QE, Quantitative Easing, which is money printing. That’s all it is. And they do it by buying bonds. Then when they pay for the bonds from the dealers, they do it with money that comes out of thin air. That’s how they expand the money supply. Well, they did that starting in 2008 all the way through until 2013, and then they tapered it off and the taper was over by the end of 2014, but they were still buying bonds. So, that was six years of bond buying. They expanded their balance sheet from $800 billion to $4.4 trillion.

Well, now they’re putting that in reverse. They grabbed the gear and they shifted it into reverse and they’re actually not dumping bonds. They’re not going to sell a single bond, but what happens is, when bonds mature, the Treasury just sends you the money, so if you bought a five-year bond five years ago and it matures today, the Treasury just sends you the money. Well, when you send money to the Fed, the money disappears. It’s the opposite of money printing. So, the Feds are actually destroying money, actually reducing the money supply, so they’re raising rates and destroying money at the same time. It’s a double whammy of tightening and I don’t believe the U.S. economy’s nearly as strong as the Fed believes. They rely on what’s called the “Phillips Curve,” which says unemployment’s low, that’s a constraint and wages are going to go up and inflation is right around the corner. And that’s part of the reason they’re tightening, but there are a lot of flaws in that theory.

First of all, the basic Phillips Curve theory is junk. It’s just not true. We saw that in the late ’70s when we had sky high unemployment and sky-high inflation at the same time. We’ve also seen it recently when we’ve had low unemployment and disinflation at the same time. So, you start by saying the Phillips Curve is junk, but even if you thought there was something to it, there’s so many problems with it in terms of labor force participation demographics, debt deleveraging, technology, et cetera, that it just doesn’t apply under the current circumstances.

So, the Feds are tightening for the wrong reason. They are tightening at the wrong time and there’s a lot of evidence that a lot of the growth in the fourth quarter was consumption driven, but that was debt driven. People charged up their credit cards, consumer debt spiked. The savings rate is near a very long-term low. It doesn’t look sustainable, so lots of reasons to think that the Fed’s going to overdo it, get it wrong, tighten, throw the economy either into a recession or very low growth with disinflation, so I’m just not buying the inflation “happy days are here again” story.

There’s also good reason to believe that the Tax Bill will not be as stimulative as people expect. All that’s truly going on is the running up the deficit by another trillion dollars and we’re already way into the danger zone and then that’s actually a drag on growth. So, there’s a good reason to think the economy is going to slow, that by itself would take the wind out of the Stock Market and close it at the potentially very serious Stock Market correction, at least 10%, maybe as much as 20%. We’re talking about going down as I say 5,000 or 6,000 points on the Dow before the end of the year, so that’s one scenario.

The scenario I talk about in my book really involves a financial panic. Now, the thing there is that these are not that rare. I already mentioned the one, really two-day panic in 1987, but in 1994 you had the Mexico Tequila Crisis. In 1997, you had the Asian Peninsula Crisis. In 1998, you had the Russia Long-Term Capital Management Crisis. In 2000, you had the dot.com meltdown. In 2007, the mortgage meltdown. In 2008, the financial panic. These things happen every five, six, seven years, not like clockwork, but that’s a typical tempo for these kinds of meltdowns and it’s been nine years since the last one. So, nobody should be surprised if it happens tomorrow. I’m not predicting it will happen tomorrow. I’m just saying nobody should be surprised if it does, whether it’s tomorrow, or next month or next year, or even a year and a half from now, don’t think for one minute that we’re living in a world free of financial panics.

By the way, these two things could happen together. You could have a slowdown that leads to a financial crisis, a replay of 2008. But here’s the difference and this is really the point of your question, Mike. In 1998, we had a financial panic and Wall Street got together and bailed out the Hedge Fund Long Term Capital Management. In 2008, we had a financial panic and the Central Banks got together and bailed out Wall Street, so each bailout gets bigger than the one before it. In the next panic, whether it’s this year or next year, who’s going to bail out the Central Banks. In other words, each panic’s bigger than the one before. Each response is bigger than the one before going down this chronological sequence.

The next one is going to be the biggest of all. It’s going to be bigger than the Central Banks and you’re only going to have one place to turn. If you had to get global liquidity right now, the Fed’s at that one and half percent in terms of the target Fed funds rate, so they most they could cut is one and a half percent to get back to zero. There’s good evidence that to get the U.S. economy out of a recession, you have to cut interest rates three or four percent. Well, how can you cut them three percent when you’re only at one and a quarter, one and a half percent. Well, the answer is you can’t, so then what’d you do? Well, then you go to QE, but they already did that.

