Gold price performance – latest views

Here are links to a couple of articles I’ve posted in the past few days on the Sharps Pixley website for which I am a contributing editor;

The first looks at gold’s performance despite some seemingly concerted attempts to knock the price back – a subject I’ve commented on before.  These look to have failed – at least in terms of making a major permanent dent in the metal price, although the mere process of knocking the price back – even if only for a very short time – may indeed make potential gold investors more cautious.  The article is: Even another flash crash can’t keep gold price down.  Click on the title to read it.

The second looks at predictions for gold at $5,000 and then $10,000 from a couple of the more rational gold bullish commentators and why their predictions will almost certainly come about – over time.  It’s just a matter of how long it will take for these levels to be achieved which is in doubt.  I point out in the article that in terms of the yellow metals’ past performance these estimates are not only reasonable, but perhaps conservative.  As I point out in the article, in my lifetime gold has risen from an admittedly controlled $35 an ounce to over $1,900 at one point – a 54x increase – and over 37x to the current price level.  Even a 37x gold price rise from the ca. $1,320 where its stands today would put it at over $48,000 – probably unlikely without some kind of global catastrophe, but at least it puts a rise to a mere $10,000 into context – only around a 7.5x increase from where it is at the moment!”

To read the full article, click on $5,000 gold – then $10,000. Gold bulls sing from same songbook

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Gold Breaks Out to New 2017 High

by: Stefan Gleason*

Gold’s naysayers and doubters came out in full force earlier this summer as sentiment reached its nadir. The mid-year pullback in prices did, too.

There can be no doubt about it now – gold has broken out of its summer doldrums. On Monday, the yellow metal finally broke through the longstanding $1,300/oz resistance zone to make a new high for the year at $1,316.

Gold - Continuous Contract (August 28, 2017)

Assuming the breakout holds, the next upside target is $1,375/oz, the high point for 2016.

There are plenty of bullish factors behind gold’s recent upside momentum to continue pushing prices higher in the days and weeks ahead. The gold mining stocks are starting to show relative strength again. And the U.S. Dollar Index appears to have begun another new down leg this week, falling Monday to a two-and-a-half-year low.

Another bullish factor is geopolitics. Gold gained a few more dollars in early trading Tuesday morning in Asia after North Korea launched a missile over Japan. Japanese Prime Minister Shinzo Abe said, “Their outrageous act of firing a missile over our country is an unprecedented, serious and grave threat and greatly damages regional peace and security.”

On any ordinary news day, this dangerous provocation from North Korea would be the top story on all the cable news channels. Hawks would be calling on the U.S. to retaliate, and doves would be warning of the potential for millions of deaths in the event war breaks out in the densely populated region.

For now, though, the unprecedented flooding caused by Hurricane Harvey is the Trump administration’s top priority. Early estimates are that the storm has caused $40 billion in damage. Water levels are still rising in Houston, and surrounding areas extending to Louisiana, so the scale of the catastrophic losses stemming from 11 trillion gallons of water will continue to grow in the days ahead.

Several major oil refineries have been shut down by the storm. However, crude oil production is little affected. Oil inventories are expected to build even as gasoline prices rise (gasoline futures jumped 3% on Monday).

The disaster is bringing Americans from disparate backgrounds and worldviews together, united in a common purpose to help provide relief to those in need. Perhaps Congress will set aside some of its partisan acrimony when it goes back into session next week. Unfortunately for taxpayers, though, outbreaks of bipartisanship are usually associated with emergencies that cause both sides to agree on even more spending.

The political pressure to make sure federal agencies are equipped to handle Harvey relief efforts (which will be ongoing for months) figures to be overwhelming. Conservatives who had aimed to force concessions in an upcoming budget fight may conclude that they now have no leverage to do so.

Government Shutdown

President Donald Trump so far hasn’t backed off his vow to pursue border wall funding even if Congress refuses and a government shutdown occurs. But a government shutdown in the aftermath of a major natural disaster could be a political disaster for whoever gets blamed for it.

With so many risks hitting investors this week, it’s no surprise that the gold market is benefiting from safe-haven inflows.

Silver is benefiting as well. Although the silver market has not yet hit a new high for the year, prices advanced nearly 2.5% Monday to close above the 200-day moving average.

If silver can now start showing leadership, that would be bullish for the entire precious metals complex. The gold:silver ratio currently stands at about 75:1. Gold is still trading at a high price historically relative to silver.

The ratio can move rapidly to the downside when silver prices are surging. That was the case from late 2010 to early 2011, when the ratio dropped from the high 60s to the low 30s. An even bigger move could be in store for those who buy silver now, while the gold:silver ratio is still in the 70s.

Gold gains from economic storms, ‘fake rates’ and Jackson Hole

Are You Prepared for These Potentially Disruptive Economic Storms?

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

Hurricane Harvey

Here in San Antonio, grocery stores were packed with families stocking up on water and canned food in preparation for Hurricane Harvey, which has devastated Houston and coastal Texas towns. I hope everyone who lives in its path took the necessary precautions to stay safe and dry—this storm was definitely one to tell your grandkids about one day.

Similarly, I hope investors took steps to prepare for some potentially disruptive economic storms, including this past weekend’s central bank symposium in Jackson Hole, Wyoming, and the possibility of a contentious battle in Congress next month over the budget and debt ceiling.

As you’re probably aware, central bankers from all over the globe visited Jackson Hole this past weekend to discuss monetary policy, specifically the Federal Reserve’s unwinding of its $4.5 trillion balance sheet and the European Central Bank’s (ECB) ongoing quantitative easing (QE) program. Janet Yellen gave what might be her last speech as head of the Federal Reserve.

As I told Daniela Cambone on last week’s Gold Game Film, there are some gold conspiracy theorists out there who believe the yellow metal gets knocked down every year before the annual summit so the government can look good. I wouldn’t exactly put money on that trade, but you can see there’s some evidence to support the claim. In most years going back to 2010, the metal did fall in the days leading up to the summit. Gold prices fell most sharply around this time in 2011 before rocketing back up to its all-time high of more than $1,900 an ounce.

Gold prices generally fell days before the annual economic symposium
click to enlarge

Many of the economic and political conditions that helped gold reach that level in 2011 are in effect today. That year, a similar Congressional skirmish over the debt ceiling led to Standard & Poor’s decision to lower the U.S. credit rating, from AAA to AA+, which in turn battered the dollar. The dollar’s recent weakness is similarly supporting gold prices.

In August 2011, the real, inflation-adjusted 10-year Treasury was yielding negative 0.59 percent on average, pushing investors out of government bonds and into gold. Because of low inflation, we might not be seeing negative 10-year yields right now, but the five-year is borderline while the two-year is definitely underwater. Bank of America Merrill Lynch sees gold surging to $1,400 an ounce by early next year on lower long-term U.S. interest rates.

Are Government Inflation Numbers More “Fake News”?

If we use another inflation measure, though, yields of all durations look very negative. For years, ShadowStats has published alternate consumer price index (CPI) figures using the methodology that was used in 1980. According to economist John Williams, an expert in government economic reporting, “methodological shifts in government reporting have depressed reported inflation” over the years. The implication is that inflation might actually be running much higher than we realize, as you can see in the chart below.

Official US consumer inflation vs shadowstats alternate
click to enlarge

If you believe the alternate CPI numbers, it makes good sense to have exposure to gold.

Recently I shared with you that Ray Dalio—manager of Bridgewater, the world’s largest hedge fund with $150 billion in assets—was one among several big-name investors who have added to their gold weighting in recent days on heightened political risk. That includes Congress’ possible failure to raise the debt ceiling and, consequently, a government shutdown. Dalio recommends as much as a 10 percent weighting in the yellow metal, which is in line with my own recommendation of 10 percent, with 5 percent in physical gold and 5 percent in gold stocks, mutual funds and ETFs.

