Negative interest rates:  Great for gold but are they any good for the economy?

Central Banks have been viewing ultra-low, or in many cases directly, or effectively, negative, interest rates as being the panacea for all economic ills.  Deprive savers of interest, so the theory goes, and they will opt to spend their savings instead, thereby generating a boost for the economy.  Low interest rates also make borrowing costs lower for industry and, with supposedly additional availability of capital through quantitative easing programmes should thereby boost investment in necessary plant and equipment.

It is becoming more and more apparent that neither of these strategies are working, or at least not to the extent anticipated by the economists promoting this policy which is, unfortunately, being followed by many of the world’s major central banks.

From the savings angle, what the policy is really doing is driving savers away from traditional income generating securities and into assets like gold which may pay no interest – no interest is better than negative interest – but offers the possibility of capital accumulation.  Those in countries like the UK, where the currency first weakened against the US dollar post the Brexit vote, and then again when the Bank of England cut the base rate and re-introduced monetary stimulation, will have seen some substantial gains through moving into gold.  We advised, (See:UPDATE: Brexit in the balance.  Gold surges.  Silver may begin to fly where I commented “UK investors in particular should look to investing in gold as a wealth protector given that if the UK referendum, now only a week away, should result in a Leave vote – the Brexit option – there would be a knee-jerk reaction knocking the pound sterling down sharply against the dollar, while the gold price would likely rise on fears of considerable further economic disruption within the Eurozone ahead of the Brexit vote”) for UK investors to at least put some of their investments into gold for example as insurance against a ‘Leave the EU’ decision, and those who did benefited very nicely indeed, thank you, at least in terms of the pound sterling. The combination of the rising gold price in US dollars and the fall in sterling against the dollar had a multiplying impact on an investment in gold or in silver.

On the business front there’s little evidence that the huge move towards zero, or negative, interest rates has done much to stimulate activity.   Businesses are seen as reluctant to borrow, even when the cost of borrowing is so low, to put money into new plant and equipment, or services, when demand for their products is not seen as being positive in any case.  For many the imposition of such low interest rates is seen as yet another indication of a sick economy and an ultra low-growth environment.

Among the nations which have moved to the imposition of negative interest rates are, most significantly, the European Central Bank (ECB) and the Japanese Central Bank (BoJ), while Denmark, Sweden and Switzerland have also followed suit.  The Bank of England (BoE) is almost there too and with the prospect of another rate cut should the post-Brexit economy not pick up, could be in zero, or negative, territory by the year end.  And with inflation probably running higher than most governments will admit, all these, and more including the USA, are effectively in a below zero environment as far as bond investment returns are concerned.  All this is positive for gold, but of increasing worry for the Central Banking system which seems to have little more ammunition left with which to try and stimulate flagging global economies.

Just to emphasise the problem a recent survey, published in the UK’s highly respected Financial Times newspaper suggested that the universe of sub-zero-yielding debt – primarily government bonds in Europe and Japan but also a mounting number of highly-rated corporate bonds – has reached the enormous total of $13.4 TRILLION.

Another factor which is indeed worrying for businesses and which could see them look to deposit any spare cash in alternative investments is the looming possibility of bank bail-ins, whereby large holders of money in the banking system see some of their hard-earned cash effectively confiscated to help rescue an ailing bank.  This was brought to the fore a couple of years ago in Cyprus when a bail-in was imposed for major clients of the Bank of Cyprus which was close to failure because of its large holdings of Greek debt.  As the UK’s Daily Telegraph reported at the time: The imposed bail-in forced big savers to foot the bill for the recapitalisation of the nation’s biggest bank.  The bank said that it converted 37.5% of deposits exceeding €100,000 into “class A” shares, with an additional 22.5% held as a buffer for possible conversion in the future. Another 30pc was temporarily frozen and held as deposits.

Legislation was subsequently changed to permit bail-ins of this nature across the EU and now the spectre of something similar occurring in Ireland has been reported with one of the country’s biggest insurers said to have been moving its cash holdings out of the banking system into government bonds for fear of another property price crash putting the Irish banking system in peril.