They haven’t unwound the QE. They started to and that’s what I mentioned, but they haven’t unwound it. The balance sheet is still around four trillion dollars, so what’d going to go to eight trillion, twelve trillion? I mean, some people would say, “Yeah, what’s the problem.” Those are the modern, monetary theorists, Stephanie Calvin, Paul McCulley, Warren Mosler. There’re a bunch of them that think that there’s no limit in the amount of money the Fed can print, but there is a limit. It’s not a legal limit. Legally the Fed could do it, but there’s a psychological limit. There’s an invisible competence boundary that you cross when people just say “You know what, I’m out of here. Get me out of dollars. Get me into gold, silver, fine art, land. Whatever. Crypto-currencies, if you like. Whatever it might be but get me into something other than dollars because I’ve lost confidence in the dollar.” And we’ve seen that before also.

So, putting that all together, in the next financial panic and nobody should be surprised if it happens tomorrow, it’s going to be bigger than the Central Banks. They’re going to have to turn to the IMF for liquidity. The IMF has a printing press also, that’s the International Monetary Fund. They can print this world money called the Special Drawing Right of the SDR, so yeah, they can pull trillions of SDRs worth trillions of dollars. One SDR is worth about $1.50. They could pull trillions of SDRs out of thin air and pass them around, but here’s the point and I spoke to Tim Geithner about this, former Secretary of the Treasury. It takes time.

The last time they did this … and by the way, it went completely unnoticed, the panic was in ’08 and in August and September of 2009, the IMF did issue SDRs to help with global liquidity, but that was almost a year after the panic. The point is, the IMF is slow and clunky. It’s not the fire department. I mean, they might be like a construction crew that can come in and put in a new foundation, but they’re not the fire department that can help you when the building’s burning down.

So, what they’re going to have to do is what I call Ice 9. They’re going to have to freeze the system. First, starting with money market funds, then bank accounts, then stock exchanges, they might reprogram the ATMs to let you have $300 a day for gas and groceries. They’ll say, “well, why do you need more than $300 a day to get some food and gas in your car? Why do you need more than that? We can’t let you take all your money out of the bank. We can’t let you take your money out of the money market funds. We can let you sell your stocks.” And I describe all this in the book in detail with a lot of endnotes. You don’t have to read the endnotes unless you want to, but this is all documented. It’s all publicly available. It’s not some science fiction scenario. This plan is actually in place and I describe how.

Just to wrap up, I expect a weaker economy than the mainstream in 2018. Perhaps, a stock market crashing based on that alone. I also expect another financial panic. It’s impossible to say when, but eight years on, nine years on, I would say sooner than later. And this response function is going to be something that people haven’t seen since the 1930s.

Mike Gleason: Now, let’s talk specifically about gold, safe haven assets, including metals are way of vogue these days, at least among the mainstream public. Now, most investors likely will be flatfooted and probably won’t see the next financial crisis coming just like the one in 2008, until it’s too late. Confidence in the U.S. dollar and the financial system is hard to shake without plenty of good evidence that both are in trouble. We’re even seeing some gold bugs beginning to lose faith. They know that there is plenty of risk out there that you just laid out, but they are growing tired of watching just about everything outperform precious metals. What are you saying these days to people who might be thinking about selling gold and say, joining the party in the stock markets?

Jim Rickards: Well, let me spend some time on that, but just to say a kind word about the people you’re describing. Look, gold just finished a four-year plus bear market. It lasted from August 2011 to December 2015. In that bear market, gold went down about 45% peak to trough, and if you use the about $240 price from 1999 and just scale that up to $1,900 and then back down again to $1,050, which is where it was in December 2015, that was a 50% retracement. And by the way, my friend Jim Rogers, one of the greatest commodities traders in history, co-founder of the Quantum Fund with George Soros, a legendary commodities trader, he said to me … and he has a lot of gold. He expects gold to go much higher, as do I, but he said, Jim, “Nothing goes from here to there.” Meaning, he’s reaching way up to the sky up into outer space. He says, “Nothing goes from here to there without a 50% retracement along the way.”

And I think that was very good advice. Well, okay, but we’ve had the 50% retracement. That’s behind us. We’re in a new bull market now. There was a bull market from August 1971 to January 1980 and gold went up over 2,000%. From January 1980 to August 1999, there was a very long, 20-year grind it down bear market, and gold went down about 70%. Then you had a new bull market that lasted from August 1999 to August 2011 and in that 12-year bull market, gold went up over 700%. Then you had another bear market from August 2011 to December 2015 and as I said, gold went down 45%. We’re in a new bull market. It started in December 2015.

