After a painful downtrend, silver has embarked on an unstoppable rally.
Now that its 5-year bear market is officially over, silver’s ready to make a run at $20 for the first time in nearly two years. That means double-digits gains are in the cards for one of your best performing silver mining trades.
I’ll reveal all the details in just minute. But first, let’s take a quick look at how precious metals have quickly become one of the best trades of the year…
Gold’s hogged the precious metals spotlight since it started ripping higher in February—and deservedly so. After all, gold is one of the best performing assets of 2016. It’s up nearly 25% year-to-date. To put that move in perspective, the mighty S&P 500 is just above breakeven on the year.
But silver hasn’t earned much ink from the financial press…
Sure, silver kept pace with gold for the first six weeks of the year. But in mid-February gold started to outshine its less lustrous cousin. At the time, gold and other metals were making the most dramatic moves. Earlier this year, we also had the opportunity to book gains on aluminum producers and miners as other precious metals surged.
Meanwhile, silver consolidated.
Silver didn’t jump to new highs until mid-April (that’s when we first hopped onboard for a longer-term trade). After another sharp pullback in May, silver is back in action. This time, it’s even sprinting ahead of gold…
Silver’s breaking out and not looking back. While gold is up 25% this year, silver’s 2016 gains have now topped 32%. After yesterday’s 3% move higher, silver is on a fast track to $20. Silver doesn’t give a damn about Brexit or the monster back-and-forth moves the major averages have posted this week. This is one of the cleanest breakouts on the market right now…
Of course, this week’s breakout also gives you another chance to jump into a hot silver miner trade.
You’re already up more than 20% on our favorite silver play, Silver Wheaton Corp. (NYSE:SLW). This week’s fresh breakout gives you a chance to add to your position—or pull the trigger on a fresh trade if you missed our initial report back in April.
I know it might seem crazy to grab shares of a stock that’s already delivered gains of more than 20% in just a couple of months. But this week’s breakout to new 2016 highs is an ideal scenario for an explosive short-term trade. Silver is looking to build on its gains this morning. And the newfound momentum could easily push mining shares higher into next week and beyond.
Hop on this trade today and ride the next wave of the rally. $20 silver is in sight…
Courtesy: Greg Guenthner
If you’ve been waiting to buy gold and silver the wait is over.
In his most recent Gold Videocast, Peter Schiff looks at how the price of silver has just surged to a high it hasn’t seen since January of last year. In the aftermath of Brexit, Peter takes this as a good sign that the prices of both gold and silver are about to really break out and begin moving up in significant bursts. Now that gold is holding steady above $1,300 an ounce, investors who have been waiting on the sidelines to buy should consider acting soon – before sellers start hoarding their metals as the prices move up.
Peter’s forecast is based less on the United Kingdom leaving the European Union, and more on what is going to happen in America. Peter reiterated what he said in his recent appearance on CNBC’s Trading Nations: the Brexit basically gave Janet Yellen a get out of jail free card:
I believe the Federal Reserve is going to use the turmoil in the markets that followed that vote as the excuse it’s been waiting for not only not to raise rates, but to cut rates and to launch QE4. In fact, that is the main reason, I believe, that the markets have recovered somewhat from their Brexit related losses. Because if you look at the financial markets, they are now pricing in for the first time a higher probability that the next move by the Federal Reserve will be to cut rates, not to raise them.”
It’s not just about Fed policy. The underlying economic conditions are weak. Peter pointed out that the so-called recovery is worse than most recessions. That puts us in a very precarious position when the next recession hits. This bodes well for gold and silver, but Peter said you shouldn’t wait:
There isn’t a lot of time left for people to buy gold and silver while there are still people foolish enough to sell it.”
Highlights from the videocast:
“We now have confirmation from both metals that the markets are prepared to move a lot higher, the most recent catalyst being the market turmoil that followed the British vote to leave the European Union.”
“But what I believe is really behind the metals’ rise is not what’s happening in Europe, but what I believe is going to be happening here in the United States. I believe the Federal Reserve is going to use the turmoil in the markets that followed that vote as the excuse it’s been waiting for not only not to raise rates, but to cut rates and to launch QE4. In fact, that is the main reason, I believe, that the markets have recovered somewhat from their Brexit related losses. Because if you look at the financial markets, they are now pricing in for the first time a higher probability that the next move by the Federal Reserve will be to cut rates, not to raise them.”
“My position was they never planned on following through with the rate hikes. That was just talk. They had to pretend that the economy was strong enough to withstand higher rates, but then not actually raise sates and prove the reverse. I said what they needed was a face-saving excuse to be able to turn on the spigots again without having to acknowledge the real reason for doing so. Now they can pretend that the economy was sound, but now we just have these external events we have to deal with.”
“In the meantime, the price of gold and silver has risen even against a backdrop of a strong dollar, or at least a dollar that is less weak than other fiat currencies.”
“This rally of the dollar is not sustainable, because what happened in Britain, and more importantly, the reaction that we’re going to get from Washington, is very dollar bearish.”
“As we continue to get more weak economic data that continues to surprise all the bulls, who are expecting strong data, it’s not going to be long before the talk of rate hikes is really replaced, first by the talk of rate cuts, and then by actual cuts. And of course, since there’s not a lot of room for the Fed to cut rates because they never really raised them, the real monetary stimulus is going to come in an enormous round of quantitative easing.”
“In fact, this is the first recovery ever to be worse than the recession. We are at a very precarious position now as we enter the next recession, which I believe will be far worse than the Great Recession that everybody credits the Fed for getting us out of. Well, they’ve gotten us into something much worse than that.”
“Now that you have the breakout in the price of gold and silver…I think more and more people are going to connect these rather obvious dots and they’re going to start buying.”
“I think that we’re going to regain all that lost ground in a relatively short period of time, and then gold and silver are both going to go on to make new highs.”
“The reason there was such a violent reaction in the financial markets to Brexit wasn’t because Brexit was so terrible. It just shows you how precarious the world financial system is. It’s all based upon these props of cheap money and central banking. It all based on hype, and hope, and confidence. And when something shakes the confidence, you see the immediate result.”
“The central bankers are going to do everything they can to keep this bubble from deflating, and that means more money-printing, not only here but around the world.”
“There isn’t a lot of time left for people to buy gold and silver while there are still people foolish enough to sell it.”
“If you’ve been waiting, the wait is over. And I wouldn’t be waiting for lower prices, because I doubt we’re going to see them. The prices are low enough. Just buy them.”
Courtesy: Samuel Bryan
Global Financial Assets are more inflated and propped up than ever. According to the most recent figures published by The City UK Fund Report, total Global Conventional Assets under management topped $105 trillion in 2014. That’s one hell of a lot of future PAPER CLAIMS.
Unfortunately for most investors, the majority of these supposed assets will evaporate into thin air from where-ith they came. Bubbles were designed for children to make and play with… not meant for adults to use in the financial industry.
Regardless, the global financial system is now polluted with a massive amount of toxic bubbles covering all corners of the planet. When the first large one finally pops… WATCH OUT.
I put together this chart from figures I found at Sharelynx.com. According to the data, gold comprises 0.58 percentage of global financial assets, while silver comes in at a pathetic .013%:
Even though gold is a little more than a half of a percent of total global financial assets, it’s at least 45 times greater than silver. Which is why Central Banks hate silver much more than gold. Why? Because very few Central Banks own silver and the market is so tiny that if a significant amount of funds decided to flow into silver, it would cause its price to skyrocket higher.
These next two charts show how gold and silver as a percentage of global financial assets have declined since 1980:
In 1980, gold represented a stunning 5% of the total global financial assets, while silver comprised of 0.25% (a quarter of a percent). However, over the next three and a half decades, these percentages declined significantly.
Gold is now 9 times less of a percentage of global financial assets than it was in 1980, while silver is 20 times less. The Fed, Central Banks and Wall Street did a wonderful job administering a FRONTAL LOBOTOMY on the public, which forced them out of real assets and into the largest financial ponzi scheme in history.
If investors decided to increase their gold and silver investments to equal the percentage in 1980, we would have the following:
Gold = $1,300 X 9 = $12,000
Silver = $18 X 20 = $360
Before some of the readers start rolling their eyes and BELLY-ACHING that this is just another attempt at precious metals hype, let me add a few logical points of view.
Many precious metals analysts including Jim Rickards and Jim Sinclair, believe we are going to see a gold price north of $10,000. They base their forecast on backing all the outstanding U.S. Dollars by a certain percentage of gold. The higher the percentage of gold backing, the higher the gold price. However, $10,000 gold seems to be a base price when faith in the U.S. Dollar goes down the toilet.
So, the $12,000 gold price figure shown above is not all that crazy. Furthermore, a $360 silver price when gold is $12,000 is a 33/1 Gold-Silver Ratio. We already experienced a gold-silver ratio of 31/1 in April 2011. Gold was trading at $1,500 when silver was trading at $48. Which means a 33/1 gold-silver ratio at $12,000 gold and $360 silver is really not that insane after all.
That being said, I actually believe the future values of gold and silver could be even more silly and stupid than $12,00o or $360. Why? Because the popping of adult sized massive financial bubbles could actually push gold and silver investment percentages even higher than what they were in 1980.
What the hell happens when global investors try to invest 10% in gold or say just 1-2% in silver? This may seem outlandish right now, but when financial institutions start going bankrupt and bankers start jumping off of roof tops, COMMON SENSE investing will likely return as proper investing logic like a 2 X4 across the head.
When the world finally experiences a global Lehman Brothers event that pushes us into massive depression, investors will seek safety in the precious metals. Unfortunately, there will be very little supply… only a much higher prices.
On Friday afternoon, after the shocking Brexit referendum, while being interviewed by CNBC Alan Greenspan stunned his hosts when he said that things are about as bad as he has ever seen.
“This is the worst period, I recall since I’ve been in public service. There’s nothing like it, including the crisis — remember October 19th, 1987, when the Dow went down by a record amount 23 percent? That I thought was the bottom of all potential problems. This has a corrosive effect that will not go away. I’d love to find something positive to say.”
Strangely enough, he was not refering to the British exodus but to America’s own economic troubles.
Today, Greenspan was on Bloomberg Surveillance where in an extensive, 30 minutes interview he was urged to give his take on the British referendum outcome. According to Greenspan, David Cameron miscalculated and made a “terrible mistake” in holding a referendum. That decision led to a “terrible outcome in all respects,” Greenspan said. “It didn’t have to happen.” Greenspan then noted that as a result of Brexit, “we are in very early days a crisis which has got a way to go”, and point to Scotland which he said will likely have another referendum on its own, predicting the vote would be successful, and Northern Ireland would “probably” go the same way.
His remarks then centered on the Eurozone which he defined as a truly “vulnerable institution,” primarily due to Greece’s inclusion in its structure. “Get Greece out. They’re a toxic liability sitting in the middle of a very important economic zone.” Ironically, the same Eurozone has spent countless hours doing everything in its power to show just how unbreakable the union is by preserving Greece, while it took the UK just one overnight session to break away. Luckily the UK was not part of the monetary union or else it would be game over.
But speaking of crises, Greenspan warned that fundamentally it is not so much an issue of immigration, or even economics, but unsustainable welfare spending, or as Greenspan puts it, “entitlements.”
The issue is essentially that entitlements are legal issues. They have nothing to do with economics. You reach a certain age or you are ill or something of that nature and you are entitled to certain expenditures out of the budget without any reference to how it’s going to be funded. Where the productivity levels are now, we are lucky to get something even close to two percent annual growth rate. That annual growth rate of two percent is not adequate to finance the existing needs.
I don’t know how it’s going to resolve, but there’s going to be a crisis.