I urge you to watch this animated video about opportunities in quality gold mining stocks!

Falling Dollar Good for U.S. Trade

Returning to the dollar for a moment, respected CLSA equity strategist Christopher Wood writes in this week’s edition of GREED & fear that it’s “hard to believe that the political news flow in Washington has not been a factor in U.S. dollar weakness this year.”

The U.S. media certainly wants you to believe that Trump is bad for the dollar. Take a look at this chart, showing the dollar’s steady decline alongside President Donald Trump’s deteriorating favorability rating, according to a RealClearPolitics poll.

US dollar tracks trumps favorability down
click to enlarge

However, a weak dollar is good for America’s economy. I’ve commented before that Trump likes a falling dollar, because it is good for the country’s export trade of quality industrial products. It’s also good for commodities, which we see in a rising gold price and usually energy prices.

Ready for a Big Fight?

You might have watched the Mayweather vs. McGregor fight, but have you been watching the fight between Trump and the Fed?

At the symposium in Jackson Hole, Fed Chair Janet Yellen squared up directly against Trump when she defended the strict regulations that were put in place after the financial crisis. Echoing these comments was Dallas Fed chief Robert Kaplan. This is the opposite of what Trump has been calling for, which is the streamlining of regulations that threaten to strangle the formation of capital.

Hurricane Harvey

It’s important to recognize that the market is all about supply and demand. The number of public companies in the U.S. has been shrinking, with about half of the number of listed companies from 1996 to 2016. Readers have seen me comment on this previously, and I believe that the key reason for this shrinkage is the surge in federal regulations. The increasingly curious thing is that we are seeing the evolution of more indices than stocks, as the formation of capital must morph.

As I told CNBC Asia’s Martin Soong this week, there is a huge amount of money supply out there, and investors are looking for somewhere to invest. The smaller pool of stocks combined with the greater supply of money means that the market has seen all-time highs. In addition, major averages were regularly hitting all-time highs not necessarily on hopes that tax reform would get passed, but on strong corporate earnings, promising global economic growth and the weaker U.S. dollar.

Meanwhile, small-cap stocks are effectively flat for 2017 and heading for their worst year since 1998 relative to the market, according to Bloomberg. Hedge funds’ net short positions on the Russell 2000 Index have reached levels unseen since 2009. Remember, these are the firms that were expected to be among the biggest beneficiaries of Trump’s “America first” policies.

However, the weakness in U.S. manufacturing has a great impact on the growth of these stocks, as indicated by the falling purchasing managers’ index (PMI). The slowdown in manufacturing is offset by strength in services, shown by the Flash composite PMI score of 56.0 which came out this week. Though there is a spread between large-cap and small-cap stocks, historically this strong score is an indicator of growth to come.

Spread between large cap and small cap stocks continues to widen
click to enlarge

Some big-name investors and hedge fund managers are turning cautious on domestic equities in general. On Monday, Ray Dalio announced on LinkedIn that he was reducing his risk in U.S. markets because he’s “concerned about growing internal and external conflict leading to impaired government efficiency (e.g. inabilities to pass legislation and set policies).” Pershing Square’s Bill Ackman and Pimco’s Dan Ivascyn have also recently bought protection against market unrest, according to the Financial Times. Chris Wood is overweight Asia and emerging markets.

Stay Hopeful

It’s important to keep in mind that there will always be disruptions in the market, and adjustments to your portfolio will sometimes need to be made. For those of you who read my interview with the Oxford Club’s Alex Green, you might recall his “Gone Fishin’” portfolio, which I think is an excellent model to use—and it’s beaten the market for 16 years straight. Green’s portfolio calls for not just domestic equities, Treasuries and bonds but also 30 percent in foreign stocks and as much as 10 percent in real estate and gold.

Stay safe out there!

Even another flash crash can’t keep gold price down for long

This is a lightly edited version of one first posted on the Sharps Pixley news website

2 million ounces of gold were dumped on the gold market in a minute on Friday, just ahead of Janet Yellen’s speech at Jackson Hole – and, after a very brief downwards spike to below $1,280, the gold price rapidly climbed back to unchanged.  This has to be an incredibly bullish signal for gold in that even this amount of presumably paper gold thrown at it (62.2 tonnes) couldn’t keep the gold price down.  Bloomberg described the 2 million ounce trade as ‘mysterious’.  Perhaps at least that is a welcome change from the usual ‘fat finger’ attribution which seems to be applied to these seemingly increasingly frequent mega-sales of paper gold which, despite protestations to the contrary, seem to be designed to keep the gold price suppressed.

Today, the gold price drifted upwards ahead of New York’s opening and then, at around 11.00 am New York time the price spiked upwards sharply, soaring through the $1,300 psychological barrier.  The question is where to next?

The key here may well be what has been happening with physical gold.  On Friday the SPDR Gold Shares ETF (GLD) had almost 6 tonnes of gold bought into it.  GLD has thus seen 18.33 tonnes of physical gold added to it in 2 weeks after what we might describe as ‘mysteriously’ seeing some 80 tonnes withdrawn over the previous two months – during which time the gold price didn’t seem to be spooked by this amount of gold being taken out of the world’s biggest gold ETF.  We had already pointed out the anomaly that America’s second biggest gold ETF – the iShares Gold Trust (IAU) – had not seen corresponding metal liquidations.  The Swiss gold import and export statistics, also reported in these pages, had shown that there appears to be a ready market in Asia for any physical gold released in the west, and this could well be a sign that gold could be moving into a short supply situation in the West.  If America starts buying physical gold again, we could thus see big price rises with buyers bidding up what might be an increasingly rare commodity.

As I write, the gold price rise seems to have stalled at the $1,310 level and there will almost certainly be attempts to drive it down, or at least prevent it rising further.  But it does seem to have some momentum behind it and could well move up to the $1,320s.  But, as we have pointed out before, this time next week is the U.S. Labor Day holiday and this often seems to provide an inflection point in economic trends.  It could presage a sell-off in gold or see the price boosted into the stratosphere, figuratively speaking.  Nothing is simple with gold.  But if gold gets a boost after September 4th we could see equities – and perhaps bitcoin – moving sharply in the other direction.  Both would seem to be in bubble situations and sooner or later all bubbles burst.

We’d rather bet on gold than alternatives.  Even if there is a gold price turndown ahead it is likely to be relatively minor, while the fall, when it comes, as come it must, in equities and bitcoin could be devastating.  Food for thought ahead of the U.S. holiday weekend.

Gold waiting on Yellen and Draghi indicators

Gold Today –New York closed yesterday at $1,286.20. London opened at $1,285.95 today. 

Overall the dollar was slightly weaker against global currencies before London’s opening:

         The $: € was slightly weaker at $1.1799 after the yesterday’s $1.1794: €1.

         The Dollar index was slightly weaker at 93.28 after yesterday’s 93.31

         The Yen was slightly weaker at 109.63 after yesterday’s 109.29:$1. 

         The Yuan was slightly stronger at 6.6609 after yesterday’s 6.6621: $1. 

         The Pound Sterling was slightly stronger at $1.2822 after yesterday’s $1.2807: £1

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    8    25

     2017    8    24           

     2017    8    23

SHAU

SHAU

SHAU

/

277.00

276.39

Trading at 277.60

277.25

276.92

$ equivalent 1oz at 0.995 fineness

@   $1: 6.6609

       $1: 6.6621

       $1: 6.6624     

  /

$1,288.24

$1,285.33

Trading at $1,289.70

$1,289.40

$1,287.80

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 New York closed at $3.20 lower than Shanghai’s yesterday’s close. Today sees Shanghai holding just $0.30higher than yesterday, which was $3.75 higher than London’s opening. The global gold markets remain close to each other with Shanghai barely moving.