Now, here are the facts, gold goes up and down. It’s volatile and we know there’s manipulation. People get discouraged and they buy gold and then some hedge fund or China comes along in the gold futures market and slams the price down. “Oh, gee, why did I buy it?” I get all that. I understand the discouragement. I understand how difficult it is to watch stocks go up and Bitcoin go up and I’m sitting here with gold and it just seems to be going sideways, but it’s not true. In 2016, gold went up over 8%. In 2017, gold went up over 13%. So far in 2018, gold is up 3%. You take the entire period from the bottom of the last bear market to the beginning of the bull market, December 2015 to today, gold is up over 25%. It’s been one of the best performing asset classes of all the major asset classes. It’s not crazy like Bitcoin, but Bitcoin’s collapsing, which I also predicted some time ago.

So, the truth of the matter is 2016-2017 are the first back-to-back years of gold gaining since 2011-2012, although at that point, it was already off the top. It’s more a statistical anomaly that gold went up in the year 2011. Yeah, it did, but it was way down, way off the peak in September of that year. But now we have two back-to-back years of gold going up very significantly. We’re in year three, 2018, is year three of this bull market. It’s off to a very nice start. The fundamentals are good. Their technicals are good. The supply and demand situation is good. We haven’t even gotten into other potential catalysts, including War with North Korea, loss of confidence in the dollar, financial panic. Even a normal business cycle recession or if inflation gets out of control, there’s just a whole list of things that are going to drive gold higher.

And the last point I want to make, Mike, is that gold is doing this performance against headwinds. The Fed has been raising rates. When you raise nominal rates and you tighten real rates, that’s normally a very difficult environment for gold and yet, gold’s going up anyway. Can you imagine what’s going to happen when the Fed has to back off… because right now, as I said, they’re over-tightening. When this economy slows, and that data starts rolling in later in the first quarter and early second quarter of 2018, the Fed’s going to do what they call “pause.” It doesn’t mean they’re going cut rates. That’s somewhere down the road, but they pause, which means that they …

Right now, they’re like clockwork. They’re going to raise every March, June, September, December – 25 basis points each time, boom, boom, boom, boom like clockwork. But, every now and then they don’t. They skip. They pause. Well, if your expectation is they’re going to raise and then they don’t, they pause, that’s a form of ease. It’s ease relative to expectations. That’s what’s going to happen later this year. All of a sudden, this headwind’s going to turn into a tailwind and gold’s going to get an even bigger boost. I see it going to $1,400 over the course of this year, perhaps higher. My long-term forecast for gold, of course, is $10,000 an ounce, but that’s … and I’m not backing away from that. That’s just simple math. That’s the implied noninflationary price of gold if you need to use gold to restore confidence in a monetary system in a financial panic or liquidity crisis where people have lost confidence. That’s not some made up number. That number is actually fairly easy to calculate, but you don’t go there overnight. You got to get to $2,000 and $5,000 before you get to $10,000.

I think right now, we’re in a new bull market. It’s going to run for years. We’ve got that momentum. We’re off the bottom, but people are always most discouraged at the bottom, right? Well, that’s the time you should buy. It’s just human nature. I’m not faulting anyone. I’m not criticizing anyone, it’s just human nature to say, “Oh man, I’m so beaten down. I’m so sick of this. I’m so tired of this.” Well, that’s usually the time to buy and guess what, it is.

*Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 50,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.

For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage

by: David Smith*

Two years ago in this space, I penned an essay discussing how Americans – and other countries that are “dollarized” – where the local currency is either the USD or pegged to it – had a significant advantage when it came to getting the most for their money when exchanging dollars for precious metals.

Lately I looked into this issue again and the good news for Americans is – it’s still a good deal. In relation to a lot of other folks, even better than before! But the bad news is that this might not be the case much longer…

The Cando Disadvantage

The Canadian Dollar is known in the trade as a “Cando”. In 2008 it traded at US$1.10, which meant that at the time, Canadians could buy 10% more metal than Americans. In 2012 it had a high of US$1.01. In 2016 it bottomed at US$0.58 (ouch!), and today still trades at about 80 cents on the dollar. As the chart shows, Canadians get about 20% less gold and silver for their money than their southern neighbors (us).

Canadian Dollar vs US Dollar 01/12/2018 (Chart)

Courtesy stockcharts.com

Zim and Ven, racing for the bottom.

