Commodity Trade Mantra
Quotes by TradingView

Buying Silver could soon Prove to be the “Investment of the Decade”

Buying Silver could soon Prove to be the "Investment of the Decade"

Buying Silver could soon Prove to be the “Investment of the Decade”

For many weeks we have been waiting patiently, like vultures perched on the branches of trees, for the Large Specs to go belly up and croak, and the good news is that they just have, so it’s time for us to swoop down and feast on the carcasses, the carcasses being silver and the better silver stocks, which are at good prices here, and although they have already started rallying over the past week or two, the COT structure is now much healthier, suggesting that they will continue to advance.

On the 6-month silver chart we can see the breakdown from a Symmetrical triangle that occurred late in November leading to a drop well into December, and also how silver has slowly recovered over the past two weeks. In itself this chart looks bearish, with a breakdown followed by a rally back up towards resistance, and moving averages in unfavorable alignment, and it is only when we consider the latest COTs and then look at long-term charts that we realize that the setup is a lot more bullish than it looks at first sight on this 6-month chart.

Next we will look at a 18-month silver chart, the main reason being so that we can compare the peaks and troughs on it directly to the 1-year COT chart placed below it. On this chart we can see that the silver price is within the confines of a large gently downsloping trading range bounded by approximately $15.25 on the downside and $18.50 on the upside. This chart makes clear why it turned up where it did a couple of weeks ago—it had arrived at a zone of support towards its July lows.

The latest silver COT chart shows a remarkable improvement in the COT structure in the space of just four weeks, remarkable because the drop in the silver price that triggered it was not all that great. What this COT chart shows us is that this latest drop in silver prices was “the last straw” for the Large Specs, who have “thrown in the towel,” with the huge profits made by Bitcoin speculators in recent weeks making them feel like right lemons. If you had to give a job description for the Large Specs in silver, the most accurate one would be “bagholder” since collectively they are always wrong, and you certainly don’t want to see them with a big long position if you are contemplating buying. Right now they are nowhere to be seen—they have fled, which means that the coast is clear for Smart Money buyers. There have been some doubts expressed with respect to silver in the recent past along the lines that either it will drop to new lows, or double dip to its lows of approximately two weeks ago, but the latest COT suggests that a drop to new lows is probably out of the question, and further that while we cannot rule out a drop towards the lows of two weeks ago, it looks unlikely, and should it do so, aggressive buying will be in order. Here we should note that a favorable COT setup generally leads to a rally, but does not, by itself, mean that a new bull market is set to start, although it is normally a precondition for a new bull market.

The latest Hedgers chart, a form of COT chart, also looks good for silver, and because this chart goes back much further than the COT chart, it enables us to see what happened to the silver price following peaks on this chart going back years.

The long-term 10-year chart calls to mind the excellent film Groundhog Day, where a guy keeps living the same day over and over, because we just keep trotting out the same description for the long-term silver chart (which does save work). Here it is again, with some adjustment:

Like gold, silver is marking out a giant Head-and-Shoulders bottom pattern, but in silver’s case it is downsloping as we can see on its 10-year chart below, which reflects the fact that silver tends to underperform gold at the end of sector bear markets and during the early stages of sector bull markets. Prolonged underperformance by silver is therefore a sign of a bottom. This chart really does show how unloved silver is right now, and while we have seen some deterioration in its volume indicators in recent weeks, more important is the big improvement in the COT structure detailed above. A break above the neckline of the pattern, the black line, will be a positive development, and more so a break above the band of resistance approaching the 2016 highs. Once it gets above this it will have to contend with a quite strong zone of resistance roughly between $26 and $28.

Finally, we see that silver’s best month of the year is coming right up!

The conclusion is that silver is now a strong buy, and an even stronger buy in the event that it should react back short term towards its lows of about two weeks ago. While we can speculate about why the silver price should rise soon, with reasons such as a falling dollar, and funds flowing out of the cryptos as a result of the Bitcoin bust, an attack on Iran, etc, it is not really necessary as the charts speak for themselves. – Clive Maund

 

Deeply Discounted Gold Prices, Poised for a Major Bullish Breakout

Deeply Discounted Gold Prices, Poised for a Major Bullish Breakout

Gold Prices to Explode Higher on Rampant Inflation and Exploding Debt

With the new tax plan fanning fears of inflation and exploding U.S. government debt, the gold bugs have resurfaced.

Gold prices have spiked about 3.7% to $1,283 an ounce since a nearly five-month bottom on Dec. 12. At current levels on Tuesday, gold prices closed at the highest since Nov. 29, according to Bloomberg data. Gold prices have been above their 50-day, 100-day and 200-day moving averages since Dec. 18 (see chart below).

To be sure, gold bugs have several things to latch onto at the moment.

The gold trade is back. Source: Bloomberg

The gold trade is back. Source: Bloomberg

The tax law could send deficits ballooning by $1.7 trillion over the next 10 years, according to a projection from the Congressional Budget Office (CBO). U.S. debt would rocket to 97.1% of GDP in 2027, up from 91.2% using the CBO’s prior projections. The deficit spike could slowly undermine confidence in the U.S. dollar, sending investors into gold as a safe-haven.

Another consideration is a potential surge in U.S. inflation as corporate and middle class tax cuts ripple through the economy. Gold is often seen as a hedge on inflation.

10 Charts That Show Why Gold Is Undervalued Right Now

With the year quickly coming to a close, it might be time to start thinking about rebalancing the gold holdings in your portfolio. That includes bullion, jewelry, gold stocks and well-managed gold funds—all of which I recommend giving a collective 10 percent weighting. Because it’s been such a strong year for stocks—they’ve advanced more than 20 percent as of today—it’s likely that most investors will need to add to their gold exposure to meet that 10 percent weighting as we head into 2018.

Some investors might wonder why they need gold in their portfolios right now. The stock market is still chugging along, and the just-passed tax reform bill is likely to help ratchet up share prices even more. Cryptocurrencies have been hogging the spotlight lately, especially after bitcoin tumbled nearly 30 percent last Friday morning.

While I’m on the subject, inflows into cryptocurrencies have totaled more than $500 billion this year alone. To put that in perspective, the total sum of global equity mutual fund and ETF inflows were around $411 billion as of November 29. What’s more, cryptocurrencies are now doing as much daily trading as the New York Stock Exchange (NYSE), according to Business Insider.

Just think on that. Something is happening here that cannot be ignored or dismissed.

But back to gold. It’s important to remember that the precious metal has historically shared a low-to-negative correlation with many traditional assets such as cash, Treasuries and stocks, both domestic and international. This makes it, I believe, an appealing diversifier in the event of a correction in the capital and forex markets.

Need more reasons to add to your gold holdings? Below are 10 charts that show why the yellow metal is undervalued right now:

1. The gold price has crushed the market so far this century.

gold price has crushed the market 2 to 1 so far this century

Investors are invariably surprised to see this chart whenever I show it at conferences. Believe it or not, since 2000, the gold price has beaten the S&P 500 Index, which has undergone two 40 percent corrections so far this century.

2. Compared to stocks, gold looks like a bargain.

Gold is a bargain right now compared to stocks

As of this month, the gold-to-S&P 500 ratio is at its lowest point in 10 years. For mean reversion to occur, either the gold price needs to appreciate or share prices need to fall. Either way, consider this a once-in-a-decade opportunity.

3. Exploration budgets keep getting slashed.

total nonferrous exploration budgets fell to an 11 year low in 2016

One of the reasons why gold is so highly valued is for its scarcity. There’s a possibility it could get even scarcer as explorers continue to trim exploration budgets and uncover fewer and fewer large deposits. The time between initial discovery and day one of production is also expanding. This has led many experts in the field to wonder if we’ve finally reached “peak gold.”

4. Gold stocks could be just getting started.

will todays gold stocks track previous bull markets

Last year marked a turnaround in gold prices and gold stocks, and according to analysts at Incrementum Capital Partners, a Swiss financial management firm, they’re just getting warmed up.When charted against past gold bull markets, the present one looks as if it still has a lot of room to run.

5. Is too much money going into equities?

world equities market cap well on its way to 100 trillion dollars

More than $80 trillion sits in global equities right now, a monumental sum that’s likely to surge even more as we venture further into the bull market. Some worry this is a ticking time bomb just waiting to go off. Another correction similar to the one 10 years ago would wipe out trillions of dollars around the world, and it’s then that the investment case for gold would become strongest.

6. Higher debt could mean higher gold prices.

federal debt expected to continue rising

The yellow metal has historically tracked global debt, which stood at $217 trillion as of the first quarter of this year. Looking just at the U.S., debt is expected to continue on an upward trend, driven not just by new, and largely unfunded, spending but also underlying interest. By most estimates, President Donald Trump’s historic tax cuts, although welcome, will contribute to even higher debt as a percent of gross domestic product (GDP).

7. The Fed’s about to take away the punch bowl.

federal reserve has begun the process of unwinding its 4.5 trillion balance sheet

“My opinion is that business cycles don’t just end accidentally. They end by the Fed. If the Fed tightens enough to induce a recession, that’s the end of the business cycle.” That’s according to MKM Partners’ chief economist Mike Darda, who was referring to the Federal Reserve’s efforts to unwind its $4.5 trillion balance sheet after it bought vast quantities of government bonds and mortgage-backed securities to mitigate the effects of the Great Recession. There’s definitely a huge amount of risk here: Five of the previous six times the Fed has similarly reduced its balance sheet, between 1921 and 2000, ended in recession.

8. Rate hike cycles have rarely ended well.

recessions have historically followed us rate hike cycles

Rate hike cycles also have a mixed record. According to Incrementum research, only three such cycles in the past 100 years have not ended in a recession. Obviously there’s no guarantee that this particular round of tightening will have the same outcome, but if you recognize the risk here, it might be prudent to have as much as 10 percent of your wealth in gold bullion and gold stocks.

9. Trillions of dollars of global bonds are guaranteed to lose money right now.

world central banks still holding interest rates in negative territory

As of May of this year, nearly $10 trillion of bonds around the world were guaranteed to cost investors money, as more and more central banks instituted negative interest rate policies (NIRPs) to spur consumer spending. Instead, it encouraged many savers to yank their cash out of banks and convert it into gold. That’s precisely what households in Germany did, and by 2016, the European country became the world’s biggest investor in the yellow metal.

10. The Love Trade is still driving gold demand.

golds 30 year seasonality patterns

The chart above, based on data provided by Moore Research, shows gold’s 30-year seasonal trading pattern. Although it’s changed over the past few years, the pattern reflects the Love Trade in practice. According to the data, the gold price rallies early in the year as we approach the Chinese New Year, then dips in the summer. After that it surges on massive gold-buying in India during Diwali, in late October and early November. Finally, it ends the year at its highest point during the Indian wedding season, when demand is high. The pattern isn’t always observed exactly how I described, but it happens frequently enough for us to make educated, informed decisions on when to trade the precious metal. – Frank Holmes

Gold Prices likely to climb above $1,400 an ounce in 2018

The yellow metal’s bear market is coming to an end, with gold prices projected to climb above the $1,400 level in 2018, according to ABC Bullion.

“Gold will continue its recovery from the bear market. We see the metal appreciating towards $1,375-$1,425 in 2018,” chief economist at ABC Bullion Jordan Eliseo told Kitco News in a recent interview.

Some of the key elements to watch next year are U.S. equities, the U.S. dollar, and the Fed, Eliseo said.

Stocks have had an incredible run in 2017, posting all-time highs. “This is one of the first years on record when U.S. equities have essentially been up every single month of the year, while volatility has been at record lows. It is unprecedented,” Eliseo said.

If stocks continue to post gains and volatility remains low, it will be a major headwind for gold prices in 2018, he said; adding that if volatility increases and stocks surprise the markets with declines, then gold prices could greatly benefit.

Eliseo added that he sees the U.S. dollar declining in 2018, which would be a major boost to gold prices.

On top of that, he said a less aggressive Fed could help support gold prices next year.

“I am not convinced that the Fed will be as hawkish as markets are expecting. There are still questions about the low level of core inflation and continued concerns about growth, even though it has been relatively stronger lately,” he said.

In the meantime, the physical demand for gold is likely to remain stable in 2018, Eliseo noted. More specifically, Western demand will improve from its lowest levels in nearly a decade.

“You are going to see buying through the ETF space. Numbers out of Europe this year have been strong both for the ETFs and the physical buying. You will see some continued support there,” Eliseo said.

Central banks will also resume buying, with Eliseo projecting to see a few hundred tons of gold to be acquired again in 2018. Gold demand out of India and China is looking stable as well, he added.

“I’m constructive on physical demand, but I don’t expect it to necessarily skyrocket higher next year,” Eliseo explained.

When discussing this year’s cryptocurrency craze, Eliseo said that he is convinced that some investment flows were redirected from gold to bitcoin.

But, the chief economist noted that the market might see a reversal of that trend next year.

“The bitcoin price rise has been phenomenal and it is unquestionable that it is the story of post-global financial crisis era so far. But you are starting to see problems with exchanges: coins being stolen and platforms shutting down,” he said. “2017 is probably going to remain the best year for bitcoin that we will ever see.”

Also, bitcoin is starting to show clear signs of a classic bubble, Eliseo said.

“Parabolic price increase is a warning sign, the speed at which the prices are rising, the ever more optimistic price projections, and complete fear of missing out (FOMO is truly alive in this space),” he stated. “It is essentially operating as a purely speculative asset. Most speculative assets end up bursting, but it could go a lot higher before it goes lower.”

 

10 Year Immunity to JPMorgan for Manipulating Silver and Gold gets over in a few months

10 Year Immunity to JPMorgan for Manipulating Silver and Gold gets over in a few months

10 Year Immunity to JPMorgan for Manipulating Silver and Gold

Here’s a thought that I fully acknowledge didn’t originate with me, but from a close associate, even though it incorporates many of my findings. If it does come to fruition, I will gladly reveal my associate’s identity to give him his proper due; but in case it doesn’t, I’ll spare him any embarrassment for an incorrect premise. As I think you’ll see, I can’t deny that my friend’s premise seems to tie up all the loose ends about the silver manipulation.

In a few short months, we will hit the ten year anniversary of perhaps the most seminal event in modern silver history – the takeover of the failing investment bank, Bear Stearns, by JPMorgan in March 2008.  Bear Stearns failed as a firm due to a variety of problems which, in effect, caused a run on the bank. But what makes the failure and subsequent takeover so prominent in silver history was the revelation shortly thereafter that Bear had been the biggest short seller in COMEX  silver and gold futures and was replaced in that role by JPMorgan.

Since the takeover, JPMorgan has not only remained the largest short seller in COMEX silver futures, but has gone on to rack up a perfect trading record on the short side of COMEX silver; taking profits on every new short position it has added since taking over Bear Stearns and never, ever taking a loss. More importantly, for the past nearly seven years, JPMorgan has used its ironclad control over silver prices to accumulate the largest investment position ever witnessed in physical silver; and all at the depressed prices it created with its massive paper short position on the COMEX.  At this point, I peg JPM’s physical silver position to be no less than 675 million oz.

I’ve been on JPMorgan’s case since the fall of 2008, when I first uncovered that the bank was the new king short in silver. Because the evidence has been so strong that JPMorgan has both manipulated the price and accumulated a massive amount of physical silver, I lost any fear I had when I first started referring to JPMorgan as crooked in its silver (and gold) dealings. Yes, I still send the bank all my articles and I assume I would have heard from bank officials had they had any objection to what I write.

Because the takeover of Bear Stearns by JPMorgan was necessitated by concerns for the stability of the financial system, it was, basically, arranged and overseen by the highest levels of US Government financial regulators, the Treasury Dept. and the Federal Reserve. In a nutshell, Bear Stearns was too big to fail.  Yet fail it did, although the USG and JPMorgan took strong measures to contain the damage from the Bear Stearns failure. One of those measures was to prevent Bear’s failure from affecting the silver and gold market.

As the biggest short seller in COMEX gold and silver futures contracts, Bear Stearns’ failure would be expected to cause prices to explode in an orgy of short covering by the biggest short suddenly gone bad. Actually, silver and gold prices had been running to new highs back then as Bear Stearns lurched toward bankruptcy in mid-March 2008.  From the start of that year, silver had jumped by $6 to $21, a new 28 year price high and gold hit its then all-time high of over $1000, up $150 since year end, with both price highs occurring on the very day that Bear Stearns was taken over, March 17, 2008 (St. Patrick’s Day).

That was the day, of course, when JPMorgan took over the short reins from Bear Stearns, with full prodding, cooperation and participation from the US Treasury and the Fed. Almost from that day, silver and gold prices began falling and didn’t stop until October of 2008, when silver traded below $9, nearly 60% lower than when JPMorgan took over – not just Bear Stearns, but the market itself. Gold fell from its then all-time high of $1020 to under $700 by that October. And on these massive price declines in 2008, JPMorgan bought back much of its massive COMEX short position with profits of many hundreds of millions of dollars. This was the very first of the many coming successful manipulation campaigns conducted by JPMorgan upon its ascension to the very top of the silver market.

Not one word of the forgoing was made up and can be easily substantiated. I fully admit that as the events of 2008 unfolded, I didn’t have as clear a perspective of what was occurring as I do now, but 2008 was a big year for me, what with initiating the infamous 5 year investigation into silver manipulation by the CFTC and having the agency confirm my speculation that it was JPMorgan as the big COMEX silver and gold short. That being said, I had no idea back then about what would transpire over the next ten years in silver and gold. I had a pretty good sense that prices would move higher and they did, with silver up more than five-fold from the lows of 2008 to the highs near $49 less than three years later. But I never conceived that JPMorgan would regain control for the next seven years and pressure prices lower. Otherwise, I would have told you (and myself).

Because of the involvement of the US Treasury and Federal Reserve in JPMorgan taking over Bear Stearns was so obvious, no one can deny that JPMorgan demanded and received something in return for “saving” the financial system; that reward being allowed to dominate and control the silver (and gold) market without regulatory interference.  To my mind, the reward included a hands-off agreement by which the CFTC was ordered to ignore the increasingly blatant dominance over the silver and gold markets by JPM. Many have further expanded this premise to claim that this proves the US Government is controlling the price of precious metals, but I’ve never gone that far (because nothing I have seen in my more than half-century of adult life persuades me the government I’ve observed over all that time is capable of such a feat).

While not a believer in full-blown conspiracy theories by any measure, it is also clear to me that the CFTC has handled JPMorgan with kid gloves, at best. How else to describe the behavior of JPMorgan in the silver market that no other entity could get away with? We don’t have to go much further than JPM never taking a loss on COMEX silver short positions and how it can be allowed to be both the biggest paper short and biggest physical buyer simultaneously.  How can one reconcile the broader concern of overall government control of precious metals prices in the face of JPMorgan’s specific actions in COMEX silver? My friend’s speculation does a pretty good job of answering that dilemma.

He contends that the US Government made a ten year deal with JPMorgan, giving the bank immunization against regulatory oversight in matters involving silver (and gold). And we’re certainly close to the ten-year mark of any such agreement. Again, I’m not claiming authorship of the ten year deal speculation, but I do wish I was the author. That’s because it aligns perfectly with everything I think I know about silver, the US Government, COMEX and JPMorgan. I never believed the USG would grant permanent immunity to JPMorgan for manipulating silver and gold, so a ten year deal fits as a substitute.

Certainly, JPMorgan has put the last ten years to good use, in both milking guaranteed profits from its COMEX short side paper dominance and then by beginning to accumulate physical silver seven years ago on a scale never before witnessed. Most importantly, the ten year deal fits perfectly with my “big one” premise, as it is downright remarkable what a good position JPMorgan has put itself in for a liftoff in price just recently. My friend holds that the coming end to this year marks the end of the ten year deal and I’m in no position to argue, since it was his idea to start with. Aside from me fervently wishing that his take will be the right take, I can find nothing to dispute it. – Ted Butler

Expect Silver to Shine Far Better than Gold in 2018

Expect Silver to Shine Far Better than Gold in 2018

Expect Silver to Shine Far Better than Gold in 2018

Goldman Sachs looks for gold prices to slide to around $1,200 a troy ounce in the middle of 2018 as general marketplace fears subside, but then to rise to $1,375 by the end of 2020 as demand from emerging-market nations grows.

Goldman called for silver to fare better than gold, rising by the end of 2018. The precious-metals forecasts were included in a commodities outlook, with Goldman describing itself as bullish on commodities as an asset class in 2018.

The investment bank said it was near-term bearish in gold due to a moderation of “fear,” which tends to lead to safe-haven buying of gold. The metal moved lower in recent weeks as speculators exited bullish position. Analysts said they do not think gold’s weakness is related to the dramatic rise in Bitcoin, describing gold and the cryptocurrency as “very different assets,” particularly since there has not been a corresponding exit from gold exchange-traded funds.

“Rather we see the decline in gold as evidence that ‘fear’ effects, which had been keeping gold supported, have at least partially moderated as U.S. tax reform and the transition to a new Fed chair appear to be going smoothly,” Goldman said.

Analysts later added: “We continue to expect gold prices will move lower over the coming months, reaching $1,200/toz by mid-2018.”

The main factors behind that near-term bearish view are an expectation for robust growth in gross domestic product in developed nations, further interest-rate hikes from the Fed, no deterioration in geopolitical risks and no recession in 2018-19. The bank listed forecasts of $1,225, $1,200 and $1,225 in three, six and 12 months, respectively.

“Over the long term, we continue to see strong EM [emerging-market] growth expanding gold demand, and the ‘wealth’ channel eventually dominating,” Goldman said. “We believe this will take prices back up to $1,375 by end-2020.”

Meanwhile, Goldman analysts look for silver to fare better than gold in 2018 after underperforming gold by 8% for the year to date. While calling for gold to weaken into mid-2018, Goldman looks for silver to be roughly flat over the next six months and increase over the next 12 months. The bank listed three-, six- and 12-month silver price forecasts of $16.20, $16, $17.20, respectively.

“Typically, silver tends to outperform gold at the current stage of the business cycle, as it is more strongly levered to global growth given its significant industrial use,” Goldman said.

“However, this relationship broke down post-2011, as price induced thrifting and substitution led silver industrial demand to diverge from the global business cycle. Now we are finally beginning to see evidence of silver industrial demand picking up with strong global growth, as the impact of both thrifting and substitution appear to fade. Therefore, strong global growth should, in our view, lead silver to outperform gold, as it has in previous expansion phases.” – Scrap Register

 

2017 saw Bitcoin’s Astronomical Rise – 2018 will be a Year for Gold and Silver

2017 saw Bitcoin's Astronomical Rise - 2018 will be a Year for Gold and Silver

Gold has a long history of survival and relevance – can we say that for bitcoin?

Bitcoin is all the rage, but in the long run, it might be more bark than bite. Although the technology of blockchain and cryptocurrencies will live on, the way the financial markets have pinpointed bitcoin as the end-all-be-all for the complex is arguably flawed logic.

The cryptocurrency idea is less than a decade old and will undoubtedly experience growing pains. Many believe bitcoin is the start of a new era capable of changing society in a manner similar to the internet. How soon we have forgotten the struggles of technology pioneers. Remember Pets.com?

Considering the mania, it is hard to believe bitcoin was created as an experimental currency and involves the practice of solving math equations to “mine” the asset. Since when does doing algebra instantly create a valuable asset? Further, bitcoin was never intended to be an investment vehicle and would likely prove to be less valuable than just about any tangible asset on the planet should the world undergo a calamity.

In short, bitcoin’s astronomical value is the result of perception not reality. This isn’t a new concept in the financial markets, but we’ve never seen emotions get this out of hand.

Some argue these characteristics are no different than those of gold, and that is a reasonably true statement. I’ve always had reservations regarding the practicality of gold being an efficient medium of exchange, but the truth is it has been used by mankind for millennia. More importantly, the gold market is extremely deep.

Investors in gold bullion, casual collectors, technology manufacturers, and those valuing its beauty, are all holding a piece of the pie. The bitcoin market, on the other hand, is believed to be largely owned by roughly 1,000 market participants with uninformed retail traders scrambling to bid up the price of scraps.