This is one of the great problems of democracy. It goes back to the founding fathers. How do you handle a situation like this? And it’s very troublesome, but eventually you get things like Margaret Thatcher showing up in Britain. Their situation is far worse than ours. And what she did is she turned it all around essentially by, as I remember it, the miners were going to strike and she decided – she knew they were going to strike. Since at that point, the government owned these coal mines, she built up a huge inventory so that when they went on strike, there was enough coal in Britain so that eventually the whole union structure collapsed. She fundamentally changed Britain to this day. The fact that we are doing so well in the E.U. is not altogether clear that it is the E.U. or whether it was Margaret Thatcher.
When asked if “we need an accident of history” to address this, Greenspan replied “Probably. In the United States, social benefits, which is the more generic term, or entitlements, are considered the third rail of American politics. You touch them and you lose. Now, that is a general view. Republicans don’t want to touch it. Democrats don’t want to touch it. They don’t even want to talk about. This is what the election should be all about in the United States. You will never hear one word from either side. “
This is the same entitlements crisis that Stanley Druckenmiller has also been raging about for years, most recently in his “The Endgame” presentation delivered at the Ira Sohn conference.
Greenspan then went on to bash the false “recovery” narrative, warning that “the fundamental issue is the fact that productivity growth has ground to a halt.”
We are running out of people. In other words, everyone is very pleased at the fact that the employment rate is rising. Well, statistics tell us that we need more and more people to produce less and less. That is not a prescription for a viable political system. And so what we have at this stage is stagnation. I don’t think that there is anything out there which suggests that there is a recession, but I don’t know that. What I do know is that the money supply, and too, which has always been a critical indicator of inflation, is for the first time going up remarkably steadily 6 percent, 7 percent, almost a straight line. It’s tilted up in the last several months. It’s added a percentage point or two. The thing that we should be worrying about now, which we have actually given no thought to whatsoever, is that this type of economic environment ends with inflation. Historically, fiat money has always ended up that way.
And here we get to the heart of the matter, because in not so many words, Greenspan effectively says that hyperinflation is coming:
I know if you look at human history, there are times and times again where we thought that there was no inflation and everything was just going fine. And I just basically say, wait. This is not the way this thing ordinarily comes up. I don’t know. I cannot say I see it on the horizon. In fact, commodity prices are soggy. The oil prices has had a terrific impact on global inflation. It’s not about to emerge quickly, but I would not be surprised to see the next unexpected move to be on the inflation side. You don’t have inflation now. And you don’t have it until it happens.
Of course, Greenspan ignores his own role in the creation of the boom-bust cycle which has doomed the world to series of ever more destructive bubbles and ultimately, hyperinflation which will likely be unlashed once the helicopter money inevitably arrives. In retrospect, the 90-year-old, who clearly is looking forward not backward, has a simple solution: the gold standard.
If we went back on the gold standard and we adhered to the actual structure of the gold standard as it exited prior to 1913, we’d be fine. Remember that the period 1870 to 1913 was one of the most aggressive periods economically that we’ve had in the United States, and that was a golden period of the gold standard. I’m known as a gold bug and everyone laughs at me, but why do central banks own gold now?
Why indeed. And of course, that’s rhetorical.
* * *
His full interview is below.
In marked contrast to gold, copper looks to be set up for a sizable rally here. On its 1-year chart we can see that after its significant drop during May and early June, it is down on an important support level that is certainly capable of generating a rally, despite its still bearishly aligned moving averages…
The chances of copper rallying soon are greatly magnified by its latest COTs, which show that the Commercials are now heavily long, while the normally wrong Large Specs are heavily short—this is the setup for a rally, and one reason for selecting a one-year time frame for the copper chart above is so that you can compare past peaks and troughs with the readings on the COT chart, which also goes back a year.
Since the price of copper is to a large extent determined by what goes on in China, which is by far its biggest market, this bullish copper setup prompts thoughts about the outlook for the Chinese market. The Chinese stock markets have had a really rough time over the past year, with an army of “get rich quick merchants” being put through the meat grinder after they generated a bubble rally.
But if you have ever watched Chinese gamblers in a casino, you know that “they’ll be back,” as Arnie would say—they just love to gamble. While this fact in itself won’t necessarily generate a rally, the Chinese stock market is showing increasing signs that it could defy current expectations and break to the upside.
On the three-year chart for the Shanghai Composite, it looks at first glance like the market is set up for another downleg, after trundling sideways for most of this year. And it may yet, but with downside momentum easing after its earlier severe losses, and some bunching of price and moving averages, the chances of an upside breakout, although still not great, are starting to improve, and the now positive medium-term outlook for copper provides some circumstantial evidence that this might occur.
Courtesy: Clive Maund
John Rubino of DollarCollapse.com who shares his insights on the likelihood that negative interest rates are coming to us here in the U.S. and other factors that could be very bearish for economic growth, but an environment that could be very bullish for gold.
Mike Gleason: It is my privilege now to be joined by John Rubino. John is a former Wall Street analyst, a writer for CFA magazine, and a featured columnist with TheStreet.com. He’s also authored several books, including “The Collapse of the Dollar and How to Profit From It” and his latest book, “The Money Bubble.” John, it’s great to have you back with us. How are you?
John Rubino: Hey, Mike. I’m all right, how are you?
Mike Gleason: Excellent. Well since we’re talking here on Thursday before the Brexit decision is known we’ll concentrate on some other things and have the conversation about the fallout of Brexit another time.
Now here in the States we’ve had Janet Yellen talking about negative interest rates, and when asked earlier this week she said that the U.S. Fed does have the legal basis to implement negative interest rates should they decide to go that route, although she assures that that isn’t planned at this point. Now I find it a little coincidental here John, that one, she’d have the answer to that question ready to go and had done the research about how she believes it’s legal – like she wanted to plant the seed there – and then two, the fact that many other major central banks around the world are going to negative interest rates, if it weren’t the intention of Yellen and the Fed to eventually do the same. So comment on that idea and the likelihood of negative interest rates here in the U.S.
John Rubino: Well, it’s surprising that we don’t have negative interest rates in a way because the U.S. is still seen as the safe haven economy. The US dollar is seen as the safest asset in the financial world, so our interest rates ought to be commensurately lower. We should have the risk-free rate, and yet Germany’s bond market is negative all the way out to 10 years. So is Switzerland’s. Japan’s is almost negative out to 10 years. That means their interest rates are lower than ours, which implies that the market thinks they’re less risky than U.S. treasuries.
That’s kind of counter-intuitive because U.S. treasuries are generally considered to be the least risky financial asset, so why are our interest rates higher than theirs? It’s not clear yet. Part of it is that their central banks are buying up basically all the government debt that it exists out there. It creates a shortage, which makes prices go up, which in other words makes yields go down. And part of it is just that we haven’t gotten to it yet. It’s just one of those anomalies that will be worked out when people arbitrage away the imbalances. And that will happen very probably by money flowing out of places like China and Japan and Europe – because those systems are so clearly closer to the breaking point than we are – and flowing into U.S. assets.
So we could have a year or two of capital inflows that push down our interest rates here, and we could get zero to negative interest rates in that way. All the Chinese money flowing out of China, buying treasuries pushes down the yields on treasuries, and so we could get there. But the important thing to understand is that that’s a really bad thing. To have negative interest rates screws up the pricing, the price signalling mechanism of the financial markets, and it leads to mal-investment of capital, because if people with capital who are trying to decide whether to build a factory here, or a house here, or whatever, or road or bridge, if they can’t tell whether that’s a good idea because the price of money is being artificially distorted, then they’re going to make mistakes. They’re going to build things that shouldn’t have been built, can’t generate the cash flow necessary to pay off the related debts, and therefore either just lower the wealth in the system or cause a crisis when the people who borrowed money in order to build these things default.
You’re seeing that in China now already where they borrowed probably more money than any country has ever borrowed in a six-year span and wasted a lot of it, so they’re having a financial crisis that they’re trying to deal with in various ways, but it’s got Chinese rich people totally spooked, and they’re sending their money out of the country as quickly as possible. Japan, same thing. They did there’s earlier. They had their mal-investment binge in the 1990’s and have never really recovered from it.
And Europe is a mess also, and the U.S. is headed that way because the price signalling mechanism of all markets has been basically crippled by these incredibly low and sometimes negative interest rates. So we’re beginning at the point of huge financial imbalances that have to be worked off through some kind of a crisis, and we’re making it worse by pushing interest rates down and leading people to do ever dumber stuff with their money. So there’s no end in sight to this, and the idea that we might end up with negative interest rates is both completely possible and catastrophic when and if it happens.
Mike Gleason: Yeah, certainly that’s the big crux for all of the asset bubbles that the monetary system that we have in place and the Federal Reserve system has created over these last few years. Very well put there. It’s a lot of mal-investment that’s going out there, and making bad decisions, and propping up assets that eventually will collapse because it’s not supportable. Now the big knock on gold has always been that it has no yield. Of course it’s always been an unfair knock in our view because gold is money, a kind that actually has been enjoying significant capital appreciation, at least in dollar terms.
But it is true to say that the average person can’t get paid interest when they hold gold, but if we see negative interest rates in all these world currencies, then all of a sudden that game changes and changes tremendously for the elemental. Gold paying no interest actually has a higher yield than other alternatives. Talk about that dynamic.
John Rubino: Yeah, a negative interest world is, at least in theory, phenomenally good for gold because, as you said, we normally compare cash flows with assets, and if money in the bank is going to yield you 4% or 5% like it has historically prior to the vary recent advent of super low interest rates, then gold has a disadvantage because it actually costs you 1% or so a year to store. So you’re at, let’s say, a 6% and you owe cash-flow disadvantage in that world. In this world, where money in the bank costs you rather than pays you and currencies are actively being devalued around the world, then gold, which can’t be devalued by governments and only charges you 1% for storage looks suddenly good from a cash-flow standpoint.
Suddenly gold is a high yield asset compared to some forms of cash. So who in their right mind would own fiat currency and accept an annual loss on it when you can own gold, which is a far more stable kind of money and hold your own year after year. Your purchasing power remains the same when you own gold over long periods of time, and your purchasing power goes down when you own fiat currencies over long periods of time.
So you would think that in that kind of a world a lot more money would be flowing into gold, and you know what, that’s happening now. The physical demand for gold is through the roof lately, and that comes from central banks in Asia who are continuing to increase their gold reserves and individuals mostly in Asia who are big buyers of gold jewelry and gold bullion.
And now it’s starting to come from people in the West, individuals mostly, who are buying gold and silver coins at the fastest rate ever. Most of the big mints out there are operating flat out. They’re selling record amounts of especially one-ounce silver coins, and there’s no end in sight to that. And what that means is that individuals are starting to come to the conclusion that we’re talking about here, that they’d rather have a sound form of money like gold and silver than the cash that they currently have. They’re taking that cash and they’re buying silver coins, and that puts not necessarily a floor under the price but it helps support the prices of gold and silver.
When the prices begin to move up, as they have lately, it adds extra momentum to that upward price move because there’s a lot of people out there now who are dithering, right? They’re thinking, “Do I have enough silver and gold? Should I buy some more here?” And if the price goes up a lot of them are going to panic and think, “Well, if I’m ever going to get it I got to pay today’s price,” and so they jump in and they buy, and that gives whatever kind of move that’s happening some extra momentum.
So we should expect that to continue as long as the world’s governments and central banks are screwing up their own monetary policy and fiscal policy. And since there’s no end in sight to government deficit spending, and central bank over-creation of currency, and interest rates falling, there’s not end in sight to any of this, you would think that the current gold bull market that is now in progress is going to have some legs and it’s going to grow into possibly major long-term run to the upside.
Mike Gleason: Some of those individuals who are putting their money into gold have been some of these well-known billionaires. We’ve got Soros, Druckenmiller, Carl Icahn and so forth bailing out of equities, and they have all turned quite bearish on the mainstream financial markets. And it seems like a lot of these guys are putting their money where their mouth is when it comes to swapping a lot of that into gold. What should be the takeaway there, John? Because these guys genuinely have a pretty good track record when it comes to making money.
