If pleasures are greatest in anticipation, just remember that this is also true of trouble.
– Sol Palha: Throughout 2016, we stated we did not expect much from Gold, and we stuck to this forecast, even though many experts went out of their way to report that Gold was ready to soar to the Moon or even to the next Galaxy. In fact, since 2011, we have continuously said that until the Trend turns positive, it would be best to play other lucrative markets, such as the general equities market, the US dollar, etc. During this time several experts stated that Gold was ready to surge and some issued insane targets ranging from $20,000-$50,000. Under no circumstance can we ever see Gold going to $20,000 or $50,000 and even if drank a whole bottle of scotch or any other toxic compound it would still be very hard to visualise such a target. Issuing such targets is perfect for fear mongering, and we find that tactic to be unpleasant and distasteful.
You would think that experts would try to release targets that made some sense. After all, Gold prices have not even traded past $2,000, so it makes one wonder how any individuals with a shred of common sense could issue a target of over $5,000. Even this target is quite high, and we only envision it being struck under extreme conditions. Don’t fixate on these preposterous targets for such targets are only for those who live in Lala land and have plenty of time to ponder over rubbish. Gold prices would need to trade past $1990 on a monthly basis to indicate significantly higher prices. Until that occurs, focus on targets that are below $2,000.
Having said that Gold has for the time in many years issued a confluence of bullish signals. The trend is still neutral but moving closer and closer to the bullish zone.
Let’s examine these bullish factors
Panic in the Gold Camp; we spotted a surge in frustration in the Gold camp when it traded below 1200 after creating the illusion that It was ready to take off in Nov 2016; this frustration soared when it broke below 1150, and it reached a screeching point when it traded below 1130
Many Technical Indicators, including several of our custom indicators are trading in the extremely oversold ranges on the weekly charts. Weekly charts, infers that each bar on the chart represents one week’s worth of data
8 out of the top 10 sectors based on relative strength are commodity based industries; Gold comes in at number 10.
Some speculative stocks such as GSS have taken off; GSS, for example, is several hundred percentage points since Jan of 2016. GSS did its own thing completely ignoring the price of Gold. Individually, this is not a big deal, but collectively it takes on more weight.
If you look at the weekly chart of GSS, you would not think this stock is in the Gold sector given the strong performance. When small caps stocks start to take off before the metal, it is usually a sign of good things to come. Markets are forwarded looking beasts so stocks like GSS could be pricing a future that is more favourable to Gold.
This is a weekly chart of Gold, and there are several interesting developments
Very strong intra Market Positive divergence signal
Gold bottomed on the 15th of Dec 2016, but the dollar continued to trend higher for several more days and the yellow metal reacted in a positive way to this development. The dollar has been on a tear since Trump won, so Gold should have continued trending lower, but it did not. In Dec 2015, Gold dropped to the $1050 ranges, but the dollar was trading below 100, but in 2016 the dollar was trading well above 100 and Gold refused to take out the lows set back in 2015. This is a very strong intra-market positive divergence signal and has to be viewed through a bullish lens.
Gold has now given the first signal that it is getting ready to test the $1360 ranges with a possible overshoot to the $1380 ranges. A weekly close above $1380 will set up the path for a test of and potential challenge of the 2011 highs. As a result of these developments, it no longer needs to trade down to the mid to high $1000 ranges. The downside risk is limited from here, and if you do not have a position in Gold bullion, it might be prudent to deploy some funds into Gold and or Silver bullion.
We do not try to predict tops or bottoms; we focus on trends. We are not concerned with getting in at the absolute bottom or top because that is endeavour best reserved for fools with plenty of time. For every top or bottom you might catch, there are ten that you will miss. When there is a trend change, you have plenty of time to get in. Most of the bottom fishers will close their positions very early in the game as they will be so happy with the quick gains they locked in after years of suffering. Only when the markets take off and soar to heights they once imagined but did not have the courage to play will they realise the folly of their actions.
This is the first time since 2011 that we are viewing the Gold market through a positivelens. Keep in mind; there is no such thing as the perfect investment. The market by nature is imperfect; therefore you should never put all your eggs in one basket.
– Neils Christensen: The silver market is attracting investor attention as hedge funds pick the grey metal over gold, according to the latest trade data from the Commodity Futures Trading Commission.
The disaggregated Commitments of Traders report, for the week ending Jan. 24, showed money managers increased their speculative gross long positions in Comex silver futures by 4,512 contracts to 71,727. At the same time, short bets rose by only 187 contracts to 15,625. Silver’s net length now stands at 56,102 contracts.
Silver’s net length increased 8% from the previous week as prices remained near a two-month high above $17 an ounce. However, silver’s bullish speculative positioning is still down significantly, 41.5%, from its record highs seen earlier in the year.
As of the end of the survey period, silver prices have rallied 7.6%. Some analysts have been bullish on silver for 2017 as its industrial component is expected to shine in an environment of stronger global economic growth.
Ole Hansen, head of commodity strategy at Saxo Bank, noted that money managers have extended their net length in silver for four straight weeks.
“The tailwind from a robust industrial metal sector has been one of the drivers behind silver’s out-performance against gold during this time.”
While hedge funds are generally bullish on silver, the latest trade data showed they are less confident in gold with some investors saying that the momentum since the start of the year has run its course.
“Uncertainty surrounding the prospects for the U.S. economy and the resulting monetary policy prompted speculative investors to remove a nearly equal gold short and long exposure. Relative optimism on Mr. Trump’s ability to cut taxes and increase spending will likely drive investors away from gold, while any negative news on that front will do the opposite.”
The disaggregated report showed money-managed speculative gross long positions in Comex gold futures fell by 6,407 contracts to 135,159. At the same time, short positions fell by 7,526 contracts to 75,405. Gold’s net length now stands at 59,754 contracts.
Gold’s net length is up less than 2% from the previous week as the price was unable hold a six-week high above $1,200 an ounce.
To date, the price of gold and silver have followed a very similar trading path that was taken by the metals in early 2016, with gold and silver bottoming in mid-December and staging a strong rally through mid-January. Technically, as our Shadow of Truth guest Craig “Turd Ferguson” Hemke points out, all of the stars were aligned for a take-down of the gold price using paper derivative gold.
These “stars” include: January contract trading expiration, February options contact expiration, an “overbought” technical condition and the upcoming FOMC meeting and employment report next week. ALL of these variables are factors which are used to help the bullion bank gold cartel take down the price of gold and silver using the paper gold derivatives traded largely without enforcement of the regulations in place in New York and London.
But now the gold and silver market is set up for an upside surprise. Contrary to recent “alternative facts” media reporting, India has continued consuming a lot of gold on a daily basis. This includes legal kilo imports, dore bar importation (subject to a lower import duty than kilo bars) and smuggling, the latter of which is estimated to be as high as 300 tonnes per year now. The “authorities” in the media who track gold into India fail to account for dore bar flow and smuggling.
In addition, a favorite false narrative of the World Gold Council, Bloomberg and Reuters is that gold imports into China slowed down at the end of the year because of import restrictions put on gold by the Government. Nothing could be further from the truth. The “fake news” reports are based on imports into Hong Kong, which are publicly reported by Hong Kong authorities. But a few years ago China began to allow gold imports through Beijing and Shanghai, which is not reported, specifically to obscure the true amount of gold flowing into China.
But it’s easier to build a false narrative around easily observable data rather than look for the greater truths intentionally hidden from public purview. As it turns out, nearly 100 tonnes of gold were delivered onto the Shanghai Gold Exchange on the last trading day before China closes shop for the Chinese New Year celebration. Of course, if any of that gold flowed through Beijing or Shanghai, it would go unaccounted for by the entities listed above that only account for gold going from Hong Kong into China.
We at the Shadow of Truth are forecasting a better year for the metals in 2017 than in 2016. We invited Turd Ferguson on the show for lively two-part discussion of the factors that will drive gold and silver prices higher:
Courtesy: Investment Research Dynamics
– BlackRock: Russ Koesterich discusses the signs that inflation is rising faster than many expect, and what that means for your portfolio.