Then there’s the perennial currency basket case Zimbabwe – now entering its second hyperinflationary blowout in just the last couple of decades. Zim is currently playing touch and go with Venezuela to see if the latter’s “bolivar fuerte” (strong bolivar), transacted by the pound on a produce scale rather than from a wallet, will incinerate itself first.

Zimbabwe Banknotes

Zim’s previous “Paper Promise”- Angling for a rematch?

Bolivar Fuerte

Back in the day when the term “strong bolivar” meant something…

Fall in the Value of the Venezeulan Bolívar (Chart)

But not now… (Courtesy Sources listed)

Emerging Markets Purchasing Power Disadvantage

Buyers in Emerging Markets, in which gold prices are making new highs relative to their own fiat paper, are also paying more for their stash. Nevertheless demand there is rising as well – which as previously noted – is an important “tell” regarding the health and durability of the ongoing bull market. This is because even when facing a less advantageous exchange rate, emerging market gold customers are still solidly on the buy.

Additional evidence indicates that we are just now entering the second year of what could become a lengthier – and considerably more powerful than-expected upside run.

Gold vs Emerging Market Currencies

Courtesy allstarcharts.com

We say this in part because of some serious work done by Bob Hoye’s Institutional Advisors along with the Technical observations of Ross Clark They note that for the last 50 years, important lows for gold have taken place on a regular basis, stating, “The most recent (low) was in December 2016, one year after a premature low at 7.2 years in December 2015.”

In a January 2018 public domain post, they stated,

After an initial surge off the cycle lows, the price tends to move methodically higher for the first two years. During that period, we have found that a lower 20-week moving average envelope provides support. This was most recently tested in December 2017… Except for 2002, a trailing one-week stop after the 55th week, kept participants in the market until the first week after the top.

You might want to commit that last part to memory. If the 8-year cycle pattern continues to play itself out, not only could this nascent gold bull have a long ways to run in terms of time and price, but an attentive investor could use the kind of trailing stop-loss discussed, in order to stay with the trend as long as possible, holding onto significant gains before offsetting all or most of their holdings for a good profit.

Now for the Bad News…

The U.S. dollar has been “king of the hill” since its establishment as a backstop for the so-called petrodollar, in an agreement with Saudi Arabia and other oil producing countries as a result of the 1970’s oil spike. That idea was to create a stable and reliable revenue stream for oil exporters. The price of oil was thus set in dollars, in the process establishing the unit of account as the world’s reserve currency. Even so, the petrodollar’s purchasing power is, to some extent, predicated upon the rate of inflation and the value of the dollar on the FOREX.

Things worked well for quite awhile, but in recent years, for a number of reasons, the status quo has been increasingly called into question. A detailed rationale is beyond the scope of this report, but here are a few of the elements:

  • Profligate creation of dollars by the Federal Reserve, many of which have “migrated” offshore, driving down the recipients’ purchasing power.
  • Massive debt growth at all levels of the U.S. body politic – leading inevitably to more dollar creation in an attempt to pay the bill.
  • Unnaturally low interest rates since the 2008 melt-down, obscuring the “signals” given by rates that indicate if a given investment makes “dollars and sense”, leading to soaring mal-investment and speculation.
  • A changing geopolitical landscape, wherein the BRIC countries – Brazil, Russia, India and China (plus others) – have tired of the constraints placed upon them by restrictive U.S. policies.
  • The launch and coming build-out of The New Silk Road from Asia to Europe and the Middle East, encompassing 40 per cent of the world’s population in an economic-financial-political paradigm less-incumbent on the West’s wishes.
  • Lessening dependence on the US dollar as the world’s reserve currency in favor of loans and payments denominated in Chinese yuan, Russian rubles, commodities…and gold.

All these factors and more mean that right now and continuing during the coming years, the U.S. dollar is going to be buying less of just about everything, and that includes precious metals. The key elements of this sea-change as they relate to you?

  • Lower U.S. dollar-denominated gold and silver purchasing power.
  • Increased global demand for these metals, especially in the many countries seeing their local currencies strengthen vis a vis the dollar.
  • Depleting gold reserves due to a lack of big discoveries.
  • Lower head-grades across the board.
  • Increased cost of production due to environmental and “country risk”.

And this…

Weekly Gold with 50 Day Golden Cross (Chart)

Note established 50 day MA (blue line) “Golden Cross”

While just about everything in life is based upon probabilities, the odds right now strongly favor that the next leg of the secular bull run in the metals is underway. Four years of a cyclical bear market 45-50% retracement (2011-15); an 8 month initial bull counter-trend rally (most of 2016); and finally 18 months of retracement and consolidation (mid-2016 to December, 2017) have already taken place.