Recent weakness in gold is being attributed to the premise that bitcoin is an alternative to precious metals investing. However, that comparison is probably a stretch. We aren’t seeing anything in gold that we haven’t seen multiple times this year. This is the fourth time we’ve seen gold prices fall below $1,250; previous occasions were attached to narratives other than bitcoin.

Bullish Gold Seasonals

Similarly, the gold market tends to see significant weakness in the month of December met with buying by mid-month; the seasonal support generally continues through early-March. Thus, in spite of the bitcoin vs. gold chatter, gold bulls shouldn’t be deterred from looking to employ long positions on large December dips. Over time, such a strategy has worked more than it hasn’t.

Source: MRCI

Bullish COT Chart

Gold speculators perpetually hold bullish positions, but their aggression fluctuates throughout time. The profit potential in being long gold is considered greater than being short because rallies can be far more volatile than selloffs in this particular market. Also, gold bugs are stubborn and have never lacked conviction in the face of diversity.

In any case, we’ve noticed when the net long position of large gold speculators as depicted by the CFTC’s (Commodity Futures Trading Commission) COT (Commitments of Traders) report falls beneath 100,000 contracts the gold market has a tendency to find a bottom. At the moment, large speculators in gold are holding roughly 100,000 contracts. This suggests that a bottom could be near but there is also some room for further liquidation in the near-term.

As a refresher, the COT report is issued by the CFTC weekly to provide data about which types of traders (large speculators, small speculators, and commercial hedgers) are long or short, and how aggressive each group has gotten with their position.

Bearish USD

The negative correlation between gold and the U.S .dollar is well-known. Generally speaking, a higher dollar puts downward pressure on gold prices and vice versa.

This year, the correlation has been weaker than it has in the past but it still exists. Gold futures have settled in the opposite direction of the dollar roughly 45% of the time. Consequently, if the bearish technical pattern on a weekly dollar index chart holds true, gold should be supported.

Specifically, the dollar index has formed a wedge pattern with swift resistance at 94.00. If this area triggers a reversal as the chart suggests, we could see a retest of 90.00. The last time the dollar index was valued near 90, gold was trading near $1,350!

Source: QST

Weekly Gold Chart

Since its infamous collapse in 2013, gold prices haven’t been able to make a lot of progress in either direction. Nevertheless, we’ve seen some emotional peaks and troughs as traders attempt to push prices beyond the multi-year trading range. The story promoting the trend has always been most accepted at the reversal points.

In essence, when the fundamental chatter for the bullish case is loudest the market has been met with selling and when the talking heads begin to grow overwhelmingly bearish, buyers have habitually stepped in. In this instance, we think the argument that bitcoin is bearish for gold because it is attracting speculative dollars that would otherwise be allocated to gold, will soon be debunked just as the other stories told at peaks and valleys of this trading range have been.

It is remarkable how well the Slow Stochastics indicator has worked in the gold market. Of the last 10 occasions dating back to 2012, nine buy signals triggered by the oscillator has resulted in a subsequent upswing. That said, the single failure taking place in early 2013 was an utter disaster for anybody aggressively long the gold market so caution must always be warranted.

The Slow Stochastics indicator is currently displaying a buy signal (the oscillator is in oversold territory with a reading of 20 or below and the oscillator is beginning to point upward). If the trend of successful Slow Stochastic signals continues as expected, we should see gold find some sort of a bottom, albeit potentially temporary, in the coming week or two.

The weekly chart of gold futures points out two areas of support in conjunction with uptrend lines — the first being near $1,235 and another at $1,200. We expect these levels to hold. If we are correct about that, gold should retest resistance at $1,350 and if fundamental news supports it, a move toward $1,420 is in the cards. While we are not anticipating a run to $1,485, a significant unforeseen news event could trigger such a rally.

We’ve seen multiple gold slumps in recent years but they have all eventually been met with buying. Although this particular pullback could retest recent lows, or even the $1,200 area, the ultimate resolution of the current chart pattern should see higher gold prices going into next spring.

Beware, if we are wrong about support in the $1,200 area holding, the bears could be targeting $1,100 or even as low as $985! However, the odds are not in favor of such a decline at this time.

Source: QST

Gold vs. Bitcoin

Despite the excitement over bitcoin and the widespread expectations that it is a sufficient replacement for gold, there are some serious consequences of holding bitcoin relative to gold that the market is not currently accounting for. These security risks might be enough to counterbalance the yearning for massive gains that might never be realized due to challenges in logistics and regulatory safeguards.

For instance, one of the appealing aspects of bitcoin is the fact that it bypasses banks and other financial intermediaries. This introduces a counterparty risk that most other financial transactions and assets aren’t exposed to. There have been a handful of bitcoin brokers leaving the business due to solvency or fraud issues, and those holding bitcoin at those particular brokerages are out of luck. Also, the internet is riddled with stories of bitcoin holders who have lost access to their bitcoin assets due to hacked computers, compromised email accounts, or simply losing an associated pin number.

Gold, on the other hand, is generally sitting in a bank safe with protections most citizens wouldn’t be capable of employing on their own. If the bank is robbed, there is likely some recourse to recoup the value whereas a bitcoin holder digitally “robbed” of the asset will never be made whole.

Accordingly, the new security risks associated with “investing” in cryptocurrency are far greater than most are willing to admit. As flawed as gold is, it has a long history of survival and relevance. That is more than we can say for bitcoin. – Carley Garner

A Gold Rally Will Implode the Bitcoin Party – Peter Schiff

The end of the bitcoin party might just come at gold’s hand – this according to well known gold supporter Peter Schiff, CEO of Euro Pacific Capital.

While many experts suggest that gold and bitcoin move in tandem, Schiff said it is absolute nonsense. “If you are in bitcoin the last thing you want to see is a big move up in the price of gold,” he said in an interview Tuesday.

According to Schiff, once the yellow metal really starts going up it can be “the pin that pricks the bitcoin bubble.”

“When people who have been buying digital gold decide they want the real thing and [t]hey want to make the switch, that’s impossible. [T]here is no way a significant amount of money can get out without imploding the entire [bitcoin] market,” he said. Schiff added that he would not be surprised if bitcoin dropped 80-90% in a single day.

On the gold front, the metal’s 60-day historical volatility is near its lowest since 2001, and money managers have cut their bets on a gold rally at the fastest pace in five months.

So are people just bored of gold?

“[S]ome money that might othwerise buy real good is buying this fools’ gold instead, it is taking away some of this demand for gold,” Schiff said.

But there’s another part to the equation, he added.

“The stock market is going up – a lot of people who were buying gold as a hedge think there is no reason to hedge – we have never seen so much optimism about the market, it has never been so expensive and so few people worrying that it is going down.”

Bitcoin prices briefly plunged $2,000 within one hour to below $16,000 on Wednesday, before paring losses, after the U.S. stock regulator suspended share trading of cryptocurrency company Crypto Co. (CRCW) on concerns about potential stock manipulation.

Gold and silver prices were ending the U.S. day session moderately higher and scored two-week highs Wednesday. Technically related buying has been featured this week, amid a lack of major, markets-moving fundamental news. February Comex gold was last up $6.40 an ounce at $1,270.60. March Comex silver was last up $0.142 at $16.295 an ounce. – Daniela Cambone

2018 will be a year for Gold and Silver unlike we have seen before

Gold is for wealth preservation and silver is for everyday currency and everyday transactions. We will see money, which is gold, returned to the monetary system in our lifetime. We will see silver being used as currency in our lifetime. I believe cryptocurrencies will make this possible and I believe cryptocurrencies are awakening people in ways the cabal/oligarchs/globalist, whatever you wish to call them, in ways they didn’t think possible.

2018 will be a year for gold and silver unlike we have seen in some time. Both will move higher in a sustained fashion throughout all of 2018. This momentum will carry both metals forward into 2019 where we will see even higher achievements being reached by both metals. Why so confident – simple. Nature is a bitch and she is pissed. Natural economic laws have not been forgiven; natural economic laws have not been overturned. We will see the rise of commodities like copper, zinc and steel in 2018 that is going to be unprecedented and this will help drive the precious metals.

The other determining factor is sound money. The cryptocurrencies have captured the imagination of millions of people around the world. These people were never interested in currency or money before. They have been asking questions for most of the second half of 2017 and they are now better educated about currency and money than ever before. This knowledge base will bring a significant percentage of people to the precious metals – real money, real wealth. Not all of them have become educated, not all of them that have become educated will move into precious metals but enough people that we will see a sea change in the precious metals market and by the end of 2018, when some of the more draconian efforts by governments around the world are unleashed, people will begin to understand the true nature of decentralized, off grid and money and currency.

There’s also the technical side of the “market”. Daniela Cambone, KitCo News, reported earlier today.

“The last three days have reconfirmed by commitment for a much higher gold price in 2018. We are making higher lows for the year – the recent behavior made me nervous, but something very telling happened in the last three days,” Lanci said in an interview on Thursday.
“On Tuesday we had a short covering rally. And Wednesday there was a 10,000 contract increase in December – that’s very unusual, that is an over 2.3% increase in open interest,” Lanci explained. The point Lanci stresses is that gold is now back in a “safe area” between $1250-$1275 an ounce. “The $1,700 call I believe in is going to come to fruition- [if gold gets] above $1275 I will double down on a momentum bet.”
Gold prices rose on Friday and were set for their first weekly gain in four weeks as uncertainty over the passage of U.S. tax reform pushed the dollar to a nine-day low against the yen. Spot gold was up 0.4 percent at $1,257.76 an ounce and set for a weekly gain of 0.8 percent. U.S. gold futures were 0.3 percent higher at $1,260.50 an ounce.

If we combine the education, regarding currencies and money, people have received in 2017 with the technical aspects that “traders” seek to make decisions and then we throw on top of that what Jeffrey Christian has recently said we have a trifecta showing the metals, not just moving higher, but moving enough to get people’s attention. – Rory Hall

 

Paper Gold – It Is What It Is, But It’s Not What It Seems

Paper Gold - It Is What It Is, But It's Not What It Seems

Paper Gold – It Is What It Is, But It’s Not What It Seems

That line was only recently penned by the great Irish poet and philosopher, Paul Hewson. It no doubt applies here to our daily struggle against The Banks and their paper derivative pricing scheme.

“It is what it is but it’s not what it seems.” Yep, that’s a deft description on Comex Digital Gold and the pricing scheme that has prevailed now for nearly 43 years. Recall it was December 31, 1974 when Comex gold futures were introduced…not coincidentally the day before US citizens were once again allowed to legally own and possess physical gold. You can read all about it here:https://wikileaks.org/plusd/cables/1974LONDON16154…

And so here at the end of 2017, the cumulative amount of alchemized digital or synthetic gold “exposure” has reached a total that not even the writers of that 1974 memo could have envisioned. Unallocated gold. Gold futures. Gold swaps. OTC options. ETF shares. Levered ETF futures shares. You name it. It’s all used as a substitute for the real thing…actual physical gold. And so long as the fractional reserve confidence scheme continues, the world will never know just how much real, physical gold exists for private, institutional and sovereign investment.

“It is what it is but it’s not what it seems.”

What needs to happen in 2018? Investors on every level need to demand delivery of true physical gold. They must foreswear the convenience of synthetic gold exposure and ignore the disingenuous warnings of the dangers and costs of private vaulting and self-storage. Only true physical demand can force The Bullion Banks to de-lever their system and only this deleveraging of the fractional reserve system can force the discovery of a true, physical price.

And there are rumblings that such a movement toward physical holding may be coming. Whether it’s the geopolitical risk of war in Korea or the Middle East, the economic risk of de-dollarization or the very real threat of globally-sanctioned negative interest rates, events may move quickly and the Central Bank-concocted scheme of 1974 may unravel almost as rapidly as it was put into place.

So the question is, are you prepared? Your only option in this is to hold real, physical metal…whether it’s through a bullion dealer, a private vaulting service or a true physical fund like the PHYS or PSLV. “Gold” or “silver” in any other form is a Banker-created risk that you should no longer be willing to take. – Craig Hemke

Tax Reform is really just a Scam Against the American People

Tax Reform is really just a Scam Against the American People

Tax Reform is really just a Scam Against the American People

It is obvious to most people that real tax reform means reducing taxes and government spending. However, in the current tax reform “package” there are all sorts of changes in the tax rates, tax brackets, deductions, exemptions etc. But the end result is virtually no net tax relief, little economic growth, and a substantial increase in debt. Most importantly, many people will lose valuable tax loopholes and as Ludwig von Mises said “capitalism breathes through the loopholes.”

Tax reform is really just a scam against the American people. It does help politicians reap campaign donations from special interest groups. It is an old con job because these groups can’t afford to lose their special place in the tax code. As a result, they contribute money to politicians in Congress to protect their loophole. If that does not work they start a campaign to reestablish their loophole in the future.

There are of course good items in the tax reform package such as the cut in the corporate income tax. In an ideal world the corporate tax would not exist. Economists of all stripes recognize that it is an irrational tax because 1. It forces corporations to spend tons of money avoiding the tax, 2. It raises little revenue (only 9% of the budget), and 3. It is a double tax on corporate income because corporations pay a tax and then stockowners pay another tax on all the money they gain in dividends and capital gains.

Another promised benefit of tax reform is supposed to be economic growth, but estimates of economic growth under the House plan is just a few tenths of one percent and even that could be blown away with any kind of economic downturn.

If you do not reduce the tax burden very much, you simply do not get a big increase in economic growth. Moreover, the best way to get economic growth is to reduce government spending. Any tax reform law should have mandates that cut government spending. Spending cuts should be significant and across the board. This is especially so with entitlements because they increase the real national debt going forward from $20T to $200T. This places a great burden of uncertainty on the economy.

The reason that spending cuts are vital: you need to recognize that the private sector is the productive sector. Even with a 50% tax burden on its back, the private sector is what produces our standard of living. The government sector does not really produce anything on its own and much of what it does is detrimental to our standard of living. In addition to being detrimental, much of what government spends our resources on is highly costly. For example, the cost of government education is almost twice the cost of a comparable private education. The cost of housing in neighborhoods with good public schools is almost 1/3 higher on a comparable basis than in districts with low performing schools.

Transferring resources and labor to the private sector while reducing the tax burden will make the economy much more productive and significantly raise the standard of living.

The federal government has control over enormous amounts of land and natural resources. A 2010 report from the Congressional Research Service 2010 estimates that there are more than 70,000 of buildings controlled by the federal government that are either vacant or underutilized. The federal government also has redundant military bases, spy networks, and regulatory agencies so that some large amount of budget cutting would be entirely painless and actually add money to the federal budget.

Mandating spending cuts now and in the future will reduce uncertainty which is one of the biggest drags on the economy and the easiest to fix.

The Senate’s version of the bill repeals the individual mandate in Obama Care. That would be one small step towards fixing health care. Health care in the US is the most expensive in the world, but still rates as mediocre in terms of outcomes. It is also the area of the economy with the most significant government intervention. The combination of policies means that it subsidizes consumption so that people are insulated from the true cost of health care choices. The government also monopolizes every aspect of production, including doctors, hospitals, and prescription drugs. This is a very unhealthy combination. Getting rid of the individual mandate is a good step in the right direction. But it is only one of many necessary steps.

You don’t really see the problems of health care in such areas as veterinarians, dentists, and plastic surgeons. The reason for that is that they do not have much monopoly power from government or government-subsidized insurance. They are largely cash businesses with relatively high quality and low prices.

Just remember, that when it comes to tax reform, no matter what they say or how they vote, it is just a complicated process to raise campaign contributions from special interest groups. – Mark Thornton

Paper Gold Price is Fraud – Here’s Proof, its Strategically Engineered at the Highest Levels

Paper Gold Price is Fraud - Here's Proof its Strategically Engineered at the Highest Levels

Paper Gold Price is Fraud – Here’s the Absolute Proof

In recent months, the issuance of gold Exchange for Physical (EFP) contracts has surged. EFPs convert a physically deliverable Comex gold contract into an LBMA or LME contract supposedly deliverable at a later date ex London and/or Hong Kong. As an incentive for Comex contract holders to accept EFPs, a cash bonus reportedly is paid. EFPs in silver are also being issued in vast quantities, but we will focus on gold for brevity.

Most gold market observers believe that EFPs are a Comex gimmick designed to prevent, or at least forestall a formal Comex delivery failure. We believe the full story behind the EFPs is more complicated and disturbing, and that it involves collusion, conspiracy, and fraud.

In order to fully understand the corruption within the gold market, we believe that one must first understand the full extent of American political corruption, as the two are directly linked. Inferential Analytics, the forecasting method we have developed and use, is based on linkages, which are crucial to insight. Please bear with us as we take a brief tour of the Washington, D.C. political swamp; it is crucial to understanding the gold swamp.

The 2016 U.S. presidential election was never intended to be an election. Instead, it was a Deep State charade designed to pass the presidential baton from Obama to Clinton. Obama’s reign was an unprecedented financial bonanza for his Deep State handlers, and they were poised to go in for the looting kill upon the second White House coming of the epically money motivated Clintons.

The mainstream media did everything in their power first to derail Trump’s nomination, and then to destroy his prospects in the general election. Anyone who understands American politics knows that there was no way whatsoever any of the non-Trump Republican nominees, such as Rubio, Cruz or Kasich, could ever have beaten the stop-at-nothing Clinton political machine in the general election. None of the Republican candidates was ever supposed to win; their specific purpose was to lose, while creating the false illusion of a real presidential campaign and election.

The Republican establishment was greatly looking forward to the Clinton presidency, as the political streets would have been more thickly paved with gold than ever before in their careers. They could taste the graft, kickbacks, donations, pay for play bribes and other forms of illicit compensation headed their way.

When the Republican establishment realized that the initial Trump phenomenon was not a fluke that would soon flame out, Ryan, McConnell and their respective chamber mates did everything in their power to destroy Trump’s campaign, including recruiting Mitt Romney to excoriate Trump personally and professionally. But the smears and attacks did not work, because Trump had tuned into the gathering despair of millions of flyover America voters, and his insight into their pain enabled him to speak to them in a language they hungered for and understood. His words galvanized their anger and their anguish into action. Against all odds and by nothing short of a miracle from God, Trump won.

Now, more than a year later, we are beginning to learn the mountainous heights of corruption scaled by the Deep State elite to rig the 2016 election. Among many other sordid details revealed, we have learned that at the highest levels, the Justice Department and FBI have been corrupted, and turned into crude, partisan, Mafia-style enforcers of the Deep State looting agenda. With rarely seen arrogance and false righteousness, traitors within these organizations decided to subvert the will of the American people, and to swing the election to suit their personal tastes, and bank accounts.

In November, 2016, the American people came within a few thousand votes of being plunged into the crony communist dictatorship the Deep State elitists have planned for us. If Trump had not won, the people would never have found out what is now being revealed to them on an hourly basis about the depths of the Deep State corruption, because all of it would have been shredded and erased, like something out of Orwell’s 1984. The truth about the election, and the numerous related political scandals, such as the real Russian collusion, the Clintons’ treasonous $145 million Uranium One sting against the citizens of the United States, would have been assassinated and buried deep in the D.C. swamp.

The evidence is now incontrovertible that, on an inflation-adjusted basis, the United States has become the most corrupt empire in history. We see this corruption everywhere, not just in presidential politics. We see it in the cooked and crooked government books that totally ignore $21 trillion in accounting fraud, and likely, outright theft; in deliberate government misreporting of inflation, retail sales, employment, and GDP, perpetrated to tell false economic narratives and front-run markets that will react in predictable ways to them; throughout the banking and financial system, where scandals and massive fines are now so routine that no one even notices or pays attention to them anymore; in central bank interest rate rigging, which ripples into every other market, distorting all of them; and in cronyism that has bred the most pervasive wealth inequality in our history, and that is starting to resemble what was seen in ancient monarchies and feudal tyrannies; to mention just a few examples of our corruptive disintegration. This endemic and systemic corruption is suffocating the American economy, not to mention the American dream, or what is left of it.

It is precisely this advanced, systemic corruption that enables the gold price manipulation fraud to continue unabated. If the High Priests and Priestesses of corruption could overtake the United States Justice Department and FBI, which they did, they can also easily control the gold market, which they do. And they do so because the corruption of the gold market is the necessary prerequisite to and enabler of every other form of official American corruption, as we shall later explain.

Which brings us back to the gold EFPs. The important question is: Are the EFPs solely designed to prevent Comex delivery failure? We don’t think so. We think the EFP story is bigger than that.

As we have outlined in recent articles, it is critically important to the Deep State financial elite that the price of gold not “go Bitcoin.” If it does, it would create a buying stampede that would feed on itself, sucking funds out of individual bank deposit accounts. Banks make money by controlling depositors’ money, and precisely nothing from a box of Gold Eagles buried in someone’s back yard. More important to the banks is that individual deposits will be required for future bank bail-ins and capital controls, and cannot be allowed to leave the banks, soon to be monetary prisons, in which they currently reside. As has often been said by those who have experienced them in the past, “there is no fever like gold fever.” This fact is well known to the financial elite, and they are doing everything in their power to prevent gold fever from breaking out.

The way to keep a gold buying stampede from happening is to sharply depress gold’s price, making gold look like a terrible place to put money. Human beings are momentum chasers by nature, which is broadly evident in the current Bitcoin and stock market phenomena. In 2011, gold was in the process of going vertical, just as Bitcoin subsequently has gone, and this represented an emergency for the ruling financial elite. Since then, they have pounded down the price from $1,900 to $1,250 today, during a dreary, relentless campaign now well into its seventh year. In the process, the ruling financial elite has made an unprecedented $1 trillion profit from the manipulation of the gold market, but the full story is more nuanced and complex than the elite’s looting and corruption.

The control of the gold price is a technical and complex process. Some people wonder why, if the manipulators could crush the price from $1,900 to $1,250, they haven’t they kept pushing it down in order to profit even more? Why haven’t they taken it down to, say, $1,000 or $750?

The answer is that the supply does not exist to handle the increased demand that lower prices would create, particularly from sovereign buyers such as Russia and China. These buyers have certain amounts to invest on a regular basis. In September, 2017, for example, Russia purchased 1.1 million troy ounces, or 34.2 metric tons of gold. The average price of gold that month was $1315.39. This means that Russia spent approximately $1.447 billion on gold that month. If gold had been pushed down to, say, $1,000 per ounce, Russia would have been able to purchase 1.447 million ounces of gold for the same amount of money, or 347,000 ounces (31.6%) more gold. China, a huge gold accumulator that is far less transparent about the scale and timing of its sovereign purchases, and whose citizens are buying gold on a massive scale, would also have been able to buy 31.6% more ounces with whatever amount it invested in gold in September, 2017. And so would every other gold buyer that month, including sovereign, industrial and retail purchasers worldwide.

But with supply and demand already in a tenuous balance, where would the extra gold have come from?

The gold price manipulators are therefore required to cap the price not just on the upside, but also on the downside. If the paper gold price were to go lower than the supply / demand equilibrium price, this would trigger delivery failures that would spread like wildfire as everyone raced to buy disappearing, increasingly non-available gold. Buying stampedes are created by the non-availability of merchandise desired by consumers, because it is human nature that when people are told they cannot have something they desire, their desire for that thing goes exponential.

When the gold price moves too low, the manipulators must go long (buy) paper gold in order to support and stabilize the gold price. The manipulators are therefore in the predicament of needing to vacillate between going long and going short gold, as circumstances demand, to keep the gold price in the allowable range. They must maintain dual long and short positions all, or at least most of the time. And all of the contracts they buy must ultimately settle, one way or another.

The manipulation of the gold price is strategically engineered at the highest levels of the Deep State financial elite, and is managed for the elite by the Bank for International Settlements (BIS). Instructions from the BIS are then communicated to the western central banks (WCBs), who in turn inform the bullion banks of the specific price ranges they must keep gold within. These price targets change according to financial and economic conditions, and Deep State market manipulation profit (theft) objectives.