Like the proverbial frog that does not notice the rise in water temperature until it’s too late, investors seem to be experiencing a similarly stealthy rise in inflation. Changes in headline inflation measures suggest a gentle firming in prices. However, underneath the surface there is evidence that inflation may continue to rise past the steady 2% nirvana that central banks prefer. Consider the following:
Housing is a major component of core inflation, i.e. inflation without volatile food and energy prices. The main housing component in the Consumer Price Index (CPI) is Owners’ Equivalents Rent (OER). As overall housing costs make up over 40% of core inflation, this is a key metric to watch. Last December OER rose over 3.5% from the previous year, the quickest pace in nearly 10 years (see the accompanying chart).
A few years back it seemed that medical costs were finally under control. That conclusion now appears premature. CPI for medical care has been rising at roughly 4% year-over-year for the past six months. With the exception of a brief period in 2012, medical costs have not been rising at this rate since early 2008.
One of the defining aspects of this recovery has been persistently sluggish wage growth, even in the face of a strong labor market. That is slowly changing. While still muted by historical standards, average hourly earnings are rising by 2.9% year-over-year, the fastest pace since the spring of 2009. A potential bolster to the trend: 20 states raised their minimum wage rates as of the first of the year.
Up until recently consumer expectations for inflation remained muted. This was arguably a function of plunging oil and gasoline prices, which seem to exert an oversized importance in consumer perceptions of inflation. With oil and gasoline more stable, expectations are changing. The University of Michigan’s one-year inflation expectation survey is now at 2.6%, up 0.4% from the previous month.
None of this signals ’70s style inflation; it does suggest inflation may surpass still modest market based expectations. While 10-year inflation expectations, measured by the Treasury Inflation Protected Securities (TIPS) market, recently rose to 2.05%, they remain well below the 2.6% level reached in early 2013, a time when core inflation was roughly 50 basis points lower than it is today.
To the extent realized inflation and inflation expectations continue to rise, investors may want to consider several themes in their portfolios: a preference for TIPS over nominal Treasuries, an overweight to financial stocks, typically beneficiaries of higher interest rates, and an underweight to bond market proxies, such as utilities and consumer staples. Finally, should inflation expectations rise faster than nominal rates, gold is likely to continue to merit a place in most portfolios.
– Sarah Benali: With gold trading around key technical levels, some analysts are looking at the charts to decipher future price action; however, one London-based analyst suggests it may be a waste of time.
“[Y]ou have to watch the dollar and ten-year yields closely, and of course the news headlines. These will move gold, not technical factors,” said David Govett, head of precious metals for commodities brokerage firm Marex Spectron, in an email Q&A with Kitco News.
“There really are no key levels in gold, it is purely driven by outside influences at the moment and any level, such as 1150 or 1200 is purely a psychological round number rather than a technical point. Technicals such as Moving Averages etc. are fairly irrelevant in a market that is intrinsically linked to yields and the dollar,” he added.
Gold is heading into Fed week under pressure, settling in negative territory for the first time in five weeks. February Comex gold ended the day at $1,188.40 an ounce, relatively flat on the day.
However, Govett said he remains slightly optimistic on gold prices because of the uncertainty surrounding President Donald Trump’s proposed policies.
“I think we could see gold down to around 1160 on further liquidation, but overall the market should remain supported by the fear factor of the Trump presidency,” he said. “However, the longer he is in the White House and no dreadful things happen, then that factor starts to recede.”
As such, Govett said he expects the yellow metal not to see similar trading patterns as in 2016 and instead remain range-bound this year.
“I agree that the price action is similar [to early 2016], but I do not agree that we will see the same higher prices as last year,” he said. “The only caveat for that obviously is a geopolitical event, but barring that I think gold will move sideways this year within a 1100-1300 range.”
– Frank Holmes: Commodity investors have had to endure a dry spell for a while now, but those days are starting to look as if they might be behind us. We see encouraging signs that a bottom has been reached and a new commodities super-cycle has begun, as global manufacturing expansion and inflation are finally gathering steam following the financial crisis more than eight years ago.
As a group, commodities had their first positive year since 2010, ending 2016 up more than 11 percent, as measured by the Bloomberg Commodity Index.
A large percentage of this growth occurred in the days following the U.S. election, suggesting the reflation trade is officially in motion, which should be supported in the coming weeks and months by President Donald Trump’s pro-growth policies.
Just this week, Trump signed executive orders to proceed with the controversial Keystone XL and Dakota Access pipelines, emphasizing that the steel to be used in their construction will be American-made. Following the announcement, stock in energy infrastructure company TransCanada, which is expected to resubmit plans for the pipeline after it was rejected by the Obama administration, immediately hit a new high, while shares of several steel companies traded up.
Between Election Day and Inauguration Day, the commodities index rose 5.4 percent, with double-digit growth in crude oil (up 17.1 percent), copper (10.5 percent) and iron ore (17.7 percent).
Of the 14 commodities that we track in our ever-popular Periodic Table of Commodity Returns—which has been updated for 2016 and is available for download—only two ended the year down: corn and wheat. All this, following the group’s worst annual slump since the 2008 financial crisis.
Back in May, Citigroup was first to say that the worst was over for commodities, and in December it made the call that most raw materials were poised to “perform strongly” in 2017 on global fiscal stimulus and economic expansion.
Now, for the first time in four years, Goldman Sachs has recommended an overweight position in commodities, following reports that revenue from commodity trading at the world’s 12 biggest investment banks jumped 20-25 percent in the fourth quarter of 2016 compared to the same period in 2015.
As reported by Bloomberg, Goldman’s head of commodities research, Jeffrey Currie, drew attention to the “cyclical uptick in global economic activity,” which is “driving demand, not only for oil but all commodities.”
“U.S. and China are focal points where we’re seeing the uptick,” Currie continued, “but even the outlook for Europe is much more positive than what people would have thought six months to a year ago.”
Indeed, manufacturing activity continues to expand at a robust pace, with January’s preliminary purchasing managers’ index (PMI) for the U.S. and the eurozone registering an impressive 55.1 and 54.3, respectively. We won’t know China’s January PMI until next week, but in December it improved at its fastest pace in nearly four years. As I shared with you earlier this month, the global manufacturing PMI expanded for the fourth straight month in December, reaching its highest reading since February 2014. I’m optimistic that it will expand again in January.
Again, we closely monitor the PMI, as our research has shown that it can be used to anticipate the performance of commodities and energy three and six months out. It looks as if the world’s big banks have begun to acknowledge this correlation as well. With the health of global manufacturing trending up, we see commodities demand following suit in the coming months.
Case in point: auto sales. Last year marked a new record high, with 88.1 million cars and light commercial vehicles driven off of car lots. That figure was up 4.8 percent from 2015.
China was the standout, which increased sales 13 percent and saw 3.2 million new units sold. It should be noted, however, that sales were assisted by a 50 percent tax cut on smaller vehicles, which is no longer in place.
But consider this: Here in the U.S., the average age of cars and light trucks continues to creep up and is now 11.6 years, as of January 2016, according to IHS Markit. Improvements in quality is the main reason for the increase.
Even so, these aging vehicles will need to be replaced in the next few years, meaning domestic auto sales should remain strong. This bodes well for platinum and palladium, both of which are used in the production of catalytic converters.
But what about electric cars, which have no need for catalytic converters since they’re emissions-free? As I’ve shared with you before, electric cars—the demand for which continues to climb—use three times more copper wiring than vehicles with a conventional internal combustion engine.
There’s always an opportunity if you know where to look!
There has been a lot of discussion on the remaining global supply of certain precious metals on the alternative media. I continue to read articles that state there are only ten years worth of silver remaining. Unfortunately, many of these figures are inaccurate. So, I thought I would provide an update based on recent USGS – United States Geological Survey data and information.
For example, some analysts continue to say there are only ten years worth of silver reserves remaining. This was true back in 2009, before the USGS updated their figures. Unfortunately, the USGS had not updated their silver reserve figures for quite some time and the higher silver price (including higher prices for metals associated with by-product silver production) was as an additional factor that lead to much higher silver reserve estimates in follow years.