Taken together, this alignment of factors makes a compelling argument for completing your metals’ acquisition plan in a timely manner. And if you have still have yet to get started… what’s your excuse?

 *About the Author:

Swamp appoints another of its own as new SEC regulator

President Trump was elected to office promising he would ‘drain the swamp’  in other words take the U.S. financial power away from Wall Street and the big banks.  This he has abjectly failed to do, either by design or failure and, if anything the ‘swamp’ is more powerful than ever, and seemingly becoming more so each day.  I used to have a colleague who would sing the praises of the USA as being the least corrupt nation on earth.  In response I would tell her it is one of the most corrupt with money buying political favours and overtly influencing political decision-making (the lobbying system), while the regulatory system is dominated by the very bankers and financiers it should be designed to protect the average American from.  (Fox and henhouse immediately spring to mind.)

So what is the result?  The system is designed to favour the rich and they get richer while the poor, at best, stagnate, with the ‘swamp’ remaining fully in control.  Indeed as Clint Siegner notes in the article below, published initially on the Money Metals Exchange website the regulatory bodies no longer even pay lip service to appointing anyone who might be deemed independent, but pack these bodies with ever more of their own.

Swamp Lives On: Crooked Banks and Captured Regulators

By Clint Siegner*

If officials at the Securities and Exchange Commission (SEC) are bothered by allegations of incompetence and capture by Wall Street’s bankers, it is hard to tell. The Commission recently hired Brett Redfearn to serve as Director of the Division of Trading and Markets. Redfearn left a 13 year stint at JP Morgan to assume a key role in regulating banks, investors and traders.

The SEC, and other regulators such as the CFTC and the Federal Reserve, aren’t worried about appearances. Redfearn looks like yet another fox being sent to guard the henhouse. His appointment undermines confidence even if he intends to serve with integrity.

Instilling confidence ought to be a priority at the SEC. The past decade has been a disaster when it comes to the agency’s credibility.

U.S. Securities and Exchange Commission Seal

To date, not one high level bank executive, has been prosecuted for misdeeds related to the 2008 Financial Crisis. This despite plenty of the shareholders SEC officials are supposed to be protecting having lost their shirts. SEC bureaucrats either bungled or turned a blind eye to Bernie Madoff’s Ponzi scheme.

To cap it off, a high-profile story which broke in 2010 uncovered agency staff and contractors spending an inordinate amount of time watching pornography on the job.

Office of Inspector General investigators looked at a 5-year period and found 33 people had violated policy by watching X-rated content on federal computers. During these years, Madoff’s con was reaching its peak and Wall Street banks were busily selling mortgage backed securities stuffed with fraudulent loans to pension funds. You would think leadership there might be embarrassed.

Which brings us back to the appointment of Mr. Redfearn. It demonstrates the SEC remains tone deaf at a minimum, and completely captured at worst.

JP Morgan, Redfearn’s former employer, served as Madoff’s banker and has been involved in a number of questionable affairs. Laurence Kotlikoff from Forbes suggested the bank may be “America’s Most Corrupt.”

Until the SEC and its people prove they actually care about keeping the investment banks and financial insiders honest, they should probably do their hiring somewhere besides Wall Street. Otherwise people will understandably assume federal regulators are there to protect powerful firms under their jurisdiction, and not Americans at large.

*About the Author:

Clint Siegner is a Director at Money Metals Exchange, the U.S. precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

Gold on a tear as dollar weakens – silver being left behind

Article first published on the Sharps Pixley website, and lightly edited here, looking at the strong performance of gold over the past week, but also the weakening of the U.S. dollar index.

Since Donald Trump assumed the Presidency of the world’s richest and most powerful nation, the US dollar index (relating the dollar to a basket of other currencies) has fallen by around 11% accounting for much of the increase in the gold price in US dollar terms.  By contrast, the gold price in Euros has actually fallen by 1% over the past year, so what may appear to have been an appreciation in the gold price has been more a reflection of the depreciation in the value of the supposedly mighty US dollar.  It’s only that most people around the world look primarily at movements in the gold price in the US dollar – as we do in the title of this article – that the gold price is seen as actually having advanced.

But gold in US dollar terms does provide a useful benchmark as over time the dollar is probably the world’s most stable currency and is, for most nations, their primary reserve currency in their foreign exchange holdings.