The Commitment of Traders (COT) gold report, which is issued by the CFTC based on data provided to them by the Comex, categorizes positions held by “commercials” (the bullion banks), “non-commercials” (generally assumed to be big dollar hedge funds), and “non-reportables” (smaller investors such as gold fabricators, jewelers and coin dealers, who must hedge their positions so as not to be financially hurt by price swings).

People assume that these market participant categorizations are honest and accurate, but we do not. The gold market has been corrupt for decades, and this includes its reporting. We believe there are many bullion banks (commercials) that also manage shadow “non-commercial” (e.g., hedge fund-like) accounts. Therefore, at any given time, the bullion banks can be both long and short the gold market, via both known commercial accounts, and also unknown, shadow, non-commercial accounts.

If the COT report were honest, which it is not, there would be a fourth category of market participants: Official Price Manipulators (OPMs), and all official price manipulation activities, long and short, would be reported. We will call such positions OPM Contracts. Of course, official price manipulation cannot be admitted or detailed, because it would expose the gold price for the rigged fraud that it is. Therefore, OPM Contracts currently hide within the shadows of the commercial and non-commercial investor categories.

The role of the bullion banks is to control the price of gold per the instructions of the BIS and WCBs. The bullion banks make enormous profits as a side benefit of being officially authorized gold price controllers, as they have been granted a Bondian License to Steal. But their primary duty is to ensure that the price remains within the ranges set by the Deep State financial elite and its central bank agents. With respect to price manipulation, per se, it is not the intent of the bullion banks to take delivery of gold when their long contracts expire, or to deliver gold when their shorts expire. For them, gold price manipulation is a cash settlement operation.

There are numerous times when the price manipulators must act in a non-profit manner to keep the gold price in line. This occurs when the gold price comes close to breaching either the minimum or maximum price set by the BIS. It is at these times that the bullion banks must act in behalf of the BIS, not themselves. In other words, when the price is intra-range, the bullion banks can manipulate it for their own profit; but when the price threatens to break out of the range, then their job is to control it, no matter what the cost.

In performing their BIS and WCB gold price control duties, the bullion banks receive a guarantee that any losses they might incur will be fully subsidized. This is because their actions come with great exogenous risk. News of such things as war, a major terrorist attack, a bank failure or even election outcomes can result in immediate, substantial moves in the price of gold. For instance, on election night, 2106 and the following day, the gold price soared and then plunged, as the controllers worked overtime to keep it within the set boundaries, producing massive paper gains and losses during the process. The deal between the BIS and WCBs, and their price manipulation agents, the bullion banks, is that Job One is to keep the price of gold within the set range at any given time.

Imagine a situation where the gold price is going too low, and the manipulators must step in to support it by going long. Imagine, too, that there are no market participants willing to go short at that necessary market intervention moment. Therefore, there is an order imbalance. To fix this problem, the bullion bank manipulators simultaneously go both long and short, to set the price where it needs to be. Keep in mind, these are price manipulation, not money trades. There is no intention on the part of the manipulators to settle them either via cash or physical delivery; these trades are solely made to maintain a particular and phony gold price. Therefore, as these contracts expire, the manipulators need to vaporize them, and make them disappear.

This is what the EFPs do. EFPs are where the OPM Contracts go to die and be buried. The EFP longs offset the corresponding Comex short OPM Contracts (which are also phantom), keeping the Comex accounts in balance.

We acknowledge that in times of delivery stress, the Comex might need to convince legitimate gold longs (in other words, non-Official Price Manipulators) to accept EFPs by offering them a cash bonus for doing so. But this would be in a minority of cases, given that the non-commercial hedge funds are typically momentum trade, cash settlement players, not investors in physical gold. They want cash profits to fund their salaries and bonuses, not gold. Therefore, it is uncommon for them to stand for delivery.

The Comex is owned by the CME, a publicly traded corporation subject to regulation, audits and taxation. If the CME were to actually pay cash bonuses to legitimate longs persuaded to accept EFPs, they would need to report them as a business expense. While they would try to bury these expenses deep in the footnotes of their financial reports, in the event of a lawsuit and legal discovery, the payments would be revealed. This is a legal risk the CME cannot take, because bribing customers to accept EFPs would indicate a de facto delivery failure on their part. If an EFP were no different from a Comex contract, why would the CME need to bribe a customer to accept it? Non-admitted and elaborately disguised delivery failure would be tantamount to fraud, and the payment of bribes to cover up such a delivery failure, in other words, to cover up the fraud would be a prosecutable criminal act.

Therefore, any EFP payments / bribes must be transferred to the LBMA, the over the counter gold market in London, which is opaque and loosely regulated, if regulated at all. Keep in mind, the vast majority of EFPs simply vanish, as they are the concocted method of making OPM Contracts disappear.

As has been pointed out by several gold market experts, it is inconceivable that the LBMA has the ability to deliver the quantity of physical gold represented by the massive number of EFPs created in recent months. But we believe this misses the point. It was never the bullion banks’ intention to demand delivery of the OPM contracts, which are nothing but shadow, price control mechanisms.

This is why, despite the fact that the enormous gold futures trading volume in New York and London would by now almost certainly have produced delivery failures, if they were all legitimate and real, there have not been any reported delivery failures. The only explanation for this is that a large number of these contracts are shadow OPM Contracts whose sole purpose is to control the price of gold, and which are then vaporized after they have served their price manipulation purpose.

Please keep in mind that the control of the gold price by the deep state financial elite is not some parlor game that they play for their enjoyment; it is an absolutely critical requirement in keeping the fraudulent fiat currency counterfeiting scheme from collapsing. There are literally trillions of dollars at stake, and the entire counterfeiting scam could and almost certainly would implode if gold “went Bitcoin.” If that were to happen, gold would tell the world the sobering monetary, financial and economic wisdom it has gleaned from 5,000 years of study, experience and reflection. The simple fact is that the financial system cannot handle the truth that gold knows, and that it would tell, if it were allowed to.

In our view, we are at the point where official corruption is so endemic and extreme that it has become a dangerous mistake to rely on official gold reporting of any kind, whether from the CFTC, the CME, the Comex, the LBMA, the World Gold Council, the mainstream media, the government or anyone in between, in conducting market or price analysis, or in forecasting coming gold market developments. When it comes to the one and only money, gold, we believe the most logical and profitable approach is to simply refer to history, and use common sense. The 5,000 year old antidote not only to financial fraud and corruption, but to the profoundly corrosive and dangerous effects of political fraud and corruption, has been gold. We believe this antidote is now more important than it has ever been in human history.

The Washington, D.C. swamp is evolving from a living, breathing cesspool of out-of-control corruption, into a Silurian breeding ground for epic, highly-evolved evil. We hope the now ceaseless revelations of corruption can at least halt, if not reverse the further spread of this destructive scourge, but history says this never happens in declining empires. Therefore, we believe that those who now honor their basic, common sense instincts to buy physical gold as protection against the consequences of official corruption and evil will be rewarded by Time for doing so. – Stewart Dougherty

Gold Investment Demand to Surge when Stocks Weaken as Fed & ECB Tighten

Gold Investment Demand to Surge when Stocks Weaken as Fed & ECB Tighten

Gold Investment Demand to Surge when Stocks Weaken as Fed & ECB Tighten

Gold has been battered lower in recent months as gold-futures speculators fled in dread of the Fed-rate-hike boogeyman.  As universally expected, the Fed’s 5th rate hike of this cycle indeed came to pass this week.  When gold didn’t collapse as irrationally feared, the cowering futures traders were quick to start returning.  Past Fed rate hikes have actually proven very bullish for gold, and this latest one will be no exception.

Back in early September, gold was sitting pretty near $1348.  It had rallied dramatically out of its usual summer-doldrums low in its typical major autumn rally, blasting 11.2% higher in just 2.0 months.  But even way back then, Fed-rate-hike fears for the FOMC’s December 13th meeting started creeping in.  When gold peaked on September 7th, federal-funds futures implied December rate-hike odds running just 32%.

Over the next 8 trading days leading into the September 20th FOMC meeting where the Fed birthed its unprecedented quantitative-tightening campaign, those rate-hike odds climbed as high as 62%.  That day’s FOMC statement and subsequent Janet Yellen press conference blasted the December rate-hike odds even higher to 73%.  So gold slumped back down to $1300 as futures speculators sold in trepidation.

By early October as these futures-implied rate-hike odds hit 93%, gold fell as low as $1268.  Over the mere one-month span where December rate-hike odds nearly tripled from 32% to 93%, gold dropped 5.9% on heavy spec gold-futures selling.  That erased nearly 6/10ths of its autumn rally, which really weighed on sentiment.  Gold still managed to stabilize around the $1280s in late October and November.

Starting early last month, federal-funds futures traders became so totally convinced the Fed would hike this week that their implied odds hit 100%.  They stayed pegged at total certainty for 27 trading days in a row.  Gold was able to stage a minor rally to $1294 surrounding Thanksgiving, but speculators resumed dumping gold futures in early December.  Thus gold fell as low as $1242 leading into this week’s FOMC decision.

Gold futures speculators have always deeply feared Fed rate hikes.  Their rationale is simple and sounds logical.  Since gold pays no interest or dividends, it will struggle to compete with bonds and stocks in a higher-yielding world following Fed rate hikes.  Therefore gold investment demand will wane, leading to lower gold prices.  Speculators always attempt to front run their forgone conclusion by selling gold futures.

This scenario has played out for three Decembers in a row now.  The Fed kicked off this rate-hike cycle back in mid-December 2015 with its first rate hike in 9.5 years.  A year ago in mid-December 2016 the FOMC made its second rate hike.  And following two more hikes earlier this year, the Fed’s newest mid-December hike this week was the 5th of its current cycle.  Gold-futures speculators sold aggressively into all.

So gold’s slump into this week on more Fed-rate-hike fears is certainly nothing new.  The lead in to this December FOMC meeting is starting to feel like that old Bill Murray movie Groundhog Day.  So the key question gold investors need to ask today is how did speculators’ excessively-bearish gold-futures bets play out after the prior couple Decembers’ rate hikes?  Did gold crumble in the face of higher rates as feared?

This first chart superimposes gold during this current Fed-rate-hike cycle over speculators’ collective long and short positions in gold futures.  Gold is rendered in blue, and speculators’ total number of upside and downside contracts in green and red respectively.  This gold futures data comes from the CTFC’s weekly Commitments of Traders reports, which are published every Friday afternoon current to the preceding Tuesday.

 

Gold futures speculators have long been utterly convinced gold’s mortal nemesis is Fed rate hikes and the resulting higher prevailing interest rates.  They fervently believe a sterile asset like gold simply can’t compete in a rising-rate environment.  And to their credit, these elite traders sure aren’t afraid to put their money where their mouths are.  Their trading surrounding past December hikes illuminates gold’s path today.

Way back in December 2008, the Federal Reserve panicked and slashed interest rates to zero for the first time in its history.  For years after that, top Fed officials talked about normalizing rates but never had the courage to start.  But finally in late October 2015, the FOMC started getting serious about ending its ridiculous ZIRP anomaly.  The Fed warned it might “be appropriate to raise the target range at its next meeting”.

That would be December 16th, 2015.  Since there hadn’t been a Fed rate hike in nearly a decade, the gold-futures speculators freaked out.  Extreme selling erupted as they rushed to dump gold-futures long contracts while catapulting their short positions higher.  So between mid-October and early December that year, gold plunged 11.4% to a major new secular low.  Surely rate hikes doomed zero-yielding gold!

After years of broken promises to end ZIRP, the Fed indeed hiked for the first time in 9.5 years in mid-December 2015.  Gold rallied 1.1% that day, but plunged 2.1% the next to edge down to a brutal 6.1-year secular low of $1051.  With relatively-low longs and extreme record short positions, speculators had heavily bet that was just the beginning of gold’s woes.  Their positions were exceedingly bearish into that hike.

But gold didn’t collapse as they expected, it stabilized.  Speculators had sold such huge amounts of gold futures contracts that their selling was exhausted.  Thus they had no choice but to start unwinding their own hyper-leveraged bearish bets.  So after that initial Fed rate hike of this cycle, speculators first bought to cover their extreme shorts and then aggressively bought long contracts.  This is readily evident in this chart.

So instead of cratering on the brand-new Fed-rate-hike campaign, gold skyrocketed on massive gold futures buying by the very speculators convinced rate hikes would slaughter it.  Over the next 6.7 months gold prices blasted 29.9% higher into its first new bull market since 2011!  One of its primary drivers was these speculators adding 249.2k gold futures long contracts while cutting 82.8k short ones over that gold-surge span.

Unfortunately gold futures speculators command a super-disproportional wildly-outsized impact on gold price levels because of these contracts’ extreme inherent leverage.  Each contract controls 100 troy ounces of gold, which is worth $125k this week.  Yet speculators are now only required to maintain $4450 margin in their accounts for each contract held, which equates to incredible maximum leverage to gold of 28.1x!

That means any amount of capital deployed in gold futures by speculators can have up to 28x the price impact on gold as investors buying it outright.  28x is exceedingly dangerous though, as a mere 3.6% adverse move in gold prices would wipe out 100% of the capital bet by futures speculators.  This forces them to have an ultra-short-term focus in order to survive.  They can’t afford to be wrong for very long.

While their collective conviction that Fed rate hikes are like Kryptonite for zero-yielding gold might sound logical, history proves just the opposite!  Back before that initial Fed rate hike of this cycle, I undertook a comprehensive study of how gold reacted in every Fed-rate-hike cycle in modern history.  If speculators were right about Fed rate hikes’ bearish impact on gold, it would be fully confirmed in past Fed-rate-hike cycles.

The history was stunning, as you can read about in an update on this groundbreaking work we published in March 2017.  Prior to today’s rate-hike cycle, the Fed had executed fully 11 between 1971 and 2015.  They are defined as 3 or more consecutive federal-funds-rate increases with no interrupting decreases.  During the exact spans of all 11, gold averaged a strong 26.9% rally!  Fed rate hikes are actually bullish for gold & gold investment.

Breaking down this critical historical precedent further, gold rallied big in 6 of these cycles while slumping in the other 5.  It averaged huge gains of 61.0% in the majority in which it powered higher!  Generally the lower gold was relative to recent years when entering a new rate-hike cycle, and the more gradual those Fed rate hikes were, the better its upside performance.  Both conditions describe today’s 12th cycle perfectly.

And in the other 5 where gold suffered losses, they averaged an asymmetrically-small 13.9% retreat.  The futures speculators’ cherished notion that Fed rate hikes crush gold is totally false, an irrational myth they deluded themselves into believing.  You’d think with tens of billions of dollars of capital at stake with extreme leverage these elite traders could take the time to study historical precedent on gold and rate hikes.

While gathering and crunching all this data since 1971 certainly isn’t trivial, why not simply look to the last Fed-rate-hike cycle for some guidance?  Between June 2004 to June 2006, the FOMC hiked the FFR at every meeting for 17 consecutive hikes.  Those totaled 425 basis points, more than quintupling the federal-funds rate to 5.25%.  If higher rates and yield differentials slay gold, it should’ve plummeted at 5%+.

Yet during that exact span, gold powered 49.6% higher!  There’s literally zero chance today’s hyper-easy Fed will dare hike rates 17 times or get anywhere near 5%.  The new Fed chairman Jerome Powell that Trump nominated to replace Janet Yellen in early February is widely viewed as a Republican clone of the Democratic Yellen.  Powell will stay Yellen’s course, gradually hiking to new norms way below past FFR levels.

But gold-futures speculators didn’t learn their lesson after getting massively burned by their excessively-bearish bets leading into this 12th modern Fed-rate-hike cycle’s opening increase.  They did the same thing again a year later leading into the Fed’s heavily-telegraphed second hike in mid-December 2016.  They aggressively dumped gold-futures longs, and ramped shorts, leading into the FOMC’s year-ago decision.

While irrational rate-hike fears remained a prime motivator to sell gold futures, those decisions certainly were aided by the stock markets.  After Trump’s surprise election win in early November last year, the stock markets rocketed higher in Trumphoria on hopes for big tax cuts soon.  Gold investment demand really wanes when record-high stock markets generate much euphoria, killing demand for alternatives led by gold.

So just like a year earlier, following last December’s second Fed rate hike of this cycle gold dropped to a major low of $1128 the very next day.  In 5.3 months gold had plunged 17.3% partially thanks to gold-futures speculators dumping 164.5k long contracts while adding 25.8k short ones.  But yet again just as their collective bets hit peak bearishness on another Fed rate hike, gold was ready to reverse sharply higher.

The reason is excessive gold futures selling by speculators is self-limiting.  Despite the market power their extreme leverage grants them, their capital is finite.  They only have so many long contracts they are willing and able to sell, and only so much capital available to short sell gold futures.  So once they near those limits, a reversal is inevitable.  They soon have to resume buying longs again while covering shorts.

So for the second year in a row, gold blasted higher out of its major lows immediately after a December Fed rate hike.  Over the next 8.7 months leading into early September, gold powered 19.5% higher with speculators adding 111.0k long contracts.  They were starting to learn their lesson on shorting a young bull market though, as their total shorts fell just 1.0k contracts over that span.  This 2017 gold upleg was impressive.

Gold not only rallied on balance through the 3rd and 4th Fed rate hikes of this cycle in mid-March and mid-June, but climbed despite this year’s extreme stock-market euphoria generated by the endless new record highs.  Speculators temporarily shorted gold-futures to near-record levels leading into gold’s usual summer doldrums, but that artificial low soon gave way to a powerful autumn rally.  Gold has held strong.

Despite surging Fed-rate-hike odds leading into this week’s universally-expected 5th hike of this cycle, gold was even able to stabilize from early October to early December.  But as the third Fed rate hike in as many Decembers loomed closer, gold-futures speculators again lost their nerve in recent weeks.  That’s readily evident in the newest CoT report before this essay was published, current to Tuesday December 5th.

As another December rate hike looked certain, gold-futures speculators jettisoned 39.2k long contracts and short sold another 17.4k more in a single CoT week!  That total selling of 56.7k contracts was the equivalent of a staggering 176.2 metric tons of gold.  That ranked as the third-largest CoT week of spec gold futures selling out of the 988 since early 1999.  These goofy traders were freaking out again over a rate hike.

The Fed indeed hiked for the 5th time in this 12th modern cycle as widely forecast, taking the FFR up to a range between 1.25% to 1.50%.  I suspect gold-futures speculators expected top Fed officials’ outlook for 2018 rate hikes to rise from the prior dot plot’s three published a quarter earlier.  But 2018 rate-hike projections didn’t budge, holding at exactly the same average in this week’s newest mostly-neutral dot plot.

So speculators resumed buying gold futures right as the FOMC released its decision and rate-hike projections at 2pm this past Wednesday.  Gold surged 1.0% higher that day, paralleling its 1.1% rate-hike-day gains two years earlier that was about to kick off a major new bull market.  Gold remained up 18.3% in the Fed’s current rate-hike cycle to date, solid gains considering futures speculators’ erroneous beliefs.

Odds are their excessively-bearish bets battering gold prices in recent months will prove every bit as wrong this December as they did in the last couple years’ Decembers!  Gold will likely again stage a powerful rebound rally into 2018 as these hyper-leveraged traders reestablish long positions.  They don’t have many short contracts to cover, continuing last year’s trend.  Leveraged shorting of a healthy bull market is suicidal.

Just like following the prior couple Decembers’ Fed rate hikes, gold investment buying will likely resume as well.  Through speculators’ collective trading’s adverse impact on gold leading into hikes, investors too get worried about gold investment in higher-rate environments.  But once another Fed rate hike passes and gold doesn’t collapse on cue as expected, investors resume buying.  Their inflows are the most important of all.

While gold investment is usually done outright with no leverage, investors’ vast pools of capital dwarf the gold-futures speculators’ limited firepower.  So gold investment trumps gold-futures speculation.  This final chart looks at the best daily approximation of investment available, the holdings of the leading GLD SPDR Gold Shares gold ETF.  When its holdings are rising, American stock-market capital is returning to gold.

 

When investors aren’t interested in gold, their lack of buying allows gold-futures speculators to dominate short-term price action.  But once investors buy or sell gold en masse, that easily overpowers whatever the futures traders are up to.  The main reason gold exploded into a new bull market after that initial rate hike in December 2015 was massive differential GLD-share buying by American stock investors in early 2016.

During that same 6.7-month span where gold rocketed 29.9% higher in a new bull, GLD’s physical gold bullion held in trust for shareholders soared 55.7% or 351.1t!  Gold then collapsed after Trump’s election win as GLD’s holdings shrunk 14.2% or 138.9t in 5.3 months leading into last December.  While GLD’s holdings kept slumping after the December 2016 hike, they soon climbed modestly and stabilized in 2017.

Early 2018 is likely to see big gold investment buying much closer to early 2016’s than early 2017’s, which will help catapult gold dramatically higher again.  The extreme record stock-market rally of 2017 that generated such epic euphoria isn’t likely to persist into 2018.  As stock markets finally roll over into a long overdue major correction or more likely new bear market, investment capital will flood back into gold again.

Though few investors realize it yet, 2018 is going to look radically different from 2017.  The major central banks that have injected trillions of dollars of capital since 2008’s stock panic that levitated stock markets are slamming on the brakes.  The Fed is ramping its new quantitative-tightening campaign that destroys the QE money created out of nothing to a $50b-per-month pace by Q4’18, something never before witnessed.

At the same time the European Central Bank is slashing its own quantitative-easing campaign from this year’s €60b-per-month pace to just €30b monthly starting in January.  Together Fed QT and ECB QE tapering will drive $950b of central-bank tightening in 2018 and then another $1450b in 2019 compared to this year!  I explained all this in depth in late October in a critical essay for all investors to fully digest.

As the Fed and ECB reverse sharply from their unprecedented easing of recent years to unprecedented tightening in the coming years, these record-high, euphoric, bubble-valued stock markets are in serious trouble.  As they roll over and sell off, investors will rush to prudently diversify their stock-heavy portfolios with counter-moving gold.  There’s nothing more bullish for gold investment demand than weakening stocks.

So contrary to recent weeks’ and months’ erroneous view that Fed rate hikes are bearish for gold, history proves just the opposite is true.  Gold has thrived in the 11 modern Fed-rate-hike cycles before today’s, and it has powered higher on balance in this 12th one.  While you wouldn’t know it after this past year’s extreme Trumphoria rally, Fed rate hikes are actually bearish for stocks and thus quite bullish for gold.

The last time investors flooded into gold in early 2016 after that initial December rate hike, gold powered 29.9% higher in 6.7 months.  The beaten-down gold miners’ stocks greatly amplified those gains, with the leading HUI gold-stock index soaring 182.2% higher over roughly that same span!  Gold stocks are again deeply undervaluedrelative to gold, a coiled spring ready to explode higher in this gold bull’s next major upleg.

The bottom line is Fed rate hikes are bullish for gold, and this week’s is no exception.  Gold has not only powered higher on average in past Fed-rate-hike cycles, but has rallied strongly in the current one.  After each past December rate hike which gold-futures speculators sold aggressively into, gold dramatically surged in the subsequent months.  These guys always buy after getting excessively bearish, forcing gold higher.

Gold’s next upleg following the Fed’s 5th rate hike since late 2015 is likely to get a massive boost from weaker stock markets.  The same thing happened a couple years ago during the last US stock-market correction.  As the Fed and ECB drastically reverse and slash their liquidity injections in 2018, these wild central-bank-inflated stock markets are in serious trouble.  Gold investment demand surges when stocks weaken. – Adam Hamilton

Get Ready For The New Year Rally In Gold And Silver

Get Ready For The New Year Rally In Gold And Silver

Get Ready For The New Year Rally In Gold And Silver

Each of the last three years have begun with gold rallies of over 10%. The stage is set for another such move in 2018. Are you prepared?

Many folks have written about how the current selloff in gold and silver was predictable. Whether it was expected due to tax-loss selling, seasonality, CoT-washing or the expected FOMC rate hike, the majority of analysts were expecting price weakness in November and December and, this time, the majority was correct.

But if this current selloff was so easily predictable, then why can’t the coming rally to begin the year be just as foreseeable and certain?