Here is a table from the USGS Silver Commodity Mineral Survey in 2009:
If we take the estimated silver reserves (2009) of 270,000 metric tons (mt) and divide by the annual production of 20,900 mt in 2008, that would equal 12.9 years worth of remaining reserves. Again, this is where many in the precious metals community state that there are only ten years (close enough) worth of silver remaining.
However, the USGS started revising their silver reserve figures in the following years and also replaced the “NA” information in the table above with actual reserves. Basically, the low silver price in the early 2000’s did not motivate governments to revise their silver reserves. But, as the price of silver started to skyrocket after 2009, well then, it was time to put some REAL VALUE to these silver reserves.
Here is the most recent table by the USGS, of global silver reserves:
According to the USGS, total global silver reserves are now 570,000 mt. Thus, if we divide 2015 production of 27,300 mt, we end up with 20 years worth of global silver reserves remaining… at current rates of annual production. You will notice, that Chile now has silver reserves of 77,000 mt for 2015. However, the USGS had a “NA” next to Chile’s silver reserves in its 2009 Silver Commodity Summary.
Furthermore, the top three countries (Peru, Australia & Poland) account for 51% of the total world silver reserves at 290,000 mt.
That being said, here is a chart showing the years remaining of the top global precious and base metals:
According to the USGS, copper has the largest amount of reserves remaining at 38 years compared to silver (20 years), gold (19 years), lead (19 years) and zinc (15 years). Of the five metals shown in the chart above, silver has the second highest amount of reserves, based on years worth of supply remaining.
Interestingly, zinc has the least amount of metal reserves, at only 15 years of supply. Regardless, these official estimates are based upon business as usual continuing in the global economy for the next 30-40 years. While these reserve estimates provide an “official gauge” as to how many years worth of supply of each metal is remaining, I doubt they will last that long.
This will be due to the peak and decline of global oil production as well as the continued collapse of net energy from oil supplied to the market. That being said, silver reserves will likely fall the most as 70% of silver production comes as a by-product of base metal and gold production.
Once the global oil industry disintegrates under the weight of falling prices as costs continue to rise, the decline of base metal and gold production will impact silver the greatest. Not only will silver reserves plummet to a greater degree versus the other metal reserves, so will its annual production rate.
These two factors will make the future supply of silver more vulnerable than most other metals… even gold.
– John Whitefoot: What is the forecast for silver prices in 2017? Most analysts seem to have taken a dim view of precious metals like silver and gold in 2017. In particular, most believe that silver prices will face headwinds in 2017 because of a stronger U.S. dollar, inflated stock market, encouraging U.S. economic data, and unbridled optimism that President Donald J. Trump’s policies will be good for corporate America.
Without question, silver will face some hurdles in the first quarter of 2017 as investors take a wait-and-see approach about the new Trump presidency. But, when it comes to the longer silver price trends in 2017, there are a lot of reasons why investors should be bullish about silver prices in 2017. In fact, because of these factors, silver prices could very easily double in 2017 to more than $34.00 per ounce.
This might be a bold prediction, especially when you consider that silver prices have fallen more than 10% since Trump won the U.S. presidential election last November. Silver prices have fallen more than 20% since hitting multi-year highs in August 2016.
The silver price forecast for 2017 remains bullish because the U.S. economy remains fragile. Investors flock to precious metals like silver and gold to hedge political and economic uncertainty. Silver can protect your assets and is a great hedge against inflation. Investors flocked to silver during the Great Recession and in the beginning of 2016 when the markets started to tumble.
Silver will continue to be attractive to investors because the U.S. economy remains extremely fragile. Investors and consumers are optimistic that the U.S. economy is on the right track, but most of the U.S. economic data rolling in suggests otherwise.
U.S unemployment came in at 4.6% in November, with 178,000 new jobs created. This sounds impressive. It’s not. (Source: “The Employment Situation — December 2016,” Bureau of Labor Statistics, January 6, 2017.)
The unemployment rate does not include discouraged workers who cannot find jobs and have stopped looking. The improved jobs data is a result of a lot of new low-paying part-time jobs (only 9,000 new full-time jobs were created) and more people retiring or leaving the work force.
The number of Americans not in the work force soared by 446,000 in November to a record 95.1 million. The participation rate hit 62.7%, a little shy of the October 2015 all-time low of 62.4%.
The state of the U.S. economy is hitting the younger generation of workers the hardest. The unemployment rate for those 16 to 19 years of age is 15%. Overall, the total underemployment rate is 9.3%.
Even if you do have a job, wage growth isn’t keeping up with inflation. The official U.S. inflation rate increased 0.2% month-over-month in November, with prices climbing for gas, rent, and used cars. On a year-over-year basis, overall prices were up 1.7%. (Source: “Consumer Price Index Summary,” Bureau of Labor Statistics, January 18, 2017.)
Unfortunately, that inflation rate doesn’t jive with what Americans are actually paying for things on a daily basis. According to the Chapwood Index, inflation is running above 10%. The Chapwood Index is an alternative non-government measure that looks at the unadjusted costs and price fluctuations of the top 500 items we buy (insurance, gas, coffee, Advil, dry cleaning, movie tickets, etc.) in the 50 largest cities in the United States. (Source: “Chapwood Index,” Chapwood Index, last accessed January 4, 2017.)
In New York, Los Angeles, Chicago, Philadelphia, San Diego, San Jose, San Francisco, Seattle, Boston, and Detroit, the five-year average for inflation is over 10%. Even in Colorado Springs and Wichita, the cities with the lowest inflation rates, the five-year average for inflation is around 7.5%. That far outpaces any wage increase anyone is getting—unless you’re a CEO, of course.
With inflation outpacing life, more and more Americans are getting further and further in debt. Over the last 10 years, U.S. household debt has soared by 11%, with the average household owing $132,529.00. (Source: “Household Debt Nears Pre-Recession Levels, Study Shows,”, NASDAQ, December 4, 2016.)
Total U.S. consumer debt in 2016 is expected to come in at $12.5 trillion, topping the $12.37 trillion in total debt from December 2007, when the Great Recession started.
The most expensive debt (from credit cards) costs the typical household $1,292.00 annually in interest charges.
With interest rates expected to rise three times in 2017, that debt burden is going to get even worse. Almost half of all Americans (47%) would have to borrow money if they had an emergency expense of just $400.00. Not surprisingly, more than 10% of Americans need food stamps just to get by, (Source: “66 million Americans have no emergency savings,: CNBC, June 21, 2016.)
Keep in mind, the U.S. gets more than 70% of it’s gross domestic product (GDP) from consumer spending. The U.S. economy will not be able to churn out strong growth numbers when those expected to keep the economy strong are saddled by debt, have no money, and can’t find secure, well-paying jobs.
Make no mistake, the U.S. economy is extremely fragile right now, and additional interest rate hikes could push the economy off a cliff. This runs counter to what rate hikes are supposed to do, of course. A rate hike shows that the Federal Reserve has confidence that the U.S. economy is strong enough to withstand a hike. It isn’t.
Don’t get me wrong, the Fed should have been raising rates slowly for years now. But it waited too long. Now it needs to raise rates in quicker succession, and this will hurt the average American.
In December 2015, the Fed raised its key lending rate for the first time in a decade. It was a small hike, but it showed consumers how even a small increase affects mortgages, car loans, savings rates, and other forms of interest-sensitive credit.
In December 2016, the Fed raised rates again, by a quarter of a percentage point, to a range of between 0.5% and 0.75%. Fed Chair Janet Yellen said the economy has proven to be remarkably resilient, and that the hike is a vote of confidence in the economy. (Source: Federal Reserve Press Release, Board of Governors of the Federal Reserve System, December 14, 2016.)
The Fed might be a little premature raising rates this time around too. The U.S. economy continues to face headwinds, including high household debt, high underemployment, a lack of secure, well-paying jobs, and wage growth. The U.S. only needs so many waiters and waitresses with university degrees.