There is thus something of a confluence in factors which would seem to be gold supportive in the medium term, while the increase in geopolitical tensions between the Ukraine and Russia, and China’s belligerent rhetoric over its de facto annexation of large sections of the South China Sea, and the uncertainties engendered by perhaps the most politically divisive US presidential election ever, is further adding to the positive environment for the gold price.  Whether the markets will recognise this after the Labor Day holiday, when the US traders, bankers, fund managers et al are back from their holidays, which has seen something of a volatile marketplace for precious metals over the past month, remains to be seen as there are a lot of big vested interests at play here, but we do see the overall pricing environment as distinctly positive.

Advertisements

Mixed U.S. Economic Data Supports Gold

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

 

A batch of mixed economic data was released this week and last that underlines continued strength among U.S. businesses and manufacturers. But consumer confidence still seems to be held back by the global slowdown, central bank policy concerns and other factors. This suggests investors should remain cautious and might want to consider assets that have demonstrated an ability to preserve capital in times of uncertainty—gold and short-term municipal bonds among them.

For the third straight month, consumer confidence slipped on fears that the days of cheap gasoline might be coming to an end. The University of Michigan’s Index of Consumer Sentiment fell to 90 in March, down from 91.7 in February. Although it’s still above recession levels, the index has been trending down for the past 12 months.

University of Michigan Consumer Sentiment Index
click to enlarge

Conditions improved for manufacturers in New York State, according to the monthly Empire State Manufacturing Survey. Many investors pay attention to this metric as an indicator of industry health in the very influential New York region of the U.S. The headline reading climbed 17 points to its first positive score since July of last year, with significant improvements in new orders and shipments. Manufacturers also said they were more optimistic about business conditions six months out.

Manufacturing in New York Improves for the First time since July 2015
click to enlarge

But overall industrial production told a slightly different story. Activity fell 0.5 percent in February month-over-month, and as I explained earlier in the week, industrial production is a subset of GDP, which indicates where the markets have been.

Housing data was also mixed. On the one hand, we saw a higher-than-expected rate of new housing starts in February. Single-family homes led the way, rising from 767,000 in January to 822,000, the highest print since the end of the recession. This helped push the total number of homes to 1.18 million, a 5.2 percent increase from January and an impressive 30.9 percent jump from the previous February.

At the same time, existing-home sales dropped a substantial 7.1 percent in February, according to the National Association of Realtors. Low supply levels and price growth were the leading culprits.

The most welcome news was that the core consumer price index (CPI)—which excludes food and energy—rose 2.3 percent year-over-year in February, representing the fourth straight month of inflation and the highest rate since October 2008.

Good for Gold: Core Inflamation Heats Up
click to enlarge

As I’ve pointed out many times before, gold has tended to respond well when inflationary pressure pushes real interest rates below zero. To get the real rate, you subtract the headline CPI from the U.S. Treasury yield. When it’s negative, as it is now, gold becomes more attractive to investors seeking preservation of their capital. The yellow metal has risen more than 17 percent so far this year, making it one of the best performers in 2016.

Negative Interest Rates Boost Gold Demand Overseas  – The Holmes SWOT

Frank Holme of U.S. Global Investors‘ weekly roundup of perceived Strengths, Weaknesses, Opportunities and Threats for Precious Metals

Strengths

  • The best performing precious metal for last week was silver, up 2.87 percent. Investors own the most silver in exchange-traded products in seven months, boosting holdings from a three-year low, according to ZeroHedge. This rebound comes as hedge funds and other money managers hold a near-record bet on further price gains.
  • Physical gold ETF holdings have increased by over 270 tonnes since reaching their cycle-low in early January, reports TD Securities, coinciding with an 18 percent rally in the gold price. In contrast, only three tons of gold have been collected so far in India’s newly announced deposit plan. Macquarie raised its 2016 gold forecast for the precious metal by 4.8 percent, while Morgan Stanley announced its gold price outlook for the year up 8 percent to $1,173 per ounce.
  • Calico Resources Corp. and Paramount Gold Nevada Corp. announced this week that Paramount has agreed to acquire all of the issued and outstanding common shares of Calico. Particulars of the transaction show that holders of Calico Shares will be entitled to 0.07 of a share of common stock of Paramount, in exchange for each Calico Share held. This represents an implied offer premium of 49.2 percent per share.