Below is a weekly chart of Comex gold going back to this time in 2014. Note the bottoms found in December of each of the past three years and then be sure to note the January-February rallies in 2015, 2016 and 2017:

At TFMR we have an old adage that applies here: “When trading gold and silver, you must always be prepared to sell a little when things look rosiest and buy a little when things look the darkest”. I don’t think that anyone would argue that December 2017 feels like the darkest period in recent memory.

And this “darkness of sentiment” is reflected in the Relative Strength Indices for gold, silver and the shares. If you’re unfamiliar with this important technical indicator, you can read more about it here:https://www.fidelity.com/learning-center/trading-i…

Generally speaking, rallies exhaust and price begins to turn lower as the RSI exceeds 70. In selloffs, short-term capitulation is usually seen when the RSI drops below 30. For example, after 17 consecutive down days for Comex silver last spring, price turned and rallied 10% in under four weeks from an RSI extreme low of 18.

A look at the current charts only serves to reinforce the view that prices are oversold, near a bottom and ready for the usual late-December rebound and rally.

Comex Gold is near strong support of $1220 and its 200-week moving average near $1231. Also note, however, that its current RSI is 31 and near the previous 2017 lows seen at the turns in May and July.

Comex silver is in its support zone of $15.50-$16.00 and its RSI is even lower at 26!

And the mining shares, as measured by the GDX, are clearly near a low, too. The price level of $21 has previously held as support on several occasions, tax loss selling in Canada will be finished by the end of next week and the RSI is at a 2017 low of 27.

Again, successful investing in the metals requires the ability to buy a little when things look darkest. To that point though, these buying opportunities don’t often clearly present themselves. The only question remaining for December of 2017 is…are you prepared to take advantage this time? – Craig Hemke

Gold Prices Will Soar… As China Kneecaps the Dollar

He who holds the gold makes the rules.

I recently spoke with my friend and colleague Chris Lowe about China’s new alternative financial system—and how it could mortally wound the US dollar. It was such an important discussion that I had to pass it along.

Chris is the editor of Bonner & Partners’ Inner Circle. His publication shares insights from Bill Bonner’s personal global network of analysts and investment experts. – Nick Giambruno

Chris Lowe: Why did you start researching the petrodollar system and its potential unraveling?

Nick Giambruno: This has been on my radar since 2006. That’s when Ron Paul, then a Republican congressman, spoke to Congress about the collapse of the dollar-based global monetary system.

As I recently told my Crisis Investing readers, I think it’s his most important speech ever. It’s called “The End of Dollar Hegemony.”

During the speech, Dr. Paul lays out why a global monetary order built around a fiat currency is doomed to fail.

Crucially, he pointed out the one thing that would precipitate the US dollar’s collapse—the end of the petrodollar system.

I recommend reading the speech in full. But this is the most important part:

The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or Euros.

I discussed this with Dr. Paul at a past Casey Research conference. He told me he stood by his assessment.

In a nutshell, he’s saying we’ll know the dollar-centric monetary system is on its way out when countries start trading oil for gold instead of dollars.

That’s already starting to happen.

Chris Lowe: To catch up real quick, why is the petrodollar at risk?

Nick Giambruno: Under the current petrodollar system, all global oil sales are made in dollars. However, the Chinese government recently announced a new mechanism that will allow oil producers anywhere in the world to trade oil for gold.

China’s new mechanism will totally bypass the US dollar and the US financial system… along with any restrictions, regulations, or sanctions from Washington. So for many oil producers, it will be much more attractive than the petrodollar system.

I call it China’s “golden alternative” to the petrodollar. Whatever you call it, though, it will allow for the large-scale trade of oil for gold, instead of dollars.

Here’s how it will work. The Shanghai International Energy Exchange is launching a crude-oil futures contract denominated in yuan, China’s currency. This will allow oil producers around the world to sell their oil for yuan.

Of course, the yuan is a fiat currency, just like the dollar. And most oil producers don’t want large stashes of yuan. The Chinese government knows this. That’s why it’s linked the crude-oil futures contract with the option to efficiently convert yuan into physical gold through gold exchanges in Shanghai and Hong Kong.

Chris Lowe: How soon will this new system be up and running?

Nick Giambruno: I spoke with officials at the Shanghai International Energy Exchange. They told me they plan to go live with it before the end of the year, or shortly thereafter.

Chris Lowe: But isn’t that a good thing? Isn’t gold, as a currency, more reliable than the dollar?

Nick Giambruno: I think it’s high time gold played a more central role in the global monetary system. The problem is ditching the petrodollar would negatively affect the US economy.

Think about it. If Italy wants to buy oil from Kuwait… or Argentina wants to buy oil from Brazil… they have to buy dollars on the foreign exchange market first.

This creates a huge artificial market for dollars.

It means the US can simply print dollars and exchange them for real things like French wine, Italian cars, Korean electronics, or Chinese manufactured goods.

It also helps create a deeper, more liquid market for US Treasury bonds. This pushes up prices… and pushes down yields… which allows the US federal government to finance enormous and permanent deficits.

The petrodollar has allowed Washington to spend astronomical amounts of money on welfare and other benefits for over half the population. This gives Americans a much higher standard of living than they would have otherwise. Most of them don’t know this or understand how it affects their everyday lives.

Thanks to the petrodollar, Washington can also sanction or exclude virtually any country from the dollar-based global financial system at the flip of a switch. By extension, it can also cut off any country from the vast majority of international trade.

Chris Lowe: Others have argued that this has led the US Deep State into military actions against anyone who threatens the petrodollar system. Is the Deep State that scared about the effects this could have on the economy and on its position as the world’s top power?

Nick Giambruno: Let’s put it this way, world leaders who have challenged the petrodollar system have ended up dead. Saddam Hussein and Muammar Gaddafi are prime examples.

In October 2000, Saddam started to sell Iraqi oil in euro only. He said Iraq would no longer accept dollars for oil because it did not want to deal in the “currency of the enemy.”

A little over two years later, the US invaded Iraq. After Baghdad fell to US forces, all Iraqi oil sales were switched back to dollars.

And thanks to WikiLeaks’ release of Hillary Clinton’s emails, we know that protecting the petrodollar—not humanitarian concerns—was the main reason for America’s involvement in the ousting and killing of Libyan leader Muammar Gaddafi.

According to the leaked emails, the US—along with France—feared Gaddafi would use Libya’s vast gold reserves to back a pan-African currency. This gold-backed currency would have been used to buy and sell oil in global markets. It would have likely displaced the CFA franc—a version of the euro used in 14 central and west African nations.

As I’m sure you recall, the US and France backed a rebellion that overthrew Gaddafi in 2011. After his death, plans for the gold-backed currency—along with Libya’s 4.6 million ounces of gold—vanished.

Chris Lowe: What’s Russia’s role in all of this?

Nick Giambruno: The dollar is not just a currency. It’s a political weapon… and Washington is not shy about using it.

Most recently, it tried to punish Russia for its actions in Ukraine by imposing economic sanctions. This made it harder for Russia to access the dollar-based financial system. So it’s no surprise that Russia struck a deal to sell oil and gas to China for yuan afterward.

Chris Lowe: How big a deal is it that Russia is working with China on bypassing the dollar?

Nick Giambruno: Russia is one of the world’s largest energy producers. And China is the world’s largest energy importer. Historically, they would trade with each other exclusively in US dollars.

But the Shanghai International Energy Exchange futures contract will streamline and solidify the process of selling oil to China for yuan—or effectively for gold.

When two of the biggest players in the global energy market totally bypass the petrodollar system, it’s a very big deal.

And it’s not just Russia and China. Other countries want to sidestep the US financial system and US economic sanctions, too. China’s “golden alternative” will give them the option to do just that. This will make the US dollar a much less effective political weapon.

Take Iran, for example. It’s the world’s fifth-largest oil producer. And it’s now accepting yuan as payment for its oil. So is Venezuela, which has the world’s largest proven oil reserves. I think others will soon follow.

This all makes perfect economic sense. Oil-producing nations can continue with the petrodollar system and sell their oil for dollars. But there’s not much financial incentive to do that anymore. The Fed has deliberately pushed down US Treasury yields to “stimulate” economic growth. Plus, the system exposes US rivals to the whims of Washington.

Now oil producers have a second option. Through China’s “golden alternative,” they can sell their oil for yuan, then quickly and easily convert it to gold.

Unlike the dollar, gold is an international form of money with no political risk. From the perspective of an overseas oil producer—especially one with a poor relationship with the US—this is a no-brainer.

Chris Lowe: Russia may be one of the world’s largest oil producers. But Saudi Arabia is still the world’s largest oil exporter. And a lot of that oil goes to China, the world’s largest oil importer. The Saudis were also America’s partner in the petrodollar agreement back in 1974. Can’t the House of Saud use this influence to protect the petrodollar system?

Nick Giambruno: For now, the Saudis are refusing to participate in China’s “golden alternative.” That’s because selling oil for anything but dollars would break the petrodollar deal they made with the US back in 1974. Remember, the Saudis agreed to sell their oil exclusively in dollars in return for US arms and military protection.

Last year, on the campaign trail, Donald Trump said, “If Saudi Arabia was without the cloak of American protection, I don’t think it would be around.” He’s absolutely correct. If the Saudis started selling oil for yuan, they would immediately lose American diplomatic and military protection.

But Saudi Arabia is already looking for alternatives to American protection.

Chris Lowe: Who is it turning to?

Nick Giambruno: This is where the story gets really interesting. Russia and Saudi Arabia have been enemies for decades. The Saudis, along with the US, supported the Afghan mujahideen that drove the Soviet Army out of Afghanistan. The Saudis also supported a number of Chechen rebellions against Russia. And more recently, the Saudis and Russians have been on opposite sides of the Syrian Civil War.

But recently, the Saudi king—along with 1,500 members of his royal entourage—visited Moscow. It was the first official visit by a Saudi king to Russia. The trip coincided with a $10 billion Saudi investment in Russian energy projects and a $3 billion arms deal.

As part of that deal, the Saudis will buy Russia’s S-400 missile system. It’s arguably the most capable air defense system in the world. It’s a powerful deterrent to even US fighter jets.

Chris Lowe: I didn’t know the Saudis bought Russian weapons systems.

Nick Giambruno: They didn’t… up until now. Ever since the birth of the petrodollar, the Saudis have depended on American military protection. After all, it’s what they get in return for pricing their oil in dollars.

Chris Lowe: So why would the Saudis enter into an arms deal with Russia?

Nick Giambruno: The Saudis are hedging their bets. First, they’re not buying an American-made air-defense system. Second, they’re buying a Russian air-defense system that’s capable of deterring an American attack. The House of Saud is making significant moves, in other words, to give itself alternatives to American protection.

Chris Lowe: Is there any other evidence that Saudi Arabia is moving away from the US?

Nick Giambruno: Last August, Saudi Arabia announced it was willing to issue “Panda bonds” to finance its government spending deficit. These are yuan-denominated bonds from non-Chinese issuers that are sold in China.

This is remarkable. The Saudi currency, the riyal, is pegged to the dollar. Up until this point, Saudi Arabia has exclusively used US dollars for all of its major financial initiatives. Issuing debt in yuan is a significant move. It means that financially, Saudi Arabia is drifting closer to China.

Chris Lowe: Why does Saudi Arabia need to hedge its bets like this?

Nick Giambruno: A few years ago, Saudi oil made up over 25% of Chinese oil imports. They were Beijing’s No. 1 supplier. Today, the Saudis’ market share has dropped below 15%.

The Saudis are losing massive market share and getting pushed out of the biggest oil market in the world—mainly because they refuse to sell oil to China in yuan.

China has made itself clear. It’s willing to expand business with anyone who will accept yuan as payment.

Chris Lowe: If the Saudis bow to Chinese pressure, where does all that leave the petrodollar system?

Nick Giambruno: The Saudis haven’t made a clean break with the US and the petrodollar—yet. But they are drifting toward China financially and Russia militarily. These moves are already sidelining the petrodollar. The Saudis are clearly setting up the option to dump the petrodollar.

If the Saudis start to sell oil to China in yuan, it would kill the petrodollar overnight.

Short of that, things still look very dire for the petrodollar. What is baked into the cake—thanks, in large part, to China’s “golden alternative”—is the petrodollar’s significant erosion.

Chris Lowe: What specific advice do you have based on this prognosis?

Nick Giambruno: The increased demand for gold from China’s “golden alternative” to the petrodollar is going to shock the gold market. And this demand shock clearly hasn’t been priced into the gold market yet. As many of your readers will be aware, gold is still down significantly from its 2011 peak.

That’s why I am so bullish on gold right now. As the petrodollar dies, gold is going to replace it as the go-to currency for the oil trade. That makes the yellow metal the single best way to profit from this major shift in our monetary order.

I started warning about the end of the petrodollar late last year. That’s when I told Crisis Investing readers that the death of the petrodollar would be the No. 1 black swan event of 2017.

Eventually, people will look back and see China’s “golden alternative” as the catalyst that made it happen.

 

Prolonged Pain in Silver Investment Eliminates even Modestly Strong Hands – Time to Buy

Prolonged Pain in Silver Investment Eliminates even the Modestly Strong Hands

Silver In Danger Of Irrelevance As Crypto-mania Flares

Relegated to the shadows of cryptocurrencies, Silver ETP, SLV, is facing another test of its decade-long Up trendline – Dana Lyons

In the breathless mania (yes, mania) of the cryptocurrency phenomenon, former “alt” darlings, precious metals, have been pushed to the curb. The is especially so among a legion of anti-fiat currency folks who have fully swung their allegiance from the metals to the cryptos. Silver, in particular, is taking this breakup hard. Not only has it been dumped by former gold and silver bugs, its price has also literally been dumping. While Bitcoin and its bros have been soaring, silver is down some 10% over the past few weeks. It’s like crypto rode into town and stole silver’s girlfriend — then kicked sand in its face on the way out.

But silver may have an opportunity right now to thrust itself back into relevancy. That’s because it is presently testing an important price support level that may potentially serve as a catalyst for a rebound of some magnitude — at least in the iShares Silver ETP (ticker, SLV). This past July, we highlighted the fact that the SLV, in the midst of a steep selloff at the time, was testing potential support in the form of its lifetime Up trendline stemming from its 2008 low and connecting the late 2015 low.

The trendline test would prove successful as the SLV immediately rallied on its way to a 20% gain over the subsequent 2 months. Since early September, however, it has been a rough ride for the metal. The SLV has now proceeded to give up nearly its entire post-July gain. The saving grace, as mentioned, is that the SLV is once again testing that post-2008 Up trendline, currently near the 14.74 level.

So will this Lone Ranger ride in and save silver once again? (see what I did there?). Time will tell, but the trendline certainly has cemented itself as relevant at this point, especially after July’s immediate bounce. The thing we don’t particularly like is the fact that the SLV is already testing the trendline again, as the more frequent the test, the more likely the trendline is to break.

In the near-term, however, it is a good bet that the trendline produces at least a dead-cat bounce. Indeed, today was a good start as the SLV spiked as much as 3% off of the trendline (FYI, lest one think this is Monday-morning quarterbacking, we posted this chart as part of our #TrendlineWednesday feature around noon CST when the SLV was only up a few pennies. Furthermore, we have been highlighting this potential trendline event to TLS members over the past few days in our Daily Strategy Videos). As long as the trendline does hold, silver’s got a shot to at least compete for some “alt” dollars. If the trendline breaks, the metal may as well go on sabbatical until crypto-mania burns out.

The iShares Silver Trust ETF (SLV) was unchanged in premarket trading Thursday. Year-to-date, SLV has gained 0.26%, versus a 20.44% rise in the benchmark S&P 500 index during the same period.

Go Long Silver – The White Metal has the Largest Scope to Rise, even more than Gold

While silver continues to underperform within the precious metals space, analysts say that it remains the metal to watch as it has the most to gain.

BNP Paribas, in a note to clients Thursday, recommended buying silver over gold.

“According to the factor model, silver is cheap now, while gold is pretty much in line with fair price,” the analysts said.

In its strategy recommendation, the bank recommends going long 157 contracts of Silver, SIH8, at $16.05 an ounce and go short 100 contracts of Gold, GCG8, at $1255.00 an ounce.

The bank said that its target for the trade is for a 10% gain.

Kitco.com’s gold-silver ratio continues to hover around its highest level in more than a year last trading at 79 points. March silver futures last traded at $15.88 an ounce, relatively flat on the day. At the same time gold prices last traded at $1,255.40 an ounce, up 0.54% on the day.

BNP is just one of a few banks that has recommended going long silver as it underperformed gold, despite growing industrial demand and shrinking supplies.

In a recent interview with Kitco News, Maxwell Gold, director of investment strategy at ETF Securities, said that he sees more potential for silver in the new year compared to gold.

“Many of silver’s key drivers remain bullish for the white metal, including rising global manufacturing and industrial production, rising producer inflation and elevated consumer inflation, and strong investor sentiment,” he said.

Last month both TD Securities and Bank of Montreal came out and said that they see silver prices pushing to $20 an ounce next year. – Neils Christensen

 

Could Central Banks Dump Gold in Favor of Bitcoin?

Could Central Banks Dump Gold in Favor of Bitcoin?

Could Central Banks Dump Gold in Favor of Bitcoin?

All of which brings us to the “crazy” idea of backing fiat currencies with cryptocurrencies, an idea I first floated back in 2013, long before the current crypto-craze emerged.

Exhibit One: here’s your typical central bank, creating trillions of units of currency every year, backed by nothing but trust in the authority of the government, created at the whim of a handful of people in a room and distributed to their cronies, or at the behest of their cronies.

And this is a “trustworthy” currency?

Exhibit Two: central banks can’t become insolvent, we’re told, because they can create as much currency as they want, whenever they want. And this is a “trustworthy” currency?

Exhibit three: and here’s what happens when trust in the currency is lost due to excessive currency issuance: the currency goes from 10 to the US dollar to 5,000 to $1 and then to 95,000 to $1, on its way to 2,000,000 to $1:

Yes, this was once a “trustworthy” currency.

While many people expect China to issue a gold-backed currency some day, they overlook the inconvenient reality that China is creating far more fiat currency than it is adding in gold reserves. They also overlook that gold-backed means nothing if the currency isn’t convertible into gold.

If it isn’t convertible, it isn’t gold-backed. Claiming there’s gold somewhere in a vault doesn’t make a currency gold-backed, as the central bank can devalue the currency it issues at will. Gold-backed means the currency is pegged at X units of currency to 1 unit of gold, and X units of currency can be exchanged for 1 unit of gold.

All of which brings us to the “crazy” idea of backing fiat currencies with cryptocurrencies, an idea I first floated back in 2013, long before the current crypto-craze emerged: Could Bitcoin (or equivalent) Become a Global Reserve Currency?(November 7, 2013)

Since there is no real-world commodity backing the digital currency, its value must be based on scarcity and its ubiquity as money. The two ideas are self-reinforcing: there must be demand for the digital money to create scarcity, and the source of demand is the digital currency’s acceptance as money that can be used to buy commodities, goods, services and (the ultimate test) gold.

Speaking of gold, correspondent Liberty Philosopher recently posed a scenario that was new to me: if gold continues losing value, could central banks dump their gold in favor of cryptocurrencies?

Yes, I realize this is anathema to those who anticipate a gold-backed currency becoming the dominant form of centrally issued currency, but the idea of governments that have debauched their currencies building reserves of decentralized and limited-in-issuance cryptocurrencies may not be as farfetched as you might imagine.

Here is Liberty Philosopher’s commentary:

My understanding is that gold is kind of a reserve asset held by governments that provides the ultimate assurance that they are able to pay their debts. If the value of the assets they hold, which are a guarantee of their ability to pay, begins to erode, and the erosion in value is not a temporary or passing phenomenon, but a continuous and long-term trend, this would imply that the ability of governments to ultimately pay their debts would be eroding. If the value of gold begins to decline, governments who have gold reserves, but whose ability to pay their debts may be somewhat in question, would come under pressure to fortify their reserves as proof that they remained able to pay their debts.

If the price of gold were to continue to decline, my thought is that governments would be under pressure to sell the reserve asset that was declining in value, because the continuing decline in value would call into question their ability to repay their debts. They couldn’t just sit there and allow their reserves to decline in value year after year. They would have to act. If the need for having some kind of “hard” currency reserve remains (creditors may not want to accept newly printed bank notes in lieu of “hard” reserves), and they are forced to begin selling their gold reserves, what other hard reserve asset could they obtain or purchase? I think they could become purchasers of the most valuable cryptocurrencies as a replacement for their gold reserves.

The ideal reserve gains in purchasing power over time. If Venezuela had purchased bitcoin in size when it was $100, or even $1,000 in January 2017, its own currency wouldn’t be heading to near-zero quite so quickly. – Charles Hugh Smith

Outlook for Gold and Silver Stronger “NOW” than has been for Several Months

Outlook for Gold and Silver Stronger "NOW" than has been for Several Months

Outlook for Gold and Silver Stronger “NOW” than has been for Several Months

For the almighty dollar, 2017 has been nothing short of abysmal. Next year might be even worse. The dollar is down more than 7 percent versus the world’s major currencies this year, the most in over a decade.

Six months ago, it looked like gold and silver had put in solid bottoms. They looked so good that we were willing to call the end of the bear market in metals. Both gold and silver rallied hard, with gold moving up 12% and silver 20% in six weeks. The metals looked great, the picture was rosy, and nothing could stop the next bull market in the metals until Bitcoin started to explode.

Even with the US dollar making new low after new low, the metals couldn’t catch a bid. That was a warning sign. But new money seems to love the crypto space and precious metals are now threatening to break down. The coming days and weeks will go a long way in determining if we were right and the bear market is over, or the gold and silver rally was just another selling opportunity. The metals must step up here and hold their key levels of $15.49 in silver and $1,234 in gold or it could be a long winter, especially with the Bitcoin gaining more popularity and accessibility. We are cautious bullish but with a great deal of concerns.

Most of the people that we talk to wouldn’t be terribly surprised if, by the end of next year, the dollar was substantially weaker. Analysts see the greenback losing ground to 13 of the world’s 16 most-widely traded currencies through the end of next year.

There are also signs inflation may be firming after a lengthy bout of weakness, though data released by the Labor Department early on Wednesday showed some unexpected weakness in consumer prices.

So, the overall outlook for gold and silver prices seems a bit more stronger NOW, than it has been for several months.

Why you shouldn’t count Gold out just yet

Remember gold?

It seems like only six years ago the shiny metal was flavor of the month, hitting a record $1,900 a troy ounce while its backers prophesied the end of the fiat money system.

With bitcoin sucking up all the crazy in financial markets, gold looks to have lost its luster. The CBOE/Comex Gold Volatility Index, a rough proxy for the amount of fun and profit available for precious metal traders, touched a record low of 10.17 last month, from levels north of 37 back in 2011.

That may be overdue a change. Despite suffering its worst week since May last week, the outlook for gold could be stronger now than it has been for several months. Here’s why.

1. Interest rates

That may look like a typo, but it’s not. The received wisdom is that higher interest rates — like the U.S. Fed Funds rate hike expected Wednesday — are bad news for gold. That’s because tighter money tends to be accompanied by better bond yields and stronger earnings, highlighting commodities’ inability to produce income for investors.

The truth isn’t quite so simple. After all, spot gold was stuck around $1,060 an ounce two years ago when the U.S. Federal Reserve started lifting rates above their post-financial crisis level of 0.25 percent. At 100 basis points north of there, gold is trading around $1,248 an ounce.

Chart gold against U.S. 10-year Treasury yields and it looks distinctly like the metal tends to sell the rumor of rate rises, and buy the fact. Every time yields have peaked north of 2.5 percent over the past five years, gold has promptly rallied. Economists predict that yield barrier should be broken some time in the first quarter of 2018.

2. The seasons, they go round and round

As Gadfly has argued previously, gold exhibits a pronounced seasonality. January, February, July and August — the four months this year when the metal has rallied most strongly — had, on average, been the best months to buy gold over the previous 10 years.