Silver Today –Silver closed at $16.95 yesterday after $16.95 at New York’s close, Wednesday.

LBMA price setting:  The LBMA gold price was set this morning at $1,287.05 from yesterday’s $1,285.90.  The gold price in the euro was barely changed being set at €1,090.35 after yesterday’s €1,090.76.

Just before the opening of New York the gold price was trading at $1,287.20 and in the euro at €1,089.19. At the same time, the silver price was trading at $17.03. 

Price Drivers

We cannot remember seeing prices in the precious metals this calm for a few days. As we have said before Shanghai has had a calming effect on global gold markets, but even its calmness is remarkable. It is not that we expect anything dramatic from Jackson Hole but in such a calm market, any news at all, will have an impact.

We feel for Janet Yellen and Mario Draghi as the financial world waits for the slightest hint in their speeches today of dovishness or hawkishness. The slightest stumble on their part could influence the entire financial world. Nevertheless, central bank policies are really the only policies affecting the financial world.

It should be government policy with central bank policy backing up government policy, but governments just don’t seem able to get things done and have not done it since the credit crunch in 2008. In itself, this tells you just how fragile the financial world is, when governments are so emasculated.

It is so fragile that even if the two central bankers were neutral in what they said, the financial world will behave in a mercurial fashion. We do expect action in financial markets today which will turn the market calmness into a storm in the coming weeks.

But we need to be clear on the reality that whatever Yellen and Draghi say that does not directly affect exchange rates, will be gold neutral or will only affect gold prices for the short term. We remind readers that the gold price is a synthesis of global gold prices and not the result of U.S. factors. It reflects the condition of the currency and monetary world which continues to evolve away from dollar hegemony.

Once again there are no purchases or sales into or from the SPDR gold ETF and the Gold Trust as U.S. gold investors wait too.  

Gold ETFs – Yesterday there were no purchases or sales of gold into or from the SPDR gold ETF but there were small purchases into the Gold Trust of 0.44 of a tonne. The SPDR gold ETF and Gold Trust holdings are at 799.286 tonnes and at 215.91 tonnes respectively.

Since January 4th 2016, 177.55 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust. 

Since January 6th 2017, 15.95 tonnes to the gold ETFs we follow.

Julian D.W. Phillips – GoldForecaster.com | StockBridge Management Alliance 

Gold and Silver marking time: Waiting on Jackson Hole statements

Gold Today –New York closed yesterday at $1,290.20. London opened at $1,287.10 today. 

Overall the dollar was slightly weaker against global currencies before London’s opening:

         The $: € was slightly weaker at $1.1794 after the yesterday’s $1.1784: €1.

         The Dollar index was slightly weaker at 93.31 after yesterday’s 93.39

         The Yen was slightly stronger at 109.29 after yesterday’s 109.36:$1. 

         The Yuan was slightly stronger at 6.6621 after yesterday’s 6.6624: $1. 

         The Pound Sterling was slightly weaker at $1.2807 after yesterday’s $1.2811: £1

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    8    24

     2017    8    23           

     2017    8    22

SHAU

SHAU

SHAU

/

276.39

277.34

Trading at 277.20

276.92

276.92

$ equivalent 1oz at 0.995 fineness

@   $1: 6.6621

       $1: 6.6624

       $1: 6.6559     

  /

$1,285.33

$1,287.00

Trading at $1,289.17

$1,287.80

$1,289.07

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 New York closed at $2.40 higher than Shanghai’s yesterday’s close. Today, sees Shanghai holding almost the same level as it did yesterday, which was $2.27 higher than London’s opening. The global gold markets remain pretty much in line with each other.

We continue to see prices pausing and building strength, ahead of breaking higher.

Silver Today –Silver closed at $17.08 yesterday after $17.00 at New York’s close both Tuesday.  It has slipped back today.

LBMA price setting:  The LBMA gold price was set this morning at $1,285.90 from yesterday’s $1,286.45.  The gold price in the euro was barely changed being set at €1,090.76 after yesterday’s €1,090.86.

Just before the opening of New York the gold price was trading at $1,287.55 and in the euro at €1,090.36. At the same time, the silver price was trading at $16.96. 

Price Drivers

The currency and precious metal prices are remarkably quiet again, today. Once again there are no purchases or sales into or from the SPDR gold ETF and the Gold Trust.

While we do recognize that the Shanghai market has reduced volatility in the London and New York, currency and precious metal prices remain in calm waters. The Jackson Hole meeting of central bankers on Friday is headline news as Draghi, of the E.C.B. may now give a speech.

What we need to say about central bankers in the developed world is that they have to and will, keep interest rates negative for the foreseeable future.

With that being said we now see a calm rising gold price, in all currencies, reflecting that it is a measure of the value of currencies and not the other way around of late. For instance, the Shanghai gold price for the last couple of days has been very stable, while the Yuan is appreciating against the dollar. The dollar is struggling to hold levels in the dollar index, confirming what we have said since we called not only the top of the dollar index, but the start of the bear market in the dollar.

As we said before the dollar has entered a multi-year bear market as it loses dollar hegemony in favor of a multi-currency system. It is only a matter of time before China becomes the largest economy in the world, not only because it has around 4 times the population of the U.S. and three times that of Europe, but its infrastructure is nearly brand new as are its manufacturing industries. Germany and Japan gained the same advantages after the Second World War and look at them now.

After the establishment of the euro in 1999 that currency took a nearly 25% position in global reserves. As China grows so the Yuan will take an ever increasing percentage of global reserves. The currency system as we know it, was designed for dollar hegemony [including being the only currency with which to pay for oil] not a multi-currency system. The potential ruptures to the foreign exchange world necessitate gold taking a more important role. China has realized that, which is why it is amassing so much gold in its reserves including in the hands of institutions and its citizens. It still has a long way to go on that front before it has adequate amounts of gold in the country [gold is not allowed out of the country].

We are not convinced it wishes to hold just as much as the U.S. It will hold as much gold as it deems necessary to ensure its international position and size is backed by sufficient gold to guard it against any monetary crisis and to reinforce the Yuan internationally.

Gold ETFs – Yesterday there were no purchases or sales of gold into or from the SPDR gold ETF or the Gold Trust. The SPDR gold ETF and Gold Trust holdings are at 799.286 tonnes and at 215.47 tonnes respectively.

Since January 4th 2016, 177.11 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust. 

Since January 6th 2017, 15.51 tonnes to the gold ETFs we follow.

 Julian D.W. Phillips – GoldForecaster.com | StockBridge Management Alliance 

China’s Get the Gold Plan: Part II

by: David Smith*

Readers may remember my November 2014 report in which I discussed how gold flowed into China in “tributary fashion” like small streams flowing into a giant one. In this case, the gold has been streaming into China’s increasingly massive thousands-of-tons gold hoard.

China's Gold Reserve

In January, 2015, I penned an essay titledChina’s Global Gold Supply “Game of Stones,” outlining China’s long-range goal to dominate the world’s physical gold market.

Well, events have moved massively forward since then. I want to update you as to just how much things have changed – and how close we may be to experiencing a “defining moment” in the gold market.

I’m talking about a game-changing event that could, with little warning, propel the price of gold upward by hundreds – even thousands – of dollars per ounce in the space of a few weeks… conceivably overnight! (And since silver’s price movements are highly correlated with that of gold, we could expect an upside explosion in silver as well.)

China’s 4-pronged gold accumulation strategy:

First: Buy physical gold in world markets, re-fabricate it when necessary (into .9999 fine bars in Switzerland), and ship to the mainland.

Second: Hoard all domestically-produced gold… which is now being done, even when produced from operations with foreign-partners. This is also true with silver production, e.g. Silvercorp Metals – a Canadian silver/lead producer with operations on the Chinese mainland.