It’s going to be hard for Donald J. Trump to get the U.S. economy moving in the right direction, no matter how hard he tries. The Fed expects the U.S. economy to grow just 1.9% in 2016 and 2.1% in 2017. Those are not stellar numbers for the world’s biggest economy. That’s especially true, considering that the Fed threw trillions of dollars at the U.S. economy to resuscitate it after the Great Recession.
Naturally, Donald J. Trump has big plans for igniting the U.S. economy, but that’s going to be a tough haul. The country is already $20.0 trillion in debt, and Trump wants to cut taxes and increase spending.
Weak economic growth and rising interest rates could further impede the U.S. economy and send silver prices higher.
Stock markets are only as strong as the underlying stocks. The markets may be at record levels, but the stocks supporting the nine-year old bull-market are more than a little sickly. Thanks to years and years of artificially low interest rates, investors have seen their once-reliable fixed income investments decimated. Where should those looking to boost their retirement savings park their money in a low-growth environment? Riskier investment like the stock market!
And that’s the fuel that has been propelling the stock market higher: low interest rates, not strong fundamentals. And stocks are seriously overvalued. How overvalued?
According to the Case Schiller cyclically adjusted price-to-earnings (CAPE) ratio, which is based on average inflation-adjusted earnings from the previous 10 years, the S&P 500 is overvalued by 73%. The CAPE ratio is currently at 27.80, while the 100-year median is around 16. This means that, for every $1.00 of earnings a company makes, investors are willing to spend $27.80. The ratio has only been higher twice: 1929 and 1998/99. (Source: “Online Data Robert Shiller,” Yale University, last accessed January 4, 2017.)
This is not the only ratio to suggest that stocks are significantly overvalued. The market cap to GDP ratio, which compares the total price of all publicly traded companies to GDP, also shows that stock valuations are in nosebleed territory.
A reading of 100% suggests that U.S. stocks are fairly valued. The higher the ratio over 100%, the more overvalued the stock market. The market cap to GDP ratio is currently at 127.3%. That ratio has only been higher twice since 1950: in 1999 (151.3%) and in late 2015 (129.7%). It was only at 108% before the 2008 financial crisis.
Should the U.S. economy not respond to Trump’s economic vision, or should the U.S. economy simply start to slow down even further, overvalued stocks will suffer. The U.S could slip back into a recession and stocks could crash or experience a major correction. Either event would send investors running to precious metals like silver and gold.
The U.S. is not an economic island. Nor is the stock market. U.S. companies will not be able to rely on foreign sales to help prop up revenue and earnings. Unfortunately, more and more U.S. companies are relying on foreign sales for growth. In fact, it now looks like S&P 500 companies will soon rely on foreign sales for the majority of revenue.
The percentage of sales in foreign countries for S&P 500 companies has increased for the last seven years, from 46% in 2009 to 47.9% in 2016.
That’s good news if the global economy is firing on all cylinders, but it isn’t. China is underperforming, as is Japan. And Europe, the world’s biggest economic region, is on the verge of meltdown.
French Prime Minister Manuel Valls said that the European Union (EU) is in danger of collapsing unless Germany and France, the two biggest economies in the EU, work harder to stimulate growth. (Source: Europe at risk of collapse, claims French Prime Minister Manuel Valls, Independent, November 17, 2016.)
In the third quarter, the eurozone’s economy increased by a princely 0.3%. The European Commission (EC) cut its GDP forecasts for the euro region on fears of political uncertainty and global trade. In 2016, Europe’s GDP is projected to grow 1.7% and fall to 1.5% in 2017. In 2015, it climbed two percent. (Source: “Economic Forecasts,” European Commission, November 9, 2016.)
Germany, the strongest economy in the EU, has been reporting consistently weak GDP data. In the third quarter, Germany eked out 0.2% GDP growth, its weakest increase in a year, and half of what it reported in the second quarter. Germany’s economy is projected to grow just 1.6% in 2016 and fall to 1.2% in 2017. (Source: “Gross domestic product up 0.2% in the 3rd quarter of 2016,” Destatis, November 15, 2016.)
France, the second-biggest economy in the EU, saw its GDP rise 0.2% in the third quarter. The mainstream media would point out that France’s GDP doubled in the third quarter, but that’s the joy of math.
The odds of France reaching the government’s 2016 GDP growth target of 1.5% is virtually impossible. To do so, France will need to report third-quarter GDP growth of 1.2%. (Source: “French GDP increased by 0.2% in Q3 2016,” Insee, October 28, 2016.)
In 2017, S&P 500 companies will not be able to rely on foreign sales as much as they have. And it doesn’t look like they’ll be able to safely rely on U.S. sales either.
All of these factors are bullish indicators for silver and point to silver prices trending significantly higher in 2017.
You can’t really predict Black Swan events. That’s the joy about Black Swan events; they’re something you can wax eloquently about in hindsight and remind people how much they could have made “if” they’d made astute investments in the unexpected.
What we learned in 2016 though is that black swan events can help send silver prices higher and lower. Brexit was widely expected to end up with the U.K. voting to stay in the EU. This didn’t happen. The unexpected vote to leave the EU shook the markets and sent silver prices soaring.
Many mainstream media sites declared a Trump election victory impossible. Pundits predicted that, if hell froze over and Trump won the election, financial carnage would follow: stocks would slide, and silver and gold prices would soar. This didn’t happen either. Wall Street digested the Trump victory and decided it would be good for the U.S. economy, and stocks soared. Now stocks continue to climb while precious metals like silver and gold tumbled.
Not all Black Swan events are good for silver. But there could be some events in 2017 that help send silver prices soaring, even if just in the short term. But that’s the joy of investing: taking advantage of opportunity.
The U.K. is set to begin the process of leaving the EU by the end of March 2017. There are also a number of elections in 2017, any number of which could produce surprising results. Elections to watch in 2017 include Hong Kong’s chief executive election on March 26; France’s presidential Election, with the first round on April 23 and the second round on May 7; Iran’s presidential election on May 19; and Germany’s federal election on October 22.
There are also a lot of geopolitical unknowns. America’s relationship with Russia and China is strained. North Korea’s blustery, intellectually challenged leader says his country is close to test-launching an intercontinental ballistic missile (ICBM), which could, in theory, put the mainland U.S. within its range. There are also ongoing concerns about tensions in the Middle East and terrorist attacks in many areas of the world. Further, Venezuela could default on its debt obligations and Russia could push further into Ukraine.
Wall Street is optimistic and the U.S. dollar is strong but, because of economic weakness, silver prices will climb over the coming months. The initial rise in the silver price trends will not be random.
To understand how high silver prices will climb in 2017, investors should pay attention to the gold-to-silver ratio. The ratio shows how many ounces of silver are needed to buy one ounce of gold.
The gold-to-silver ratio is important because silver has a strong historical relationship with gold. According to the gold-to-silver ratio, silver is seriously undervalued right now. Silver is currently trading near $16.50 per ounce while gold is trading hands at $1165.30 per ounce.
The gold-to-silver ratio is currently at 70. This means it will take 70 ounces of silver to buy one ounce of gold. Five years ago, the ratio was at 55. This suggests that silver is undervalued. For the ratio to recalibrate to historical norms, gold prices either need to fall or silver prices need to climb.
Because of all the reasons mentioned, it seems more likely that the silver price trends will be for the price to rise in the coming months. Silver has even greater growth potential than gold. For silver to return to its long-term ratio average of 55, it would need to climb 27% to around $21.00 per ounce.
Another indicator suggests that silver prices are undervalued and selling at a huge discount. In addition to gold, silver has a tight correlation with the S&P 500. Whenever the correlation between silver and the S&P 500 gets extremely negative, a bottom falls into place. Conversely, when the correlation becomes extremely positive, tops are made in silver prices.
Chart courtesy of StockCharts.com
In 1976, the five-year correlation between silver prices and the S&P 500 hit -0.90. This is near to where a bottom in silver prices was formed. A few years later, the silver price increased by close to 1,000%.