Weaknesses

  • The worst performing precious metal for the week was gold, still up 0.34 percent. Gold consolidation is underway says UBS, adding that this should be healthy for the market. In its Global Precious Metals Comment this week, the group points out that pullbacks in gold so far this year have been relatively shallow and short-lived, not really offering investors many opportunities to enter at better levels.
  • While the Indian jewelry trade continues its stir for withdrawal of the 1 percent excise duty announced in the Union Budget, the finance ministry does not indicate a compromise, reports the Business Standard. The strike entered its seventeenth day on Thursday. One ministry official said, “There is no question of a rollback.”
  • B2Gold Corp. announced this week its approval for Gold Prepaid Sales Financing Arrangement, or prepaid sales, of up to $120 million. As stated in the company’s release, the prepaid sales (in the form of metal sales forward contracts) allow B2Gold to deliver pre-determined volumes of gold on agreed future delivery dates in exchange for upfront cash pre-payment. These financing arrangements will help fully fund the Fekola Mine Construction.

Opportunities

  • CLSA’s Christopher Wood believes that the European Central Bank’s meeting last week reinforces the fact that central banks globally are addicted to unconventional monetary policies, reports Barron’s. Prior to the Bank of Japan meeting this week, Wood said that pension funds should have 70 percent exposure to the precious metal. Wood’s logic says that as we adjust for rising income, gold could peak again at $4,212 an ounce in an ultimate bull market.
  • Bloomberg reports that in Japan, negative interest rates are boosting gold demand (according to the nation’s biggest bullion retailer). The same is true in Germany, where reinsurer Munich Re has boosted its gold and cash reserves in the face of the negative interest rates imposed by the ECB, reports Reuters. Last week the ECB cut its main interest rate to zero and dropped the rate on its deposit facility to -0.4 percent from -0.3 percent.
  • Roxgold Inc. announced results from its latest drilling project this week from the QV1 structure at the Bagassi South regional exploration target, 1.8 kilometers to the south of the 55 zone. “Results from this program further confirm the potential at QV1,” stated John Dorward, President and CEO of Roxgold.  These results make a stronger case for owning Roxgold and likely increased the prospect of Roxgold as a significant take out candidate.

Threats

  • The CSFB “Fear Indicator” (specifically designed to measure investor sentiment, and represented by the index prices zero-premium collars that expire in three months) has never been higher, writes ZeroHedge. This could indicate that institutional investors are not believers in the equity rally and that there is more demand for put protection, continues the article, a sign of fear in the marketplace.
  • Total business inventories have ballooned to crisis levels, according to a report from Macro Strategy Partnership. This can be seen in the chart below which shows the inventory-to-sales ratio. Inventories are up another 1.8 percent year-over-year to $1.81 trillion, and are up 18.5 percent from the prior peak in August 2008 while sales are only up 5.8 percent over the period.
  • Barclays thinks that the rally in commodities is overdone, and although economic data has improved, it is not enough to support current prices. With a fragile global economy still in place, the group believes that a turning point for commodities is still some way away.

David Morgan talks gold and silver and where he thinks they are headed

Mike Gleason of Money Metals Exchange in the U.S. interviews David Morgan of the The Morgan Report to get his take on the advance in the metals so far this year, how long it’s likely to continue, and whether or not the Silver Guru is concerned.  The interview was conducted ahead of this week’s FOMC meeting and gold’s pullback before it and pick-up after.