Third: Partner with (e.g. Pretivm Resources; Barrick Gold-Pascua Lama) or buy outright, gold explorer-producers located on foreign soil.

Fourth: Purchase for cash, gold production “off the books” from ‘informa’ miners in S.E. Asia, Africa, and South America. China’s intent is to supplant the U.S. as the largest holder of physical gold (claimed to be around 8,000 metric tons) on the planet.

(Disclosure: I, David Smith, have held for several years, positions in Silvercorp and Pretivm, purchased in the open market.)

Right now, China is vastly understating what it actually holds as well as how much is being imported.

This deception is easier than ever because a significant amount is no longer routed (and thus reportable) through Hong Kong, but rather through other mainland entry ports. What the authorities admitted holding as of last summer was almost unbelievably small compared to what even the official figures streaming through Hong Kong alone, plus domestic production add to the total, and China is also now the number one global gold producer.

As reported by Steve St. Angelo China has, during Q1, 2017, imported a record 57.4 metric tons of gold to the mainland, from Australia.

Australia & U.S. Gold Mine Supply vs Exports

Notice the Australian/U.S. multi-year pattern of gold mine exports vs. production

In Addition: A parallel determinant is China’s effort to lessen its holdings of U.S. dollar reserves, by signing infrastructure agreements (denominated in yuan) with countries participating in its massive, long-term New Silk Road project. It’s been reported that China has even approached Saudi Arabia about yuan-based oil sales – a direct threat to the decades-long monopoly of the U.S. petrodollar.

And then there’s this:

The Perth Mint sold $11 billion worth of bullion to China last year alone, and demand continues to climb. Demand is so strong that Perth Mint brings in gold from mines in other countries like Papua New Guinea and New Zealand, and jewelry from South-East Asia that is refined down to the Mint’s signature 99.99 percent gold bullion. (ABC News)

and:

Steve St. Angelo reports that so far in 2017, scrap gold recovery is down sharply, even though the price of gold has risen – an unusual historic occurrence.

His projection for the year? “…as the price of gold has increased in 2017, global gold scrap supply will fall by almost a third, or 32% versus 2010… this major gold market indicator trend shift suggests that individuals are now holding onto their gold rather than sell it for a higher FIAT MONETARY PRICE.”

A Surprising Shock-Rise?

Precious metals prices have been in a cyclical decline since mid-2011 – not unlike the last secular bull market in the 1970’s – before gold’s eight-fold rise less than two years later.

It’s understandable that you might meet this latest suggestion of an unexpected, massive rise in the price of gold and silver with skepticism. A rise that could take place so quickly that those who hesitate could not react before prices had climbed far above prevailing levels. Before the supply cupboard had been swept clean. But the truth is – it’s not a pipe dream, not blowing smoke, not wishful thinking. This is not just possible, but increasingly probable.

Everything in life involves playing the odds. If something is “unlikely” but possible, and if that something taking place had the potential of being a “game-changer,” would you not seek to prepare for it in some measure?

A vertical up-move in gold would place you in a tidy profit position, even if you held a relatively small amount (e.g. the oft-touted 5% of your investable assets). So, it’s not necessary to mortgage the house or go into debt in order to “participate.”

I believe it’s almost “a given” that precious metals will resume their secular bull run, which could continue for the next three to five years. If you agree, does it not make sense to begin (or continue) a conservative metals’ acquisition plan? With little worry as to the price where you began?

It’s not that difficult. Either buy metals when you have some surplus investible funds, and/or do so on a regular, dollar-cost-average basis. If the “China card” never gets played, you’ll still do well as metals’ prices advance over the coming years. You’ll have been purchasing “paid-up insurance” for the rest of your holdings, hedging more as time goes on.

And one more thing. Don’t think of it as “spending money” on buying gold and silver. You’re simply exchanging continually-depreciating “paper promises” – the enduring term coined by David Morgan at TheMorganReport.com – for “honest money” which has stood the test for millennia and will likely continue for as far as the eye can see.

Remember, if you don’t hold it in your hand, you can’t be sure you really own it. John Hathaway, Tocqueville Asset Management covers this precisely, saying,

When the market reverses, the diminished physical anchor to paper claims, concerns over title and encumbrances on central bank bullion, and worries over the drift of public policy will drive liquid capital into gold. However, this time around, it seems to us that the major recipient of flows will be the physical metal itself. Holders of paper claims to gold will receive polite and apologetic letters from intermediaries offering to settle in cash at prices well below the physical market. To those who wish to hold their wealth exclusively in paper assets, implicitly trusting the policy elites to resurrect normally functioning capital markets and economic conditions, we say good luck. For those who harbor doubts on such an outcome, we say get physical.

 *

Gold breaches $1,300 albeit briefly

Gold Today –New York closed yesterday at $1,288.70. London opened at $1,293.15 today. 

Overall the dollar was weaker against global currencies, early today. Before London’s opening:

         The $: € was weaker at $1.1750 after the yesterday’s $1.1743: €1.

         The Dollar index was weaker at 93.47 after yesterday’s 93.64

         The Yen was stronger at 109.05 after yesterday’s 110.02:$1. 

         The Yuan was weaker at 6.6769 after yesterday’s 6.6713: $1. 

         The Pound Sterling was stronger at $1.2896 after yesterday’s $1.2887: £1

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    8    18

     2017    8    17           

     2017    8    16

SHAU

SHAU

SHAU

/

277.29

274.83

Trading at 278.0

277.03

274.62

$ equivalent 1oz at 0.995 fineness

@   $1: 6.6769

       $1: 6.6713

       $1: 6.6926     

  /

$1,287.80

$1,272.26

Trading at $1,290.03

$1,286.59

$1,271.28

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 New York closed $2.00 higher than Shanghai’s close yesterday. Then today sees Shanghai jumping to $1.33 higher than New York’s close before London opened nearly a $3.12 higher than Shanghai, as the dollar continued its fall and real demand for gold was seen.

All three global gold centers continue to react to the falling dollar today. This is about the dollar once again. There appears to be an effort to curb the euro’s rise, with Draghi saying the euro may be overheating.

The market consensus is that the euro could rise above $1.20.If that happens and the gold price reflects such a rise, then we would see a dollar gold price of $1,317, well above long term resistance.

Silver Today –Silver closed at $17.05 yesterday after $16.94 at New York’s close Wednesday.

LBMA price setting:  The LBMA gold price was set today at $1,295.25 from yesterday’s $1,285.90.  The gold price in the euro was set again at €1,102.72 after yesterday’s €1,098.78.

Just before the opening of New York the gold price was trading at $1,296.00 and in the euro at €1,103.82. At the same time, the silver price was trading at $17.22. After New York opened gold briefly breached the $1,300 psychological level before being brought back down the the mid-$1290s again.

Price Drivers

The dollar is falling once more, but not precipitously. It will lead to higher gold prices if it continues. This is being reflected in today’s prices. There is strength to the rise in gold price that we had not seen before in the previous attacks on $1,300. The causes are solid too. These are; an overvaluation of the dollar, a resuscitation of U.S. demand for physical gold, a dearth of sellers of gold, Shanghai’s demand for gold remains strong as it does in London!

While we rarely attribute gold price rises to political stories and the like, we do feel that the disappointment at President Trump’s efforts to bring great economic changes to the U.S. is resulting in bearish sentiment on the dollar, U.S. equities and the future of interest rate rises.

His abrasive attacks, on all fronts, appear to have undermined his hopes of achieving great things. It does look like the government in the U.S. is unable to rule effectively, at the moment, due to partisan infighting and lack of support amongst even the Republican Party. This is supportive of higher gold prices as U.S. institutional investors advocate a 10% – 15% holding in gold.