John Rubino: They do, especially at big turning points. And between the three guys you just named, there’s about a century of experience, and they’ve seen every kind of market and every kind of financial screw up that’s possible in the part of governments and central banks. And they’re interpreting what they’re seeing now as a signal to get out of equities, to be weary of bonds, and to load up on precious metals, which is basically the gold bug thesis writ large in billions of dollars instead of hundreds and thousands.
There’s no guarantee that they’re right, but based on their own history there’s a pretty good chance that they’re right, and in any event it’s comforting to have these guys on the same side as you as you stack your silver coins. So I think that because there’s a good chance that they’re right, that’s one more data point in the thesis that we’ve turned the corner on precious metals and that for the next few years the average trend should be higher.
Mike Gleason: I wanted to get your take on the presidential election here, the major presidential candidates and what impacts we could see to the gold and silver market. Do you think that either a Trump or a Hilary presidency will be good for gold investors, or does the election outcome even matter?
John Rubino: Well I think we’re at the point where it almost doesn’t matter who’s in charge because there’s institutional momentum now that is built up where any president in the U.S. is going to have to run big deficits, and any central bank chairperson that is nominated and put in place by whoever is president is going to have to run a really loose monetary policy. We can’t not do those things if we want to avoid an immediate 1930s-style depression.
Clinton would be an extension of the current policies, which, as we just talked about, are terrible and bad for most traditional financial assets and really good for gold. And Trump would be uncertain. You just don’t know what that guy is going to do. Uncertainty is also bad for traditional financial assets and good for things like precious metals, which is where you hang out in times of uncertainty.
So I think whoever we elect, the investment thesis it flows from that, stays the same. It’s still going to be a good time to short equities, to avoid long-term government bonds, and to load up on precious metals. Now, of course there’s real outlier possibilities with both Clinton and Trump because in some senses they’re unpredictable, Trump more so than Clinton, but Clinton is kind of a hawk. She’s pretty aggressive in terms of her foreign policy, so we could be seeing more American intervention around the world under a Clinton administration, which increases the amount of uncertainty that’s out there.
And Trump, again, you just don’t know. He could do things that are really scary and erratic. And that would also be good for gold and silver. I think that however you slice it we’re heading for some kind of a crises just because we’ve already baked that into the cake. We’ve already borrowed way too much money, and now we have really no chance of a pain-free exit from the spot we’ve painted ourselves into.
Political campaigns in the U.S. now are more entertainment than anything else because it almost doesn’t matter who’s in charge. Now around the world that’s not always the case because you’ve got some big systems that are in the process of dissolution, especially in Europe where you’ve got a lot of political parties who would change the system in a radical way. They’re revolutionary movements rather than status quo movements, and they’re all gaining momentum.
So I think in the next couple years we’re going to see some elections where the status goes down in flames and loses big to somebody who nobody thought five years before would have a chance at running this country, but there they are in charge.
And their platform is going to be the end of austerity and an increase in government deficit spending, a devaluation of the euro, and maybe a pull-out of the Eurozone, or a radical, radical re-writing of the terms of the European Union and of the Eurozone. So I think from the point of view of meaningful elections it’s outside the U.S. where we’re going to see the biggest possibility of an absolute revolution, and Europe is the place where it will start.
Mike Gleason: As we begin to close here, John, it’s been an eventful month of June with the Fed leaving rates unchanged last week, and then the big Brexit vote this week. What’s next on the horizon? What should investors be watching for? What is the short term look like for gold and silver in your view?
John Rubino: Short term, who knows, but the Commitment of Traders report thing is really interesting now because it’s at record levels basically negative for the price of gold and silver. In other words, the speculators are record long and the commercials who tend to be right at turning points are record short in the U.S. futures markets. And traditionally that has been a really good indicator of what’s going to happen next in precious metals, so just looking at that you would say, “Time for a big correction in gold and silver,” but for the first time we’ve got some other forces at work out there that are kind of pointing in the opposite direction.
The Shanghai Gold Exchange opened and is a physical precious metals market. So what happens there, at least in theory, we’ll see if it plays out this way, if the paper traders in the U.S. force down the price of gold, then that creates an arbitrage where if the physical price is higher in Shanghai, then what you do here is you take delivery on your futures contracts and you force the COMEX to give you gold bullion. And then you take that gold bullion and you sell it in China for a higher price. And that would totally blow up the paper markets here because there isn’t enough bullion stored at the COMEX Exchange to cover a lot of demands for physical metal.
So we would possibly see a situation where physical demand basically short-circuits the paper games that are being played in the precious metals market, and you get a melt-up, and that would be really interesting. We’ll see if that happens this time. It could be that the paper players win another time. They’ve definitely set up the conditions for a really big drop in gold and silver, or it could be that they get steamrolled by physical demand.
Somewhere out there that event is waiting to happen: Physical will eventually set the price for precious metals, and if it’s not this time it will be another time, but right not that’s what’s interesting to watch in short-term precious metals movements. Long term, it’s up. It’s going to go up from here just because we’ve created such a mess in the paper financial markets, and fiat currencies are going to go down just because the only solution for a lot of the governments that have screwed up their finances is to devalue their currency.
Jim Rickards has what seems like the least painful scenario for this to be fixed in which the major governments of the world get together and decide to devalue, but all of them at once against gold, so we go to some kind of a modified gold standard with the gold price at 10,000 an ounce, which means the dollar, and the euro, and the yen, and the yuan become much, much less valuable overnight. So we just do it in one stroke and then we go back to a sound money system. And that’s terrible if you’ve got a lot of your savings in fiat currency because your currency becomes one-fifth as valuable as it was when you put it in the bank.
But it’s great if you own precious metals and other real assets because the dollar value of those real assets goes up commensurately. That’s out there somewhere too. Basically in the short run we don’t know what’s going to happen, but in the long run all roads lead to higher gold and silver prices and much, much cheaper fiat currencies.
Mike Gleason: Very well put. There are a lot of black swans circling overhead here. It’s just a matter of when the next one lands. I think there’s going to be some very interesting times head here later this year, certainly with the election and into next year. It’s going to be very interesting to see all this play out. Outstanding stuff, John. Thanks very much for your time, and I certainly look forward to catching up with you again soon as this all unfolds. I know that you’re a very busy guy and we appreciate you taking out time in your day to give us your great insights. As always, thank you for joining us and hope you have a great weekend.
John Rubino: Thanks, Mike. You too.
Submitted by: Mike Gleason
The price of gold soared in the wake of the Brexit vote, going as high as $1,350 on Friday before settling back slightly. As of the Monday morning after the vote, the yellow metal was up more than 5% from its close Thursday before returns started coming in.
The spike in price of gold after the shock of Brexit isn’t surprising, but many analysts say the bull run will likely continue.
The UK’s decision to exit the EU caught the mainstream off guard. Most analysts had predicted the stay vote would carry the day. Unsurprisingly, startled stock markets sold off and gold rallied when it became clear the pundits were wrong. Of course, historically investors turn to safe-haven assets like gold and silver in times of turmoil, so a spike in the price of gold is exactly what you would expect. Naeem Aslam, chief market analyst at Think Forex in London, called gold the “real winner” in the Brexit vote.
But there are indications that a lot more factors than just short-term, knee-jerk safe-haven buying are pushing the price of gold up. That means this may be more than a reactionary spike in the market. A recent MarketWatch article made the case for $1,500 or even $1,900 gold in the next year or so:
The decision, known as Brexit, has vast implications for global financial markets, economies and currencies as well as for monetary policies among the world’s major central banks. That means gold could soon have many more reasons to rally.”
David Beahm, chief executive of Blanchard and Co., said the Brexit could mean long-term growth for gold:
The market’s fearful reaction has made Brexit the most stressful event investors have seen since the Lehman Brothers bankruptcy in September 2008. This is a major negative for global markets, and gold is positioned for long-term price growth because of … the Brexit vote and other negative global financial conditions.”
Ned Schmidt, editor of the Value View Gold Report, said he expects gold to continue its climb toward $1,400 an ounce with the price eventually pushing past $1,900 in the next year.
Brexit is a once-in-a-lifetime event. All arguments against holding gold have now been crushed.”
One major factor will be central bank response to the Brexit. Immediately after the outcome became clear, central banks were already promising to “provide more liquidity.” Chris Gaffney, president of EverBank World Markets, called this the “biggest risk to markets right now.” He said there’s a lot of speculation about an interest rate cut in the UK and that the European Central Bank may take rates even deeper into negative territory. He also said the Brexit will “definitely make it very difficult for the [Federal Open Market Committee] to raise [interest] rates this year.” This all means lower rates for longer. That’s good for gold.
But it’s not all about Brexit. Despite what the pundits and politicians keep saying, the US economy is in a mess. Peter Schiff thinks that’s probably an even bigger reason to expect gold to continue its climb. In his most recent podcast, he said while the Brexit was a catalyst that sparked a gold rally, it didn’t cause the gold rally. In fact, Peter thinks gold would have eventually gone up no matter what UK voters decided. After all, gold has been one of the best performing assets all year. The fundamentals driving that remain in play. True, it did sell off a bit over the last few weeks. But as Peter pointed out, that was largely because people thought Brexit wouldn’t happen. The UK’s decision to leave the EU is just one more layer of uncertainty in an economic environment that was already unstable.
I think this is a good breakout in the price of gold, and I think we’re going to see a whole lot more upside in the days and weeks ahead.”
Courtesy: Samuel Bryan
British voters rocked financial markets overnight Thursday and throughout Friday by deciding to exit the European Union. Few expected the outcome as polling and odds-makers both got it wrong. Now traders, most of whom were positioned exactly wrong, are wondering what the fallout will be in the days ahead.
Many are rushing to safety. The US dollar was up sharply in Friday’s trading, and Treasury yields plummeted as investors bid strongly for them. But gold outperformed both.
It gained nearly 5% in one of its biggest daily moves ever and ended at a 27-month high. Silver rose nearly 3%.
Meanwhile, stock markets everywhere got clobbered, commodities fell, and currency markets are in turmoil. We should learn something this week about just how wrongfooted the trading houses on Wall Street and around the world were when the votes were finally tallied in the UK. Margin calls are going out and trading losses have the potential to crush firms, many of whom are highly leveraged.
Nassim Taleb developed the theory of “black swan” events to describe happenings that are unusual and hard to predict, but that shake the world when they occur. A black swan may have just landed in Europe.
Metals investors should buckle up for the next couple of weeks as they await the verdict on just how momentous the British referendum will be in the markets. Here as U.S. markets re-open on Monday there are simply too many unknowns.
On one hand, the referendum is just the first step in a process likely to take years. One can imagine very little long term significance as markets simply adapt to a United Kingdom that is more independent, but remains quite engaged and happy to trade.
On the other hand, world financial markets are highly leveraged and massively interconnected. The collapse of even one bank or hedge fund can have vast implications. We saw that when Lehman Brothers collapsed in 2008, and before that when Long Term Capital Management failed in 1998.
Here are some early insights on Brexit as it relates to the precious metals markets:
Gold and silver working as intended. As mentioned above, gold outperformed the U.S. dollar and Treasuries as the go-to safe haven asset. Investors rushing around on Friday and looking for somewhere to flee favored the yellow metal.
That hasn’t always been the case. During the 2008 financial crisis, it took weeks for investors to come around.
The instinct then was to buy dollars and Treasuries first, then metals. Maybe today more investors question just how much safety the U.S. dollar and debt really represent.
If the current turmoil should deepen into a broader crisis, we can look for more investors to run the same calculus and arrive at the same answer: buy gold. Should markets quiet down, we may see some selling as traders redeploy back into risk assets. In either case, Friday’s action helped reaffirm metals as the ultimate anti-paper asset.