The same thing occurred in 1992. The correlation between silver and the S&P 500 again was close to -0.90. Another bottom formed. Silver prices climbed over the coming years, and silver bulls realized gains in excess of 1,000%.
Third time’s a charm? The correlation between silver prices and the S&P 500 are again near -0.90. It’s never an overnight jump but, if history is any indicator, silver prices could climb more than 1,000% in the coming years.
– Jordan Roy-Byrne: As Gold and gold mining stocks approach strong resistance, we wonder if the outcome will be a sharp selloff or a period of bullish consolidation. While there are a handful of things we can examine (sentiment, momentum, relative strength, etc), today we will focus on Gold and its relative strength against two key markets.
How Gold prices fare against Bonds and foreign currencies in the weeks ahead could be a hint of its trend heading into spring.
Below we plot Gold against Bonds and Gold against Foreign Currencies (FC). Gold against the 30-year bond is shown with the 200 and 400-day moving averages while Gold against FC and the 400-day moving average is plotted at the bottom.
As we can see, the Gold/Bonds ratio is attempting to breakout from two-year resistance. The ratio has consolidated for the past nine months and now the moving averages are aligned in bullish fashion. Meanwhile, Gold/FC is trading above support but like Gold itself faces resistance from early autumn.
Gold prices have been lagging the miners recently and that is a good thing. The miners should lead. However, as Gold prices near resistance (potentially at $1250/oz) it is important for it to show relative strength against the other asset classes and in particular Bonds and FC. A breakout in the Gold/Bonds ratio would signal that Gold would be less affected by weakness in Bonds (and rising yields). Meanwhile, continued strength for Gold/FC would signal that Gold prices would be less impacted by a rising US Dollar.
When focusing on the very short-term we see that Gold prices have been turned back at $1220/oz while the miners have continued to grind higher. They opened lower Wednesday but managed to close at the highs of the day. Their rebound is getting long in the tooth but there is a chance they could grind higher towards the red lines.
As Gold prices and gold mining stocks approach resistance we will keep an eye on their performance relative to the movements in other asset classes. A pullback from resistance is very likely but the question is if the pullback evolves into a deeper correction or a bullish consolidation. In the meantime we have focused on buying quality and value in the junior space while maintaining some cash. The good buying opportunity we noted a month ago has passed but another one will come soon one way or another.
So today we turn our attention to the alluring, the lustrous, the irresistible metal that is gold.
Up? Down? Sideways?
As a UK-based gold owner, let me say I’m not wildly bullish about gold’s prospects in the near term. But nor am I wildly bearish.
I’ll explain first why I’m not wildly bullish using just one word: sterling.
2016 was the year to own gold. It began the year around £720 an ounce, and ended it around £940 – a 30% gain. Gold had an OK year anyway – up around 8% in US dollars – but it was a bonanza year for UK investors for the simple reason that sterling was so weak.
I’m of the view that sterling has some upside now and sterling strength – if we see it – limits gold’s potential upside. Of course, if you’re a sterling bear, then back up the truck and load it up with gold (and don’t tell anyone where you’re taking it).
However, the really big question – and this is not just the elephant in the investment room, but the dinosaur – is where does the US dollar go from here?
It’s easy to find both bullish and bearish arguments.
Dollar bears can argue: “President Trump wants the dollar to go lower. He needs it to go lower to allow for his plans to spend more and tax less. So he and his team will engineer it lower.”
Dollar bulls can reply: “Everyone is trying to engineer their currency lower. America is great. America is strong. The US dollar goes higher.”
The trend since May 2016 has been up. But the trend this year has been down. Take your pick.
Whatever your view, the dollar is key. From the US dollar, we learn whether next we see inflation raising its head again – a real possibility – or whether the deflationary forces at play continue to win out.
Dollar strength will impact global trade and capital flows. There’s a relationship between a strong dollar and interest rates.
All of the above will affect the price of gold.
For now I’m inclined to favour the current, short-term trend in gold – which is up. $1,240 is possible, maybe even $1,310. But it wouldn’t surprise me if 2017 turned out to be year of range trading, rather than a full-blown bull or bear market.
Below is a one-year chart for your reference.
But if the pound strengthens too, gold’s gains in sterling won’t be so pronounced.
The reason I am not wildly bearish, apart from the fact that the short-term trends are mostly up, is this developing narrative of civil division and unrest. It has been brewing for many years now. In fact, I don’t think it’s unreasonable to say it’s been brewing for half a generation.
There were the loose monetary policies and easy credit of the Brown-Blair years and the house-price boom. There was the gap between the actions of elected leaders and what ordinary people actually wanted; between the riches of the super-rich versus normal people.
Frustration grew with perceived inequality – income inequality, wealth inequality, inequality of opportunity. The credit bust of 2008 and the subsequent policy reaction only made matters worse. A very real belief has emerged that the playing field is not level.
That nobody can agree on the answer is exacerbating the division. For some, capitalism is the problem; for others, it is the solution. For some, the state is the problem; for others, it is the solution.
In 2016 the feeling was that the saucepan is boiling over. First there was Brexit; then there was Trump. While joyous for some, the reaction of the losing side has not been to stoically accept the result. It has been to fight by every means possible – whether to march, to debate, to protest, to undermine via legal barrier or bureaucratic process, in some cases even to resort to violence.
My questions to you are: was Brexit the end of it, or is this civil division and unrest going to grow? Will the American left resignedly accept Trump now, or will they continue to try and bring him down? If they do bring him down – let’s say they find a way of impeaching him – then how will his supporters react? If Brexit is somehow blocked (it doesn’t look likely, but you never know), then what will be the reaction of the 52%?
In short, across the developed world, is civil tension, unrest and division going to bubble over, or is it going to simmer down in the coming years?
I can envisage both scenarios. I can see a resigned acceptance to both Brexit and Trump. But I can also see a growing anger. Perhaps, say, Brexit is not managed properly. Or Trump is found out by some monster gaffe. Perhaps there is some fall-out from the French and German votes later this year.
I would argue that the single biggest cause of discontent in Britain is the broken housing market: the simple matter of who owns a house and who doesn’t. Most people would like to own a house. Houses don’t cost a lot of money to build. There is no shortage of land.
Yet there is a shortage of affordable housing in areas where people want to live. Others meanwhile have been handed a fortune on a plate without having done anything to earn it.
One solution is much lower prices. But homeowners won’t want that, and the deflationary consequences of a housing bust, whether needed or not, would be a problem, to say the least.
The second solution is dramatically higher earnings – AKA inflation, which also has problematic consequences. The third solution (and it’s not really worthy of the name) is the current stand-off, which just means more frustration and unrest.
There is every chance that this narrative of civil discontent, division and unrest continues to fester and worsen in the coming years, even if there are no big, catalytic votes coming up in the US and UK. That’s why I’m not particularly bearish about gold.
Courtesy: Dominic Frisby
Most readers of this column own (or plan to own) physical precious metals – gold and silver, perhaps even some platinum or palladium. They may also own mining stocks.
But which category is “best”? It’s like asking, “What’s the most efficient exercise?” or “What’s the best fishing lure?” Truth be known, it’s really about what you wish to accomplish! Here is my considered opinion…
One should strongly consider holding physical precious metals for “investment first, profit potential second.”
The primary function of “metals in hand” is to help offset the possible loss of purchasing power that inflation or a changing business/regulatory climate might visit on a person’s other asset classes, such as the broad stock market, real estate, collectibles, and certainly, bonds.
This last category appears to be ending a literal 30-year bull market, during which time interest rates declined (and bonds rose) to levels not seen in many decades.
(A change in the secular trend, to rising interest rates, would have severe ramifications for the value of bonds, whether or not they are held to maturity.)
A side advantage, common in India but not discussed in this country, is that gold and silver can be easily be “pawned” when a person might not have other options for a loan. Just like any item left in the pawn shop owner’s care, precious metals can be redeemed when the loan has been paid off.