That seems to relate to resurgent demand from bar, coin and ETF investors coinciding with the tail end of the Diwali-Christmas-Lunar New Year peak buying period for jewelry. Whatever the reason, it’s enough of a consistent pattern these days that it’s starting to become a self-fulfilling prophecy — traders’ beliefs have a way of driving their buy and sell orders, and ultimately the market.

3. What an unpleasant surprise

Gold is the downer at every economic party. When the good times are rolling, people would rather be punting their money on FAANGs or dragon-head stocks than a prehistoric metal that’s an emblem of miserliness. No wonder, with the global economy celebrating as it has been in 2017, bullion doesn’t have a dance partner.

Still, all parties must come to an end — and it’s worth reflecting on just how unexpectedly good things have been lately. Citigroup Inc.’s surprise index for data on major economies reached a reading of 49.5 last month, a level it hasn’t breached since 2010. Expectations eventually catch up to a run of positive surprises, leading to disappointment as consistently as hangovers follow too much celebratory drinking.

4. A bit of bad news

You didn’t think we’d make it through a whole column with only a passing reference to cryptocurrencies, did you?

Bitcoin’s wild gyrations could be the spark to set any of the above factors in motion. Given the similarities between the investment philosophies of gold bugs and bitcoin fanatics, it’s hard to escape the notion that the precious metal has been so somnolent precisely because so much of the hot money has been going into zeroes and ones.

It’s anyone’s guess when or why bitcoin fever will break, but at a time when the bosses of major brokerages are warning darkly of “a catastrophe in the cryptocurrency market,” it’s not impossible to imagine a disorderly retreat.

If that happens, many of the fiat-money brigade who’ve pumped up the value of digital currencies will switch quickly from bitcoin, to cash, to their perceived safe haven of gold. More sober investors also tend to cling to the metal in moments of panic such as Brexit and the election of Donald Trump.

Gold may be a barbarous relic — but relics are rarely more attractive to investors than when they’re trembling before the power of the market’s gods. Don’t count it out just yet. –David Fickling

Silver Investors are simply tired! Will Silver Wake-up & Also Outperform Gold Now?

 Jayesh Khilnani – 

Silver may be entering a phase when it outperforms gold.

At least that’s what the historical ratio analysis between the prices of the two precious metals suggests. The gold-silver ratio stands at near 80. What it means is that 80 ounces of silver are needed to buy one ounce of gold, a historical resistance level.

The ratio topped 80.45 in May 2003 and fell to 46.4 in November 2006. During the period, gold returned 78 percent while silver rose 208 percent.

Between November 2008 and April 2009, the ratio again tumbled from 79.3 to 32.6. Silver gained 365 percent in that phase compared to 91 percent rise in gold.

Moreover, the current gold-silver ratio is also off the long-term moving average of 61.5.

Will the trend hold this time?

Banks Reduced Short Positions Significantly – Time to Buy Gold, Silver

Banks Reduced Short Positions Significantly - Time to Buy Gold, Silver

Banks Reduced Short Positions Significantly – Time to Buy Gold, Silver

– Gold and silver COT suggests bottoming and price rally coming
– Speculators cut way back on long positions and added to short bets
– Commercials/banks significantly reduced short positions
– Commercial net short position saw biggest one-week decline in COMEX history
– ‘Big 4’ commercial traders decreased their short positions by 28,800 contracts
– Seasonally, January is generally a good month to own gold (see table)
– “If history is still reliable, January will be a great month to own precious metals”


Have you found the gold price in the last few months to be particularly boring? Well, fear not as it looks like it might all be about to take a turn upwards. Last Friday’s Commitment of Traders (COT) report signaled we are close to bottoming and suggest that both gold and silver should have a positive January and Q1, 2018.

As John Rubino wrote in his latest note, ‘gold futures traders have finally started behaving “normally.”’ This simply means that speculators are finally beginning to cut back on long bets whilst commercials and large bullion, the “smart money” and the “inside money” have reduced their shorts dramatically.

This was seen in gold and also in silver, the industrial, technological precious metal. Historically when commercial and speculator positions are brought into balance then this has proven to be bullish for the precious metals.

Previously peaks in net commercial short interest have often happened alongside sell-offs, subsequently valleys in commercial short interest have almost always coincided with nearby rises in price. This could be a positive indicator for the next few months in both gold and silver prices.

Silver: short 181 days of world silver production

According to Ed Steer:

“In silver, the Commercial net short position cratered by an eye-watering 26,721 contracts, or 133.6 million troy ounces of paper silver.  That is, without doubt, the biggest one-week decline in COMEX history. They arrived at that number by adding 9,701 long contracts, plus they reduced their short position by an incredible 17,020 contracts — and the sum of those two numbers is the change for the reporting week…the Big 4 traders reduced their short position by about 6,400 contracts — and the ‘5 through 8’ large traders reduced their short position by around 4,700 contracts… the 36-odd small Commercial traders other than the Big 8, added approximately 15,600 contracts to their long position.”

As you can see from the chart at the top, the Big 8 commercial trader are now net short 439.8 million troy ounces of paper silver. This is equal to 181 days of world silver production or about 439.8 million troy ounces of paper silver held short by the Big 8.

“The two largest silver shorts on Planet Earth—JP Morgan and Canada’s Scotiabank—are short about 92 days of world silver production between the two of them—and that 92 days represents about 72 percent of the length of the red bar in silver in the above chart… about three quarters of it.”

Interestingly these dramatic changes in both short and long positions did not bring with them any dramatic changes in price. This is clearly something to look out for in the coming weeks. For many analysts, this latest COT report suggest we are looking at a bottom in silver as such changes in futures positions ordinarily coincide with a low in gold and silver prices and a good time to buy.

Gold: short 78 days of world gold production

As reported by Ed Steer:

“The commercial net short position crashed by 56,651 contracts, or 5.65 million troy ounces of paper gold. They arrived at that number by adding 15,678 long contracts, plus they decreased their short position by an incredible 40,973 contracts — and the sum of those two numbers is the change for the reporting week.Ted said that the ‘Big 4’ traders decreased their short position by a whopping 28,800 contracts, or thereabouts — and the big ‘5 through 8’ large traders decreased their short position by around 16,900 contracts…the 47-odd small commercial traders other than the Big 8, added 11,000 contract to their long position.”

The big chart at the top show the Big 8 are short nearly 80 days of production.

“In gold, the Big 4 are short 55 days of world gold production, which is down 10 days from what they were short last week — and the ‘5 through 8’ are short another 23 days of world production, which is down 6 days from what they were short the prior week, for a total of 78 days of world gold production held short by the Big 8 — which is down 16 days from the 94 days they were short in last week’s report.  These are monster weekly changes.  Based on these numbers, the Big 4 in gold hold about 70 percent of the total short position held by the Big 8…which is up 1 percentage point from last week’s COT Report.”

New Year’s resolution: buy gold and silver

Some caution should be exercised when looking at COT reports. When released the data is three days old, published on a Friday with Tuesday’s trading data. However this does not mean that some signal can be taken from them.

Seasonally, January is generally a good month to own precious metals, particularly gold. On average the gold price rises over 3% in the month and generally continues to rise into February.

This latest COT report is unlikely to be a one-off and should be embraced by those looking to allocate funds to own gold and silver.

As John Rubino concluded in his own coverage:

The numbers we’re seeing here are as of Tuesday the 5th, and the final three days of last week were a bloodbath for precious metals, so it’s highly likely that the next COT numbers – due out on Friday the 15th – will show absolute panic among speculators, leading to an even bigger swing in the right direction.

If history is still reliable, January will be a great month to own precious metals and mining stocks.

Investors and savers should keep their heads over the next few months and take solace from the fact that whilst the ‘Big’ players are gambling with paper they can in fact benefit by buying physical, allocated and segregated gold and silver.

We leave you with some wise words from John Hathaway who wrote on how the phenomenon of the paper precious metals market would come to benefit those holding the real thing:

“An acute shortage of readily marketable physical gold is developing that we believe will deepen in years to come. This possibility seems to be unrecognized by those who are short the gold market through paper contracts. The relentless dumping of synthetic or paper gold contracts since 2011 by speculators in Western financial markets has caused the shortage. The steady selling has driven down the price of physical gold, hobbled the gold-mining industry, and drained the stores of gold held in the vaults of Western financial centers …”

Veteran gold market analyst and CFA, Hathaway concludes that:

“Much of what passes for financial wealth is in our opinion imprisoned in a matrix from which there is no easy exit. The return migration of capital to real assets promises to be disruptive. The misdirection of capital could well cause losses for many but opportunity for a few. The list of opportunities is short, limited in capacity, possibly complex, and difficult to access. Among the possible opportunities, gold is accessible and straightforward. Gold has a history of responding inversely to the direction of confidence. – Goldcore

Bitcoin Prices will Collapse once the Supply of Greater Fools is Exhausted

Bitcoin Prices will Collapse once the Supply of Greater Fools is Exhausted

Bitcoin Prices will Collapse once the Supply of Greater Fools is Exhausted

Bitcoin’s meteoric skyrocketing this year has been astonishing, captivating traders across the globe.  This once-obscure cryptocurrency has exploded into the world’s hottest market.  With fortunes being won on paper, everyone is talking about bitcoin.  But with its price shooting parabolic, unfortunately this wild ride has all the hallmarks of a classic popular speculative mania.  And those all end badly, totally collapsing.

In the annals of financial-market history, the word “mania” is never used lightly.  These are very-rare events where some market blasts higher so radically that it captures the popular imagination.  The dictionary definitions of mania include “an excessively intense enthusiasm, interest, or desire” and “a pathological state characterized by euphoric mood, excessive activity or talkativeness, and impaired judgment”.

The seminal book on popular speculative manias is Charles Mackay’s “Extraordinary Popular Delusions and the Madness of Crowds”, first published way back in 1841.  Manias are certainly nothing new, they have been periodically erupting for many centuries if not millennia.  Mackay’s incredible work is one of the few must-read books for every investor.  I’ve read it several times in my life, starting back in college.

Mackay’s title is brilliant, perfectly summing up manias.  They are truly extraordinary popular delusions, illustrating the madness of crowds.  Objectively, this year’s extreme bitcoin action definitely fits that bill.  I say this as a lifelong student of the markets.  Like the objects of lust in past popular manias, bitcoin and its underlying blockchain technology have real potential to change the world.  But that doesn’t justify its price.

As a techie, I started getting interested in bitcoin about 5 years ago, well after its birth in January 2009.  It was intriguing as the world’s first decentralized digital currency, an Information Age end run around the established government fiat-money systems relentlessly being inflated away by central banks.  Bitcoin’s never-unmasked creator going by Satoshi Nakamoto was a marketing genius, wrapping bitcoin in gold terminology.

The “coin” suffix implied bitcoin is money, rather than a virtual fiction with artificial scarcity.  And it used a novel distributed-ledger technology called blockchain.  That is a record of all bitcoin transactions that is broadcast and validated by the entire bitcoin network.  This ensures that bitcoins can be transferred with no counterparty risk, trust is irrelevant.  Maintaining the blockchain is called “mining”, again bringing gold to mind.

The countless computers all over the world participating in recordkeeping for bitcoin’s blockchain work to simultaneously solve complex cryptographic problems, or hashes.  This mining guarantees that all new bitcoin transactions are legitimate.  While it is computationally-intensive which requires much electricity, bitcoin ingeniously awards participating miners with newly-created bitcoins.  That’s a heck of an incentive today!

Somewhat like gold, the bitcoin supply grows at slow and ever-decreasing fixed rates.  Today there are around 16.7m bitcoins in circulation.  12.5 new ones are created every 10 minutes and distributed to the miners maintaining the blockchain.  That supply-growth rate will be gradually halved again and again until the bitcoin supply hits its hard-coded maximum of 21m bitcoins after 2110.  So bitcoin’s supply is artificially limited.

Repurposing old computers to mining is what sparked my initial interest in bitcoin.  I run a small financial-research company where we must periodically replace our high-end computers.  So I investigated putting some of our old put-out-to-pasture ones to work mining bitcoins, but at the time the electricity cost well exceeded the resulting bitcoins’ value.  Back then bitcoin mining didn’t require specialized custom-made rigs.

When bitcoin was younger, normal computers could solve the necessary cryptographic hashes to keep the blockchain up to date.  As this distributed ledger grew, more-powerful high-end computer-graphics cards were needed.  Today bitcoin mining requires computers with processors designed from scratch to do nothing but grind on the blockchain, called application-specific integrated circuits.  They get very expensive.

Truly bitcoin and its brilliant blockchain distributed-ledger system are amazing technologies.  They will ultimately reshape how we buy and sell goods and services, shifting the balance of power in currencies back away from centralized governments.  It’s hard not to be a bitcoin enthusiast.  That being said, it’s critical for traders to divorce bitcoin’s extreme mania price action from these technologies’ future potential.

For 18 years now, I’ve written an essay like this nearly every week.  Wednesday mornings I decide on a market topic, research it, and build any charts.  So our Zeal charts are always current to Wednesday’s close.  Then on Thursday I write and proof each essay before publishing it Friday morning.  Normally that day-and-a-half between finalizing the data and releasing an essay doesn’t matter, but bitcoin’s mania is crazy.

Bitcoin trades nonstop around the world, with transactions always happening and the blockchain always being updated.  Around the normal US stock-market close this Wednesday, each bitcoin was priced at $12,968.  So all the data, charts, and analysis in this essay is based on that ancient price.  Merely 18 hours later as I pen this essay, bitcoin has rocketed another 18.6% higher to $15,379!  Its ascent is meteoric.

So who knows how high bitcoin will be when you read this.  But the higher bitcoin skyrockets, the more it emphasizes the extreme danger inherent in this popular speculative mania!  Bitcoin is absolutely deep in a monster bubble, defined as “an increase in the price of a market that is not warranted by economic fundamentals and is usually caused by ongoing speculation in the expectation that the price will increase further”.

This first chart looks at bitcoin prices over the past couple years or so.  Bitcoin has rocketed parabolic in 2017, soaring vertically in what looks exactly like a popular mania blowoff top.  Vertical parabolic gains are mathematically impossible to sustain for long, as they would soon suck in all the available money on the entire planet!  If this chart doesn’t terrify you, you should go read Mackay’s mania book before it’s too late.

 

Bitcoin was no slouch in 2016, soaring 123.6% higher in what looked like a late-stage bull market.  That is hardly a blip on today’s chart though, as that morphed into a full-blown popular speculative mania this year.  As of Wednesday’s sub-$13k price, bitcoin had skyrocketed 1251.9% higher year-to-date and a mind-boggling 1565.6% higher since its early-January low!  These mania technicals are extreme beyond belief.

Like gold and many other investments including lots of stocks, bitcoin produces no cash yields and thus can’t be valued with conventional valuation analysis.  So no one has any idea what it’s worth.  The range of guesses is vast, running from zero to hundreds of thousands of dollars per bitcoin!  But even in the absence of any fundamental valuation, bitcoin’s price action itself proves it’s exceedingly expensive today.

Obviously Wednesday wasn’t this bitcoin speculative mania’s peak, but let’s assume it was to use as a reference point for analysis.  Bitcoin’s “terminal gains” as of the middle of this week were astounding.  In the past month alone it had soared 87%, nearly doubling!  It had skyrocketed 197% in 2 months, 280% in 4 months, and 459% in 5 months.  This left bitcoin radically overbought, trading at 3.70x its 200-day moving average.

The problem with such extreme mania price gains is they soon collapse under their own weight.  Over the past week ending Wednesday, bitcoin was surging an average of 5.9% per day.  Two of those days had 9.7% gains.  Literally nothing can rally 5% to 10% per day for long, as the math is truly impossible.  Think of that old rule of 72, which is used to approximate how long it takes for any investment to double in price.

It is normally applied to years, where 72 is divided by the average annual return to figure out about how many years it will take to grow 100%.  72 divided by 7% for example works out to about a decade to see 100% gains.  But at 5% or 10% compounded daily as bitcoin is doing, its total value will double in just under 14.3 and 7.3 trading days respectively!  Even to a casual observer that sounds absurd, wildly unsustainable.

Early Thursday morning, the total market value of all bitcoins in circulation was already around $250b.  If bitcoin doubles again over the coming weeks and months, that would soar over $500b.  Just one more doubling after that would take it to a staggering market cap of $1t!  While anything is possible, that seems wildly improbable.  For comparison, the Fed’s latest read on its total M1 money supply is running near $3.6t.

When anything shoots parabolic in a popular speculative mania, exponentially more capital inflows are required to sustain such extreme gains.  It doesn’t take many doublings in price and market cap to suck in all available money on the planet!  While bitcoin certainly enjoys a popular niche, there’s zero chance that global investors will sell sizable fractions of their bond, stock, gold, and cash holdings to buy bitcoins.

Thus extreme gains are never sustainable, as the collective buying power of even populations caught up in manias soon exhausts itself.  Eventually everyone interested in buying bitcoin has already bought, drying up their pools of available capital.  When those massive bubble-fueling capital inflows peak then taper off, market gravity reasserts itself and the stratospheric price starts plummeting back down to terra firma.

Unfortunately naive speculators don’t realize how extreme doublings and quadruplings within a matter of months truly are.  That makes it easier for them to get sucked into mania psychology.  They read about the blistering gains, everyone is raving about the bubble market, so they throw caution to the wind and buy in super-high.  Even worse, many traders rushing to buy into parabolic bubbles borrow money to do it with!

At that point all rationality is thrown out the window, it’s an extraordinary popular delusion as Mackay wisely wrote 176 years ago.  The price is totally disconnected from reality, and the sole reason capital is flooding in is because it is soaring.  That becomes self-reinforcing for a season, buying fueling gains and greed which leads to even more buying.  While exciting, vertical parabolic blowoffs are exceedingly dangerous.

Every popular speculative mania in history has failed spectacularly, the bubbles bursting and crashing, since capital inflows can never grow exponentially for long.  That’s going to happen to bitcoin too, without any doubt.  The deluded speculators who succumb to the temptation to buy in high, especially if they use leverage, are going to get slaughtered.  An infamous past bubble helps illustrate bitcoin’s extreme dangers today.

This final chart again assumes Wednesday was this bitcoin bubble’s peak for the sake of analysis.  The past couple years’ bitcoin action is superimposed over the notorious silver bubble that crested in January 1980.  Both datasets are indexed at 100 at their respective peaks to render them in perfectly-comparable percentage terms.  The bottom axis shows time elapsing before and after the peaks measured in months.

 

The parallels between bitcoin’s extreme parabolic price action over the past 6 months or so and silver’s in its bubble’s final 6 months are uncanny.  While very rare, popular speculative manias are nothing new.  The terminal gains of bitcoin and silver are remarkably similar as the table above shows.  If these data series were not labeled, today’s bitcoin bubble and the 1979 silver bubble would literally be indistinguishable.

As of Wednesday bitcoin had rocketed 87% in its latest month compared to 104% for the silver bubble in its terminal month.  At 2 months out they were identical at 197% and 196% gains.  The same was true at 3 months with 181% and 179% gains.  In their final 5 months, they skyrocketed 459% and 417% higher.  Their terminal 6 months saw 366% and 402% gains.  This bitcoin bubble is behaving just like the silver bubble!

While bubbles are incredibly exciting and fun when they shoot parabolic, the aftermath is catastrophic for traders who buy high.  Bubbles always burst, leading to full-on crashes that proceed long busts.  Just a month after silver peaked at $48.00 per ounce in January 1980, it plunged 35%.  In the first 2, 3, and 4 months post-peak, silver plummeted 54%, 73%, and 76%!  Bitcoin faces similar extreme downside risks today.

Once this mania bitcoin bubble bursts, and it will, the odds are very high that bitcoin will lose 50% to 75% of its value within a few months on the outside!  Everyone owning bitcoin today must be prepared for brutal near-term downside proportional to this year’s bubble upside.  When a bubble bursts it rapidly destroys most of the paper wealth that bubble created, which was really an illusion all along if not cashed out.

And once popular speculative manias inevitably fail, prices don’t return to those extreme bubble-peak levels for an awfully-long time.  That silver bubble peaked 37.9 years ago, and there are still many silver enthusiasts today.  Like the hardcore bitcoin faithful, plenty of people love silver with a religious-like zeal believing it is the ultimate investment.  In nominal terms, silver didn’t exceed that bubble peak until April 2011.

After taking a staggering 31.3 years to regain January 1980’s high, silver held it for a single day and has never returned since.  And in real inflation-adjusted terms based on the US CPI, silver’s bubble peak in today’s dollars was over $152 per ounce!  Obviously silver has come nowhere close to trading near those same real levels again.  Prices are so extreme after popular speculative manias they may never recover.

A far-milder bubble than both bitcoin and silver arose in the stock markets in late 1999 and early 2000.  Like bitcoin, the technology of the Internet was amazing and would forever change our world.  Yet stock prices got so extreme then that the NASDAQ didn’t revisit its March 2000 closing peak for the first time until April 2015, fully 15.1 years later!  And that only happened because NASDAQ’s components greatly changed.

The history of popular speculative manias proves that even if bitcoin and its underlying blockchain are here to stay, it will likely be many years or decades until bitcoin prices regain their bubble peak wherever that happens to be.  Once this bitcoin bubble inevitably pops, there’s virtually no chance its traders will be made whole again.  They’ll hold through the burst in hopes bitcoin will rebound, but bubble poppings are final.

And it’s not just bitcoin’s extreme price action that reveals it’s in a bubble fueled by a popular speculative mania.  Anecdotal stories abound showing a huge influx of young and naive “investors” who have never lived through a bubble.  The leading bitcoin broker in the US is Coinbase.  Its accounts are exploding as people rush to pour money into this bitcoin mania.  By late November, Coinbase’s active accounts had hit 13.3m!

This is staggering growth, as Coinbase reported just over 5m accounts as 2017 dawned.  13.3m is way bigger than stock broker Charles Schwab’s 10.6m at the end of October, and threatening to rival the 24.9m accounts stock broker Fidelity had at the end of June!  As in all manias, the vast majority of these new bitcoin “investors” have drank the Kool-Aid and believe bitcoin’s technology justifies its extreme price gains.

When markets soar so high all rationality is thrown out the window, the only reason to keep buying is the greater-fool theory.  Late-stage traders buy super-high in the hopes they’ll find an even greater fool to sell even higher to later!  Soaring prices can entice in big new capital inflows for a season, but eventually the price levels get so high that it’s impossible to sustain exponential buying.  Then the bubble bursts, prices crash.

Even if bitcoin and blockchain forever change currencies in the future, nothing justifies doublings and quadruplings in bitcoin prices in a matter of months.  Such extremes are never sustainable, all popular manias fail spectacularly even though the technology investors were excited about lives on and indeed changes the world.  I’m really excited to see bitcoin and blockchain applied to digital gold in coming years.

Gold has been universally valued across the world for millennia, yet it’s impractical to use as money for most transactions.  But if bitcoin-and-blockchain technologies were applied to gold, this metal could easily be subdivided into the tiniest of increments and traded globally.  A gold version of bitcoin would have to be 100% physically backed by gold held in secure vaults in safe, trusted countries.  It’s already being worked on.

But the great value of bitcoin-and-blockchain technologies doesn’t make bitcoin immune from the natural consequences of this year’s bubble.  Bitcoin is far too large now to keep doubling on a monthly basis, it’s impossible.  And there’s never been a past bubble where prices stop soaring but don’t crash, instead just rallying on from there quasi-normally.  Greedy traders start selling when the parabola stalls, driving the burst.

One of the reasons bitcoin has skyrocketed is there are virtually no sellers relative to the great herds of new buyers flocking in.  That is all going to change soon, which presents big risks of popping this bubble.  Both the CBOE and CME are set to launch actual bitcoin futures in the next week or so, which will allow professional speculators to not only buy bitcoin but short sell it at scale.  That alone may very well slay this bubble.

Bitcoin is pretty inefficient too, with transactions taking up to 10 minutes to process as the blockchain gets bigger and bigger.  Transaction costs are also skyrocketing, leading some major businesses like the Steam online video-gaming service to stop accepting bitcoin as payment.  Its owner Valve says it now costs about $20 to process a single bitcoin payment, far too expensive for this company’s massive 67m users.