The world may be about to get another lesson on who central bankers actually work for. Central bankers talk a lot about maintaining their independence. Too bad for them, but people are starting to figure out exactly what “independence” means. While they are completely unaccountable to you and me, they certainly do answer to another power.
Nigel Farage and his victorious UK Independence Party (UKIP) made a lot of hay by revealing just what a rotten deal average citizens are getting from the world’s largest banks, the financial markets they dominate, and the central banks they own.
During the 2008 financial crisis voters had no choice but to watch as officials ignored their angry phone calls and went right ahead with wildly unpopular bank bailouts. Central banks printed up hundreds of billions and handed it out – rewarding, rather than punishing firms for making bad bets and committing wide-scale fraud. They followed it up with programs in which banks got top dollar selling their worst garbage loans, in bulk, for more freshly printed cash.
Rotten monetary policy was sold as stimulus for the economy. But after years of poor results, that attempted justification is now wearing a little thin. People all through the first world can see the financial sector dominating ever larger portions of the economy, even as broader wages and employment lag.
We may or may not see banks and officials once again collaborating to stick their Brexit losses with the citizens. It will depend on just how bad the losses are.
However, no one should completely discount the possibility of another “Lehman moment.” Remember the terms “systemic risk” and “too big to fail”? The share prices of some major banks, including Credit Suisse and Deutsche Bank (both of which are larger than Lehman), indicate real trouble is brewing. DB shares cratered 17.5% Friday and trade below their 2008 crisis lows.
Central bankers are already riding to the rescue with promises to provide whatever “liquidity” is needed to banks. Speculation is the Federal Reserve will postpone more rate hikes, or forgo them altogether.
Just prior to the referendum, Janet Yellen, told Congress the Fed has authority to impose negative interest rates. But she assured representatives there are no plans to implement that policy at the current time. Well, a lot can happen in just a couple days! We suggest savers and pensioners buckle up. They may not think it can get worse, but it can.
In any event, these are exactly the kind of developments which ought to undermine fiat currencies and government debt, and fuel a preference for gold. So far, so good. Those of us who consider central banks as the problem will look for more flight to precious metals in the days ahead.
Submitted by: Clint Siegner
This could be the year that the mainstream investor finally pushes the gold market over the edge. While a fraction of investors continue to acquire a lot of physical gold, the mainstream investor is the key to driving the gold market and price going forward.
Why? Because the diehard precious metal investors don’t have the sort of leverage as do the mainstream investors, which account for 99% of the market. I have stated several times in articles and interviews that it will be the surge of gold buying by the mainstream investor that will finally overwhelm the gold market.
This next chart shows just how much leverage the mainstream investor has on the gold market. When the Dow Jones Index fell a lousy 2,000 points during the first quarter of 2016, mainstream investors flooded into Gold ETF’s & Funds. This continued into the second quarter, including the surge in buying after the BREXIT “Leave Vote” this past Friday:
According to the data put out by Nick Laird at Sharelynx.com, total transparent global gold holdings increased nearly 20 million oz (Moz) since the beginning of 2016. Nearly half of that figure, 9.7 Moz (supposedly) went into the GLD ETF. This is an amazing amount of gold as it represents 41% of total global mine supply.
For those investors who don’t trust the amount of gold backing these Gold ETF’s, I don’t either. However, I could care less if the GLD has all the gold it reports. What is more important is the mainstream investor LEVERAGE on the market and price. This is the Key.
This next chart shows the annual net flows of gold into ETF’s & Funds:
The record amount of flows into Gold ETF’s & Funds took place in 2009. The majority of the 645 metric ton (mt) figure took place during the first quarter of 2009 when the broader markets were crashing to their lows. In Q1 2009, a record 465 mt of gold flooded into Gold ETF’s & Funds that quarter, accounting for 72% of the year’s total.
However, the first half of 2016 is turning out to be one hell of a strong start as global gold holdings have already increased 622 mt. Part of this amount includes an approximate 68 mt build (2.2 Moz) in the Comex Gold Inventories. As we can see, the mainstream investor Gold ETF & Fund demand has driven flows in the first half of 2016 to 96% of the record 645 mt set in 2009.
And this was on the back of a lousy 15% correction in the broader markets in the first quarter of the year. What happens as the BREXIT contagion continues to spread pushing the broader stock markets lower?
Again, according to the data at Sharelynx.com, an approximate $25 billion of mainstream funds went into Gold ETF’s, Funds and Exchanges in the first half of the year:
While this is most certainly a large surge of mainstream investor demand in Gold ETF’s & Funds, it’s still only a fraction of the overall market. Matter-a-fact, the top 400 World’s Richest people lost $127 billion on Friday after the BREXIT vote to leave the European Union.
Now, what’s even more interesting than that tidbit, is that a ONE DAY loss of $127 billion by the wealthiest people could have purchased ALL of the Global Gold and Silver ETFs and Funds in the entire world.
Currently, all the Gold ETF’s & Funds are valued at $108 billion while the Silver ETF’s & Funds represent a mere $16 billion. Thus, all the Global Gold-Silver ETF’s & Funds equal $124 billion. Basically, the richest of the rich lost more in one day than the entire Gold and Silver ETF and Fund Market.
The British citizens voting to leave the European Union is the straw that finally breaks the CAMEL’s BACK. It doesn’t matter if the politicians force England to stay in the EU, because the MINDSET of the public has been changed. It’s just a matter of time before the inertia grows to a level that finally overwhelms the establishment.
I got a kick out of Zerohedge’s article today, President Of The European Parliament: “It Is Not The EU Philosophy That The Crowd Can Decide Its Fate”. This is the epitome of FASCIST 101, where an UNELECTED Parliament can decide the fate of the British or any other European country.
We are experiencing the same thing in the United States as Donald Trump goes against the DEMO-PUBLICAN Establishment Cronies.
At some point in time, the DEBT & LEVERAGE in the system will take down the markets in a serious way, quite quickly. If you are the 99% of Americans who believe, “You need to stay in your 401K for the long-term”, you can’t blame Wall Street when you lose it all as you had plenty of chances to WAKE UP.
More stock market wealth was lost on Friday than on any other day in world history. As you will see below, global investors lost two trillion dollars on the day following the Brexit vote. And remember, this is on top of the trillions that global investors have already lost over the past 12 months. It is important to understand that the Brexit vote was not the beginning of a new crisis – it has simply accelerated a global financial crisis that started last year and that was already in the process of unfolding. As I noted on Friday, we have been waiting for “the next Lehman Brothers moment” that would really unleash fear and panic globally, and now we have it. The next six months should be absolutely fascinating to watch.
According to CNBC, the total amount of money lost on global stock markets on Friday surpassed anything that we had ever seen before, and that includes the darkest days of the financial crisis of 2008…
Worldwide markets haemorrhaged more than $2 trillion in paper wealth on Friday, according to data from S&P Global, the worst on record. For context, that figure eclipsed the whipsaw trading sessions of the 2008 financial crisis, according to S&P analyst Howard Silverblatt.
The prior one day sell-off record was $1.9 trillion back in September of 2008, Silverblatt noted. According to S&P’s Broad Market Index, combined market capitalization is currently worth nearly $42 trillion.
And of course many of the wealthiest individuals on the planet got absolutely hammered. According to Bloomberg, the 400 richest people in the world lost a total of $127.4 billion dollars on Friday…
The world’s 400 richest people lost $127.4 billion Friday as global equity markets reeled from the news that British voters elected to leave the European Union. The billionaires lost 3.2 percent of their total net worth, bringing the combined sum to $3.9 trillion, according to the Bloomberg Billionaires Index. The biggest decline belonged to Europe’s richest person, Amancio Ortega, who lost more than $6 billion, while nine others dropped more than $1 billion, including Bill Gates, Jeff Bezos and Gerald Cavendish Grosvenor, the wealthiest person in the U.K.
Could you imagine losing a billion dollars on a single day?
I am sure that Bill Gates and Jeff Bezos are not shivering in their boots quite yet, but what if the markets keep on bleeding like they did in 2008?
On the other hand, globalist magnate George Soros made a ton of money on Friday because he had positioned himself for a Brexit ahead of time. The following comes from the London Independent…
The billionaire who predicted Brexit would bring about “Black Friday” and a crisis for the finances of ordinary people appears to have profited hugely from the UK’s surprise exit from the EU.
George Soros is widely known as the man who “broke” the Bank of England in 1992, when he bet against the pound and made a reported £1.5bn.
Although the exact amount Mr Soros has gained after Brexit is not known, public filings show he doubled his bets earlier this year that stocks would fall.
So what will happen on Monday when the markets reopen?
Personally, I don’t think that it will be as bad as Friday.
But I could be wrong.
In early trading, Dow futures, S&P 500 futures and Nasdaq futures are all down…
Dow futures fell by 90 points in early trading, while S&P 500 futures slipped 11 points, and NASDAQ futures dipped 24 points. Gold futures rose, in a reflection of sustained demand for safe-haven assets.
And at this moment, the British pound is getting absolutely crushed. It is down to 1.33, and I would expect to see it fall a lot lower in the weeks and months to come.
Well, the truth is that now that the British people have voted to leave the EU, the globalists have to make it as painful as possible on them in order to send a warning to other nations that may consider leaving. I think that a recent article by W. Ben Hunt explained this very well…
What’s next? From a game theory perspective, the EU and ECB need to crush the UK. It’s like the Greek debt negotiations … it was never about Greece, it was always about sending a signal that dissent and departure will not be tolerated to the countries that matter to the survival of the Eurozone (France, Italy, maybe Spain).Now they (and by “they” I mean the status quo politicians throughout the EU, not just Germany) are going to send that same signal to the same countries by hurting the UK any way they can, creating a Narrative that it’s economic death to leave the EU, much less the Eurozone. It’s not spite. It’s purely rational. It’s the smart move.
The elite need a crisis now in order to show everyone that globalism is the answer and not the problem. If the British people were allowed to thrive once they walked away, that would only encourage more countries to go down the exact same path. This is something that the elite are determined to avoid.
The Brexit vote has barely sunk in, and Bank of America and Goldman Sachs are already projecting a recession for the United Kingdom. Sadly, I believe that this is what we will see happen.
But it won’t just be the British that suffer.
On Friday, European banking stocks had their worst day ever. In particular, Deutsche Bank fell an astounding 17.49 percent to an all-time record closing low of 14.72. I have warned repeatedly about the implosion of Deutsche Bank, and this crisis could be the catalyst for it.
In addition, I have repeatedly warned about the slow-motion meltdown that is happening in Japan. On Friday, Japanese stocks lost 1286 points, and the yen surged in the exact opposite direction that the government is trying to send it…
Tokyo, we have a problem.
Last week, market tumult stemming from the U.K.’s vote to quit the European Union drove the British pound to its weakest levels in three decades.
Yet it also sent investors flocking to traditional safe haven assets like the U.S. dollar, gold and the yen, the latter surging against every major currency as the results of Brexit became clear:Dollar/yen spiked from a Thursday high near 107 to a two-year low near 99.
Just like in 2008, there will be days when global markets will be green. When that happens, it will not mean that the crisis is over.
If you follow my work closely, then you know that it is imperative to look at the bigger picture. Over the past 12 months, there have been some very nice market rallies around the world, but investors have still lost trillions of dollars overall.
What happens on any one particular day is not the story. Rather, the key is to focus on the long-term trends.
And without a doubt, this Brexit vote could be “the tipping point” that greatly accelerates our ongoing woes…
“Brexit is the biggest global monetary shock since 2008,” said David Beckworth, a scholar at the Mercatus Center at George Mason University, in a blog post on Friday. “This could be the tipping point that turns the existing global slowdown of 2016 into a global recession.”
We were already dealing with a new global economic crisis without the Brexit vote. But what this does is it introduces an element of panic and fear that had been missing up until this current time.