This relationship between gold and the US dollar, with the former providing perhaps the most overt indication of how the greenback is doing vis-à-vis other currencies is the reasoning behind what seems to be an ever-increasing view that the powers-that-be collude to suppress the gold price to hide what is an overall indicator in the decline of the dollar’s purchasing power.

Some put this decline at upwards of 80% since President Nixon severed the convertibility of the dollar for gold to protect US gold reserves. In some sectors of the economy this decline is readily apparent.  Grocery shopping, property prices, salary levels etc.  In others less so, notably transportation and electronics, but in general $100 today would only buy you a fraction of what you could have purchased with $100 in 1971.

But it’s not only the purchasing power of the dollar which has been in decline.  The same is true of virtually any nation’s currency.  All currencies nowadays are fiat in that they have no backing, which is why some economists call for a return to a gold standard.  This is probably impractical without a massive gold price increase and, even then, would probably be overrun very quickly by ever increasing consumer demand for goods and services.

There is also talk of China trying to introduce some kind of gold backing for the renminbi (yuan) at some time in the future thereby leapfrogging the dollar as the world’s go-to currency, but this is probably more a theory than a likely eventuality.  It is seen as the reason China is assumed by many to be building its gold reserves at a far higher rate than it has been reporting, but this may also, if true, be just as support for a future petro-yuan – with the yuan exchangeable for gold – as a very competitive Chinese bid to replace the petrodollar!

So perhaps gold investors should treat the latest rise in the gold price purely as a wealth protection exercise.  That is what gold is good at over time.  If the dollar declines further then gold will rise further, as will all the major precious metals – and most other commodities too.  Changes in prices over  the 47 years since President Nixon stopped dollar convertibility are self evident, but in geographic areas like Europe where currency purchasing power has diminished similarly the imposition of a new currency, and/or the implementation of other changes like decimalisation in the UK, have made direct comparisons that much harder for the peerson in the street to relate to.

But regardless, gold has moved up sharply in dollar terms in the past few days despite mixed economic data out of the USA.  Much of this increase so far seems to have passed silver by and the gold:silver ratio has actually risen a little standing at close to 78 at the time of writing, although silver has been making a bit of a late run ahead of the weekend as have platinum and palladium.

We still stand by our forecast that the gold:silver ratio will come down to 70 or lower during the course of the year which would make silver potentially a better investment than gold if it does follow its historic pattern and rise faster than gold when the latter is on the increase.  At the moment we see no reason to change our forecast for gold to hit $1,425 or thereabouts this year and silver $20.50.  As I stated in the article in which I made these predictions- Precious metals price predictions for 2018 – gold, silver, pgms – I look at these forecasts as being conservative and if the dollar continues to fall and precious metals prices to rise sharply. as they have this past week, then I may see the need to adjust the forecasts – at least in US dollar terms.  However, also bear in mind that gold and silver had a strong start in 2017, but then tended to pull back.  2018 could see a repeat of this pattern, although I don’t see palladium making the kind of gains it did last year.

For those interested in my precious metals stock price forecasts for the year ahead do look at a series of articles i have published on Seekingalpha.com.  

The terms and conditions for publication of articles on Seeking Alpha prevent me from posting them here, but follow the links to read them on that site.

Gold, Silver, Platinum, Palladium – Price And Stock Forecasts/Recommendations For 2018

Precious Metals Stock Performance And Recommendations Update

Top Silver Stock Suggestions For The Year Ahead

 

Economic worries positive for gold

Here follows a recent article by Frank Holmes looking at what may be some unrealised factors which could see gold move significantly higher this year and in the future

It’s Time for the Fear Trade to Move Gold Prices

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

best of the year top 5 frank talk posts of 2017

The price of gold and gold mining stocks were very competitive in 2017. The yellow metal ended the year up a little more than 13 percent—its best year since 2010—while gold stocks, as measured by the NYSE Arca Gold Miners Index, gained more than 11 percent. All of this occurred even as large-cap stocks regularly closed at all-time highs and cryptocurrencies invited massive speculation.

We can thank the Fear Trade for much of gold’s performance last year. The Fear Trade, of course, is driven by low to negative real interest rates—when inflation erodes away at government bond yields—deficit spending, a weaker U.S. dollar and geopolitical uncertainty.

I believe these forces will only intensify in 2018. With inflation finally showing green shoots and President Donald Trump’s $1.5 trillion tax reform law expected to increase deficit spending, this year could provide the right conditions to spur gold prices higher.