As bitcoin grows, the blockchain itself is getting ever-more unwieldy.  That ledger recording every single bitcoin transfer ever is requiring progressively more computing power to process, making mining for the network much more expensive.  Recent estimates place bitcoin-mining electricity usage at 0.13% of the world total.  A single bitcoin transaction now requires enough electricity to power an American house for a week!

As long as bitcoin prices are sky-high, large-scale mining operations to process bitcoin’s cryptographic hashes are profitable.  But when bitcoin crashes after this bubble, computers tasked to mining will likely plunge in parallel.  While the hashes are dynamically adjusted to account for network mining power, this could still increase transaction times as blockchain grows.  That would make bitcoin less attractive as a currency.

As a professional speculator over the past two decades or so, I wouldn’t touch bitcoin with a ten-foot pole today.  Buying into a popular speculative mania that’s already rocketed parabolic is the height of folly, guaranteeing massive losses in the near-future.  If you were shrewd enough to buy bitcoins before the last 6 months, you should be scaling out and taking profits.  One bitcoin expert calls it a “consensus hallucination”.

The bottom line is this year’s bitcoin popular speculative mania has gone parabolic.  Such extreme gains are never sustainable, as they require exponentially-growing capital inflows.  Once this greed-drenched bubble stage is reached, it’s only a matter of time until the burst inevitably follows.  The resulting selling from panicking traders is so violent that most of the mania gains are fully annihilated in a matter of months.

While bitcoin and its blockchain distributed-ledger technologies are amazing and will indeed likely change the world, they don’t justify bitcoin’s extreme vertical gains.  Plenty of past bubbles were based on great new technologies too, but those prices still collapsed once the supply of greater fools exhausted itself.  After skyrocketing so darned fast, bitcoin is certainly the riskiest major investment in the world.  Caveat emptor! – Adam Hamilton

Will Bitcoin make things Worse for Gold before they get Better?

Will Bitcoin make things Worse for Gold before they get Better?

Will Bitcoin make things Worse for Gold before they get Better?

Bitcoin’s all grown up.

The digital currency splashed into the deep end last night when bitcoin futures debuted on the CBOE Global Markets exchange.

Most seasoned traders concluded that the advent of bitcoin futures would unravel the insane crypto rally we’ve witnessed over the past 12 months. Futures traders would eat the “amateurs” alive and slam the price lower once shorting bitcoin became an option, they said.

But so far, they’ve been dead wrong…

Bitcoin futures blasted higher right out of the gate last night. They triggered not one but two trading halts as it marched to overnight gains of more than 25% on the CBOE. Reports of the CBOE site going down started flooding in during the first hour of trading. Coinbase, a popular bitcoin trading site, also crumbled under the pressure last night.

Bloomberg noted that while bitcoin is notoriously volatile, futures traders should “help tame swings by improving liquidity and making it easier to bet on declines.” But in true bitcoin fashion, no dips have materialized just yet.

“It is rare that you see something more volatile than bitcoin, but we found it: bitcoin futures,” one Shanghai-based consultant told Bloomberg.

Bitcoin trading is totally bonkers. And it doesn’t look like it’s going to calm down anytime soon. It’s morphed from an underground tech-geek trade to the biggest market mania we’ve seen in decades. Bitcoin news is pushing stock market stories below the fold. Despite the market’s incredible performance this year, equities are starting to take a back seat to cryptocurrencies.

Then there’s gold.

Bitcoin is stealing gold’s thunder as the holiday season approaches. Doomsday preppers used to stock up on gold and canned goods. Now they’ve cleaned all the gold out of their bug-out bags and replaced it with bitcoin. Debates over stores of value in the event of societal collapse have shifted from gold to bitcoin. Bitcoin searches are more popular on Google than gold. No one seems to care about the Midas metal anymore.

Bitcoin’s rise has taken the wind out of gold’s sails. As interest in bitcoin skyrocketed this fall, gold futures started to trend lower. As bitcoin broke above $5,000 earlier this year, gold prices were topping out at $1,350. Since early September, gold futures have leaked lower by almost 8%, pushing to new four-month lows late last week. Bitcoin has rocketed to $16,000 over the same timeframe.

While new, smaller cryptocurrencies and “initial coin offerings” continue to gain attention, the market’s more speculative gold mining stocks are taking a beating. The VanEck Vectors Gold Miner ETF (NYSE:GDX) can’t keep its head above water. GDX is down more than 15% over the past three months.

Bottom line: Bitcoin is killing gold right now. We have no idea how long crypto-mania will last. But if the excitement surrounding bitcoin continues through the holiday season, we suspect things will get worse for gold before they get better… – Greg Guenthner

 

Physical Gold – The Only Antidote to the Poison created by Central Bankers

Physical Gold - The Only Antidote to the Poison created by Central Bankers

Physical Gold – The Only Antidote to the Poison created by Central Bankers

For gold investors, the major thorn in our side continues to be the USDJPY so we need to discuss it again.

Over the past weekend at TFMR, we had a discussion about how so many well-intentioned people could have been so wrong about “the metals” over the past five years. It included this sentence: “What we failed to predict was the successful, collective manipulation of nearly all “markets” by the CBs, their primary dealers and their willing/sycophant media through HFT.”

That one sentence could be the subject of a full post or podcast but, for now, let’s just focus upon the market manipulation through HFT. As you know by now, the USDJPY is just about the single most important general input for HFT buy/sell decisions. Whether it’s S&P futures, bond futures or Comex Gold, the direction of the USDJPY generally impacts all of these “markets” more than anything else. The chart below plots the inverse of USDJPY (JPYUSD) with gold futures. Note clear correlation that began in 2008.

In observing the central bank market manipulation…when we see the same pattern again and again…and this pattern is followed by the desired equity or bond market reaction…then you know something is up. How many times have we captured screenshots of the BoJ, Fed, SNB or whomever buying the USDJPY in size at just the right moment to create and paint a double bottom on the chart? From there, how many times have we watched a near perfect and uninterrupted, 45-degree angle recovery ensue?

Here are just a couple of egregious examples that I just chose at random from my desktop folder that holds about 40 charts. (I’ve only been keeping them since late summer.)

Well, since we just used the term “egregious”, let’s apply it again to the charts below. Recall that things were sailing along surprisingly well last Monday. Over the previous week, the USDJPY had failed to hold support near 113 and again near 112 and it had fallen to near and just below the very-important 111 level. Then, as we chronicled that day, a sudden spike occurred on NO NEWS and not even any rumors. Just a spike from out of the blue that drove the pair immediately back above 111.

And what followed over the next five days? Well, outside of the sudden plunge on the now disproven stories from Brian Ross at ABC News, the USDJPY has followed the same glide path all the way back to 113. Also, IT’S VERY IMPORTANT TO NOTE where USDJPY reopened Sunday afternoon…RIGHT ON the glidepath. Remove the reaction to Friday’s unexpected headlines and it’s a near-perfect, 45-degree angle for nearly FIVE FULL DAYS.

(And in case you’re wondering which tail wags which dog, note the turn in USDJPY last Monday clearly preceded the turn in the S&P.)

How is this even possible? It’s not…well, at least not in the traditional and “free market” sense…the pre-2008 and pre-2012 sense. All of these things used to move somewhat independently as human, carbon-based traders made rational investment decisions based upon a number of inputs. However, in 2017, where 90% of all trading is now done through HFT….well, the results are pretty clear. The Central Banks and their Primary Dealer trading desks manipulate the key inputs and HFT does the rest. This is why yours truly and so many other “experts and mavens” have been confounded for the past five years. It’s not nefarious intent and it’s not because gold bugs are cruel, heartless charlatans who are intent upon stealing as many dollars as possible from the easily-duped. Instead, it is a failure to anticipate the levels to which The Central Banks would successfully go to keep their system alive.

Understanding this is why you consistently hear me cite the refrain of PHYSICAL DEMAND. It is only through a renewed crisis of confidence that this system can be broken…at least as it pertains to the precious metals. Physical gold demand will bust The Bullion Banks by breaking their just-in-time and unallocated delivery system. Physical demand will force price to be discovered through the exchange of physical metal, not the alcehmized digital garbage that permeates the system today.

We’ll leave you today with stories from each end of The Bank monster. The first, and one that we’ve been following closely since last March, is the continued run-up to renewed war on The Korean Peninsula. WHILE NO ONE IN THEIR RIGHT MIND IS CHEERING THIS ON, it is important to be prepared for all of the unknown unknowns that would come with such a catastrophe, one of them being financial calamity that could again shatter confidence in the current system.

http://theweek.com/articles/740264/why-north-korea…

And the other story deals with gold alchemy and the continued shunting of physical demand into sham/scam paper investments. It seems the World Gold Council is hungry to increase their fees. They are apparently planning to offer a whole new “gold” ETF, perhaps designed to compete with the IAU. Ask yourself, from where will this fund get the 200-300 metric tonnes of gold needed to fund its “inventory”? Once again, The Banks will simply perform the alchemy of leveraging current unallocated stockpiles into more and more digital “gold”.

http://www.etf.com/sections/daily-etf-watch/new-ph…

Again, true physical gold demand is the only antidote to the poison created by the Central Bankers and the Bullion Banks. Sadly, 2018 promises another surge in war, debt, negative interest rates and de-dollarization. Will these events finally prompt enough physical demand to break The Banks? Only time will tell. – Craig Hemke

Another Tradable Low Coming

The divergence from the USDJPY correlation illuminates The Bullion Bank effort to smash price below the 200-day MA and flush out as many Spec longs as possible before the next rise. We saw this is May and in July and we are seeing it again now.

I have no doubt that what you are about to read is correct.

Since last Monday, when the USDJPY was forcibly rallied from below 111, the total change in this all-important HFT driver is 130 “pips”…from 110.90 to 112.20. After discovering and then closely following the yen-gold correlation for over three years, we’ve learned that a one point move in the USDJPY generally correlates to a $10-12 move in the price of Comex Digital Gold. The current 130 pip move should thus translate into roughly a $15 drop in Comex gold. Considering that price was $1298 last Monday, the current price should be around $1283. Instead, I have a last of $1267. Why the 2X difference?

It’s simple. Over the past several days there has been a concerted and coordinated effort to rig price below the 200-day moving average. And why have The Banks taken this action? In order to engender the same type of Spec long liquidation seen in May and July of this year and displayed on the chart below from October 24:

The CoT survey of last Tuesday gave two alarms that allowed The Banks to trigger this current action.

  1. The Large Spec NET long position in Comex gold had reached 224,417 contracts. This was the highest level in 90 days.
  2. The Large Spec GROSS short position fell to just 62,967 contracts. This was the lowest seen since 9/6/16 and thus the second-lowest level seen since 2012.

Judging that the CoT was ripe to be flushed, The Banks took action, striking yesterday at 9:07 am EST. Note the 12,000 contract dump that finally shoved price well-below the 200-day. The selling action that took gold prices another $10 lower in the three hours that followed was brought upon by Spec long liquidation upon seeing price fall below this critical technical indicator.

Today, price continues to meander lower, even though USDJPY is down, because of this continued Spec long liquidation. Just as we saw in May and just as we saw in July.

Given the false pretenses surrounding this current manipulation, I have no doubt that another bounce and rally is coming…in both Comex Gold and Comex Silver.

Let’s start with Comex Gold. Note that the May and July lows came with an RSI of near 30 and price about $40 below the 200-day. A similar low next week would peg price near $1240.

Personally, I have a hard time believing that price will fall that far before bouncing but, if it does, there’s a another good reason to expect a floor there…the 200-week moving average. On three occasions earlier this year, price has fallen to this key long-term indicator and on all three occasions, price quickly reversed.

In Comex Digital Silver, the picture is just as clear. There can be no doubt that the Banks have aggressively capped CDS at it’s own 200-week moving average on every attempt to move higher over the past 18 months. As you can see below, this is clearly NOT random, free, fair and natural price action:

However, another look at the same weekly chart reveals the resilience that CDS has shown every time it reached down toward $16. Additionally, check the massive, long-term reverse head-and-shoulder pattern that is forming:

So, quite obviously, there is another tradable low coming. Will it lead to the final breakout move toward $1400 and $22? Maybe. However, this next low is coming and why wouldn’t it? Consider just this brief list that will impact the demand for gold exposure in 2018:

  • The geopolitical risk of war with North Korea, war in the Middle East and cold war with Russia.
  • The inverting US yield curve leading to undeniable recession.
  • Fed promises of more QE and even negative rates in the next slowdown.
  • Political risk in the US as calls grow for impeachment and the pending 2018 elections.
  • Continued de-dollarization in China, Russia, the rest of the BRICS and the Middle East.
  • US government shutdown and political discord

Given all of the uncertainty that lies ahead for 2018, prices for Comex Digital Metal are headed higher not lower. Prepare now for your next tradable opportunity in both Comex metals and the mining shares. – Craig Hemke

More Strange And Disturbing Action In The Paper Gold Market

For at least the past decade the behavior of the people who trade gold futures contracts – and thereby determine the metal’s price – has been generally predictable: The “commercials” – big banks and companies that buy gold to do things with it – have suckered the speculators – mostly hedge funds who chase trends – into going very long and very short at exactly the wrong time.

Which means the price action in gold six or so months in the future was broadly predictable. When the speculators were way long, it was going down and vice versa.

But this year the action – as portrayed in the commitment of traders report (COT) – has departed from the script. After taking on near-record long positions early in the year, the speculators have barely scaled them back from levels that are extremely bearish for gold. Meanwhile gold, instead of tanking as recent history says it should, has been treading water.

And now both the speculators and the commercials have started ramping up their current bets, with speculators going from very long to even more long and commercials going from very short to even more short.

Here’s the same data in graphical form. Where historically the silver bars on top (speculator longs) and the red bars below (commercial shorts) would be expected to converge at the middle of the chart, they’ve diverged and stayed far apart. So the speculators have not been washed out and instead are becoming even more bullish.

If history still matters (a big if in today’s world) the COT trends point to a bad six or so months for precious metals. Though – and this might be the rationale for many speculators – the global financial system has become so fragile that betting on a crisis that sends capital pouring into safe havens is now a permanently good idea.

In that case the solution for individuals is easy: Just buy silver and let nature take its course. – John Rubino

 

Silver Prices take the Final Dip before the Great LEAP

Silver Prices take the Final Dip before the Great LEAP

Silver Prices take the Final Dip – Beware of the Classic Bear Trap

Remember, weak hands buy at market tops and sell at market bottoms. It’s the nature of human behavior. Strong hands buy at bottoms and sell at tops.

For both gold and silver, the speculator longs are still excessive. You don’t have bottoms in anything while the weak hands are still long. So we need a shakeout in the COTs for the weak hand speculators.

I see lows coming soon and then a big moves up. Gold and silver prices crashing lower from here would be the best move investors could want.

Silver prices continue to struggle and continue to test the lows. The longer-term chart looks fine but on the emotional short-term charts, the struggles continue. There are many questions that arise from the recent activity. Is silver being more punished by Bitcoin than gold? If economic growth is so good, where is the demand for the industrial metal silver?

Silver’s performance has been less that mediocre for many reasons. The lack of economic growth is one and the commercials are selling silver relentlessly. There is a huge short interest in silver for no apparent reason other than the commercials think they can bully the metal lower.

The bullion banks are super keen to keep the price of silver well below the 200-day moving average. Why? No more reason other than greed and profit. But this should not dissuade investors.

When general market conditions become as slow as they are now, it forces the commercials to do dumb things and the size of their short position here is dumb. They may be right in the short run but with the bear market in metals over, expect a big rally in silver prices and the perfect trap for the commercials to get pounded. The $15.67 area should hold, and higher silver prices are coming.

Silver prices have increased less rapidly than exponentially increasing national debt for 25 years, and are currently selling for multi-decade lows compared to national debt. National debt will increase 8 – 10% per year and silver prices will rise more rapidly in coming years.

Silver prices are currently near a two-decade low when compared to the S&P 500 Index. Silver prices will rise and the S&P will correct, possibly soon.

All indicators show that gold and silver prices can see a strong rally take hold over the coming weeks.

Currently precious metal fans might be feeling down about silver. At present the gold-silver ratio is around 79. The  100-year average is 40. The industrial precious metal is arguably due a much needed catch-up given its serious underpricing.

Inflation, weak fixed income performance and a growing asset price bubble. Are you ready for that?

If not, you need to seriously start accumulating physical silver (and gold) to stay protected. Stock markets are on the verge of a major collapse while Gold and Silver prices prepare to take off to never ever before seen levels….. soon.

The Attempt To Disregard Silver Investor Demand In The Market

There is a Disinformation War taking place in the silver market as certain industry analysis is confusing individuals by purposely disregarding the tremendous impact of rising investment demand.  Not only do I find this troubling, but I am also quite surprised how much the silver industry pays attention to this faulty analysis.  So, it’s time once again to set the record straight.

Setting the record straight has now become a new mission for me at the SRSrocco Report because the amount of disinformation and faulty analysis being published in the mainstream and alternative media is quite disturbing.  I decided it was time to say enough was enough, so I started by destroying the myth about the 1 million tons of gold hidden in the Grand Canyon in my recent article, THE BLIND CONSPIRACY: The Gold Market Is Heading Towards A Big Fundamental Change.

If you haven’t read that article and are still confused on whether or not there are billions of ounces of gold hidden in the Grand Canyon, I highly recommend that you do.  Now, if you read the article and still believe the U.S. Government decided to make the Grand Canyon a national park to protect all that gold, then you have my sympathies.  However, the reason certain individuals in the U.S. Government decided to make the Grand Canyon a national park because it was probably a GOOD IDEA to keep a beautiful part of the country off-limits from those who had no problem with destroying the banks of the Colorado by trying to extract gold at a pathetically low uneconomical yield.

If you have seen some of the episodes of the Discovery Channel’s Gold Rush show, the result of gold dredging operations isn’t pretty.  Here is a picture of the beautiful landscape outside of Dawson City in the Yukon that shows the effects of placer mining and gold dredging.  Now, how many families in the U.S. and abroad would have taken their kids on vacation to the Grand Canyon if it looked like this?  I am quite amazed at the lack of dignity and respect by individuals who only seek at the almighty Dollar.

(aerial photo of Dawson City, Yukon – picture courtesy of Peter Mather)

To tell you the truth, I am glad that Teddy Roosevelt had the foresight to dedicate the Grand Canyon as a national monument back in 1908.  At least some politicians had the wisdom to keep OFF LIMITS parts of the country, so we weren’t able to destroy it by mining it for ultra low-grade gold or bulldoze it, pour concrete and build another million suburban homes.

Okay, let’s get back to subject at hand… Silver Market Disinformation.

Precious Metals Analyst Totally Omits Silver Investment Demand From Market Fundamentals

The motivation to write this article came from several of my readers who sent me an interview by CPM Group’s Jeff Christian, at the San Franciso Gold and Silver Summit.  In the video, Jeff claims that there has been a silver market surplus for ten years and those industry analysts, who have reported deficits, “Are simply wrong.”  Jeff goes onto to say, “they have been wrong the entire time they have been on the silver market.”

Jeff continues by explaining that to analyze the silver market correctly, you must look at surplus and deficits based on total supply versus total fabrication demand.   Furthermore, he criticizes industry analysts who may be promoting metal by throwing in investment demand to arrive at a deficit.  He says this is not the proper way to do “commodities research analysis.”

Jeff concludes by making the point, “that if you keep silver investment demand as an “off-budget item,” then the price matches your supply-demand analysis almost perfectly.”  Does it?  Oh… really?

If we look at the CPM Group’s Supply & Demand Balance chart, I wonder how Jeff is calculating his analysis on silver prices –

This graph is a few years old, but it still provides us with enough information to show that the silver price has nearly quadrupled during the period it experienced supposed surpluses.  According to the CPM Group’s methodology of analyzing total fabrication demand versus supply, how on earth did the silver price rise from an average of $5.05 during the deficit period to an average of $19.52 during the surplus period?  I arrived at the silver prices by averaging the total for each time-period.

Again, Jeff states during the interview that their supply-demand analysis, minus investment demand, provides an almost perfect price analysis.  According to the CPM Group’s 2016 Silver Yearbook, the total surplus for the period 2008-2016 was approximately 900 million oz.  With the market enjoying a near one billion oz surplus, why would that be bullish for a $20 silver prices??  It isn’t… and I will explain why.

As I have mentioned in many articles and interviews, the price of silver has been based upon the price of oil which impacts its cost of production.  If we look at the following chart, we can plainly see how the silver prices have corresponded with oil prices going back until 1900:

You will notice the huge price spike in the 1970’s after Nixon dropped the Gold-Dollar peg causing inflation to run amuck in the United States.  Now, the oil price didn’t impact just silver; it also influenced the value of gold:

As with the oil-silver trend lines, the gold and oil price lines remained flat until the U.S. went to a 100% Fiat Currency system in 1971.  So, if we decided to throw out all gold and silver supply-demand forces, we can see that these precious metals prices paralleled the oil price.  Now, the reason the price of silver shut up to an average of $19.52 from 2006-2017 was due to its average cost of production.  Today, the market price of silver is $16.42, and the average cost of primary silver production is between $15-$17 an ounce.  According to my analysis of the top two gold mining companies, their cost of production is about $1,150.  Hence, the 71-1 Gold-Silver price ratio.

Did Jeff Christian include the cost of production in his analysis of the silver price?  How many silver mining companies are producing silver for $5 an ounce and making an $11 profit?  Or how many silver mining companies are producing silver at $35 and losing nearly $20 an ounce?  I will tell you… ZERO.

The only way an individual would believe that the primary silver mining companies are producing silver at $5 an ounce is if they believe in the investor presentations that report CASH COSTS.  Anyone who continues to use CASH COST accounting needs to get their head examined.  It is by far the most bogus metric in the industry that has caused more confusion for investors than anything else… well, if we don’t include faulty analysis by certain individuals.

I find it utterly amazing that the CPM Group entirely omits silver investment from their fundamental analysis.  Here is a chart of their total world silver fabrication demand from their 2016 Silver Outlook Report:

If you are a silver investor, your demand doesn’t count.  It doesn’t matter if you purchased 100 of the half a billion oz of Silver Eagles sold by the U.S. Mint since 1986.  How many Silver Eagles have been sold back, melted down and returned to the market to be used for industrial applications??  According to the 2017 World Silver Survey (GMFS), total Official Silver Coin sales were 965 million oz (Moz) since 2007.  If we add Official Silver Coin sales for 2017, it will be well over one billion.  I highly doubt any more than a fraction of that one billion oz of Offical Silver Coins were remelted and sold back into the market.

Moreover, what term do we give to companies who produce Silver Eagles or private silver rounds??  Aren’t companies fabricating silver bars and coins?  While it is true that physical silver bar and coins can be sold back into the market, a lot of new demand is coming from fabricating new silver bullion products.

CPM Group only values silver as a mere commodity for the sole purpose of supplying the market for industrial, jewelry, silverware, photography and photovoltaic uses.  I gather 2,000+ years of silver as money no longer matters.  Yes, I would imagine some precious metals investors are feeling a bit frustrated as they watch Bitcoin go vertical towards $12,000.  But a word of caution to Bitcoin investors who are dreaming about sugar plums dancing in their heads and dollar signs in the eyes.

Now, when you see an article titledSigns Of A Market Top? This Pole Dancing Instructor Is Now A Bitcoin Guru; it might be prudent for you to recall a memorable part of the move in The Big Short:

There is a wonderful scene where a pole dancer is explaining to a fund manager how she’s buying five houses.

A lowly paid pole dancer who survives on unpredictable tips should not be able to afford multiple houses, but this was the sub-prime USA where the ability to repay a loan was apparently not a prerequisite.

What a coincidence… ah??  Pole dancers buying five homes and becoming a Bitcoin Guru.  What’s next?  LOL.