Gold ETFs – Yesterday there were no purchases or sales into the SPDR gold ETF or the Gold Trust yesterday. The SPDR gold ETF and Gold Trust holdings are at 795.443 tonnes and at 213.28 tonnes respectively.

Since January 4th 2016, 171.08 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust. 

Since January 6th 2017, 9.114 tonnes have been added to the gold ETFs we follow.

Julian D.W. Phillips  – GoldForecaster.com | StockBridge Management Alliance

Gold rises, dollar falls, on FOMC minutes consideration

Gold Today –New York closed yesterday at $1,282.90. London opened at $1,288.10 today. 

Overall the dollar was weaker against global currencies, early today. Before London’s opening:

         The $: € was weaker at $1.1743 after the yesterday’s $1.1725: €1.

         The Dollar index was stronger at 93.64 after yesterday’s 93.89

         The Yen was weaker at 110.02 after yesterday’s 110.86:$1. 

         The Yuan was much stronger at 6.6713 after yesterday’s 6.6926: $1. 

         The Pound Sterling was almost unchanged at $1.2887 after yesterday’s $1.2883: £1

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    8    17

     2017    8    16           

     2017    8    15

SHAU

SHAU

SHAU

/

274.83

274.93

Trading at 277.2

274.62

274.81

$ equivalent 1oz at 0.995 fineness

@   $1: 6.6713

       $1: 6.6926

       $1: 6.6792     

  /$1,272.26

$1,275.28

Trading at $1,287.38$1,271.28

$1,274.73

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 New York closed $11.38 higher than Shanghai’s close yesterday. Then today sees Shanghai jumping to $4.48 higher than New York’s close before London opened nearly a $1.00 higher than Shanghai, as the dollar started to resume its fall.

All three global gold centers are reacting to the falling dollar today. What is of great interest is that the concept of Shanghai having a “premium” over London is just about dead. We are seeing a truly global gold price now, both ways. We have no doubt now that global gold prices are here to stay and that the impact of COMEX ‘paper’ gold prices has almost been removed as the significance of New York’s gold prices has diminished, in favour of the global gold price. This is a significant point in the evolution of the gold price!

Silver Today –Silver closed at $16.94 yesterday after $16.71 at New York’s close Tuesday.

LBMA price setting:  The LBMA gold price was set this morning  at $1,285.90 from yesterday’s $1,270.15.  The gold price in the euro was set again at €1,098.78 after yesterday’s €1,084.67.

Just before the opening of New York the gold price was trading at $1,286.50 and in the euro at €1,098.54. At the same time, the silver price was trading at $17.10. 

Price Drivers

The dollar appears to have turned down to resume its fall to lower levels. It has bounced down off overhead resistance. This is now reflected in the exchange rate against the dollar as well as the gold price. Take a look at the gold price in the euro and it shows that gold is €10 higher at the opening, so the gold price is rising against all currencies now.

It was after the Fed Minutes came out that the dollar changed direction. Market hopes that tightening is still on the cards were disappointed.  As we write the dollar is trying to strengthen, but the index remains below 94.

Gold ETFs – Yesterday there were purchases of 4.435 tonnes of gold into the SPDR gold ETF but no change in the Gold Trust yesterday. The SPDR gold ETF and Gold Trust holdings are at 795.443 tonnes and at 213.28 tonnes respectively.

It does appear that U.S. investors are listening to their peers who are recommending gold to the extent of 10% – 15% of their portfolios as more warnings of toppy markets in U.S. equities become more apparent.

Since January 4th 2016, 171.08 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust. 

Since January 6th 2017, 9.114 tonnes have been added to the gold ETFs we follow.

 Julian D.W. Phillips  GoldForecaster.com | StockBridge Management Alliance 

Gold destined to be money

Gold Was Chemically Destined to Be Money All Along

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

By

I think most of you reading this right now are aware that gold is unlike any other metal, certainly any other element. It doesn’t play by the same rules as iron or tin or aluminum, and its value has nothing to do with its utility—or lack thereof. People valued the yellow metal for its beauty and malleability eons before they knew of its usefulness in conducting electricity or its chemical inertness.

That gold is so chemically “boring,” though, is one of the main reasons why it’s so highly valued, even today.

This is the conclusion of Andrea Sella, distinguished professor of chemistry at University College London. In 2013, Sella spoke with Justin Rowlatt of the BBC World Service, walking him through all 118 elements of the periodic table.

Gold, according to Sella, is the best possible candidate for a currency of any value.

As he points out, we can automatically eliminate whole swaths of the periodic table for various reasons. We can cross out gases, halogens and liquids such as helium, fluorine and mercury. No one wants to carry around vials of a colorless gas or, in the case of mercury and bromine, a poisonous substance.

We can then rule out alkaline earth metals such as magnesium and barium for being too reactive and explosive. Carcinogenic, radioactive elements such as uranium and plutonium are too impractical, as are synthetic elements that exist only momentarily in lab experiments—seaborgium and einsteinium, for example.

That leaves us with the 49 transition and post-transition metals: titanium, nickel, tin, lead, aluminum and more.

But many of these pose problems that should immediately exclude them from consideration as a currency. Most are too hard to smelt (titanium), too flimsy for coinage (aluminum), too corrosive (copper) and/or too plentiful (iron).

We are now left with just eight candidates, the noble metals: platinum, palladium, rhodium, iridium, osmium, ruthenium, silver and gold. These are all attractive as currencies, but except for silver and gold, they’re simply too rare.

So: silver and gold.

What gives gold the edge over silver, however, is—once again—its chemical inertness. Unlike its white cousin, gold doesn’t tarnish. It’s nonreactive to air and water. Add to this its softness, and it easily emerges as the perfect currency. Ancient peoples recognized this, and I don’t think anyone now would have any problem coming to the same conclusion either.

gold coins

“I view gold as the primary global currency.”

Those are the words of former Fed Chairman Alan Greenspan, speaking to the World Gold Council for the 2017 winter edition of its Gold Investor publication.

“It is the only currency, along with silver, that does not require a counterparty signature. Gold, however, has always been far more valuable per ounce than silver. No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counterparty. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.”

Right now, for the first time in human history, world currencies are free-floating, meaning they’re not backed by anything tangible.

It’s largely because of this that world debt has been allowed to soar to astronomical highs in recent years, threatening the stability of the global economy. As we’ve seen in Zimbabwe, Venezuela and elsewhere, a nation’s currency can rapidly lose its value and become worthless. Families and individuals who didn’t have a portion of their wealth stored in a real asset such as gold lost everything.

This is why I always recommend a 10 percent weighting in gold, with 5 percent in physical gold (coins, bars and jewelry) and the other 5 percent in high-quality gold stocks, mutual funds and ETFs.

Stronger dollar still impacting dollar gold price

Gold Today –New York closed yesterday at $1,279.70. London opened at $1,270.00 today. 

Overall the dollar was stronger against global currencies, early today. Before London’s opening:

         The $: € was stronger at $1.1725 after the yesterday’s $1.1740: €1.

         The Dollar index was stronger at 93.89 after yesterday’s 93.73

         The Yen was weaker at 110.86 after yesterday’s 110.33:$1. 

         The Yuan was much weaker at 6.6926 after yesterday’s 6.6792: $1. 

         The Pound Sterling was weaker at $1.2883 after yesterday’s $1.2957: £1

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    8    16

     2017    8    15           

     2017    8    14

SHAU

SHAU

SHAU

/

274.93

276.93

Trading at 275.0

274.81

276.79

$ equivalent 1oz at 0.995 fineness

@   $1: 6.6926

       $1: 6.6792

       $1: 6.6691     

  /

$1,275.28

$1,286.55

Trading at $1,273.05

$1,274.73

$1,285.90

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 New York closed $5.00 higher than Shanghai’s close yesterday. Then today sees Shanghai dropping the gold price once again just before London opened, which lead to London’s prices being lower for the same reason as yesterday, as the dollar continued higher, in its falling pattern.