The risks inherent in the Federal Reserve’s monetary policy tightening is a good place to start.

Beware the Rate Hike Cycle?

Since the Fed lifted rates last month, gold has behaved just as it did following the last two December rate hikes—that is, it’s begun to appreciate. On the final trading day of 2017, gold broke above $1,300 an ounce, a psychologically important level, and has since climbed an additional 1 percent. This is the first year since 2013, in fact, that gold has started the year above $1,300.

We’ve seen this movie before. In July 2016, the yellow metal peaked close to $1,370 an ounce, a 29 percent surge since the December 2015 rate hike. (If you remember, this represented gold’s best first half of the year since 1974.) And in September 2017, it topped out around $1,360, up close to 18 percent since the December 2016 rate hike.

Will there be a fed rally in 2018
click to enlarge

So will we see a “Fed rally” in 2018 as well? Obviously nothing is guaranteed, but let’s say gold were to follow a similar trajectory this year as it did in 2016 and 2017. That would put gold somewhere between $1,460 and $1,600 an ounce by summer. These are prices we haven’t seen in four years.

I think it’s also worth pointing out in the chart above that support looks good for gold. For the past couple of years, it’s steadily posted higher lows.

But wait—shouldn’t rate hikes put a damper on gold prices? Gold, as I’ve discussed many times before,has typically thrived in a low-rate environment since it’s a non-yielding asset. What’s really happening here?

I’ll let Jim Rickards, editor of Strategic Intelligence, field this question. In a recent Daily Reckoning article titled “The Next Great Bull Market in Gold Has Begun,” Jim explains that the market is looking beyond the rate hike and “asking what comes next.”

After all, the December rate hikes in 2015, 2016 and 2017 were all advertised well in advance by the Fed and were fully discounted by the market. This means that the rate hike was a nonevent, because gold was already priced for it.

Yet the rate hike itself and the Fed’s commentary suggest both a headwind for economic growth and possible Fed ease in the form of future inaction and forward guidance relative to expectations.

Gold markets, in other words, could be forecasting slower economic growth as a result of higher borrowing costs. You might not agree with Jim here, and I’m not asking you to. After all, the U.S. economy is humming right now. Consumer spending is up, optimism is high and we have a robust labor market with unemployment at a 17-year low of 4.1 percent. Many people expect the Trump tax cuts to prompt multinational corporations to bring home cash that’s been held overseas, lift wages and boost capex spending.

At the same time, we can’t ignore the historical implications of past rate hike cycles. I shared with you last month that in the past 100 years, only three such cycles out of at least 18 didn’t end in a recession.The current cycle could turn out to be just as benign, but that would make it a huge exception, not the norm.

U.S. Yield Curve Flattens to Level Not Seen Since 2007

Then there’s the flattening yield curve. The yield curve is said to “flatten” when the difference between the two-year Treasury yield and 10-year Treasury yield starts to tighten. As of today, that spread drew up to around 0.496 percentage points, its flattest level since October 2007.

This measure is worth watching because it’s often seen as one of the most reliable “canary in the coal mine” predictors of recession. The past seven U.S. recessions were directly preceded by an inverted yield curve—that is, when short-term yields rose above long-term yields.

An inverted 10 year minus 2 year treasury yeild spread has historcially preceeded a recession
click to enlarge

To be clear, we still have a way to go before the yield spread inverts. But if this observation concerns you—if you believe the business cycle is in fact getting a little long in the tooth—it might make sense to ensure you have a 10 percent weighting in gold bullion and high-quality gold mutual funds and ETFs.

Inflation Could Be a Lot Hotter Than We Realize

Another factor that’s driven gold prices in the past is inflation. When the cost of living has eaten away at government bond yields, investors have tended to seek more attractive stores of value, including gold. This is at the heart of gold’s Fear Trade.

The problem is that inflation has been sluggish lately—if we’re using the official consumer price index (CPI). In 2017, the CPI just barely met the Fed’s 2 percent target rate. Many economists had expected prices to start creeping up last year in response to President Trump’s nationalist “America first” agenda, complete with new tariffs, strong crackdown on illegal immigration, cancellation of U.S. participation in the Trans-Pacific Partnership (TPP) and a renegotiation of the North American Free Trade Agreement (NAFTA). So far these policies haven’t had much effect on inflation.

But what’s the “real” inflation? Which gauge should we be looking at? Again, the CPI doesn’t show much movement.

The underlying inflation gauge (UIG), however, tells a different story.