Regardless, the notion by CPM Group that investment demand shouldn’t be included in supply and demand forecasts suggests that the gold market has experienced a total 418 million oz (Moz) surplus since 2006.  Yes, that’s correct.  I calculated total global gold physical and ETF investment demand by using the World Gold Council figures:

The reason for the drop-off in net gold investment in 2013-2015 was due to Gold ETF liquidations.  For example, 915 metric tons (29 Moz) of Gold ETF inventories were supposedly liquidated into the market.  Even though the gold market experienced a record 1,707 metric tons of physical bar and coin demand in 2013, the liquidation of 915 metric tons of Gold ETF’s provided a net 792 metric tons of total gold investment.  Please understand, I am just using these figures to prove a point.  I really don’t care if the Gold ETFs have all their gold.  I look at Global Gold ETF demand (spikes) as an indicator for gauging the amount of fear in the market.

The CPM Group does the same sort of supply and demand analysis for gold.  They omit investment demand from the equation:

(CPM Group Chart Courtesy of Kitco.com)

Again, according to the CPM Group, gold bar and coins aren’t fabricated.  They must be produced by Gold Elves in some hidden valley in the Grand Canyon.  No doubt, under the strict control by the NSA department of the U.S. Government.

For anyone new to reading my work… I am being sarcastic.

Moreover, the significant change in gold investment demand is a clear sign that investors are still quite concerned about the highly inflated bubble markets.  If we go back to 2002, total gold investment was a paltry 352 metric tons compared to 358 metric tons of technology consumption and 2,662 metric tons of gold jewelry demand.  However, in 2011, the gold market experienced a massive 1,734 metric tons of total gold investment versus 2,513 metric tons of jewelry and technology fabrication.

What is significant about this trend change?  In 2002, global gold investment was a mere 10% of total gold demand.  However, by 2011, gold investment demand surged to 41% of the total, not including Central Bank demand.  Even in 2016, global gold investment demand was still 40% of the total.  As we can see, investors still represent 40% of the market, whereas they were only 10% in 2002.

Precious metals investors need to understand there is a huge difference between Gold and Silver versus all other metals and commodities.  The overwhelming majority of commodities are consumed while gold and to a lesser extent, silver, are saved.  And, they are being purchased as investments and saved for an excellent reason.

The world continues to add debt at unprecedented levels.  In just the month of November, the U.S. Government added another $137 billion to its total debt.  This doesn’t include the $610 billion of additional debt added since the debt ceiling was lifted on September 8th.  So, the American public is indebted by another $747 billion in less than three months.

Getting back to silver, according to the GFMS team at Thomson Reuters, who provide the World Silver Survey for the Silver Institute, the market will experience a small annual silver surplus this year for the first time in several decades:

The reason for the surplus has to do with a marketed decline of silver investment demand this year.  With the election of President Trump to the Whitehouse and the “Pole Dancing Guru” Bitcoin market moving up towards $12,000, demand for the silver investment fell by 50% this year.  However, I don’t look at it as a negative.  Oh no… it’s an indicator that the market has gone completely insane.

This reminds me once again of the movie, The Big Short.  In the movie, the main actor bets big against the Mortgaged-Backed Securities.  Unfortunately, just as the housing markets start to crash and the mortgage-back security market begins to get in trouble, the bets that the main actor in the movie made, began to go against him.  That’s correct.  His short bets against the market should have started to gain in value, but the banks wanted to dump as much of that crap on other POOR UNWORTHY SLOB INVESTORS before they would let it rise.

We are in the very same situation today.  However, the entire market is being propped up, not just the housing market.

It is impossible to forecast more realistic gold and silver prices when 99% of the market is invested in the wrong assets.  So, for the CPM Group to value gold and silver based on their fabrication demand totally disregards 2,000+ years of their use as monetary metals.

Thus, it comes down to an IDEOLOGY on why Gold and Silver should be valued differently than mere commodities, or even most STOCKS, BONDS, and REAL ESTATE.  Valuing gold and silver can’t be done with typical supply and demand fundaments.  The only reason I analyze supply and demand fundamentals is to understand what is happening to the market over a period of time.

For example, if we look at total global silver investment demand and price, there isn’t correlation:

But, if we look at what happened to silver investment demand since the 2008 Housing and Banking collapse, we can spot a significant trend change:

As we can see, world physical silver bar and coin demand nearly quadrupled after the 2008 Housing and Banking collapse.  This is the indicator that is important to understand.  While silver investment demand after 2008 has increased partly due to the higher price, the more important motivation by investors is likely a strategic hedge against the highly-leveraged fiat monetary system and stock market. – SRSroccoreport

 

Intensifying War on Gold Betrays The Elitists’ Panic & Coming Defeat

Intensifying War on Gold Betrays The Elitists’ Panic & Coming Defeat

Intensifying War on Gold Betrays The Elitists’ Panic & Coming Defeat

Dictatorship (noun):  Definition #3:   absolute power or authority (Websters);
Def. #2:   absolute, imperious or overbearing power or control (Random House);
Def. #3:   Absolute or despotic control or power (American Heritage);
Def. #3:  Absolute or supreme power or authority (Collins English Dictionary);
Def. #1:  A type of government where absolute sovereignty is allotted
to an individual or small clique (Wikipedia).

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained, you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” Sun Tzu, The Art of War

In recent weeks, the War on Gold, which is a subset of the broader War on Human Freedom, has sharply intensified, with massive, multi-billion dollar naked short price raids now being launched on a weekly and even daily basis by the criminal, state-sponsored price manipulators. This escalation proves the supreme importance to the Deep State financial elite of the maintenance of their gold price dictatorship, which is a vital component of their long term, systemic campaign of financial plunder.

The elitists have no problems whatsoever with stratospheric stock and bond prices; 5,000 year low interest rates; $450 million Da Vinci’s; $250 million private homes; $50,000,000 annual salaries for circus masters, whose role in keeping the masses distracted and dumb is vital; $1.9 million Aston Martins; $100,000 Air Jordan sneakers, or any of the other prices that have now gone into outer space.

But there is one thing they will not accept: an honest, free market price for gold. Because while all debauchery under the sun is permitted and encouraged in the Castle of Fraud and Corruption they have constructed and in which they revel, one thing is strictly prohibited: the utterance of truth. Being monetary truth when free to speak, gold is their deadliest enemy. Therefore, it is silenced, in the same way truth tellers are silenced in all dictatorships.

The vast majority of people, aside from a small, enlightened minority who refuse to poison their minds by ingesting mainstream media (MSM) fake news, propaganda and brainwashing, do not yet realize what they are up against in the wars that have been declared against them, and are therefore at serious risk. For those who wish to survive the wars, there has never been a greater need to know the enemy and know yourself.

As the gold price war becomes manic, so has the MSM’s anti-gold propaganda campaign, with their attempts to smear gold now a clinical obsession.

In a prime example of their over-the-top anti-gold propaganda, on 10 November 2017, the Financial Times, a long-time Deep State bullhorn and puppet, ran an article entitled, “Gold is the new cocaine for money launderers.” In this screed, the author beat the dead horse of the NTR Metals gold import scheme. This operation, whose total dollar yield was an infinitesimal fraction of the massive sums stolen by the financial Deep Statists in their forty year gold price manipulation crime, was already the subject of an over-dramatized Bloomberg Businessweek propaganda piece published on 9 March 2017, entitled “How to Become an International Gold Smuggler.” Apparently, the MSM is running so short of new material with which to try to demonize gold, that it is now forced to recycle old, stale non-stories to keep the smear machine going.

In the article, the MSM propagandist states such things as: 2017 has seen, according to his one time Goldman Sachs source, a “dramatic crash in [physical gold coin] demand,” that interest in gold coins is linked to “political conservatism, or anarcho-libertarianism” and “end of the world right wing sentiments,” that gold has been implicated in a “conspiracy to commit money laundering,” that gold is “financed by people in the narcotics trade,” that it comes from “illegal mines and drug dealers in Peru, Bolivia and Ecuador,” that “the federal authorities assume the NTR Metals [case] represented only a fraction of illegally sourced and financed gold,” that therefore the US attorney is broadly investigating the gold industry, that gold is “produced by exploited workers,” that “crude [gold] extraction techniques create serious and lasting environmental damage,” that gold plays an important part in “tax evasion,” that it is related to American gun sales, which the author abhors; that “drug dealers [use] gold imports as a way of laundering their proceeds,” and that “they came to realize that illegal gold [is] an intrinsically better business” than drug dealing; to name but a few of the aspersions cast against gold in the short article. As we can see, when it comes to their smear jobs, the MSM flings at the wall all the mud it can fit in its hands, hoping that some of it might stick.

As is always the case with the MSM’s consistently negative, biased and dishonest reporting on gold, no mention was made in the article of the Deep State financial elite’s criminal gold price manipulation fraud that has been perpetrated non-stop for nearly forty years and that has resulted in a massive, $1,000,000,000,000.00+ theft from its victims. This is because the MSM is the Deep State’s in-house public relations agency, whose job is to whitewash the elitists’ crimes, no matter how egregious they are.

But buried in the article was an important clue that the Deep Statists are concerned they are losing the War on Gold, which we will further explore later in the article. It turns out that the Deep Statists’ paranoia about and rage toward gold might be entirely justified, because more than ever in the past 37 years, gold is poised to tell the world what it knows, and this will absolutely annihilate them.

Many people are completely baffled as to why, with so many serious fiscal, financial, monetary, economic, social, and geopolitical problems in the world, the Deep Statists remain so mono-maniacally fixated on demagogically denigrating gold and controlling its price.

The answer is that the Deep Statists cannot, under any circumstances, allow the price of gold to replicate the surging price of Bitcoin and other cryptocurrencies. If the gold price genie were to get out of the bottle, becoming international news in the process no matter how much the MSM might try to suppress it, it would spur a gold buying stampede that would cause a flood of money to pour out of bank accounts and into physical precious metals. $325+ billion worldwide now resides in cryptocurrencies, a highly specialized and complex product class. In the right set of circumstances, many multiples of that amount could incrementally flow into gold, a simple product that has been innately understood for millennia by human beings all over the globe.

Already fragile, the banking system cannot withstand a large scale withdrawal of funds. Being finite and in short supply, incremental demand for physical gold would result in immediate and sustained price gains, creating a positive feedback loop in the market place. As people watched the price go up, more and more of them would want to jump on the band wagon and participate in the gains, which is exactly what has happened in the cryptocurrency market.

If interest in gold goes mainstream, then basic supply fundamentals indicate the price would have to rise by thousands of dollars per ounce to even approach what might be considered overbought and/or bubble territory. Which is exactly what has happened to Bitcoin, whose price has exploded to over $10,500 as of today, 29 November 2017.

In the United States, the latest Federal Reserve Board tally of Household and Non-profit Organization (much of which is private) wealth totals $96.2 trillion. If a miniature, 1% sliver of this amount, $962 billion, attempted to find its way into the physical gold market, it would represent incremental demand, at $1,300 per ounce, of 740 million ounces. Not even a small fraction of this incremental demand would be available in the physical gold market at this time, given that it already operates at a supply / demand equilibrium. The gold price would have to surge in order to flush out supplies from current gold owners, whose hands have proven to be, and are likely to remain strong. We believe it would take years for incremental demand of this magnitude to be filled, even at much higher prices. Please keep in mind that this example relates to the United States, alone; there are additional, vast stores of private wealth all over the world, all of which would almost certainly be activated in unison by a run to gold.

With the right spark, the same viral, Social Media-enhanced demand that has come to cryptocurrencies could come to gold. The Deep Statists know it, and the ghostly whites of their eyes now glow eerily and blinkingly across the dark battlefield of Liberty, in the senseless war they provoked and are going to lose.

While there are now hundreds of cryptocurrencies, physical gold is physical gold, and cannot be replicated or conjured out of nothing. There will be no endless stream of new ICOs for genuine, physical gold, because gold is what it is and always will be. This means that funds flowing into gold will be forced into the one and only physical gold market that already exhibits tight, inflexible supply. This further means that the upward price pressure on gold could become volcanic if a run starts.

A steadily increasing number of people will want to get in on the “new Bitcoin,” a bizarre paradox given that gold is as old as time, and will soon realize that gold possesses virtues Bitcoin does not, given that it is real, not digital and abstract; that owners can personally possess and store it in physical form; that it will survive any kind of electric grid or Internet disruption that might occur; that it cannot ever be hacked; that it is the epitome of private, quiet wealth; that it is actually quite beautiful to behold; and that it was not and cannot be made by man, only by God, who does not appear to have any interest in making any more of it.

To date, in order to prevent a surge in physical gold demand from happening, the Deep Statists have created various forms of transparently fake gold, such as electronic gold futures, options and non-auditable ETFs and EFPs. These fake gold products have siphoned funds away from real, physical gold, which cannot be created out of the nothing the way the imposter electronic gold products can be. Increasingly, people are learning that there are no substitutes for physical gold.

More, we find it interesting that while there have been certain highly publicized condemnations of cryptocurrencies, such as J. P. Morgan Chase CEO Jamie Dimon’s comment that Bitcoin is a “fraud,” the financial authorities in the west have done little to nothing to shut down the crypto market. They seem to be just fine with $10,500 Bitcoin, but will stop at nothing to prevent $1,300 gold. Today’s (29 November) market action is a case in point.

The reason is that monetary elitists fully approve of cryptocurrencies, because this the new form of fiat currency the western banks intend to issue. Mass adoption of cryptocurrencies is the necessary forerunner to the elimination of cash, a well-known and important agenda for the financial elite. By issuing their own cryptocurrencies, and/or co-opting Bitcoin and other private cryptos via regulation and edict, central bankers can continue their tradition of controlling the money supply. A population that has learned the value of owning and become adept at trading physical gold would prevent central banks from continuing to use fiat currencies as economic, political and societal control mechanisms. It should be no surprise that they loathe gold so much; in its honesty and integrity, it is the exact antithesis of everything they stand for, are, and do.

Some people argue, “Even if people run to gold, their funds will still remain within the banking system, so the bankers aren’t worried about this happening.” In our opinion, this is wrong.

Fiat currency used to buy precious metals will move from personal and business bank accounts, to gold dealer accounts, to gold wholesaler accounts; and then to a variety of sovereign mint, gold precious metals refiner, gold miner and other gold supplier accounts, a large percentage of which are international.

A bank that hosts a deposit account used to purchase physical gold has no assurance whatsoever that the buyer’s funds will transfer into another personal or business account managed by it. In all likelihood, the funds will disappear from the host bank and not return. Ultimately, the likelihood is also high that a portion of the funds, potentially significant, will disappear from the country’s banking system altogether, given the global nature of gold mining, refining, minting and fabrication. Therefore, bankers regard a run to gold as a severe, direct threat to them, which is why they do everything in their power to discredit it and crush its price. They are attempting to prevent a run on their banks.

Over the past several years, the Deep Statists have gone to extraordinary lengths to internationally legalize bank “bail-ins.” They did not do this casually, by accident, or for fun; they did it because they know that when the system fails, a time-bomb guaranteed to detonate given the system’s very design, they will be able to make an unprecedented fortune by expropriating customers’ deposits via the elaborate bail-in mechanism they have engineered. They will use the phony pretext of “rescuing” and “resetting” the financial system for the public good to justify this action. If, before they spring the bail-in trap, depositors have already withdrawn their funds to purchase physical precious metals held outside the banking system, those funds will no longer be available for bail-in looting. The bankers cannot steal bank balances that have disappeared.

The cryptocurrency phenomenon, now an international sensation, has stunned them into the awareness that people all over the world have a deep, abiding, instinctive desire to own honest money of limited supply that will serve as a reliable store of value, and that cannot be hyper-inflated into oblivion for the private gain of plunderers and profiteers, the chief problem with corrupt, endlessly counterfeited fiat currencies controlled by self-interested, opportunistic, predatory central bankers and their controllers, the Deep State financial elite. – By Stewart Dougherty – Part 1

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Part 2

Magicians use distraction, deflection and misdirection to conduct their tricks. They get their audiences to look to the left while they perform their magic undetected on the right. So do con artists and swindlers.

George H. W. Bush, in a speech delivered to a joint session of Congress on 11 September 1990 entitled “Toward a New World Order,” headlined a geopolitical theme that has garnered a great deal of attention ever since. And while Bush was not the first person to use the term, it struck a global nerve when he invoked it.

Bush’s speech about the New World Order deflected and misdirected the people’s attention to the left, and prevented them from seeing the real action that was taking place to the right: the imposition of a New World Central Banking Order throughout the west. This multi-country, supranational, autonomous, all-powerful, privately-controlled, for profit, non-auditable, monopolized, collusive, monetary leviathan has become what we call the Western Central Banking Dictatorship (WCBD).

This dictatorship, and we are not being pejorative, we are simply applying the standard definition of the word to what central banking actually is, operates throughout the broadly defined “west,” which includes: the United States, Canada, Mexico, the European Union, the United Kingdom, Japan, India, New Zealand and Australia. Certain African, Asian and South American countries also play lesser parts in the regime. Dictatorially ruled by this private monetary system are the hundreds of millions of citizens who must use Euros, Yen, Rupees, and United States, Canadian, Australian and New Zealand dollars to function in their daily lives, as these fiat currencies are all 100% controlled by the regime, and are subject to whatever actions, no matter how experimental or extreme (such as Quantitative Easing and negative interest rates), the controllers, in their sole discretion, decide to take.

One of the seven core principles of Inferential Analytics, the forecasting method we have developed and use, is that all phenomena represent Life Forces, and that all Life Forces ceaselessly work to expand, evolve, empower themselves, and conquer new terrain.

Some of the most powerful Life Forces on earth are the “isms.” One of today’s most rapidly evolving “isms’ is crony communism, the national operating system now metastasizing throughout western nations to replace its dying predecessor, crony capitalism. In this expanding system of crony communism, the cronies loot the capital that was produced by the dying capitalistic system, while the masses descend into communistic impoverishment, entrapment and despair. Crony communism is a system in which the forces of diabolism, greed and evil usurp and exploit state power for their own enrichment, empowerment and dominance, at the direct expense of the communized masses.

Relentlessly increasing wealth concentration combined with spreading impoverishment and paycheck to paycheck living are two glaring signs among many others that the Life Force of crony communism has entrenched itself throughout the west, and that it is evolving and advancing.

The enabling institution for the spread of crony communism is the WCBD, which is owned and operated by the Deep State crony elite, both of which are Life Forces of plunder and human exploitation.

To those who pay attention to fiscal, monetary, economic and financial realities, it is becoming clear, despite the current frenzy of propaganda to the contrary, that the existing system is failing. In the United States, to focus on one national example, massively underfunded pensions will collapse without equally massive bailouts; every government entitlement program is bankrupt, a fact publicly admitted by the programs’ respective government overseers; structural deficits are uncontrollable under current law and can only be contained if government promises are broken at extreme expense to the economy and people; debt at all levels is exploding and structurally, must continue to explode; mass financial stress is directly observable in such forms as street-level, in one’s face homelessness, fast-spreading tent cities, and teeming under-bridge communities; paycheck to paycheck and government welfare payment to government welfare payment living is now the norm for the vast majority of the population (for example, 78% of full time workers in the United States now live paycheck to paycheck; the financial condition of part time and unemployed persons is even more dire); the savings rate has plunged as people struggle to make ends meet or engage in financially disastrous “Eat, Drink and Be Merry” binge spending programmed into their brains by the MSM, which repeatedly tells them that things have never been better and they should go shopping; overall savings are non-existent or meaningless for the vast majority of the population; among many other signs of fiscal and financial decline.

The WCBD, which includes all western central banks, the World Bank, the IMF, the ESF and their consolidating organization, the intensely secretive, predatory, and frigid BIS, is fully aware that the system is failing. The United States Federal Reserve System alone employs hundreds of Ph. D. economists and statisticians, and it is literally impossible they do not comprehend that trillions more fiat currency units must be created out of nothing to keep the monetary system functioning. Further, it is impossible that these Ph. D.s and their management do not realize that ultimately, the very design of the fiat monetary edifice means that it must erupt into a hyperinflationary bonfire, exactly as it has repeatedly done throughout history. Every “fix” now being implemented, most particularly the new, frenzied fixation on GDP growth, is an urgent attempt deflect attention away from the structural impossibilities of the monetary system, and to buy time.

For years, people have realized that certain vital government statistics, such as employment, inflation, retail sales and GDP are manipulated to tell a comforting narrative that all is well in the land. Confidence is everything in debt-dependent, fiat currency-based, consumer-expenditure-addicted economies. But for some strange reason, very few people question the most important statistic of all: money supply. This is remarkable in light of the fact that long after the emergency measures taken to re-start the system during the Great Financial Crisis (GFC), we learned that the Fed had created, in total secrecy, trillions of dollars’ worth of currency swaps that were extended to foreign central banks in order to bail out the financial system. This was so far outside the Fed’s “Dual Mandate” that it beggared belief they had actually done it, let alone without any public or even intra-governmental disclosure whatsoever.

We believe that such secret GFC money creation is just the tip of the iceberg, and that the revelation of actual, as opposed to deliberately misstated money supply would dumbfound even the most sophisticated of financial observers and require a recalculation of virtually every financial and economic metric. All of which would massively deteriorate. We believe that this is one black swan among dozens that could ignite a broad-based flight into physical gold, as people rushed to monetary high ground for financial and personal safety.

On 27 June 2017, during the British Academy President’s Lecture Q&A Session in London, Janet Yellen made the following, now famous statement in answer to a question:

“Would I say there will never, ever be another financial crisis? You know, that would probably be going too far, but I do think we are much safer, and I hope that it will not be in our lifetimes, and I don’t believe it will be.”

Many observers chalked up this comment to central banker self-congratulation and boastfulness. Or, they assumed that Ms. Yellen was making a campaign statement to land a second term as Fed Chair. We viewed it differently.

We do not believe Yellen ever had any intention of serving a second term as Fed Chair, and that her “candidacy” was theater. Yellen, Fischer and Dudley, all of whom have gotten or are getting out, realize that the monetary and financial systems are rigged to the breaking point, and that when they fail, the fallout will be uncontrollable. They know the systems are rigged, because they rigged them, and don’t want to be anywhere near them when they blow apart. This helps explain the documented elitist fascinations with long range Gulfstream jets and New Zealand, among their numerous other escape vehicles.

If Yellen had said she was not interested in serving a second term, this would have indicated that something is seriously wrong, a message central bankers never send beforehand. Having admitted, as she has, that she and many of her colleagues no longer understand inflation, an appreciation of which is absolutely critical to the entire process of central banking, she also admitted that, like Fukushima, the monetary system is melting down and out of control. Therefore, she played the game of running for a second term, even though it was just an act.

In the second to last paragraph of her 20 November 2017 resignation letter, Yellen wrote:

“I am enormously proud to have worked alongside many dedicated and highly able
women and men, particularly my predecessor as Chair, Ben S. Bernanke, whose
leadership during the financial crisis and its aftermath was critical to restoring the
soundness of our financial system and prosperity of our country. I am also gratified
by the substantial improvement in the economy since the crisis. The economy has
produced 17 million jobs, on net, over the past 8 years and, by most metrics, is
close to achieving the Federal Reserve’s statutory objective of maximum employment
and price stability. Of course, sustaining this progress will require continued
monitoring of, and decisive responses to, newly emerging threats to financial and
economic stability.” [Our italics.]

This statement was an Inferential Analytics trigger, because we noted that she did not say, “if” there are “newly emerging threats to financial and economic stability.” [Cryptocurrencies/Bitcoin are seen as threat per Trump’s statement that Homeland Security was monitoring Thursday’s Bitcoin sell-off]

A second IA trigger was pulled when Jerome Powell, during his opening comments to the U.S. Senate Banking Committee reviewing his Fed Chair nomination, said the following on 28 November 2017:

“We must be prepared to respond decisively and with appropriate force to new and
unexpected threats to our nation’s financial stability and economic prosperity.”

Please note two things: 1) Like Yellen, he did not say “if” there are “new and unexpected threats to our nation’s financial stability and economic prosperity;” and, 2) the nearly identical language used by both.