Indians have a much more nuanced – and relaxed – view about metals’ ownership. Outlookindia.com takes the pulse about how its citizens deal with the idea of buying gold and silver, noting, “If you bought gold today and its price falls tomorrow, you don’t say, oh, wish I had not bought gold, I lost money. You just look at your gold and say, I have got 200 grams of gold. That’s it.”
Mining stocks are an entirely different “investment animal.” You’re buying shares in companies who explore for and/or produce precious and base metals. Miners have many inherent risks to overcome, which the metal held in your hand, by virtue of having being refined, has already put behind it.
A miner’s profit can be adversely affected by all sorts of variables – operational factors like oil prices, the cost of labor, local community support or lack thereof, government regulations, and even nationalization (theft) of a company’s assets – which often takes place without compensation to the owners, let alone shareholders. A tailings dam collapse or accidental worker deaths can also affect the share price. Over the years, several such companies have seen theirs drop from multiple dollars each, to a fraction of that… or to zero.
Some companies bill themselves as “pure silver producers.” The “purest” of these usually produce a fair amount of base metals – lead, copper and zinc – which are added to the profit mix to yield “equivalent silver ounces.” Even the best known examples may list 30-40% of their annual production in this non-silver category. A geologic fact is that silver veins tend to “pinch and swell,” causing ore head grades, and hence the company’s share price, to unexpectedly rise or fall.
A big argument for holding mining stocks is that because of their increased risk profile, they can be expected to gain at a greater percentage rate – perhaps several times as much – as do gold and silver. For a number of miners in 2016, that was certainly the case. Yet several of the best ones on the board also declined over 50% during last fall’s inevitable correction to the strong uptrend… which you may have noticed was not the case with the price of the metals they produced.
For much of the last 20 years, during which time, precious metals rose by multiples of their early bull market price, mining stocks as a group actually underperformed. So what’s the point of taking on additional risk and doing considerably more work, just to find that you could have made a single metals’ buy-and-hold decision – which performed better with less downside?
You should also answer these fundamental questions before deciding whether or not to include miners and metals in your investment mix. What are your financial goals? How much risk are you willing to take? How much time can you spend on the “care and maintenance” of your “garden” of stocks?
They can’t simply be purchased and placed in a drawer somewhere. Here are just a few of real-life, high-to-low ranges, stated in U.S. dollars, of share prices for several well-run, profitable miners during the cyclical bear market lasting from mid-2011 to late-2015 – $19 down to $7; $10.30 to $0.28; $43 to $5.38; $13 to $1; $36 fell to $3.30.
And did I mention that scores of other companies either reverse-split 20 (or 100):1… or simply went bankrupt?
Trading the mining sector is quite literally a job. I write reports, take mining tours, read hundreds of articles and evaluations on scores of companies – and trade mining stocks. But that’s my choice. It’s great when shares are rising to the sky, as was the case this past January to August. But it was NOT great when the bottom fell out into December.
I am willing to put up with these swings for the possibility of a few home runs, while often settling for base hits, along with the occasional “strike-out.” Do you have the temperament, are you willing to put in the research, can you handle the risk, do you want to give up a lot of the time you could spend doing something else?
Perhaps you can answer “yes” to these questions. If not, or the questions aren’t relevant to what you’re trying to accomplish, then you should seriously consider keeping decision-making about the metals, relevant to your needs and goals.
Instead buy physical gold, silver, and maybe some palladium rounds. Store them in a safe space. Then go out and golf, fish…or spend quality time with your family.
– “Health above wealth; Wisdom above knowledge.”
Submitted by: MoneyMetals
When OPEC decided not to cap output in 2014, flooding the market with oil, it was trying to drive higher-cost producers – most notably U.S. shale – out of profitability range. It succeeded in contributing to the oil glut, collapsing the oil prices, and hurting many U.S. shale plays and producers who were waiting for better times before returning to activity.
However, this strategy spectacularly backfired on OPEC’s biggest producer and de facto leader Saudi Arabia, which started to book budget deficits amid the low oil prices, with deficit an unthinkable concept five years ago.
The recent U-turn in OPEC and Saudi strategy – cutting back output to try to draw down oversupply and prop up oil prices – comes with a caveat: at higher oil prices, higher-cost producers – US shale in particular – have more economic reasons and profit-making motivation to increase drilling and M&A activity.
And the U.S. producers are already doing it, recent figures and deals show. They survived thirty-dollar oil, and are emerging leaner, more efficient, and able to respond more quickly to oil price fluctuations. They proved they were and are “more resilient to low oil prices than many analysts had anticipated,” as the EIA said as early as in August last year.
Meanwhile, Saudi Arabia seems unfazed from this possible rebound in US shale, judging from one of the latest comments by its Oil Minister Khalid al-Falih. The Saudis still believe (or at least al-Falih says so) that current oil prices at around $50 are still not enough to herald a significant rebound of US shale production.
At the World Economic Forum in Davos earlier this week, al-Falih said that he expects costs for the U.S. drillers to go up in the long term, after the “supply industry has been decimated”. The balancing of the market in 2017 will also include inflation on the cost of doing business, the Saudi oil minister said. In addition, North America has tapped the most prolific plays so far, but as “demand goes, they would go to the more expensive, more difficult, less prolific areas of the shale and I think they will find that they need higher prices,” al-Falih said.
Speaking to CNNMoney’s John Defterios, the Saudi oil minister said:
“I don’t lose sleep that shale is going to come and overwhelm us. I don’t think it will.”
While the Saudi official is sleeping tight, tight oil production in the U.S. is recovering, estimates by various organizations show. One tight oil play in particular has seen a lot of activity and is expected to continue its upward trend: the Permian.
Earlier this week Exxon Mobil said it would pay up to $US6.6 billion to more than double its acreage in the superstar shale area. This came on top of last year’s deals in the Permian, which helped the U.S. oil and gas mergers and acquisitions tally soar to $69 billion in 2016. The industry has been quick to adapt and secure primary drilling sites profitable at US$50 oil and buy existing production, Houston-based oil and gas research firm PLS Inc. has said in a report.
Energy consultancy Wood Mackenzie said in an analysis last week that the Permian Basin attracted almost one-quarter of the global M&A spend 2016, and dubbed the rush for the basin ‘Permania’. The Permian attracted $20 billion in deals last year, with investors lured by “breakevens as low as $40 per barrel, stacked pay potential, large volumes, upwardly trending well economics and the flexibility to adapt to a changing market”, Wood Mac said.
Permian’s oil production is on the rise and the combined crude production in the seven most prolific areas in the U.S. is expected to increase by 41,000 bpd from January to stand at 4.748 million bpd in February, the EIA said in its latest Drilling Productivity Report. Output in the Permian alone is seen rising by 53,000 bpd to come in at 2.180 million bpd.
The higher oil prices from the past two months – stoked by OPEC’s deal and Saudi comments, among others – are one of the reasons for the recovery of U.S. production, which the EIA sees will average 9 million bpd this year, or 110,000 bpd more than last year. The other is the more efficient industry that has emerged from the lower-for-longer price environment.
“Whether it be shorter drilling times or larger amounts of oil produced per well, there is no doubt that U.S. shale industry has emerged from the $30/bbl oil world we lived in a year ago much leaner and fitter,” the International Energy Agency (IEA) said in its January Oil Market Report on Thursday.
Saudi Arabia’s oilmen may not lose sleep over U.S. shale resurgence, but it looks like they may have underestimated the shale resilience yet again.
Courtesy: Tsvetana Paraskova
– Guy MannoGold prices have started 2017 similar to 2016 with a strong performance, as well as outperforming most asset classes year to date. (See chart below). This out performance so far has shocked the market as Gold prices had been under performing the market since Trump won the election in November.
Now that Gold has rallied strongly in the first 2 weeks many investors and traders are now wondering if Gold prices will continue the out performance and generate another positive year for Gold.
Gold Monthly Chart Review
The monthly trend of Gold prices since 2011 does not bode well for the shiny metal over the long term. Since reaching the highs of just over $1,900 some 6 years ago, Gold prices have been on steady decline and still well within its long term downtrend. This is despite recording a positive gain for 2016.