The UIG, introduced only last year by the New York Fed, is a much broader measure of inflation than the CPI. It includes not just consumer prices but also producer prices, commodity prices and financial asset prices.

When we use this dataset, we find that—surprise!—inflation is not as subdued as we initially thought. Whereas the November CPI came in at 2.2 percent, the UIG heated up to 3 percent, its highest reading since August 2006.

Would the real inflation metric please stand up
click to enlarge

The implications here are huge. Three percent is higher than the five-year Treasury yield, currently around 2.3 percent, and the 10-year yield, about 2.5 percent. It’s even higher than the 30-year Treasury yield at 2.8 percent!

But there are even more ways to measure inflation, and some show it being higher than the UIG. Economist John Williams runs a website called Shadow Government Statistics, where you can find, among other “alternate” datasets, current inflation rates as is they were calculated the way the U.S. government did pre-1980. Note the huge bifurcation between the official CPI and alternate 1980-based CPI. According to the alternate gauge, consumer prices in November rose close to 10 percent year-over-year, or 7.75 percentage points more than the CPI.

US consumer inflation official vs shadowstats 1980 based alternative
click to enlarge

“In general terms,” Williams writes, “methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.”

So which metric do you believe? The official CPI? The 1980-based CPI? The broader UIG? If it’s one of the last two, you have to ask yourself why you would lock your money up for five years, 10 years or even 30 years in a government bond that fails to keep up with real inflation. The investment case for gold suddenly becomes very attractive.

Gold, silver, platinum, palladium prices – where are they headed in 2018?

This is the time of year for precious metals price predictions and these are flowing thick and fast, and the majority of such we have seen so far this year are positive for virtually the whole complex.  Indeed all the precious metals seem to have have started the year off in decently positive territory, but will it last?

We are already beginning to see heavy hands in the futures markets which could, given the monetary resources available, keep precious metals prices depressed – a pattern we have seen in the past, although the encouragement here is that we have at least seen prices rise in general over the past two years.  However the rises have been relatively small in the metals themselves.  Bur maybe they are at the early stages of another bull market.

We have been making our own predictions on the websites for which we write, including this one, but some require exclusivity so the only way you can read what we have to say on these is by accessing these websites directly.  Thus we would direct our North American readers to the U.S. Gold Bureau website, which is blocked to non-North American-based precious metals investors unless you have something like the Tor web browser (which uses Firefox) installed on your computer.

Tor allows you to browse anonymously and simulate access from any specific country, so for those looking to access North American sites which are blocked to non-residents, the browse can be set for your access to appear to be from the USA itself.  The browser software also protects you by bouncing your communications around a distributed network of relays run by volunteers all around the world: it prevents somebody watching your Internet connection from learning what sites you visit, it prevents the sites you visit from learning your physical location, and it lets you access sites which are blocked.  The browser works on Microsoft Windows, Apple MacOS, or GNU/Linux without needing to install any special software. It can run off a USB flash drive, comes with a pre-configured web browser to protect your anonymity, and is self-contained (portable).  The software is perfectly legal and if you wish to download it a link is here: Tor Browser – Download

The reason I’ve given the above information on Tor is that’s the only way I’ve found of accessing my own articles on the US Gold Bureau website, where I’ve been publishing one or two exclusive articles a month.  My latest one is: Precious Metals Price Predictions for 2018 (accessible directly if your browser picks you up as located in the USA, but if not only accessible on something like the Tor browser) and is something of an update to one published on Seeking Alpha just before Christmas entitled Gold, Silver, Platinum, Palladium – Price And Stock Forecasts/Recommendations for 2018.  This latter article has been linked here before so some readers may have read it already, but for those who haven’t it looks at the performance of my precious metals stock prediction for last year – over half outperformed the S&P 500 despite that Index breaking record after record during 2017, as well as metal price and precious metals stock forecasts for the current year.

I can also point you to a couple more articles I’ve published on the Sharps Pixley website which look at generalistic precious metals forcecasts from Martin Murenbeeld and the World Gold Council: 2018 gold price forecasts – Murenbeeld and World Gold Council  and a summary of the precious metals performance prognostications for 2018 from one of the UK’s top precious metals consultancies: Metals Focus’ precious metals predictions for 2018

There are plenty of other analysts out there who will be giving their opinions on where Precious meta;s are headed this year.  A good source for reading these is the News section of the  Sharps Pixley website which picks up precious metals news items from all around the world.

Wishing all readers of lawrieongold a prosperous 2018 and the hope that precious metals perform at least as well as we are forecasting throughout the year.