And markets do not like panic and fear very much. In general, markets tend to go up when things are calm and predictable, and they tend to go down when chaos reigns.
Unfortunately, I believe that we are going to see quite a bit more chaos for the rest of 2016, and the trillions that were lost on Friday may turn out to be just the tip of the iceberg.
Courtesy: Michael Snyder
The roulette game all started in the fall of 2014, about 2 years after Chairman Xi Jinping came to power and became the General Secretary of the Communist Party of China.
Xi Jinping had campaigned for socialist economic reform, including a sweeping anti-corruption drive, cutting excess production capacity, tightening of housing credit, and clamping down on gaming in Macau. Public feedback was initially positive. However, largely as a result of those policies, Beijing was facing an increasingly grim economic growth outlook which was the worst in more than two decades*. Manufacturing activity in China slowed along with the global economy and the construction sector stagnated.
In late 2014, the light bulb came on – someone in the higher echelon ranks thought the stock market could be a penicillin to the economic and social malaise. The stock market is easily accessible to the public and can serve to fill/occupy their free time. A rising stock market provides a desirable savings vehicle (as opposed to low yield bonds), enables listed companies to raise capital and invest, while local governments and banks can piggy-back on the taxes and fees generated.
As reported by China Daily Asia on September 5, 2014:
“State-run media in China are trying to do something the securities industry has failed to accomplish for much of the past three years: get the world’s biggest population to buy more stocks.
The Xinhua News Agency published at least eight articles this week advocating equity investing after similar stories appeared in the People’s Daily newspaper and on State-run television last month, part of what Everbright Securities Co said is an increased government push to bolster the market. Authorities have also cut trading fees, made it cheaper to open new accounts and organized investor presentations by the biggest listed banks…”1
1 “State media campaign aimed at getting investors to buy equities” China Daily Asia (September 5, 2014).
The banks started margin lending, a practice that’s has been prohibited since 2007.
The results speaks for themselves:
In the aftermath, the government stepped in and since July 2015 purchased stocks, banned short selling, banned IPOs, and restricted insider selling. All this did was drive speculators away from the market with volumes collapsing.
In early 2016, as Chinese economic growth and fundamentals continued to worsen, the government turned back to what had worked during the 2009 slump: aggressive lending in the property and infrastructure sectors in Q1 2016 provided relief, and revived the housing market and construction industry. It also sparked speculation away from the stock market and into the iron ore/steel commodity sector.
According to an article in the Financial Times:
“The commodities futures market is the most equal in China,” avows one successful trader, before admitting to one drawback: “It’s difficult to meet women.”2
2 “Chinese retail investors throw global commodities into a tailspin” Financial Times (May 6, 2016).
Trading commodities in China — also the world’s biggest consumer of raw materials — is relatively straightforward.
To set up a commodity futures brokerage account in China, an individual needs to provide their identity, in some cases with a video verification, and bank details. A deposit is needed to start trading.
Morgan Stanley estimates 160,000 new accounts were set up online between July 2015 and February 2016. Individual investors tend to be most active when markets are rising, and have dominated past rallies in Chinese futures.
The following chart speaks to Chinese investment speculation:
Source: Business Insider Australia
According to an article published by Business Insider Australia on March 9:
“…the equivalent of 977 million tonnes were traded on the Dalian exchange on Wednesday [March 9, 2016]. Not only was it the highest daily turnover on record, it exceeded the entire amount of physical iron ore imported by China over the past year.
In the 12 months to February, China imported a total of 962.6 million tonnes of an iron ore, the largest year-on-year total on record.
If the level of turnover recorded in Dalian futures on Wednesday was to be replicated over the course of any one typical trading year, it would equate to around 240 billion tonnes of ore.”3
3 “China is becoming a nation of iron ore traders” Business Insider Australia (March 9, 2016).
The annual world production of iron ore was 3.22 billion tonnes in 2014, according to Wikipedia.
The government stepped in, and since May, has raised margin requirements, increased trading fees, and imposed daily movement limits. Excessive speculation on property and commodity sectors, and the undesired restarting of marginal iron ore mines and steel mills have prompted the government to issue a warning on the state-owned People’s Daily which said, on Monday, May 9, that China’s economic trend will be “L-shaped”, rather than “U-shaped”, and definitely not “V-shaped”. Speculators promptly retreated from the iron ore market resulting in crashing price and volume.
The following chart shows where speculators turned to:
According to a Bitcoin Magazine article dated May 31, 2016:
“Huobi and OKCoin, the two largest Chinese exchanges that now account for some 92 percent of Bitcoin global trading by (self-reported) volume, both reported almost double the usual trading volume over the past weekend. BTCC, China’s third largest exchange, also reported a surge in bitcoin trading volume, setting a new record on its Pro Exchange.”4
4 J. Williams, “Bitcoin Price Soars as Chinese Investors Look for Safe Haven From Devaluation and Capital Controls” Bitcoin Magazine (May 31, 2016).
Huobi’s CEO, Leon Li said that: “More and more Chinese investors and their hot money need a new investment market, and a convenient alternative investment like Bitcoin is easy to be accepted by the traders.”5
Given its impossible to curb bitcoin trading, and with limited bitcoin supply, I would not be surprised at all if Bitcoin approach US$1,000+/BTC in the near term.
Curiously, if a crypto-currency without intrinsic value can muster such popularity, why not speculate on gold and silver? Particularly silver, as it stands out as a “poor man’s gold”, ideal for action seeking, trigger-happy Chinese investors.
Indeed, open interest in silver on the Shanghai Futures Exchange has been steadily increasing this year, with open interest now roughly equal and equivalent in size to that of COMEX.
Shanghai Futures Exchange Silver contract open interest:
The contract size is 15kg, roughly 500oz, or 1/10 of the COMEX silver contract size (5,000 oz). The open interest ballooned from less than 200,000 contracts in 2012 to over 600,000 since April 2016.
COMEX silver open interest (‘000):
What is the take-away?
1. The world is welcoming a new class of investors numbering in the tens of millions with hundreds of billions in speculative dollars.
2. Those investors may prefer metals over stocks and bonds.
3. When those finicky investors arrive, they will create a torrential wave.
They may not arrive at silver this month or the next, but I soon suspect they will buy into this compelling, easy-to-understand investment choice. I own physical silver and manage a company engaged in silver exploration.
Silver traded today at 18 months high.
Courtesy: John Lee
As fears of England leaving the European Union came to a head on voting day, a stunning scene emerged on the streets of London. Though it was completely ignored by the mainstream media, the fact that Brits were lining up in droves in front of gold and silver shops spoke volumes about financial assets of last resort during a real or perceived crisis.
It is within this context that legendary resource investor Doug Casey warns that the hurricane which took the world by storm in 2008 is still a significant threat. While we’ve spent the last several years in relative peace and calm inside the eye of the storm, we’ll be entering the other side of the hurricane wall later this year, says Casey. And as we’ve seen in London, Greece, and Argentina in the past decade, when financial hurricanes wreak havoc across the economic landscape, the only safe haven to be had is in precious metals:
We’re at the start of a really major bull market… This is going to be driven by a lot of things… It’s going to take gold a lot higher than most people can imagine at this point.
… I think $5,000 gold will happen at some point because we’re looking at a worldwide monetary crisis of historic proportions.
Casey shares his concerns, warnings and strategies in a must-hear interview with Future Money Trends:
You have to remember that since the crisis started in 2007, not just the U.S. government which has printed up trillions of U.S. dollars, but the Europeans, the Japanese, the Chinese… they’ve all created trillions and trillions of currency units.
Look at it as a Hurricane… We went into the leading edge of the hurricane in ’07, ’08 and ’09. They papered it over with all this funny money
Now we’re going out to the trailing edge… and it’s going to last much longer, be much worse and be much different.
I believe we’re going back into the trailing edge of the hurricane this year.
What’s most notable about the awakening of the gold bull market, according to Casey, is that very few people have actually realized what’s happening and why. It is for this reason that Casey has been investing heavily into mining companies like Brazil Resources, a move that’s been mimicked by other well-known investors including famed financier George Soros and business magnate Carl Icahn who are also piling into precious metals related assets.
And though this asset class has been largely ignored by the broader investing public, Casey suggests that the eventual result will be widespread mania and panic buying into gold assets as the global economic and monetary climate gets markedly worse going forward.
Right now, very very few people are involved in gold stocks.
They don’t even know gold exists.
By the time this market ends there’s going to be a mania in gold, where everybody is going to be talking about it at cocktail parties and touting mining stocks to each other.
We’re a long way from that… these stocks have a long way to run.
George Soros previously warned of the same, having noted in 2010 that gold will become the ultimate bubble before all is said and done. Incidentally, this is right around the time he began making his first major acquisitions.
Since then scores of other well known investors, institutions, and private family funds have made similar moves, many of them in secret, ahead of what could be an unprecedented bull market in precious metals.
That gold is still considered a relic by many of the best and brightest economists out there is indicative of an asset that is nowhere near its potential highs.
Once you hear those same processionals, financial advisers, your neighbors, your friends and the local shoeshine boy talking about gold investments at cocktail parties, you’ll know it’s time to sell. For now, they still have no idea what’s coming, making this an optimal time to consider the one asset that has survived the test of time throughout history and the many varieties of crises that have been wrought upon humankind.
Courtesy: Mac Slavo
We wrote the following article last Tuesday as a consequence of expanding on the key word “security” and what is its impact for most of us. Then BREXIT happened on Friday. Actually, BREXIT is all about security, concern about personal security for those who voted to get out of the elite spider trap called the EU. A few thoughts on that will be added following what was already prepared.
What is one of the most important feelings one can have for him of her self, for one’s family? In a word, security. Security that one is safe in their daily existence, from the time they leave home in the morning until the time they return at the end of the day, and all the time in between. Security that their loved ones are always safe. Security that their efforts for making a life for themselves, for the betterment of their family will not be taken away. Security that what one accumulates in the process of life will always be there.
Is that asking too much?
If you ask your family, your neighbors, your friends, all will say no. If you ask the government, you will be viewed as a suspicious domestic terrorist for considering anything that is not government promoted and sanctioned.
Since when did the government become the Uberlord over all? Who gave that permission? No one! The government took it, and in the taking, the government has snatched away everyone’s security.
Where did it start? Follow the money.
When were the most prosperous and secure times for everyone [we will focus on America to keep it simple, not to be narcissistic]? When the United States was first on a silver standard until 1834, and then on a gold standard until 1914, they were considered the most prosperous of times, and there were no taxes, no IRS, no overbearing government.
The United States was effectively on a silver standard until 1834, thereafter, it was on the gold standard until 1914, with the exception of the Greenback era (1862- 1879). No other countries have been on a gold standard for so long and, not coincidentally, no others have been so relatively prosperous as these two were during their gold standard eras. The same can be said of Britain when it was on a gold standard for almost 200 years, starting in the early 1700s.
Gold and silver were supreme money during those times. Everyone who had them also had financial security. Those who had little or none were still beneficiaries of security because that is what the prevailing sense was at the time. Some have always been better off than others, but the have-nots had their own relative sphere of security.
Not today. The Rothschilds have essentially been the progenitors of what has become the globalist’s agenda of creating a New World Order to rule over everyone and everything. How did it come about? How has the fabric of security that used to be the cocoon each family spun for themselves develop only to have it ripped apart, and also of societies, even nations?
They took away the gold. They took away the one thing that represented financial security as the building block for financial and personal independence. No one needed government when they had their own ability to be free of outside control, which essentially means free of government control. The plan of the Rothschilds-cum-globalists has always been to take away all the gold and replace it with infinite debt in the form of paper fiat.
The reality of security had gradually been replaced with the illusion of paper wealth. The globalists counted on the public’s ignorance of what money is during their bait-and-switch from intrinsic value of gold and silver to the emptiness of the perception that paper was as good as gold. It worked.