David Morgan

Mike Gleason: I’m happy to welcome back our good friend David Morgan of TheMorganReport.com and author of the book The Silver Manifesto. David it’s a pleasure to talk to you as always, how are you?

David Morgan: I’m doing well, thank you for having me on your show.

Mike Gleason: Well to start out I’ll ask you to comment on the market action here in 2016 so far. Now, gold and silver have done quite well, we had gold advancing on weakness and concerns in the equities markets earlier in the year. Now over the last week we’ve seen it continue to do well even as stocks rebounded after a strong employment report. One would think it’s a bullish sign when we get good price action even with supposedly negative news for precious metals coming out. So give us your thoughts on the market action so far this year, David, and specifically why do you think the metals have done so well here in the early part of 2016?

David Morgan: Well a couple things, one to quote The Economist magazine, which is a pretty well-known and revered publication. They stated that, “This is the best start of gold mark in 35 years.” On top of that, the main reason is because the overall equity market has basically gone 20% down. From a technical perspective, you have a top in the stock market in the United States and other markets around the globe. So the most negatively correlated asset to equities is gold itself, not gold stocks.

That’s basically it. I think it’s pretty simple. I don’t think you need to look much further than that. I would add on another real key element to knowing that things are finally off the bottom and going to continue, backing and filling, up and down – but nonetheless, the bottom is in – is the volume. The volume is substantial. The amount of flows into the gold ETF is the greatest that it has been since 2009, which is after the 2008 crisis but the first one that was off the bottom were the precious metals.

Most of us know that gold basically bottomed in 2008 along with silver. Silver went from basically the $9 level and over several months made it all the way to $48. Gold bottomed, and I forget the number, but it went up to $1,900. Are we going to repeat that? I think in the long-term yes, but in the short-term, gold’s ahead of silver.

Mike Gleason: That leads me right into my next question. We do have gold outperforming silver so far this year, which generally we don’t see when the metals as a whole are rising. That means that the gold to silver ratio has actually even gotten a bit higher, sitting at about 82 to 1 as we’re talking here [It’s since come back to around 78 – Ed.]. Are you concerned that silver is lagging gold a little bit?

David Morgan: I am concerned. I believe that we have a non-confirmation. I like to see that the whites the yellow or vice versa and that non-confirmation does concern me. I think that we want to see silver over $16 and then things will proceed upward, probably even more than they have so far. In other words, silver will either play catch up or it won’t. If it doesn’t, it doesn’t mean gold won’t continue (going up). What it does mean is that there might be some more work to be done.

As far as how these markets come off of bottoms, usually what happens is the big money, the smart money moves into like the large gold stocks, and they have. We’ve seen very big volume into the large top tier mining companies, and they have moved substantially higher on a percentage basis. You’ve seen that across the board, you haven’t seen those smaller stocks come up as strongly.

Silver of course is a subset of gold. It’s 85% correlated with gold. And the silver stocks have performed well. So we’re really just kind of keeping our eye on silver. It doesn’t mean much other than we need to pay attention because it could indicate that again, we might see kind of a pull back, and we might come back all the way to where this launch took place. Technicians can always pick their sweet spot. I’d say about the $1,200 level. I put that out for our members that I was long gold at $1,200. Obviously that’s paying off well so far and of course I’ve put my stops up, so I’ve protected the profit.

Mike Gleason: Certainly the mining stocks do quite well, you eluded to that a moment ago. They seem to be leading the bullion a little bit. Is the worst behind us in the mining industry or is there still more carnage coming?

David Morgan: Great question, and of course you have to really answer it correctly, you have to answer on a case-to-case basis. But from a broad brush perspective, yes the worst is behind us for the miners. There are of course case-by-case basis that companies that won’t make it that need either a merger and acquisition type of situation that they have assets of value or they just can’t get loans at this point in time to continue their projects.

And that means that there will be some even though that from, again a broad perspective things have bottomed on individual cases, that there may be some favorites out there in the lower tiers, not to mid-tier so much as the speculative tier that may not make it even though gold and silver look to continue onward. Again, I can’t give a specific answer. I will give the fact that for example that we had SVM as a short term trade for our members, the members of our website. And that stock doubled and that happened while silver basically did very little and gold was just starting it’s move.