To us, both Yellen and Powell are warning that “newly emerging financial threats to financial and economic stability” and “economic prosperity” are on the horizon. People might comfort themselves by saying, “That is always the case,” which is true. Endogenous and exogenous risks to complicated systems always exist. The problem is that when these threats manifest themselves, what can they do about them at this point, other than print massive quantities of new currency units, a so-called medicine that has become more toxic than the disease it attempts to cure.

Central bankers go to lengths to paint a rosy picture, because belief is everything when people are living in a fantasy, which an economy that is more than $200 trillion in debt all told, is. We therefore find it extraordinary that Yellen, on her way out, and Powell, on his way in are painting a dark picture by talking about “threats to financial and economic stability.” They would not be using these words if they did not know that something serious is on the horizon. They know, because the threats are of the WCBD’s direct making.

Regarding the specific comment Yellen made in London, we believe she was saying that the Fed in particular, and the WCBD in general, have now transferred the mechanisms perfected over the past 40 years to control precious metals prices, to western stock markets, in order to control their prices. The only difference being that while they have used sophisticated, computerized price manipulation techniques to push precious metals prices down, they are using the same techniques to push stock prices up.

Why? For four primary reasons: 1) To prevent the pension system from collapsing, which would bring down the entire economy and banking system with it; 2) To generate badly needed income and capital gains tax revenue; (Please keep in mind that most employee stock option gains are taxed as individual income, and result in top income tax rates being imposed; full, uncapped Medicare taxes being paid by both employee and employer; and, the Obamacare 0.9% Medicare surtax being collected. Therefore, such stock option gains represent a trifecta tax bonanza for the government. Additionally, capital gains over a minor threshold amount, which is not indexed to inflation, are now subject to the Obamacare 3.8% surtax, which the proposed “Repeal and Replace” House and Senate legislation never rescinded, evidence that the government is dependent upon the surtax revenue and will not let it go. As we can see, Republican legislators spoke with a forked tongue; while they said they hated Obamacare, they forgot to mention that they love its tax revenue and have no intention of parting with it); 3) To foster the “Wealth Effect,” and thereby stimulate consumer spending, which is critical to employment, corporate profits, corporate profit taxes and state sales taxes. In deliberately creating a consumer spending, as opposed to a production economy, the government and the citizens have become slaves to a low-to-zero savings, binge spending, consumer impoverishment economy, which is a Castle in the Air and a mirage that will fade; 4) To facilitate a high-intensity, big-dollar insider trading, front running and looting spree, via the dissemination of inside information to the elite regarding upcoming WCBD policy decisions and government economic reports, all of which move markets in predictable, sizable, and enormously profitable ways for those who can exploit them in advance. The surge in wealth inequality is not natural, and not an accident.

In addition to precious metals price controls and the legalization of bail-in banking, numerous other developments, such as the accelerated push to eliminate cash all suggest that the people are being elaborately set up for epic financial slaughter by the Deep State plunderers. The Deep Statists are intent on eliminating financial sanctuaries that are outside their bail-in dragnets. In past situations of this kind, gold has performed admirably in protecting wealth and, far more important, human lives.

We mentioned in Part 1 that there is a clue in the Financial Times article that demonstrates the statists’ fear that they cannot prevent broad scale interest in gold from developing among the people. The FT article argued that due to dealer commissions, physical gold is more expensive than its electronic counterpart. It also stated that physical coin dealers are dangerous because they are “exploitative” and “shady.” The conclusion the author reached for his dear readers to follow was this: “More gold will be traded electronically,” because if one is going to buy gold, electronic products are the better deal.

This is exactly what the increasingly concerned Deep Statists are trying to steer people into doing: buying electronic, not physical gold. They appear to realize that they might not be able to control the gold price for much longer, and that if the price gets away from them, the Cryptocurrency Effect will be activated in gold. If that happens, a price Vesuvius lies ahead. The volcano, they cannot stop. All they can do is misdirect the people’s money into their phony electronic gold products, to sterilize and control those funds. Then, when the price does explode, they will force customers to accept involuntary cash settlements and close out the electronic acounts. The customers will get fiat currency at the precise time when it is plunging in value, and the statists will keep any physical gold they might have purchased with customers’ funds.

As Sun Tzu said, in war, you must know the enemy and yourself if you intend to win. We hope that our article has helped readers know the enemy a bit better. The next task is to know yourself; to ask yourself, “Given what I know, what should I do?” In our opinion, and this is just our personal point of view, not an investment recommendation, which we are not licensed to provide, the fact that the Deep State elitists are stopping at nothing to discourage you from buying physical gold is the precise reason why you should buy it. And if this article has resonated with you, then you probably also believe, as we do, that the time to financially prepare yourself is getting short. The current intensity of price maneuvering and manipulation in a broad variety of markets implies that the center is losing hold, and that something wicked this way comes.

 

 

How Gold Prices Perform During Interest Rate Hikes

How Gold Prices Perform During Interest Rate Hikes

How Gold Prices Perform During Interest Rate Hikes

It is time to talk about higher interest rates and what it means for gold prices.

For the first time since the onset of the credit crisis, we believe the market is beginning to price in a higher probability that the Fed is finally in the position to raise rates both continually and more frequently. The prevailing view is that central bank rate hikes are the natural enemy for gold prices. Analyzing rate cycles and gold prices from 1971, we find that gold prices tend to do better in hiking-cycles than cutting-cycles. We find that the positive performance during hiking-cycles can be explained with the three drivers identified in our gold price framework. Given the outlook for these three drivers, gold will likely do well over the coming quarters even as the Fed keeps raising rates.

In recent years, the Fed has persistently indicated that it was going to hike rates several times per year over the next few years until rates are “normalized”. So far, the Fed has fallen short on delivery, having hiked only once in 2015, once in 2016 and so far twice in 2017. While that doesn’t sound like a lot, compared to its peers, the Fed is a hawk.

  • From 2008, the ECB has gradually lowered its base interest rate to zero where it currently remains.
  • Similarly, the BoE slashed its base rate to 0.5% in 2009 and lowered it further in 2016 to 0.25%, though it did raise it to 0.5% earlier this month.
  • The BoJ policy rates have been languishing near zero since 2009 and dropped below zero (currently -0.1%) two years ago.
  • The Reserve Bank of Australia started slashing rates in 2008 from over 7% to currently 1.5%, also the lowest in history.
  • The SNB continuously lowered rates since 2008 and slashed them to a staggering -0.75% in 2014, where they have remained ever since.
  • While the Bank of Canada managed to hike rates over the past two years, policy rates are still at just 1%, compared to 4.5% in 2008.

However, for the first time since the onset of the credit crisis, we believe the market is beginning to price in a higher probability that the Fed is finally in the position to raise rates continually and more frequently until we are back to a “normal” rate environment. This outlook is increasingly reflected Fed funds futures (see Figure 1).

The market is pricing in multiple rate hikes until December 2018Screen Shot 2017 11 21 at 2.49.50 PM

Moreover, such an aggressive1 Fed rate path is unlikely to happen with other central banks continuing to push an accommodative monetary policy as it was the case over the past two years. In our view, the ECB would likely have to react and shift to a more hawkish policy as well, something they would rather avoid.

WHAT DOES THAT MEAN FOR GOLD?

It seems to be the consensus view that central bank rate hikes are the natural enemy for gold prices. Higher rates, so the argument goes, would diminish the incentive for investors to hold gold as gold “pays no interest”, which then in turn should lead to lower gold prices. This view is not only just too simplistic in our view, it is also inconsistent with historical performance.

First, gold does pay interest, if it is lent out (the interest rate on gold is called the gold lease rate). The same logic applies to fiat currency. A USD100 bill pays no interest either. In order to generate interest, fiat currency has to be lent out, which can be done by putting it into a bank savings account (effectively lending the money to the bank and becoming a creditor).

Second, and this is the much more important point, interest rates alone are only small piece of the puzzle when it comes to the drivers for gold prices. In our gold price framework piece (see Gold Price Framework Vol. 1: Price Model, October 8, 2015), we identify three main drivers for the gold price: Central bank policy, longer dated energy prices and changes in central bank gold holdings. Interest rates play a crucial role in the first category. But it is not nominal rates that drive the price, but real-interest rates.2 Consequently, even when nominal interest rates rise, gold prices are not necessarily negatively affected. In fact, if inflation expectations rise more than expectations for nominal rates, changes in real interest rates would even be a positive driver for gold prices. We have seen this effect to the extreme in the late 1970s and early 1980s when the Fed relentlessly raised rates to double digits, but inflation was high and rising, and as the market continued to price in years of ongoing double-digit inflation, gold prices kept rallying (see Figure 2). Only when the Fed, under Chairman Volker, decided to break the inflation cycle by ramping up rates to nearly 20%, inflation started to slow down. Real interest rate expectations subsequently increased and gold prices eventually declined. But even as gold prices receded almost 50% from the highs in the early 1980s, they ended up >800% higher than where they were at the beginning of the cycle.

In the late 1970 we experienced a period of sharp rate hikes and rising gold prices

GOLD PERFORMANCE IN INTEREST RATE CYCLES

To get a better understanding how gold performs in different interest rate environments, we analyzed performance of gold in USD over the 46 year period since the demonization of gold in 1971. In a first step, we divided this entire time-period into hiking-cycles and cutting-cycles, where a new cycle starts every time a change in the fed funds rate occurs that has the opposite sign of the most recent change. For example, the most recent cuting-cycle began in September 2007 when the Fed lowered the Fed funds rate to 4.75% from previously 5.25%. The Fed then kept on lowering rates until December 2008 when the Fed funds rate hit 0.25% where it remained for seven years. In December 2015, the Fed raised rates again for the first time, which is when the cutting-cycle ended and the new hiking-cycle began. Using this methodology, we identified 23 hiking- and 23 cutting-cycles since 1971 (see Figure 3).

We identified 23 rate cycles since the demonetization of gold in 1971

On average, hiking-cycles lasted 10 months while cutting-cycles lasted 14 months. We find that gold performed equally well in both hiking- and cutting-cycles with an average annualized performance of 7.80% (see Table 1). One can argue that the strong average gold price performance during hiking-cycles is skewed to the upside by the high-inflation, high-interest rate period of the 1970-1980s which we highlighted above. But even if we exclude this period and start measuring from 19903, gold did even better during periods of rising rates with an annualized performance of around 4.85% in hiking-cycles vs. 4.0% during cutting-cycles.

Moreover, if we just slightly shift the way we measure the performance by including the performance of the month in which the Fed changes direction to the previous cycle4, things look even better for rate hike environments. Measured this way, gold had an average annualized return of 9.1% in hiking-cycles vs. just 6.8% in cutting-cycles. Measuring the performance this way from 1990 onwards showed a 7.23% return during hike-cycles and 2.55% during cut-cycles.

We also analyzed how gold performed in the months where the rate change occurred. We identified 98 rate hikes and 91 rate cuts since 1971. On average, months with a rate hike showed an annualized gold price performance of 15.4% vs an average 8.3% for months with a rate cut. And when measured from 1990, hike months have yielded an average return of 8.1% while cut months only one of 4.5%.

We then did the same analysis measuring gold’s performance for the months following a rate change rather than the month of the change itself. In this case, gold increased by 15.0% on average on an annualized basis after the Fed cut rates, and 16.7% after a hike. And measured only from 1990, gold had an average annualised increase of 22.7% after a hike month, while it “only” rallied 14.5% after cut months.

On net, we can conclude that rate hikes – contrary to common beliefs – don’t normally impact the gold price negatively at all. In fact, historically gold has done better during and immediately after both specific rate hikes and hiking-cycles than during and after rate cuts and cutting-cycles.

Gold tends to perform equally good or better during rate hikes

IN DEPTH ANALYSIS

In order to better understand why gold prices – contrary to common belief – tend not to be depressed by rising rates, we analyzed the 10 cycles since 1992.5 Using our proprietary gold price framework, we attributed the change in price to the three main drivers we identified in our model: Central bank policy (real interest rates/QE), longer dated energy prices and changes in central bank gold holdings. In the five hiking cycles, gold prices were down in one instance, essentially flat in two and up substantially in the remaining two (see Table 2).

Gold's positive performance in previous hike-cycles

HIKING CYCLES WITH FLAT GOLD PRICE PERFORMANCE

The first hike cycle with flat gold price performance that we analyzed started in February 1994 and lasted until June 1995. During that period, the Fed raised the Fed funds rate from 3% to 6%. However, real-interest rate expectations remained stable around 3.6%.6 Longer-dated energy prices, as measured by the 5-year forward price of Brent, also remained stable (between USD16.86/bbl to USD17.11/bbl) and central banks globally neither added nor sold any significant quantity of gold. They key in this cycle thus was that real interest rate expectations did not materially go up, despite a relatively quick rise in nominal rates by 3%.

The second hike-cycle with flat gold price performance started in June 1999 and ended in December 2000. During that time, the Fed raised rates from 4.75% to 6.5%. Gold increased slightly from USD262/ozt to USD272/ozt. Despite the hike in nominal rates, real-interest rate expectations decreased during that period from 3.91% to 3.30%, meaning the real-interest rate environment was positive for gold. Also, longer-dated energy prices increased slightly from USD17.92/bbl to USD18.57/bbl. However, these tailwinds from real interest rate expectations and energy prices were offset by net gold sales from central banks of 530 tonnes during that period, which resulted in the net flat gold price performance.

HIKING CYCLE WITH NEGATIVE GOLD PRICE PERFORMANCE

Between March 1997 and August 1998, the Fed hiked rates from 5% to 5.25%. Gold prices declined 24% during that period from USD363/ozt to USD276/ozt. Real-interest rate expectations fell during that period from 4.43% to 3.42% but this positive gold price driver was offset by a decline in longer dated energy prices from USD19.15/bbl to USD17.05/bbl, and central banks selling 156 tonnes of gold. Overall, our model would have predicted such an environment to be neutral to very slightly positive for the gold price. Thus, our model does not predict this realized price decline very well. However, we find that if we add one more variable to the model, the model is able to predict this brief period more accurately. That variable is the Asia USD index. Spring 1997 marks the onset of the Asian crisis that began in Thailand and quickly spread across the region, impacting Asian economies, currencies (hence the collapse in the Asia USD index) and eventually the buying power of the people living in these countries, which have traditionally been large buyers of gold. Hence, we believe that absent this singular event, gold prices returns would probably have been flat or even positive during this particular hiking-cycle as well.

HIKING CYCLES WITH POSITIVE GOLD PRICE PERFORMANCE

The first hiking-cycle with positive gold price performance that we analyzed started in June 2004 and ended in September 2007. During that time, gold prices went from USD396/ozt to USD744/ozt, an increase of 88%, all while the Fed hiked rates from 1% to 5.25%. Importantly, real-interest rates increased only marginally, from 2.15% to 2.26%. At the same time, central banks sold nearly 1550 tons of gold, which had a negative impact on the price by around USD45/ozt, according to our model. What drove the gold price rally was the sharp price increase in longer-dated energy prices from USD26.50/bbl to USD71.50, an increase of 270%. According to our model parameters, this translated into a gold price increase of USD375/ozt.

The second gold price rally in a rising interest rate environment started in December 2015 as the Fed departed from eight years of near-zero interest rates and increased rates by 25bps. Two more hikes followed since, lifting the Fed funds upper target rate to 1.25% where it currently stands. During that time, gold prices rallied 19%. This time it was a combination of all three drivers that pushed prices higher: TIPS yields declined from 0.75% to currently 0.45% and while the Fed is no longer increasing its asset holdings, the ECB, BoJ, BoE and SNB resumed and accelerated their respective asset purchase programs. Longer-dated oil prices rose from USD56.30/bbl to USD58.30/bbl and central banks added 930 tonnes of gold.

CONCLUSIONS

On net, we find that central bank rate hike cycles don’t automatically translate to gold bear markets. Quite the contrary: historically, gold prices have done better on average when the Fed was hiking rather than cutting rates. Gold has managed to rise in hiking-cycles when one or more of the price drivers we have identified (real interest rates, long-dated energy and central bank net purchases) created strong tailwinds for gold, countering any potential headwinds from rising nominal policy rates. Looking at these three drivers, we don’t see much reason why gold prices should decline for the remainder of the current hiking-cycle either.

As we have outlined before in detail (see Gold is breaking free from Fed rate expectations, 20 March 2017), real interest-rate expectations are unlikely to increase much from current levels. In fact, given the Fed’s own assessment of where terminal rates will end up, the most bullish scenario (for real interest rates) would be one where TIPS yields increase by 0.5% to 1%. For that to happen, the Fed would have to be able to continually raise rates for three more years without triggering a recession, making this the longest recession-free period in US history. The more bearish (and in our view more likely) scenario is that the US economy will encounter a recession along the way, forcing the Fed to cut rates to zero again and – because there is not enough room to cut rates by the average 5% that is typical in a recession – launching another round of unconventional monetary policy to resume growing its balance sheet.

Similarly, longer-dated energy prices have little downside from here and much more upside over the long run. Spot oil prices have rallied sharply in recent weeks as the overhang in global petroleum inventories is finally drawing down. But longer dated prices have remained fairly stable around USD55-60/bbl, the low end of what we think is needed to encourage new investments in production, and to replace depleted sources to secure future supply over the long run. And that is without taking inflation into account. Further, we expect that central banks remain net buyers of gold for the foreseeable future. Central banks in the western hemisphere largely stopped selling gold a few years ago while emerging market central banks keep adding metal, particularly China and Russia, but others as well.

Taking all this into account, this likely means that the downside risks to gold are limited in the current hiking-cycle. Similarly, absent an acceleration in inflation we also don’t see a near-term catalyst for a sharp rally either, but over the long run the risks are clearly skewed to the upside in our view.

FAQs

WHAT IS INFLATION?

The original definition of inflation is an increase in the amount of money in circulation. Today the term inflation is mostly used to refer to the rate at which the price level, however defined, is rising. For example, a good that costs $100 today and $110 a year later experienced inflation of 10%. When referring to the original meaning, economists therefore often use the term ‘monetary inflation’ to distinguish from ‘price inflation’. Economists create weighted baskets of goods and services to estimate overall consumer price inflation. For example, the consumer price index (CPI) reflects the price development of a basket of goods and services that aims at replicating the typical consumer’s cost of living.

WHAT IS THE CURRENT INFLATION RATE?

There is no straightforward answer for this. Price inflation can be estimated in many different ways. The two most widely accepted price inflation indices are PCE (personal consumption expenditure) and CPI (consumer price index). The former is used by the Federal Reserve when setting US monetary policy and the latter applies to cost of living adjustments for US Social Security and certain other federal government benefits. We find that CPI inflation expectations have been a key driver for gold prices. CPI inflation also usually tends to be higher than PCE inflation. CPI (urban consumers) inflation in October 2017 came in at 2.0% year-over-year up from 1.6% a year ago.

WHAT IS THE NOMINAL INTEREST RATE?

Nominal interest rates are simply the interest paid on an investment in percentage terms. For example, a bond that sold for $100 and pays a $2 coupon per annum has a 2% interest rate. However, the value of a bond deviates from its face value over time when overall interest rates change. When interest rates decline, (all else equal) the bond above would increase in value as it now pays a higher interest than bonds that are issued today. Therefore, in financial markets one would usually refer to the yield of a bond—which is simply the return on the bond(coupon / price)—for comparison purposes. If the bond is trading at par (price is the same as the face value), the interest rate and the yield are the same. What makes things more complicated is that the two terms are often used interchangeably. In that case, the term interest rate is usually used to describe the yield of a fixed income instrument. Most people are not active investors in bonds (although they might be via their pension funds) and know interest rates only from their bank account. The interest paid on a savings account is equivalent to its yield and is a nominal interest rate.

WHAT IS THE REAL INTEREST RATE?

In contrast to nominal interest rates, real interest rates also take the level of price inflation into account. Broadly speaking, real interest rates = nominal interest rates + price inflation. Hence real interest rates measure the return on an investment in actual purchasing power. Why do real interest rates matter? For example, when interest rates are at 5% p.a. but inflation is 10% p.a. , after one year the lender has earned 5% in nominal terms, but he actually has lost value. More specifically, with an initial investment of $100 he would end up with $105 after one year. But those $105 would only buy him 95% of the goods and services the original $100 bought a year ago. Thus when price inflation is higher than the nominal interest rate on savings accounts, savers are de facto paying to lend out their money to the bank. Currently the national average money market account rate is 0.2% while inflation is 2.0%, hence savers lose 1.8% of their purchasing power per year if price inflation stays at this level.

WHAT IS THE FED?

The Fed is short for the US Federal Reserve, which was established in 1913 by the US Congress. The Fed is headed by the Board of Governors of the Federal Reserve, consisting of 7 presidential appointees serving 14 year terms. It’s most important body however is the Federal Open Market Committee (FOMC). The Current chairwoman of the Fed and FOMC is Janet Yellen.

The Fed has several functions. It acts as the lender of last resort to financial institutions that temporarily lose access to the capital markets in a crisis. It exerts other banking functions such clearing the transfer of funds from one bank to another. It also acts as the US government’s bank and sells and redeems government securities. However, what receives the most attention is that the Fed determines monetary policy, that is, the level of nominal interest rates. The monetary policy decisions of the Fed, such as setting interest rates, are made by the FOMC.

WHAT IS THE FOMC?

There are 12 voting members of the FOMC: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York and the presidents of four other regional Reserve Banks (on a one-year rotating basis). There are eight scheduled FOMC meetings per year. When the FOMC sets interest rates, it actually sets the lower and upper bounds of the federal funds rate, the rate at which banks either lend out or borrow reserves in order to meet statutory reserve requirements.

WHAT IS THE FEDERAL FUNDS RATE?

The federal funds rate is the overnight interest rate at which a depository institution (a bank) lends funds to another depository institution. The Fed only sets a target band; the banks can in theory charge each other what they want. However, in practice the rate at which banks lend to each other is always within this band. The Fed uses open market operations to ensure that the fed funds rate stays within the target band. This means that it buys and sells securities (normally US Treasuries) from its member banks and replaces them with Federal Reserve credit. The upper band is called the discount rate. Even though the Fed prefers that banks to borrow from each other, the fed funds rate should in theory not be able to exceed the discount rate as otherwise the banks may simply borrow directly from the Fed itself. What makes the fed funds rate so important is that it necessarily influences all other interest rates as well. Hence by setting the fed funds rate target, the Fed is able to influence credit conditions throughout the economy.

WHAT IS FORWARD GUIDANCE?

At the end of an FOMC meeting, the Fed announces its outcome and releases a statement that aims to provide the public with information about the FOMC members’ views in regards to current macroeconomic conditions as well as their expectations thereof. Among other data, the Fed publishes a so called dotplot which shows where the FOMC members believe the Fed funds rate will be at the end of each year for the next few years and over the long run. The median projection is regarded as the Feds forward guidance for the interest rate path. Often the market is more interested in the Feds forward guidance than in the most recent monetary policy decision itself. For example, when the Fed announced its third rate hike in 11 years on March 15, 2017, the market reaction implied that the Fed had become more dovish rather than hawkish. The reason for this was that the Fed left its interest rate projections largely unchanged while the marked had expected the adoption of a more hawkish outlook.

WILL THE FED RAISE INTEREST RATES?

At the moment it seems likely that the Fed will continue to raise rates. Since the Fed began to depart from zero interest rates in December 2015 it has raised rates three times by 25bps (0.25%) each. According to the Fed’s own dotplot forecasts the Fed is anticipating raising rates to 2.85% by the end of 2020. However, the market is not expecting the Fed to be able to raise rates as quickly as the Fed’s forward guidance suggests.

WILL REAL INTEREST RATES RISE?

Unlikely. We believe the Fed will only continue to raise nominal interest rates as long as the US economy keeps expanding and inflation remains above the 2% target. This suggests that at the end of the current hiking cycle, realized real interest rates will not exceed 1%. However, we are currently already in the second longest period of economic expansion in US history. Should the US economy slow down or even fall into recession, the Fed would more probably have to cut rates rather than raise rates, in our view. We would expect real-interest rates to go sharply lower in such a scenario. – Stefan Wieler

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