During the silver and gold standards, the value of the then-lawful dollar hardly changed over the span of 100 years. Since the globalist’s foreign-owned Federal Reserve usurped the US Constitution and took control of the US money supply [as Rothschild doubled over with laughter from his grave], the value of a 1913 Federal Reserve Note today is worth about a few cents, give or take a penny.
Where once prosperity and security reigned for centuries, over the span of the last century, people now scurry about like lab rats, trying to eke out an existence while government interferes with every single aspect of daily life, where Orwell’s 1984 has become present tense, actually starting well before 1984, by many decades.
“Four legs good, two legs bad.” The elites have used language to control and [mis]lead the masses.
Gold and silver have been replaced by paper [debt], plastic [debt], and now digitized accounting of debt [in the guise of supposed wealth]. The frogs [public] are boiling themselves alive, and sadly, those being boiled still look to the government that controls the heat as ironic “saviors.” Black has become white. Lies have become truths. Life is a constant form of anxiety. People are not happy.
How is it that the recipient of a Nobel Peace Prize wants government control of guns in America as his own government arms the rest of the world with the deadliest weapons known to man?
How is it that people have allowed themselves to become so deficiently conditioned not to see the hypocrisy behind every form of government?
Even among those who own and hold gold and silver, their minds have still successfully been conditioned. But to their credit, their innate sense that not all is as it seems in the faux “real world” that exists at the behest of the globalists and carried out by those who are in control of governments, including those who were never elected but still control the EU, buying and owning gold and silver is the most sane act one can do.
“Stop The World, I Want To Get Off” is a title from a 1966 musical where the protagonist realizes who he is and why, after 35 years of making his decisions. Those who opt to own and personally hold gold and silver are making the best possible decision and stand the best chance in life. There may never be a return to the general security that gold and silver once freely represented, but owning either or both is the closest one will ever come to enjoying whatever degree once can in being secure in a very insecure world.
“Four legs good, gold and silver better.”
As to BREXIT, the closer it came to voting, the more optimistic the REMAIN camp became, especially after the senseless killing of Jo Cox, a British MP who favored the EU. We commented on that tragedy, last week [Insanity Is World “Norm,” see pars 19-21]. The night before the vote, it became close to being taken for granted that REMAIN would prevail. Our interest in the vote had a different twist to it.
On Monday, 20 June, we posted an article, “BREXIT: As Above, So Below,” It was not an article so much as it was a repost from an Australian astrologer who is a Gann advocate, as we used to be many years back. With the Summer Solstice and, more importantly, an afflicted Saturn passing over London at the time of the vote, [As Above, that which is occurring in the stars, impacts which occurs on earth, So Below.] From this perspective, the government’s wish to remain in the EU seemed doomed.
Would it the Saturn astrological aspect fail and the elite’s government prevail, in light of the smug confidence of those in power on the night before and into the day of the vote? The results turned out to be a shocker for those politicians in power seeking to enforce their will over the people so ruled. We have been smiling ever since the results for exit were confirmed, and we trust Olga Morales was smiling even more.
All of the market response and upheaval weighs most heavily against those who created all of these precarious financial conditions, mostly the bankers themselves, willingly abetted by politicians beholding to the monied interests. Probably, those least affected and not having an sense of panic are those who own and hold gold and silver. In fact, their value of holdings increased with no risk exposure to the panicking paper markets.
However, it is not over. Never expect the elites to just roll over and go away. They have too much at stake. Typically, for those unelected politicians running the EU, whenever there is a vote against their interests, they hold another, and another if need be, until the voters “get it right.” We also mentioned that the vote is non-binding. The politicians can find a way not to have it enforced.
Given that all politicians are liars and their existence dependent upon the financial teat of the elite’s central bankers, which is how the central bankers have set it up in order to maintain to control over governments, we expect the will of the British people to eventually be ignored. We would love to be proven wrong.
The charts say to expect more turmoil in the coming days and weeks as the fallout settles in and sorts matters out. The key for gold and silver owners is to wait for clearer and less riskier opportunities that will arise in the weeks ahead. Owners and holders of physical metals are seeing their holdings improve, and over time, they will improve even more. We all know it is not “if,” but when. Each passing month gets us closer to the elusive and unknown “when.”
If we knew when, we would say. All that can be definitively stated is that it will not be a day before it actually happens, and even then, it will be a process over time. It could be that we are already in the “when” window of time, but it cannot be confirmed until after the fact.
Keep buying and personally holding physical gold and silver. Last Friday, you witnessed exactly what happens to paper assets when people lose confidence and panic. You also witnessed a preview of what is yet to come: days of gold rallying $100, silver $1. There will be more of those days, and even in greater gains.
Political solutions and political promises are all false, such as those made by the EU, Cameron [Pinocchio man], Merkel, as much a deceitful liar as Obama himself. The difference between Cameron and Obama? At least Cameron had enough within him to do the right thing and offer to resign after failing to uphold the elite’s template of forced political slavery of the masses. Obama is hollow to the core, no matter how numerous his failures. He brags about them as though they were victories
The two dark horizontal lines on the weekly gold chart are previous failure highs that will offer resistance at some point in the future. The April failed swing high stopped at the January 2015 similar high failure. Friday’s panic buying in gold saw the next level tested, the June 2014 failed swing high. Gold has rallied $150 in the past month. Some backing and filling would be healthy for this market.
The exceptionally wide range for the week may lead to more of a sideways trading affair. It is harder to define paper risks during these times. For physical purchases, we see no risk. You own it. No one can take to from you or devalue it. An ounce of gold is always an ounce of gold. It is measured by fiat pieces or paper. Remember, when gold goes from $1,200 to $1,300, in dollar terms, it did not go up in value. Instead, the number of fiats increased by $100 in order to purchase that same ounce that has not changed.
It is ironic that many say there is already a bull market in gold when measured by the Euro or the Pound, for example. No. The fact that it takes more and more Euros or Pounds to buy the same ounce of gold is an acknowledgement that the fiat paper has lost more of its perceived imaginary value. An ounce of gold remains unchanged. It is the deteriorating so-called “value” of fiat currencies that have worsened economic conditions.
Keeping things simple in the current world of chaos, let those who choose to deal in bureaucratic whim, [which also defines what a fiat currency really is], try to justify the unreal as having value. It is an exercise in futility, a fact Precious Metals holders have known beyond question. The EU “emperors” are wearing no clothes, and the British people just acknowledged it in their vote. All of the enormous disruptions in the markets are an attempt to reconcile people’s reality and what they want for themselves against political deceits by those in control in order to get what they want, always at the expense of people.
The price adjustments reflect the push-pull of people v politicians, and the range between the mort recent spike high, at 1362, and the low, at 1262, is most likely the range where the struggle for control will evolve. This risks are available to anyone, every day. The opportunity for profit is not available every day, at least not without having to take undue risk in the process. We choose to wait for the opportunity that arise less frequently.
We still see silver outperforming gold, in the future. The chart structure is better for gold that it is for silver. Yet, the gold:silver ratio has come in from 84:1 down to 74:1, +/- on any given day. This means silver is outperforming gold on a relative basis. We have no specific target, but the probability grows that the gold:silver ratio can come in to 40:1, 30:1, 20:1. The historic relationship has been 15:1, so that is not out of the question.
We showed how the previous wide range bar on increased volume established a price range for silver [seven trading days ago]. Friday produced an even larger range. No horizontal lines were drawn to not confuse the matter. Now, the expected range within which silver may trade in the days, weeks ahead is 17.10 +/- on the low side to 18.37+/- on the high side.
It is questionable if any tradable opportunity will arise within that relatively narrow range, so patience is the guide for the immediate future, unless one is buying physical silver. For the physical, the time to buy is each and every time you have the available funds to commit toward stacking, and one can never stack too high.
Submitted by: Edgetraderplus
With each passing day, systemic risks in the financial system become greater. Smart money insiders and billionaire investors are taking note – and taking defensive actions.
Mega-billionaire Carl Icahn, whose long-term track record is unrivaled, recently warned that “there will be a day of reckoning unless we get fiscal stimulus.” Icahn’s hedge fund is betting on a day of reckoning scenario. He has gone 150% net short the stock market while holding commodity-related positions to the long side.
International currency speculator and leftist financier George Soros has slashed his fund’s overall equity holdings by 25%. Like him or not, Soros is no dummy when it comes to the financial system. He is an establishment insider who apparently sees turbulent times ahead. He owns a not insignificant amount of gold, and his largest single equity holding now is Barrick Gold (NYSE:ABX), a major gold mining company.
“The system itself is at risk,” warns bond market wizard Bill Gross. In his latest market commentary, Gross cites “artificially high asset prices and a distortion of future risk relative to potential return.”
Prices for financial assets such as stocks, bonds, and real estate investment trusts are artificially high because interest rates are artificially low. Thanks, of course, to the Federal Reserve. Markets are floating on a sea of leverage made possible by eight years of ultra-accommodative monetary policy and the widespread belief that the Fed will step in as a buyer of last resort to support asset prices.
Former Fed chairman Alan Greenspan helped fuel a stock market bubble in the late 1990s and handed off a burgeoning housing bubble to his successor Ben Bernanke. Ironically, Greenspan has since sought to position himself as something of an elder statesman for fiscal responsibility. To his credit, he now recognizes that the biggest, most dangerous bubble today is that of runaway government debt ahead of a looming Baby Boomer retirement/entitlement crisis, and he has turned quite bullish on gold.
“We should be running federal surpluses right now not deficits. This is something we could have anticipated twenty-five years ago and in fact we did, but nobody’s done anything about it. This is the crisis which has come upon us,” Greenspan said in a recent interview. “We’re running to a state of disaster unless we turn this around.”
With some $200 trillion in projected unfunded liabilities, the federal government will have to default on some of its promises directly or by inflating away the value of those promises. That’s the big picture. The next cyclical downturn and potential crash could be triggered by a more immediate event in the economy or in the over-leveraged financial markets.
The front page of the May 30th Barron’s features the headline, “The Stock Market Won’t Crash – Yet.” Author Gene Epstein argues that stocks won’t crash in the near future, because “the odds of a recession are now quite low.” Not just “low,” mind you, but “quite low”!
If the real-world economic data could respond, it would beg to differ. Manufacturing activity recently suffered its biggest drop since 2009. The New York Purchasing Managers Index swooned in May to suffer its biggest monthly drop in nine years.
And the Labor Department’s most recent jobs report, released on June 3rd, revealed that employers hired the fewest new workers in nearly six years. Corporate profit margins peaked several months ago and are turning down.
These are exactly the types of conditions that presage a recession. That, in turn, could trigger massive new fiscal and monetary stimulus measures that weaken the dollar and drive safety-minded investors into precious metals.
But the same Wall Street establishment publication that tells investors recession risk is “quite low” also ran a gold-bearish headline in its January 4, 2016 issue. “Gold Likely to Stay Tarnished,” Barron’s proclaimed.
To that, I respond: Get real! Gold never tarnishes, and its price has advanced nearly 20% since Barron’sscared investors out of precious metals with facile predictions of Fed rate hikes.
Interest rates will at some point have to go up. Escalating credit concerns and inflation fears could cause markets to drive up bond yields, regardless of whether the Fed hikes its benchmark rate.
Even just a 1 percentage point rise in bond yields from their current low levels would cause $1 trillion in capital losses, according to a Goldman Sachs analysis. Rising interest rates are disastrous for bondholders and hazardous to all financial assets.
To the extent that they are associated with rising inflation expectations, however, rising interest are bullish for hard assets. This has been proven during past rising rates cycles, the last major one being during the late 1970s.
By one estimate, the derivatives market has exploded to a mind-boggling $1.5 quadrillion, more than double the dizzying heights of 2007.
Of course, these aren’t actual assets. Total world GDP is a mere $78 trillion; $1.5 quadrillion in wealth does not exist. Derivatives represent layers of speculative bets and hedges on actual assets.