Shanghai continues to lead the way down, but following a stronger dollar as it adjusts to dollar gold prices.

Silver Today –Silver closed at $16.71 yesterday after $17.07 at New York’s close Monday.

LBMA price setting:  The LBMA gold price was set this morning at $1,270.15 from yesterday’s $1,274.60.  The gold price in the euro was set again at €1,084.67 after yesterday’s €1,084.67.

Just before the opening of New York the gold price was trading at $1,270.00 and in the euro at €1,085.84. At the same time, the silver price was trading at $16.71. 

Price Drivers

The dollar continues to rise taking gold prices in the dollar down. You will note that the euro gold price is barely changing, showing that this is not gold’s trading pattern, simply adjustments to the gold prices as currency exchange rates change.

The Fed Minutes are due out today, which the press is saying will impact on gold. It will be a factor no doubt, but the U.S. data of late and since the last meeting has been disappointing. Indeed, it is becoming clear based on the data that inflation falling is a deep worry. We read the indications, post the FOMC meeting as indicative of no rate hike but there is a possibility that the Fed’s Balance very slow decrease may still be on the cards. However, we do not think that this is sufficient to be a negative factor on the global gold price. Yes, it may slow U.S. demand until more negative data on inflation comes out, but it will have little to any impact on global gold demand.  

India With no duties being applied to gold jewelry exported from India the opportunity to export it, eventually to reach countries like Thailand, has seen a lot of gold coins and medallions leave the country [15% of all jewelry exported is in this form]. This has been then, exported from Thailand back to India duty free because of the Trade Agreement with Thailand. The government of India has banned exports of gold of a carat level above 22 carats.

This would make it more difficult to establish the value of the gold, but we suspect the canny Indian  gold dealers would have little difficulty in maintaining this trade, with a little bit of refining brought in. And that need not be that expensive! Such is the gold trade in India.

Gold ETFs – Yesterday there were no purchases or sales into or from the SPDR gold ETF or the Gold Trust yesterday. The SPDR gold ETF and Gold Trust holdings are at 791.008 tonnes and at 213.28 tonnes respectively.

Since January 4th 2016, 166.645 tonnes of gold have been added to the SPDR gold ETF and to the Gold Trust. 

Since January 6th 2017, 4.679 tonnes have been added to the gold ETFs we follow..

 Julian D.W. Phillips – GoldForecaster.com | StockBridge Management Alliance 

North Korea tensions diminish: dollar rises, gold falls

Gold Today –New York closed yesterday at $1,282.00. London opened at $1,272.75 today. 

Overall the dollar was stronger against global currencies, early today. Before London’s opening:

         The $: € was stronger at $1.1740 after the yesterday’s $1.1799: €1.

         The Dollar index was stronger at 93.73 after yesterday’s 93.33

         The Yen was weaker at 110.33 after yesterday’s 109.76:$1. 

         The Yuan was weaker at 6.6792 after yesterday’s 6.6691: $1. 

         The Pound Sterling was weaker at $1.2957 after yesterday’s $1.2995: £1

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    8    15

     2017    8    14           

     2017    8    11

SHAU

SHAU

SHAU

/

276.93

277.06

Trading at 275.4

276.79

276.86

$ equivalent 1oz at 0.995 fineness

@   $1: 6.6792

       $1: 6.6691

       $1: 6.6672     

  /

$1,286.55

$1,287.26

Trading at $1,277.47

$1,285.90

$1,286.32

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.] 

New York closed $4.53 higher than Shanghai’s close yesterday. Then today sees Shanghai dropping the gold price just before London opened, which lead to London’s prices being lower as the dollar corrected higher, in its falling patter. Shanghai is leading the way down, but following a stronger dollar as it adjusts to dollar gold prices.

Silver Today –Silver closed at $17.07 yesterday after $17.06 at New York’s close Friday.

LBMA price setting:  The LBMA gold price was set this morning at $1,274.60 from yesterday’s $1,281.10.  The gold price in the euro was set at €1,084.67 after yesterday’s €1,085.869.

Just before the opening of New York the gold price was trading at $1,273.00 and in the euro at €1,084.65. At the same time, the silver price was trading at $16.80. 

Price Drivers

All told, this was simply a day when the gold price barely moved in the euro but fell in the dollar as the dollar corrected higher before its next downward turn.

Now we have something definitive, but we are suspicious of the statement, “Kim Jong Un, the leader of North Korea, said he would wait to see what the US does next before he decides whether or not to fire a missile towards Guam, according to state media. Today’s statement from North Korea, coming after more conciliatory tone from the US administration yesterday, has de-escalated the threat of conflict and reassure investors after a nervous few days. But how long will this last? Putting oneself in his shoes with his posture that he is the one threatened by the U.S. [which is why he is waiting for the U.S. to act], we see he may have kept his defensive posture. This does not mean he will not fire more missiles and confirm North Korea has a nuclear bomb! The question now becomes, “Will President Trump attack if the tests continue, which we expect them to?” We see therefore, at best, that the threat has been postponed for an undetermined period of time. This postpones the North Korean situation as a factor in the gold price.

Meanwhile, the gold price has fallen in dollar terms in line with the rise of the dollar. We confirm the dollar remains in a bear market, so we expect this correction to be followed by a continuation of its fall to new lows. This will drive gold higher in dollar terms.

Gold ETFs – Yesterday there were purchases of 4.139 tonnes into the SPDR gold ETF but no change in the Gold Trust yesterday. The SPDR gold ETF and Gold Trust holdings are at 791.008 tonnes and at 213.28 tonnes respectively. While these purchases were substantial, they had no effect on the gold price. They would have to be persistent or larger than this.

 Julian D.W. Phillips   GoldForecaster.com | StockBridge Management Alliance 

Tubthumping gold- Rewritten and reposted

Another article posted on info.sharpspixley.com yesterday – a rewritten and reposted version of one I wrote a week ago.

Those of us who remember 1990s pop music may well recall the Brit anarchic band Chumbawumba and its major hit titled Tubthumping.  Its refrain, which actually comprised most of the song was the repeated over and over – ‘I get knocked down but I get up again.  You are never going to keep me down.’ which could well be the anthem for the gold price in recent months.  (For a link to a YouTube feature of the band appearing on the David Letterman Show around 20 years ago now, complete with a probably unanticipated political add-on – ‘Free Mumia Abu Jamal’, not on the original recording – click here.)

Gold ‘knockdowns’ when gold appears to be in freefall are seeming to occur at ever increasing frequencies – indeed whenever gold seems to be making strong progress again, but as the song suggests it still manages to get up again.  The falls are steep, and the recoveries gradual, but gold does seem to get back to where it was, and then some, over time.

If these ‘knockdowns’ had happened just a couple of times one could put that down to profit taking and normal trading with data driven gold being spooked by occasional bouts of adverse news. But this keeps on occurring.  The drops and flash crashes have nearly all been very steep indeed, which does suggest some kind of external influence putting big paper transactions into play. But, what should be comforting for the gold bulls is that each time gold has been ‘knocked down’ in this manner it has subsequently ‘got up again’ mostly back to prior levels, although the overall effect may well have been to exert some kind of overall price control slowing down what we see as gold’s inevitable rise.  Rewording the refrain from Tubthumping:  ‘Gold gets knocked down, but it gets up again.  You’re never going to keep it down

The strange recent big sales out of America’s GLD, the world’s largest gold ETF, without similar sales seeming to have been made out of IAU – America’s second largest gold ETF – also look as though they may have been designed to help keep the gold price under control.  The fact that these appear to have had little impact in actually depressing gold prices, although may have well helped prevent price rises in the light of continuing strong Asian demand for physical gold, could well suggest that gold is building up strength for an upwards breakout.