So the equities can really take off. Silver sat there from what you said, just under $14 to not quite $16, and I don’t know what the percentage is, 2 bucks on $14. 100% or a double on a silver stock, that’s a pretty liquid stock, is definitely an outperformer to what the metal itself has done.

Mike Gleason: We have a mutual friend, Steve St Angelo who runs the fantastic SRSrocco Report website, he’s a bit of a peak silver guy. Where do you come down on that? We’ve seen declining production coming from places like Mexico, a huge silver producer, and other countries that produce a lot of silver, certainly here in the States. Looks like our supply is dwindling, mine production is dwindling. Where do you come down on that? What are thoughts on the potential for peak silver?

David Morgan: Well, first of all, Steve and I are pretty close and we do talk I guess every month or so. I don’t agree with him totally. Again, it’s an economics situation, so if you look at it from today’s perspective, when you’re looking at sub $16 silver, that statement could look very very accurate, but if you got to $40 silver again then all the dynamics change. Because what’s very uneconomic today would become very economic at those prices.

If you want the details, what we really think, we did a whole chapter on it in the book The Silver Manifesto. And we go through and based on our work and our projections on where we think the metals are going, we think that the peak silver scenario is probably a few years out.

Mike Gleason: Certainly though, and I guess you hit on the point that at sub $16 silver, there is a finite supply of the metal out there, meaning the prices can stay this low forever and there still be supply, is that basically what you’re saying?

David Morgan: That’s basically it. If you want to be a super deep thinker, you could argue that it’s never going higher than that, and if it didn’t a lot more mines would be out of business. I don’t take that view. It doesn’t necessarily mean that the price has to go higher, but it pretty much is a strong indication that it will.

Mike Gleason: Negative interest rates are in the news both in Europe and now here in the States, which is obviously fueling the metals markets, gold in particular. Negative interest rates on cash means that gold and silver actually pay a higher rate of interest. What are your thoughts there, on the Fed, the likelihood that they are done with the interest rate hikes or even experiment with negative rates like central bankers are doing over there in the EU?

David Morgan: Yeah, tough question, and I will answer it. In my views because this is opinion and I’ll give you my thinking. Obviously the negative interest rate scenario is one that I don’t think the central banks have really thought through very well. The idea, first of all if we back up and look at all those with debt problems say, “How are we going to solve this debt problem?” “Oh, borrow more money and then increase the debt load.” That was basically what took place during the financial crisis with Hank Paulson that put out this TARP situation.

Then we go to QE1 and we add more debt to our debt problem and that doesn’t work so what we should do now is add even more debt to the debt problem, which was QE2, and that’s when silver took off from $26 to $48 because people anticipated inflation in the marketplace on Main Street, not just on Wall Street. It didn’t take place on Main Street, but it did take place on Wall Street, so the market backed off for that one and several other reasons.

So now we’re in a situation, well if adding debt to debt doesn’t work, what we need to do, and if a zero interest rate policy, let’s just take interest rates negative and that’s certain to work. And of course my view of certain not to work. As far as coming around to the question, the U.S. has already raised interest rates on a very very modest level. I think it was done more as a trial balloon more than anything else.

I’m still of the belief or the opinion that the United States will not go to negative interest rates for a while, if ever. They may get there, but I still think that the reason that these interest rates are being raised by the Federal Reserve is to provide strength to the U.S. dollar because what’s really happened as my friend Hugo Salinas Price pointed out recently in one of his articles is there’s been a massive exit out of the U.S. dollar by the Chinese, something on the order of a trillion dollars.