The size of the derivatives market shows just how ridiculously leveraged the system has become. The gold market is a case in point. Physical gold now represents just a tiny fraction of the “gold” that gets traded in futures markets. Earlier this year, leverage exploded to more than 500 to 1.
A blow up in the futures market or other derivative markets could cause a “run on the bank” and the financial system to be thrown into chaos. The U.S. dollar could either crash or surge in a financial panic, depending on how it unfolds. But the official response to a financial crisis will be – as it always has been – to flood the system with more liquidity; i.e., inflation.
Among the assets that will be left standing are physical precious metals held outside the banking and brokerage systems.
Submitted by: Stefan Gleason
While the world awaits the BREXIT vote, the COMEX Registered Silver Inventories reached a new record as it pertains to leverage.
Matter-a-fact, the number of owners per ounce of Registered Silver is higher than gold. In the beginning of the year, COMEX Gold Registered inventory owners per ounce spiked to over 500 to 1.
However, the situation for COMEX Registered Gold has calmed down quite a bit as its inventories have risen to 1.7 million oz (Moz) from the low of a 89,000 oz in a little more than six months:
Registered Gold owners per ounce have fallen from over 500/1, to 33/1 currently. On the other hand, the situation in COMEX Registered Silver shows a much different picture:
As owners per oz of Registered Gold have dropped dramatically, and so has the leverage, Registered Silver Inventories have hit a new record of 44 owners per ounce. This is nearly three times the rise since the latter part of 2015.
So, why have Registered Silver Inventories continued to decline, while Registered Gold Inventories jump higher?? What is even more interesting is that when the price of silver increased from its lows in 2009 to a high of $49 in 2011, the Registered Silver Inventories fell to a low of 26.4 Moz.
Speculation was at the time that industry and investors were acquiring at lot of silver, thus depleting the Registered Silver stocks. However, something is totally different this time around. As we can see in the chart above, the Registered Silver Inventories are at the lowest level in more than a decade at 23.3 Moz.
This next chart compares the Registered Silver Inventories during the peak price in 2011 and today:
In April 2011, total Registered Silver Inventories fell to a low of 26.4 Moz as total open interest was approximately 750 Moz. To get the total open interest in ounces, we multiply the open interest by 5,000 oz (a single contract equals 5,000 oz). Now, if we look at what is taking place today, the leverage is even higher.
With the Registered Silver Inventories at 23.3 Moz, the total open interest is a staggering 1,028 Moz. This is why the Owners Per Oz is now at 44/1…. another new record.
So, why would Registered Silver Inventories continue to decline since the beginning of the year while Registered Gold Inventories move up much higher? Well, part of the reason may be due to the Chinese who are now stockpiling silver. As I stated in previous articles, silver inventories at the Shanghai Futures Exchange increased from a low of 7.5 Moz in August 2015 to over 60 Moz currently.
Furthermore, if industrial silver demand is weaker, why hasn’t the COMEX Registered Silver Inventories increased? This was the case after the price of silver peaked and fell to $14 at the end of 2015. Thus, as the price of silver fell from $49 in April 2011, to a low of $14 in 2015, Registered Silver Inventories grew from 26.4 Moz to over 70 Moz last year.
But, something changed in 2015. Even though the price of silver did not rise all that much, we had the huge spike in Retail Silver Investment starting in June. This caused Registered Silver Inventories to fall as Indians and North Americans were buying record silver bullion.
Lastly, I am hearing through several sources that Chinese are not only acquiring a lot of silver for industry, they are now buying silver for investment. It will be interesting to see how things unfold this year, but if the Chinese start really buying and trading silver… we could see serious fireworks in the silver market.
Whatever the outcome of this Thursday’s “Brexit” referendum on the United Kingdom’s future to stay in or to exit from the European Union, gold prices are set to move significantly higher during this year’s second half.
Should the British reject devolution, gold prices might briefly move a little lower – even though, in the days running up to Thursday’s referendum, the financial markets may already have “priced in” a no-vote.
By contrast, a majority vote to exit the European Union would likely create years of uncertainly over the terms of the prospective divorce agreement – and uncertainty of this sort is always good for gold.
Non-dollar gold prices are already showing relatively more strength denominated in terms of the British pound and the EU euro. But both currencies remain vulnerable to a European split – and, as a result, I expect gold’s relative price strength denominated in these currencies could extend further.
The British pound and the euro are also important official reserve assets held by many central banks around the world. In the event of a Brexit victory this Thursday, we will likely see official demand for gold pick up as the appeal of holding central bank reserves in pound- and euro-denominated assets diminishes.
Apart from Brexit-related considerations, gold-price performance in the next few months will be largely “data driven,” which is reflecting the ebb and flow of the economic indicators.
More than anything else favoring gold, a persistently disappointing economic and financial-market performance with weaker-than-expected business activity in the United States and, even more so, globally, will force the Fed and other central banks to keep their feet on the monetary accelerator.
Indeed, against a backdrop of “secular stagnation”, the Fed will find it difficult to raise short-term interest rates and may seek alternative monetary measures to stimulate the economy. The European Central Bank, the Bank of England, the Bank of Japan, the People’s Bank of China, and other central banks will similarly undertake more stimulative easy-money policies – policies that are decidedly pro-gold.
With this in mind, the recent price retreat from the $1300 an ounce level back down to the $1265 vicinity presents investors an opportunity to initiate or increase their holdings of physical gold – and this recommendation will prove even truer if the metal corrects still further before the “great advance” takes off.
Submitted by: Jeffrey Nichols, Rosland Capital
We are one day away from the EU referendum, the moment when the British people will be called upon to make a historic decision – will they vote to “Brexit” or to “Bremain”? Both camps have been going at each other with fierce campaigns to tilt the vote in their direction, but according to the latest polls, with the “Leave” camp’s latest surge still within the margin of error, the projected outcome is too close to call.
It is a rare moment in history. The British haven’t had their say since they voted to join the European Community back in 1975. What was initially thought of as a project to unite Europe into one common market, with benefits of free trade and great promises of increasing national wealth, has mutated into a completely different entity. The British have, instead, found themselves being dragged into a regional economy of zero growth and a weak Euro, and heavily indebted states. You may have come across the arguments of both camps, but here we wish to address what a “Brexit” or “Bremain” scenario would mean for Britain.
If the British vote to “Bremain”, Britain will start to operate with a “special status” within the union, after Prime Minister David Cameron reportedly renegotiated Britain’s relationship with the EU, in anticipation of the referendum. Cameron tried to change some of the rules of the agreement, to address the concerns of the British public that made them favor a Brexit in the first place. The matter of ‘sovereignty’ came first in the list of the most common anti-EU grievances, as the public felt the country no longer had a say in its own affairs, and was pressured to comply with EU regulations as part of the greater union. Cameron succeeded in having the UK released from any commitment to be politically integrated into the EU body, and there were talks about granting some autonomy and power to national parliaments, through the “red card mechanism” (i.e. if 55% of national parliaments object to one vote, they can block a proposal submitted by the European Commission). This proposal, however, does not in any way alter the UK-EU relationship, while it is also unlikely to be practically enforced, much like the preexisting “yellow” card that has only been used twice so far. Thus, British autonomy, specifically, remains unaddressed.
When it comes to economic self-governance, Cameron got an explicit recognition that the Euro is not the single currency of the EU, and that the UK will not be pressured to contribute to the Eurozone bailouts. But what about the British economy itself? British businesses have long complained about losing competitiveness. In general, the EU single market makes it easier to move money and products and grants business a large consumer base. However, the data released by the Office for National Statistics casts a different light on this point: Europe has become a less important trading partner. In 2000, the EU represented 60% of the UK’s total exports. As of April 2016, this number has dropped to 48%. Meanwhile, imports from the EU have been within the range of 47% to 55% since end-2014, and are thereby contributing to a growing trade deficit.
According to the chief executive of the “Vote Leave” campaign, Matthew Elliott, the drop in UK exports to Europe is linked to the poor economic conditions in the Eurozone, thus reducing demand from Europe, while demand from non-EU partners has grown. Therefore, a Brexit will allow British businesses to speak for themselves, as opposed to speaking as one of 28 countries. The chart below reflects the increase in trade balance of non-EU trade partners, compared to the EU, particularly since 2012.
Immigration and its impact on the domestic job market is another major concern to voters. According to the latest data release by the Office for National Statistics, net annual migration to the UK reached peak levels at 336,000 in June 2015, as shown in the chart below. Ironically, after his election victory last year, David Cameron had pledged to bring net migration below 100,000– arguably an overoptimistic promise, given that the last time the figure was that low, was in 1997.
It is no coincidence that 1997 was the same year the Labor Party (founded by the Fabian society) came to power. Andrew Neather, former advisor to PM Tony Blair, revealed that the true nature behind the open border mass-immigration policy of the Labor Party was politically motivated to help construct a “truly multicultural country”. As per Neather, the ministers hesitated to publically reveal their plans, which could risk alienating the Party’s “core working class vote”. Therefore, to promote their open-borders agenda, they focused on arguments based on tentative projections of potential economic benefits.
United Kingdom: Long-Term International Migration, 2006 to 2015
Source: Long-term International Migration – Office for National Statistics, UK
Although Cameron managed to limit some of the benefits awarded to migrant workers, he failed to strike a deal that would make the biggest difference: imposing immigration quotas. In fact, Cameron’s approach made things worse: failing to restrict immigration while simultaneously cutting back on public spending, is a recipe for disaster; it will only increase the risk of the immigration crisis devolving into tensions and violence.
Immigration has indeed grown into a crisis and the British were forced to deal with the new realities that come with it. Not only did it affect the job market, but it has also affected British culture, even language. Already back in 2009, English was not the first language of more than half a million students in Britain’s primary schools. In Britain and beyond, the wave of mass immigration is often presented as a great leap forward, bringing us closer to multicultural societies, a concept that has long been promoted as the ideal. However, beneath the surface, this heavily marketed idea of “multiculturalism” or “cultural marxism”, to describe it more accurately, has very little to do with diversity and positive cultural exchanges, as advertised. In essence, it allows governments to intervene extensively in society, under the pretext of acting as a protector of the minorities who grow increasingly dependent on the state. The social division, tensions and discords that would inevitably ensue, would provide fertile ground for further restrictions on personal liberties and self-determination.
The Brexit camp argues that Britain has lost its sovereignty and autonomous decision-making, and paid a high price, both economic and political, to be part of the union. The immigration crisis and the inability to react to it, is merely another manifestation of this excessive centralization. After Brexit, though, Britain would no longer answer to a higher entity, nor be constrained by it. It would enjoy more self-determination and be able to directly address the interests of the British public. That does not mean that there will be less trade or that Britain will close its borders in the name of protectionism. Let us not forget, the UK is the second largest economy in the EU, so a Brexit will be a severe blow to the EU. With this leveraging power in mind, an independent UK can simply renegotiate its trade agreements, and most likely achieve a better deal overall, as well. Brexit, despite the “doom and gloom” predictions and dire warnings of the Bremain camp, will just allow the country to freely make whichever decision is right for its citizens at any given moment in time.
The UK Referendum is indeed of great significance, but there is another country that has already gone through with an EU exit of their own, yet no one seems to remember: Greenland, an autonomous Danish territory, which voted in a referendum in 1982 to leave the EEC (European Economic Community), the EU predecessor. Greenlandic fishermen wanted an end to externally imposed restrictions on how much fish they could take out of their own waters and the outcome of the referendum achieved exactly that; and more: Greenland was given tariff-free access to the Community market for fisheries products, in return for allowing them continued access to Greenlandic waters, while it also got EU funding, on top of the money it received and continues to receive from Denmark. It did take Greenland three years to successfully negotiate this exit, but it happened!