The recent strength of Gold in January has pushed the price above resistance of $1,205, which is its first level it needs to close above by the end of the month. With approximately 2 weeks to go before the month is over its early to confirm the break of resistance.
Provided it can sustain the rally in price this month Gold will find its next level of resistance along its blue down trend line, which is currently around $1,310 – $1,315.
If Gold were to continue its strong performance over the next few months closing above its downtrend and $1,350 resistance level on a monthly basis. This would result in Gold prices making a reversal of its 6 year downtrend and starting a new bullish uptrend. This scenario I believe is unlikely based on the current trend as well as the technicals.
Monthly Momentum Suggests Rally Is Temporary
Within the monthly chart I have added a Stochastic indicator that measures momentum. I utilize this indicator to assist in determining the overall strength of the trend and for trend reversals.
In 2016 the stochastic momentum was bullish as the Gold price for the first 7 months was rising. Once Gold stalled and began to fall as it reversed its trend, the Stochastic indicator had crossed over to the downside and began to fall, confirming the uptrend was over. (See circled area within Stochastic indicator)
Observing the stochastic indicator on the monthly chart you can see that momentum continues to head lower suggesting the reversal that started in August last year will continue over the longer term, despite the strong rise of Gold prices this month.
Note: 1. Stochastic Indicator is a lagging indicator. 2. The Stochastic indicator should not be utilized in isolation but rather in conjunction with other indicators to determine direction.
Weekly Gold Chart Review
The weekly chart of Gold suggests there is potentially more upside coming in the medium term as the price heads towards its weekly alternate downtrends. (See chart below)
Gold comfortably surpassed its prior $1,176 resistance level and now forms as new support level. This new support level is an area to watch out for when Gold retraces.
Key Levels To Watch As Gold Rally’s
For investors and traders looking for higher Gold prices, the key areas to watch as it moves higher is the $1,250 resistance level.
In addition its important to note the 2 alternate downtrend lines that have developed to watch out for as overhead resistance. These downtrend levels are $1,240- 45 & $1,285 -90.
Weekly Stochastic Turns Bullish
One of the reasons I believe at least within the medium term that Gold will make higher prices is the fact that Stochastic has crossed to the upside and confirms the change of trend within the weekly chart. (See circled areas on chart) This also suggests that momentum is on the bulls side for now.
Most likely target over the coming weeks is for Gold prices to hit resistance level of $1,250 before consolidating, as this target area has previously struggled to initially close above in 2016.
Lastly for the weekly chart review, if Gold fails to hold above the $1,176 support level in the coming weeks. Look for Gold to retrace all the way back to $1,132 support level.
The price action of Gold on the daily chart has been very strong over the last 2 weeks, with the vast majority of trading days Gold has closed higher as shown by the consecutive blue candles. This sudden burst has created a very sharp uptrend line for Gold as shown by the blue trend line at the bottom right of the chart. This is important to note because usually the steeper the trend line in either direction the harder it is to maintain the trend.Overnight the price closed above $1,207 resistance level and now forms support on a daily basis. The next major level for Gold to reach is the $1,250 level of resistance.However based on the current downtrend that Gold is still trading within, I believe Gold will also find it difficult to close above the resistance of the first downtrend line of $1,242 -44.
Gold’s Momentum Approaching Peak Level
The stochastic indicator shows that momentum is still in support of the current rally on the daily chart with blue line above the red line. However the Stochastic indicator in most instances peaks out above the 90 level and eventually begins to fall. I have circled the prior 2 instances this has happened on the daily chart to illustrate what to look out for.
Note: The price action can continue to move higher in the short term if the Stochastic is above 90. It’s more ideal to wait for stochastic to cross over and move lower for confirmation of potential reversal of trend.
From the review of all 3 time frames for Gold prices, I believe we will be seeing a consolidation / pullback in the price of Gold soon. After a brief consolidation Gold will make another attempt to head higher over the medium term.
However the longer term prospects for Gold prices are not as favorable as Gold will run into strong resistance around $1,310 – $1,315 level based on the 6 year long downtrend line on the monthly chart.
Therefore the recent strong rally in Gold prices is most likely going to be a bull trap for investors who are holding it for the long term. However if your time horizon is shorter there will be opportunities in 2017.
– Chris Vermeulen: One question that gold investors are asking now is, will 2017 be as spectacular for the yellow metal as it was in 2016? The short and sweet answer is yes.
The dollar, gold and the major U.S. stock exchanges will all see new highs. Gold is currently in a “complex corrective correction” while experiencing its’ last pullback, beforehand.
Both the short-term outlook and the long-term outlook for gold is BULLISH! Trumps’ victory win is a positive for gold bulls. Policy uncertainty and slowing growth, following a Trump win, will stoke the yellow metals’ price in 2017.
Gold prices have been under pressure since the Trump victory, but the long-term scenario for gold is that it is parabolic. The global economy is still in contraction. Global Center Bankers continue with monetary easing, leading to currency debasement. Interest rates continue to slide into negative territory in Europe and Asia. Gold’s investment appeal will encounter a period of time before it generates positive yields. Gold, as an investment, will once again be back in vogue. As prices rally, investment demand will only rise further, taking everyone by surprise.
The demand for gold jewelry has been declining within the large gold-consuming nations. The gold investors will call the shots in this new ‘bull’ market of gold. Current supply constraint has cushioned gold prices from the rally in the U. S. dollar.
This is the last great buying opportunity for gold before it makes its’ next historic run in 2017 and beyond.
– Last Reading: 1.0
– Extreme Values:
– Excessive Optimism: 8.0
– Last Reading: 34.0
– Extreme Values:
– Excessive Optimism: 75.0
– Excessive Pessimism: 30.0
– Last Reading: -134022.0
The green dotted line is 1 standard deviation above the 3-year average;
the red dotted line is 1 standard deviation below the 3-year average.
A key factor that has driven investments in gold is the negative interest rate in Europe, Japan, Denmark, Sweden, and Switzerland. The sovereign debt of approximately one third of the developed countries traded with a negative yield while an additional 40% of the countries had yields below 1%.
Gold prices will be driven more by its’ value as an ‘investment asset class’. Gold will supersede investments in other ‘asset classes’ such as equity and bonds in due time.
The massive U.S. debt continues to spiral out of control. The Treasury Department’s printing presses are cranking out hundreds of billions of dollars in new money. European countries are imploding financially and the entire European Union is at risk of a collapse. These ‘geopolitical’ factors will be driving the demand for gold as a ‘safe haven”.
The global ‘retail’ investment market is well positioned for growth what with demand for gold in China, India, Germany and the U.S. for 2017.
Social media is a ‘key driver’ which is critical in both China and India. Financial advisors and financial websites are the key drivers in the U.S. markets. In Germany, banks play the most important influence; ‘Protect wealth against the system’. It has a competitive advantage compared to other investment options.
Jordan Eliseo, Chief Economist at precious-metals dealer ABC Bullion, says “Gold retreated about 18 percent from its year-to-date high. Afterward, it gained 26 percent in the first half of 2016. The decline so far, this year has been about 15 percent from its year-to-date high. Gold, is setting up for another rally in fashion like last year. The recent correction has already drawing in some investors to buy what they see as cheap metal.”
On December 14th my trading partner accurately forecasted the recent bottom in gold which you can see in this gold market forecast.
December 14th Forecast chart:
He then took things a step further and entered into a NUGT (3x long gold miners ETF) with subscribers and recently locked in 50% profit on the first half and is up over 70% on the balance as of Fridays closing price.
The constructing on this new infrastructure is going to require a lot of new money. The country is already close to $20 trillion in debt, so if the administration plans to make this one of their priorities, it is going to have to print it.
Nixon closed the gold window on August 15th, 1971 and consequently, the world entered a new era. For the first time in history, all the world’s monies were unbacked fiat currencies, adrift on a sea of floating exchange rates. This stopped the redemption of currency for gold. Today, gold reserves are nothing more than an asset listed on the FEDS’ balance sheet. Gold had stopped being an integral part of our financial monetary system
At the top of international commerce, money managers had always known the dangers of ‘currency risk’, but now every currency has become a ‘soft currency’. Recognition of ‘currency risk’ seeped down into the knowledge chain, but on the street of personal financial management, despite it being 45 years later, not many have caught on to the concept.