And that didn’t move interest rates, which is almost impossible. Anytime any market creates freely and there’s a massive buyer, a massive seller, it will change the price and interest rates is the price of money. So it certainly should have changed the price and it didn’t. There’s other interviews you can find on the internet regarding the mechanics of that and why it did or didn’t happen. My view is that the U.S. Fed, although they’ll never say this publicly, is concerned that they have to keep the dollar game going as long as they possibly can. So to make it the strongest kid on the block by keeping interest rates positive or perhaps even raising them again somewhere down the road, perhaps once again before the end of this year will give the illusion that the dollar has strength and the illusion that our economy might be doing better than other places on the globe. Which is really a fallacy, but nonetheless, perception is everything in today’s Orwellian society.

So I have a different view, Mike, I think they’re going to stay the same or even perhaps increase again. I’m a very very lone wolf on this. I don’t know many people that are saying what I just said, but that’s my view.

Mike Gleason: Switching gears here a little bit, we’ve seen a big drop in the registered stocks of gold in the COMEX and a seemingly ridiculous situation where more than 500 ounces of paper gold are backed by a single ounce of physical gold in exchange warehouses. What do you make of that? Is there any reason for alarm there? This is something that’s been talked about for a long time. Could we be at a tipping point as to the ability of the future’s markets like the COMEX to remain a trusted price-setting mechanism for physical gold and silver?

David Morgan: Yeah, great question. I wish I had an absolute for everyone. First of all, there’s a considerable concern. The actuality of it taking place I think is rather low for a couple of reasons. One is if you read the contract that everybody signs, well they’re just an individual investor and trade, one contractor at a time or a mini contract. Or they’re a huge institution that trades thousands of contracts at a time or even a central bank that “hedges” in the thousands upon thousands of contracts at a time. The rules are what they are, which means that you can settle in cash.

So if there were a stand-for-delivery mechanism, which exists, AND it was above and beyond what the physical amount of gold in the CME is, there would be paper settlement. And I’m sure that the mainstream press would probably spin it to where they would make it sound as positive as possible, something along the lines of, “Rogue trader stands for delivery, contracts settled by law with the price.” And they won’t say paper price. And “how dare they stand for delivery when everybody knows that a gold contract is just a paper mechanism to set the price and nothing to do with the physical demand.” Which of course is true and false.

Less than 1% of all the trading ever results in standing for delivery and taking physical metal. Nonetheless, over the years it has taken place. And the amount of gold that exists on the CME is pitifully small, so certainly someone could stand for delivery or a few people or entities and really cause some havoc. But the next question is this: who would be willing to do that? And the answer is I don’t know. But most of the bigger players would be unwilling to do it because the negative press would be so great and probably the phone calls that you would never hear about in the public domain, about you know, it’s not going to happen, Bank X or hedge fund Y or money manager Z. We’re not going to let this happen.

I am suspect, and I hate to sound so cynical, but I’ve been in this industry for 40 years and I’ve seen a lot of things. You look at what happened in the silver market back in late 70’s, and if you read the bookSilver Bulls, which I have several times, written by Paul Sarnoff, you get a pretty good idea of the day-to-day what took place during the Hunt brothers situation and what kind of conversations took place.

On a personal level, I would love to see it. I would love to see someone stand for delivery on that pitifully small amount of gold and see what the heck happens, but is it going to? I don’t think it will Mike. It could. Again, I’d like to see it happen, but the outcome is not quite as optimistic, and I could be wrong. This purely my opinion, but I think if it were to take place, first of all, I just don’t think it could. I think there’ll be too many roadblocks, but let’s say that it did take place.

If it were to occur, it’d be what I just said, I want to repeat slightly that the spin on it by the mainstream would be severe and they would try and make it look as if these gold bugs were causing problems and these speculators were putting misery in the markets and on and on. So it could have, to the general public, more of a negative outlay that it would be to us that understand the financial markets and how important honest money is than we might like to think.

So I would really want to think that one through. We just have to wait and see what takes place in the future.