Back in Switzerland, recent polls showed impressive support for the Brexit camp. Last year, the Swiss voted on a referendum against immigration. By doing so, they essentially refused to commit to EU regulations and demanded to limit immigration quotas according to what they see acceptable for their economy and social cohesion. Staying true to their historical record, the Swiss know all too well the value of autonomy.
The significance of a Brexit outcome goes even beyond economics, regional political games and trade relations. It would also mark a cultural and philosophical turning point: Brexit would be an act of modern enlightenment. As Kant put it, 250 years ago:
“Enlightenment is man’s emergence from his self-imposed nonage. Nonage is the inability to use one’s own understanding without another’s guidance. This nonage is self-imposed if its cause lies not in lack of understanding but in indecision and lack of courage to use one’s own mind without another’s guidance. Dare to know! (Sapere aude.) “Have the courage to use your own understanding,” is therefore the motto of the Enlightenment.”
Every freedom loving person on the planet has their eyes fixed on this referendum. A clear majority voting for Brexit and therefore for more decentralization, would show that the British realized they can break free from their self-imposed nonage, and reclaim individual liberty. It would be nothing short of an act of courage to challenge the status quo and a chance for the British to speak their own mind. Writing from a little town in Switzerland, I wish the British public a smooth transition to a sovereign United Kingdom, for the sake of freedom, self-determination and peace.
Submitted by: Claudio Grass
All eyes have turned toward Great Britain with the Brexit vote looming this week. A lot of people are speculating about what Britain’s potential exit from the EU means for gold. Peter Schiff says in the long-run, it doesn’t really matter.
In his most recent podcast, Peter said he thinks gold will go up no matter what Britain does. The yellow metal is on the rise because of what is happening in the US, not in Europe – specifically what is happening with the Federal Reserve.
And what is happening with the Fed? Basically nothing. In fact, Peter said an alien invasion is more likely than an interest rate hike in July.
He went on to point out that interest rates are actually lower now than they were at the depths of the 2001 economic downturn after the dot-com collapse and 9/11. In other words, this so-called recovery is weaker than most recessions. If this recovery is weaker than your typical recession, imagine what the next recession is going to be like.
The bottom line is all of this is good for gold.
We’ve had this pretty good run-up in the price of gold with everybody expecting the Fed to hike rates. You know, they’ve been dialing back when they believe those hikes are coming, but the anticipation is still for higher rates, just when. But imagine how much stronger gold is going to be when people no longer believe in the Tooth Fairy…they no longer believe that we are going to get higher interest rates and they start factoring in lower interest rates, they start factoring in quantitative easing. And not just factoring it in, but they have to absorb it because the Fed is doing it.”
Highlights from the podcast.
“Gold dumped about 40 bucks on the idea there might not be a Brexit as if the price of gold is going up because of fears Britain may leave the EU. As far as I’m concerned, next week’s vote is a non-event for the gold market.”
“Maybe gold will go up if Britain stays in the EU and maybe it will go up if they vote to leave. I mean, that’s pretty much the way I look at it. I kind of think gold is going to go up regardless of the way the British vote.”
“The price of gold is not going up because of what’s happening in Europe. It’s going up because of what’s going on in the United States, more specifically in Washington, and even more specifically, at the Federal Reserve.”
This is also good news for silver.
“Not only did the Fed not raise rates in June, but they actually backtracked on their intention to raise rates in the future…I mean everything got pulled back. So now, instead of announcing the second hike, the first hike of this year, and getting more hawkish, they actually did the reverse. They actually took rate-hikes off the table, or pushed them further back into time…”
“None of this is a surprise to anybody who has been a faithful listener to this podcast. It’s just people who listen to the bubble-heads, the talking heads on the major financial networks that are surprised by what is going on. They actually expected the Fed to raise rates. And why did they expect that? They actually think that the Fed’s policies have worked. They actually think we have a recovery. They haven’t figured out that it’s a bubble.”
“The question is which one is more likely, a July alien invasion or a rate-hike from the Fed? Because you know, if those are the two choices, I’m kind of leaning to the aliens…But Yellen still wants to maintain that this is all possible. Why? Because she has to pretend that everything worked. To prove that it worked is the raising of the rates.”
“We are still at a fraction of where rates were at the depths of the 2001 recession…The Fed is basically saying that this economy, after a seven-year recovery, is actually weaker than the US economy was at the depths of prior recession. Not the Great Recession, but the one before that.”
“This is supposedly this great economic miracle that President Obama is bragging about having created, and the economic miracle that Hillary Clinton wants to ride on into the White House and claim to continue all this great stuff. Yet this great economy is so weak that it can’t even handle the accommodative monetary policy that was necessary following the bursting of the dot-com bubble and September 11th.”
“This recovery is weaker than most recessions. So if this recovery is weaker than your typical recession imagine what the next recession is going to be like.”
“If they have their druthers, they’re going to try to wait until after the election to unroll another stimulus, because then it doesn’t really matter. Whether it’s Clinton, whether it’s Trump, they might as well go out and do whatever they want to do, which is print money, cut interest rates, do QE4. Of course, it’s not going to work. But that’s not going to stop them from doing it, because that’s the only thing they can do.”
“We’ve had this pretty good run-up in the price of gold with everybody expecting the Fed to hike rates. You know, they’ve been dialing back when they believe those hikes are coming, but the anticipation is still for higher rates, just when. But imagine how much stronger gold is going to be when people no longer believe in the Tooth Fairy…they no longer believe that we are going to get higher interest rates and they start factoring in lower interest rates, they start factoring in quantitative easing. And not just factoring it in, but they have to absorb it because the Fed is doing it.”
Courtesy: Samuel Bryan
Our trading is focused on the thesis; “No one knows the value of his markets like those who pull it from the ground.” While individual companies or operations may be prone to mismanagement or other bad decisions, the collective actions of the companies within a given sector are rarely wrong. The tug of war between those who pull it from the ground versus those who process it determines true price discovery within the commodity markets. These are the elephants bulldozing the macro moves while the speculators compete for the remnants with the dung beetles. Recently, large speculators have been stocking up on gold futures at a record pace and the gold miners are selling all the forward production they can lock in above $1,220 an ounce. This could lead to quite the washout as speculators are forced to take losses under $1,280.
Looking at the chart below, we’ll start with the bottom pane and work our way back to the top to end on a technical note. The bottom pane of the chart plots the net positions of the large speculators and the commercial traders. This clearly illustrates the speculative buying we’ve seen throughout the consolidation above $1,220 per ounce. Conversely, commercial traders have been consistent sellers as they lock in profit margins between their cost of production and the elevated futures prices. It’s important to note that the reason these groups build such divergent positions is that the miners are simply running a business model while the speculators are trying to determine actions by our FOMC, the Brexit vote, technical levels and anything else that could lead to an emotional, knee jerk, gold bug rally. History has proven that speculators depending on event driven outcomes rarely prevail.
The next pane higher shows the MACD of the net commercial position. We use the commercial traders’ collective momentum to determine which side of the market we should be trading from. We always side with the commercial traders, as their sense of value is what determines a swing trading, mean reversion methodology. Therefore, you can see that when commercial momentum is positive we are only looking for buy signals and when commercial momentum is negative, we are only looking for sell signals.
The momentum trigger in the second pane is exactly what it says. When looking for buy signals, like at the December lows or the buy signal we sent May31st, we let the tension build between the two trading groups. As the market is sold off in the face of commercial buying, we wait for a reversal higher to buy in and join the commercial traders’ positive outlook. Conversely, when the gold miners have the upper hand, as they currently do, we look for sell signals in expectations of declining prices falling back towards the value area which we’ll see via the inception of processor purchases.
The commercial traders have been exceptional at calling the gold market’s important turning points. Their current position is growing more bearish by the week.
One final note of enforcement of the current COT sell signal. We also track the total position size of the market’s participants. The speculative total position is also near record size while the total commercial trader position just over half its record. This illustrates the precarious position of the speculative traders ahead of Thursday’s “Brexit” referendum. There really aren’t any speculators left to buy the market and considering that commercial traders are only mid-level on their total position, we see miners as being more than willing to squash any post-Brexit pop. Odds favor the shorts with today’s technically weak outside bar lower providing just one more clue.
Courtesy: Andy Waldock
Are today’s spending cuts setting the global oil market up for a supply crunch in a few years?
An oil supply deficit may be hard to fathom given two years of surplus and rock bottom oil prices, but with the financials of so many oil companies badly damaged, upstream investment could come up short in the not-too-distant future, even if oil prices continue to rise this year.
Globally, the oil industry is set to cut investment by $1 trillion between 2015 and 2020 due to the collapse in oil prices, according to a new estimate from Wood Mackenzie. Spending on development will be $740 billion lower than the pre-crash estimate for that five-year period, and exploration spending is also expected be down by another $300 billion.
Dickson says that although “virtually every oil-producing country has seen some form of capex cuts” over the past two years, the United States has been hit especially hard. Spending will fall by half in 2016, dropping by $125 billion. The Middle East, on the other hand, has seen much smaller effects on spending. In a separate report, IHS projects U.S. oil and gas investment to decline by 35 percent this year, and while spending in 2017 should bounce off of 2016 lows, the recovery will be “long and drawn out.” Notably, IHS says spending in the oil industry in 2020 will still be 28 percent below the high watermark set in 2014.
Obviously, spending cuts will have very serious effects on production. Wood Mackenzie says that global oil production is already down 3 percent this year compared to 2014 expectations, back when high oil prices were assumed to remain high. Output is down 5 million barrels of oil equivalent per day (boe/d) this year compared to expected levels, and 2017 should see output down 6 million boe/d from prior estimates, or 4 percent lower.
“The impact of falling oil prices on global upstream development spend has been enormous,” Malcolm Dickson, principal analyst at Wood Mackenzie, said in a statement. “Companies have responded to the fall by deferring or canceling projects.”
But most oil companies do not have the ability to do anything other than slash spending and dial down their ambitions. BP’s CEO Bob Dudley recently stated that his company could continue to spend at their current reduced levels for three more years before production starts to fall. Now is not the time to spend aggressively to grow production, he argues. “Being a low-cost producer is the name of the game,” Dudley said on Bloomberg TV. “We’re getting very disciplined about capital.” BP plans to spend $17 billion in 2016, a nearly 40 percent cut from the $27 billion it spent just a few years ago, and more cuts are possible.
Most of the oil majors have prioritized the stability of their dividend payments above all. But that strategy has its downsides. Production will not increase and could even begin to fall. The reserve-replacement ratio at the oil majors has faltered, although part of that has to do with write-downs connected to low oil prices. ExxonMobil even lost its AAA credit rating when it prioritized growing its dividend ahead of halting its rising debt levels.
As companies retrench, global oil production could fall short of demand in the years ahead. After all, U.S. shale drillers have been hit hard by falling oil prices, but so have producers from around the world. A March 2016 report from Piper Jaffray & Co. warned about the supply crunch that is already starting to brew because of spending cuts, citing the falling rig count around the world, not just in the United States. The report concluded that there could be “grievous consequences” on the future oil supply from today’s cuts. “The fact of the matter is there’s a world of carnage unfolding and it’s increasingly widespread,” Bill Herbert, a senior Piper Jaffray researcher, said in March. “We’re digging ourselves a very deep hole.”
The very small increase in the oil rig count in the U.S. over the past few weeks is not nearly enough to reverse the decline, especially since the rally in oil prices may have stalled for now. Goldman Sachs predicts that oil prices will remain below $50 per barrel through the summer, barring another major supply disruption. “We view the price recovery as fragile,” Goldman wrote in a recent research note. “Absent further sharp rises in disruptions, the market is likely to remain close to balance in June as Canadian production restarts and production elsewhere remains resilient. As a result, we continue to expect that prices between $45 a barrel and $50 a barrel in coming months are still required to bring the market into a deficit in the second half,” the investment bank added.
Courtesy: Nick Cunningham