As to Asian demand, the anticipated fall-off in Indian demand after the pre-GST restocking is reportedly not taking place – at least not to the extent analysts had expected – and Chinese demand appears to be holding up to, or slightly bettering, last year’s levels.  If one includes Turkey as being in Asia, there have been increasingly strong imports of gold going in to that nation.  Turkey has acted as a conduit for gold going into other Middle Eastern nations, notably Iran, but one suspects these latest increases may reflect safe haven buying by the domestic population in the light of increasingly autocratic moves by Turkish President Recep Tayyip Erdogan, and other destabilising political events in the Middle East.

The North Korean situation and war of words between Supreme Leader Kim on the one hand and President Trump on the other have also been fanning the flames of uncertainty which has been positive for gold as a safe haven investment, both in the Far East and the USA, but if the rhetoric gets toned down on both sides, as we expect it might be, then we could yet see gold slipping back again, but the ongoing underlying rise looks inevitable.  It may not happen as fast as the more bullish observers are suggesting though.

These facts, coupled with a small decrease in new mined supply, suggest that gold has the potential to again threaten the $1,300 level through the rest of what is normally a weak northern summer although there’s not much of it left to accomplish this.  The American Labor Day holiday (Sept 4th this year), which is traditionally the end of the North American summer holiday period, often seems to be a game-changing date for the gold price to move in either direction.  It will be interesting to see what is in store for us in this respect this year, but in our view the force is now with gold – to add a Star Wars analogy to the Chumbawumba refrain.  Be prepared for a steadyish rise, but still with the occasional ‘knockdown’ en route.

Gold – Rhetoric and U.S. economy calling the price

Article first posted on info.sharpspixley.com yesterday

While there is little doubt that the USA has a much larger and proven nuclear arsenal than North Korea, Kim Jong Un will know that to deploy this against the relatively small Asian nation is fraught with problems in that nuclear fallout as a result of any such attack could also have an impact on China and South Korea – the one a potentially even more dangerous adversary and the other an ally.  Whereas if North Korea were to take out say Guam with a nuclear strike, which it has threatened to do, the impact on other nations would be far less.  However we feel either scenario is unlikely, although one can’t rule out an escalation into conventional warfare..

In assessing the risk though one assumes the U.S. is also bearing in mind that North Korea has long threatened drastic military action against its many perceived adversaries, but has seldom, if ever, delivered this.  There is also no certainty that North Korea has developed small enough nuclear warheads to fit into its Intercontinental ballistic missiles (ICBMs) which it has been developing, nor if they really have the range to reach the U.S. mainland, or the accuracy of delivery to hit their targets with any precision.  Anti-missile defence systems are also likely to be deployed around potential targets by America and its regional allies, but their efficacy is also unproven.

The whole rhetoric game – from North Korean Supreme Leader Kim Jong Un on the one side and President Trump on the other – may thus be bluff on both sides, but with a U.S. President who is prone to shoot from the hip, it is still a very dangerous confrontational game.  While a conventional non-nuclear war between the two powers would be hugely costly in terms of lives (North Korea has a huge and well equipped military) – even if China was not to be drawn in on the North Korean side – it would also be enormously dangerous to the South Korean capital, Seoul, which is only 35 miles (60km) from the North Korean border and potentially within artillery range.  (North Korean capital Pyongyang is around 130 km (80 miles) from the border so would not be quite so vulnerable to artillery attack from the South).

The big question probably is whether President Trump is painting himself into a corner with the ever-expanding hostile rhetoric.  Kim Jong Un has a history of not following through on his more dire threats so may feel that Trump will also prove to be a paper tiger.  But is this a misjudgement?  The world just doesn’t know and there is a fear that the continuing provocations may just result in a shooting war.  While nuclear arms may not be deployed by either side, at least initially, were North Korea to see itself losing such a conflict, its seemingly unstable leadership might consider launching a nuclear strike and heaven knows what that would lead to.

China may also be drawn in to any military conflict as it would rather not see a potentially hostile regime on its border.  If a shooting war does start then the ultimate diplomatic solution would, assuming Kim Jong Un is actually defeated, perhaps give China control over whatever government would take the place of the current North Korean regime.

Gold supposedly thrives on uncertainty and while the hostile rhetoric between North Korea and the USA continues, the ensuing uncertainty will build.  Coupled with the U.S. economy not performing as the Fed would like, we could also see a further decline in the U.S. dollar which should, de facto, give a boost to the dollar price of gold, which could thus be seen to appreciate strongly in dollar terms as 2017 progresses, even if the gains are not mirrored in other key currencies.

At the moment the gold price seems to be hovering uncomfortably in the $1,280s.  Some seem to be trying to knock it back – U.S. trading on Friday for example saw the gold price pulled back sharply from a couple of brief forays into the $1,290s, but whether this was profit taking, or a case of once again the powers-that-be not wishing to see the psychological $1,300 level breached, remains to be seen.  Morning trade in Europe today has seen the yellow metal move a little weaker in price, but this week could be make-or-break in terms of a move into the $1,300s.  There are still a couple of weeks of the northern hemisphere holiday season yet to run when trading can be thin, although that hasn’t been the case in the past week, but we will probably have to wait until post U.S. Labor Day (Sept 4th) for any real trend to develop.

What will happen then will be very much dependent on the escalation, or de-escalation of the U.S.-North Korean militaristic rhetoric and on U.S. economic data, which has recently been gold supportive in showing weakness in the purported U.S. economic recovery, thus reducing the Fed’s interest rate raising options

Over the longer term, this observer remains on the side of the gold bulls.  Asian demand, which is soaking up virtually all the physical gold which is available, will continue to grow as the overall wealth trend in the region remains positive; New mined supply will remain flat, or trend downwards, albeit perhaps only marginally.  Should U.S. safe haven demand return – more likely the longer the Trump-Kim war of threats continues – then we could see a serious squeeze in physical gold availability and the diminution of the ability of paper gold transactions – real or spoofed – to control the price.  Interesting times!

Hot bull market in metals developing?

Is this the start of a hot new metals bull market?

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

Aluminum metals

Major U.S. indices slid for a second straight week as President Donald Trump and North Korea both escalated their saber-rattling, with Kim Jong-un explicitly targeting Guam, home to a number of American military bases, and Trump tweeting Friday that “Military solutions are now fully in place, locked and loaded.” The S&P 500 Index fell 1.5 percent on Thursday, its largest one-day decline since May. Military stocks, however, were up, led by Raytheon, Lockheed Martin and Northrop Grumman.

As expected, the Fear Trade boosted gold on safe haven demand. The yellow metal finished the week just under $1,300, a level we haven’t seen since November 2016. Last week, Ray Dalio, founder of Bridgewater Associates, the largest hedge fund in the world, said it was time for investors to put between 5 and 10 percent of their portfolio in gold as a precaution against global and domestic geopolitical risks. The threat of nuclear war is at the top of everyone’s mind, but Dalio reminds us that our indecisive Congress could very well fail to agree on raising the debt ceiling next month, meaning a “good” government shutdown, as Trump once put it, would follow.

Dalio’s not the only one recommending gold right now. Speaking to CNBC last week, commodities expert Dennis Gartman, editor and publisher of the widely-read Gartman Letter, said that he believed “gold is about to break out on the upside strongly” in response to geopolitical risks and inflationary pressures. Gartman thinks investors should have between 10 and 15 percent of their portfolio in gold.