Mike Gleason: Very interesting take on all that. That’s pretty insightful. I think you’re probably right. I think we see it much the same way. But it’ll be interesting to see what happens there. Well as we begin to wrap up here, David, how do you envision the year playing out in the metals? Do we get follow through after the strong start this time because in 2014 and 2015 both, gold and silver did well in January and February only to fall off to close the year lower. So will 2016 be a different story? Will we see a strong performance in the metals continuing this time? And if so, why do you believe that will happen?

David Morgan: A great refresher for everyone, yes I think we’ll have a good year but not a great year. I think the reason being is what I outlined. The biggest push for gold is a negative equity market. It’s certainly in the cards. If you look at the rollover, the moving averages, the chart pattern, everything that I know after years is the fact that the stock market looks as if it’s peaked here. And if that’s true, then you’re going to see more and more come into the gold market. Plus we have such a big start with the gold market, best in 35 years and volume. In other words, more and more are coming in the gold sector, which is primarily the large money which primarily invest in gold through the paper system meaning the ETFs.

So I think we are on our way. I don’t think it’s going to be substantially huge. I think it’s going to be good. And I do think this year finally we’ll see higher prices at the end of the year than the beginning of the year. My forecast for The Morgan Report was you could have all of this assured back in January and hope you will get carried through in like the middle of March or maybe even April, middle of April, which I still hold to.

I think there will be the pullback summer doldrums type of thing. A lot of these companies and the gold market and probably the silver market will come off wherever they peak but they will be higher than the end of the year last year and then they’ll just kind of wallow around, and then I think you will see a final finish for 2016 that’s positive like we usually see. The seasonality and the precious metals is usually that you get a pretty good lift near the end of the year, and of course that has not been the case as you pointed out for the last several years.

In fact, in a few of those years, we got the lowest print of the year on the last trading day in the market. Going back to the CME question, most of these traders take pretty long holidays and they just don’t trade. They close their positions and they’re free of any obligations, and they’re off on holiday. So the trading platform is extremely thin, which means there are very few participants, which means it’s very easy to move the market either up or down. And most of these guys choose to move it down, so you can get a very low print at the end of the year for gold or silver.

Then the mainstream financial pundits can say, “My, my look at gold close at a new low this year,” Of course it’s all true, but it’s easy to do because of the way the market is mechanically set up.

Mike Gleason: The heavy volume that we’ve seen there in the ETFs, it will be interesting to see if that’s continues. Obviously that’s a good sign that there’s maybe more interest among the gold-buying community.

Well it figures to be quite an interesting ride this year. We have the contentious presidential election, Fed backpedaling on interest rate hikes, a global economy that seems to be rolling over, and who knows what else. There are a lot of things to keep an eye on, and we always appreciate your thoughtful analysis here on the Money Metals podcast. Now before we let you go David, please let folks know how they can follow you there at The Morgan Report because this figures to be a great time for people to dive deeper into the metals.

David Morgan: Absolutely. I would like to suggest to everyone that we have, in fact, me, I basically did it all on my own this time although I’ve got talent fairly deep, a new report called “Riches in Resources.” And the “Riches in Resources” report is like eleven pages long and it will provide good information to you about the big picture on down, which means you’re going to learn from the beginning about what happens at the end of the age of empire and what the progression is to a state of empire and then it moves from there down into the resource sector, then into the gold and silver story, the dollar story, the debt problem, and then it moves forward into the mining sector and what we do here at The Morgan Report. It gives you opportunities to make money in this market, not only through a subscription on The Morgan Report as a website member, but also we just give you some freebies on how you can make money in that report. Just a very, very easy situations if you are inclined to purchase gold and silver.

So we just finished it. It’s going to be available. It’s a double opt-in. Go to TheMorganReport.com. Go to the right hand side, get your pre-special report, Riches in Resources. All you need is a first name and your primary email address and we’ll send that to you in your inbox.

Mike Gleason: Well great stuff, David. Thanks so much. We really appreciate it and hope you have a great weekend. Take Care.

David Morgan: Thank you.

 

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

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

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

Gold the Best-Performing Asset of 2016
click to enlarge

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

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

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

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

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

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

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

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