Government shutdowns haven’t always been harmful to the stock market—during the last one, in October 2013, stocks actually gained about 3 percent—but I agree that it might be prudent right now for investors to de-risk and ensure their portfolios include safe haven assets such as gold and municipal bonds. Dalio and Gartman’s allocation percentages mirror my own. For years, I’ve recommended a 10 percent weighting in gold, with 5 percent in bullion and 5 percent in high-quality gold stocks, mutual funds and ETFs.

Analysts Bullish on Metals and Commodities

Weaker US Dollar helped commodities beat the market in july

click to enlarge

Like stocks, the U.S. dollar continued its slide last week. This has lent support not just to gold but also commodities, specifically industrial metals. The Bloomberg Commodity Index actually beat the market in July, the first time it’s done so this year.

If we look at the index’s constituents, we find that six metals—aluminum, copper, zinc, gold, silver and nickel—have been the top drivers of performance this year, thanks to a weaker dollar, China’s commitment to rein in oversupply and heightened demand. According to Bloomberg, an index of these six raw metals has jumped to its highest in more than two years.

Some market observers believe this is only the beginning. Guy Wolf, an analyst with Marex Spectron Group, told Bloomberg that he doesn’t “see anything” to make him doubt the firm’s belief that metals “are now in a bull market.”

“As people start to realize that the reasons for prices going up are robust and sustainable, that’s going to bring more money into the market,” Wolf added.

This bullish sentiment is shared by Mike McGlone, senior commodities analyst with Bloomberg Intelligence, who writes that commodities’ strong performance in July  “could be the beginning of a trend.”

“Supported by demand exceeding supply, on the back of multiple years of declining prices, a peaking dollar should mark an inflection point for sustained commodity recovery,” McGlone says.

I can’t say whether we might eventually see the highs of the commodities supercycle in the 2000s, but this news is certainly constructive.

Aluminum Liftoff

The top performer right now is aluminum, up more than 20 percent year-to-date. Last week it breached $2,000 a tonne for the first time since December 2014 and is currently trading strongly above its 50-day and 200-day moving averages.

US ISM non-manufacturing PMI sinks to 11 month low in july
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Demand for aluminum is growing in the automotive and packaging industries, its two key markets. With consumers and governments demanding better fuel efficiency, automakers are increasingly turning to aluminum, which is around 40 percent lighter than steel. According to Ducker Worldwide, a market research firm, the amount of aluminum used to build each new vehicle will double between the early 2010s and 2025, eventually reaching 500 pounds. That’s up from only 100 pounds per vehicle, which was the case in the 1970s. Airline manufacturers such as Boeing and Airbus are also expected to increase demand for the lightweight metal.

Supply-side conditions are also improving. Prices have struggled in recent years as China—which accounts for roughly 40 percent of world output—flooded the market with cheap, and often illegal, metal. Recently, however, the Asian giant has called for dramatic capacity cuts in a number of provinces. By the end of 2017, an estimated 4 million metric tons of capacity will have closed, or one-tenth of the country’s total annual output, according to MetalMiner.

Also supporting prices is the Commerce Department’s decision last week to slap duties on aluminum coming into the U.S. from a number of Chinese producers that were found to be heavily subsidized by the Chinese government.

The Virginia-based Aluminum Association applauded the decision, saying that its members “are very pleased with the Commerce Department’s finding and we greatly appreciate Secretary [Wilbur] Ross’s leadership in enforcing U.S. trade laws to combat unfair practices.”

The aluminum industry, the trade group says, supports more than 20,000 American jobs, both directly and indirectly, and accounts for $6.8 billion in economic activity.

Miners Getting Back to Work

There’s perhaps no greater signal of a shift in sentiment than an increase in mining activity as producers take advantage of higher prices. Bloomberg reported last week that the number of new holes drilled around the globe has accelerated for five straight quarters as of June. What’s more, drilling activity so far this quarter, as of August 7, suggests that number could extend to six quarters.

US ISM non-manufacturing PMI sinks to 11 month low in july
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I believe activity will only continue to expand as China pursues further large infrastructure projects, which will require even more raw materials such as aluminum, copper, zinc and other base metals. And I still have confidence that Trump and Congress can deliver on a grand infrastructure deal—the president has been turning up the heat on Senate Majority Leader Mitch McConnell, writing on Twitter that the Kentucky senator needs to “get back to work” and put “a great Infrastructure Bill on my desk for signing.”

With government spending on infrastructure falling to a record low of 1.4 percent of GDP in the second quarter, such a bill would help modernize our nation’s roads, bridges, waterways and more. It would also serve as a huge bipartisan win for Trump, which he sorely needs to build up his political capital.

But beyond that, a $1 trillion infrastructure deal would greatly boost demand for metals and other raw materials, perhaps ushering in a new commodities supercycle.

Gold traders attacking triple top

Gold Today –New York closed Friday at $1,294.00. London opened at $1,282.75 today. 

Overall the dollar was weaker against global currencies, early today. Before London’s opening:

         The $: € was weaker at $1.1799 after the Friday’s $1.1754: €1.

         The Dollar index was weaker at 93.33 after Friday’s 93.47

         The Yen was weaker at 109.76 after Friday’s 109.09:$1. 

         The Yuan was weaker at 6.6691 after Friday’s 6.6672: $1. 

         The Pound Sterling was slightly stronger at $1.2995 after Friday’s $1.2975: £1

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    8    12

     2017    8    11           

     2017    8    10

SHAU

SHAU

SHAU

/

277.06

274.85

Trading at 277.25

276.86

275.77

$ equivalent 1oz at 0.995 fineness

@   $1: 6.6691

       $1: 6.6672

       $1: 6.6594     

  /

$1,287.26

$1,270.07

Trading at $1,287.77

$1,286.32

$1,269.70

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 New York closed $7.00 higher than Shanghai’s close yesterday. Then today sees Shanghai lifting the gold price again. But London pulled it down $6 lower. London and Shanghai see the gold price differently with London being more volatile that Shanghai as you can see above. Shanghai still needs to take gold above $1,300 for the gold price to run higher.

As we said on Friday, “Today and next week become important days for the gold price. It is also the time when North Korea said they would fire a missile towards Guam!”

Silver Today –Silver closed at $17.07 yesterday after $17.06 at New York’s close Wednesday.

LBMA price setting:  The LBMA gold price was set today at $1,281.10 from yesterday’s $1,288.30.  The gold price in the euro was set at €1,085.86 after yesterday’s €1,095.59.

Just before the opening of New York the gold price was trading at $1,282.60 and in the euro at €1,087.23. At the same time, the silver price was trading at $17.02. 

Price Drivers

We are amazed today to find that, fears of war with North Korea are almost off the table and markets are calmed because of it. We looked round to see if these assumptions were due to the North Korean President saying something along the lines that he will not fire the missile towards Guam? No, he hasn’t said anything! Did President Trump say anything? No! But U.S. officials said nuclear war is not a danger. It’s time for a reality check we think and ask, which ‘Officials” are in a position to counter both Presidents?  Hence we do not see the market calmness as a result of these official’s statements. We see the market calmness simply calm after the dramas of last week that could easily change back to heightened fears in a heartbeat.  But also as we said last week, we do not accept that gold rose on war fears, it was because of the dollar’s ongoing weakness and Asian demand.

But if a missile is fired by North Korea towards Guam then the whole set of global financial markets changes. Gold will certainly rise on war fears then.

But the failure of inflation to rise, alongside disappointing wage pressures is assisting gold’s rise outside of China, where demand is proving a constant. Now add to that a toppy equity market in the U.S. and we could see moves out of equities into gold as well. These elements are not quickly passing features of the financial world. It is on these that the gold price is rising. All this is happening ahead of the start of the ‘Gold Season’ which starts in a couple of weeks from now!

We see the gold price pulling back today because traders are attacking the ‘triple top’ that is in the Technical picture. The week could prove volatile!

Julian D.W. Phillips – GoldForecaster.com | StockBridge Management Alliance