Golds’ strength is in the role of ‘wealth protection’. It is a ‘safehaven’ and its ‘independence’ from the global financial system makes it a great investment for the future. Gold is still good value for those who do not own any to accumulate ounces.
Gold has rebounded sharply higher in the past month, taking the early lead as 2017’s best-performing asset class. Normally such a big gold surge would require heavy gold futures buying by speculators. But they’ve been missing in action, barely moving any capital into gold yet. Their collective bets on this metal remain very bearish. Since they are such a strong contrarian indicator, that’s a very-bullish omen for gold.
The sole mission of speculation and investment, and thus all the endless research that feeds into it, is to multiply wealth. Traders can’t effectively buy low and sell high unless they understand what drives the prices of their trades. For years now, gold has had two overwhelmingly-dominant drivers. Their capital flows fully explain the vast majority of all gold’s price action, and thus are exceedingly important to study.
The first is the world-leading GLD SPDR Gold Shares gold ETF. This acts as a conduit for the vast pools of American stock-market capital to slosh into and out of physical gold bullion. Differential supply and demand for GLD shares relative to the underlying gold supply and demand is directly shunted into gold itself. GLD’s physical-gold-bar purchases and sales as its holdings grow and shrink greatly impact gold prices.
Nothing has been more important for gold over the past year than the American stock-market capital that flowed into then out of it via GLD. Speculators and investors can’t understand where gold has been or where it’s likely heading without studying and closely watching GLD’s gold-bullion holdings. Last week I wrote a comprehensive essay digging into this crucial GLD-and-gold relationship in depth, check it out.
But American speculators’ gold futures trading often overpowers American investors’ GLD-share trading in bulling the gold price around over the short term. Futures speculators enjoy an outsized impact on gold prices wildly disproportionate to the capital they wield for a couple key reasons. First, the American gold-futures price is gold’s de-facto world reference price. It is the most-widely-followed and quoted gold read.
So when these traders buy or sell aggressively and thus rapidly force gold materially higher or lower, it has a big psychological impact on everyone else in the gold world. Gold futures are the speculation tail wagging the far-larger investment dog in gold. Investors controlling vastly more capital than gold futures speculators get bullish or bearish, and change their trading behavior accordingly, based on gold futures action.
Second, gold futures traders enjoy a radically-inordinate influence on gold thanks to the extreme leverage inherent in gold futures. While investors buy gold outright or with at most 2x leverage through GLD shares, gold futures speculators often trade gold with incredible 20x to 25x leverage! That means every dollar of capital bet on gold futures can have 20x to 25x the price impact of another dollar invested normally.
So futures speculators’ collective buying and selling can really distort gold prices over the short term, even though gold investment demand will always ultimately prevail as gold’s primary driver. There’s a critical interplay between GLD capital flows and gold futures action. Parallel buying or selling on both of these fronts always drives gold higher or lower. Opposing buying and selling tends to offset and cancel out.
Unlike GLD-holdings data which is available daily, speculators’ collective gold-futures trading activity is only published at a fuzzier weekly resolution. Late every Friday afternoon the CFTC releases its famous Commitments of Traders reports. These reveal what both hedgers and speculators have been doing in gold futures current to the preceding Tuesday. Watching them is essential to gaming gold price action.
This first chart looks at the aggregate gold futures long and short positions held by both large and small speculators, in contracts. Each gold futures contract controls 100 troy ounces of this metal. Total longs or upside bets on gold are rendered in green, while total shorts or downside bets are shown in red. The yellow line shows the deviation of both these bets from normal years’ average levels between 2009 to 2012.
Speculators’ gold-futures data may look complex, but it’s not difficult to understand. Gold’s price over the past couple years or so is superimposed in blue. Gold is strongly positively correlated to speculators’ total gold-futures longs. Every significant gold rally in recent years was partially driven by big gold-futures buying as evidenced by spec longs surging. Until this past month’s rally, which we will get to.
Speculators’ collective upside bets on gold are also a powerful contrarian indicator. Spec longs were high every time gold peaked in the last couple years, including this past summer. As I warned back in mid-July just after gold hit $1365, it faced a record gold-futures selling overhang due to specs’ excessive longs. These hyper-leveraged traders were far too bullish, all-in on gold, implying they would soon have to sell.
The higher spec longs, the more bullish on gold these traders are. But that means they have already deployed most of their available capital, with limited firepower to push gold still higher once they’re all crowded in. So gold rallies often peter out and then reverse once spec longs get excessive. The worst time to get excited about gold is when futures speculators are, since they are the most bullish when gold is topping.
Conversely low spec longs show when these traders are bearish. They don’t expect much upside from gold so they’ve liquidated large fractions of their leveraged long bets. That signals most of the gold-futures selling has already happened, so gold is actually bottoming. Spec longs were really low back in December 2015 when gold was carving a major 6.1-year secular low. That birthed last year’s strong new bull!
So the smart way to game gold’s probable near-term price action is to do the opposite of what the futures speculators as a herd are doing. If they are betting big on higher gold prices as shown by excessive longs, expect an imminent correction. If they are convinced gold is heading lower as seen in low longs, expect a major rally to soon erupt. Fading the futures-speculator mob is the surest way to win in gold trading!
Speculators’ collective gold futures short positions work similarly, but in the other direction of course. In futures, traders can sell even if they don’t own any contracts to sell. They effectively borrow them from someone else, and then sell them. These debts must soon be repaid, so speculators hope they can buy back the futures contracts at lower prices to return them. They then pocket any difference as profits.
In terms of gold-price impact, there is zero difference between a speculator selling long contracts they already own or short selling ones they don’t. A sale is a sale, they are functionally identical. But since speculators collectively hold fewer gold futures shorts than longs, shorting has a proportionally-smaller effect on prevailing gold prices. But once again speculators bet wrong as a herd when gold is ready to reverse.
Gold’s major secular lows in 2015 were accompanied by record-high spec short positions! Right when gold was bottoming ahead of major rallies, these guys were holding the largest downside bets. Then as gold subsequently topped, spec shorts had been bought and covered back down to low levels. So gold is most bullish over the near term when speculators are the most bearish as evidenced by excessive shorts.
Futures speculators are always wrong at extremes, when gold has either rallied or corrected too far for too long. High spec longs and low spec shorts are a key warning sign of a major selloff looming, just as I warned last summer. But low spec longs and high spec shorts signal the opposite, that gold is on the verge of embarking on a major new rally. This latter very-bullish situation is exactly what gold is seeing today!
This chart zooms in to the past year or so, but let’s start on Election Day. That night as Trump pulled into a surprise lead in the biggest battleground state of Florida, gold futures rocketed 4.8% higher to $1337! A Trump win was universally assumed to be bad for stock markets and thus good for gold, which is the anti-stock trade since it tends to move counter to stock markets. As stocks rebounded, gold was sold hard.
This heavy post-election gold selling was universal, coming from both investors jettisoning GLD shares and speculators dumping gold futures. With capital rushing out of gold’s two primary drivers, it was just hammered. In the 5 weeks between Election Day and the day after the Fed’s second rate hike in 10.5 years in mid-December, gold plunged 11.5%! That was part of a larger 17.3% major correction since early July’s peak.
Gold’s two biggest plunges in its miserable Q4’16, one of its worst quarters ever, were fueled by heavy gold futures selling by speculators. Since such extreme leverage exists in this market, traders have to set tight stop losses. If they are running 20x leverage, a mere 5% adverse move in gold against their bets would wipe out 100% of their capital risked! So even minor 1%ish gold moves are major for futures traders.
In early October as gold drifted towards $1300, it triggered a big mass of futures stop losses set near that key psychological support. The resulting mass stopping quickly cascaded, as the more gold futures fell the more stops were tripped unleashing even more selling. Another mass stopping happened just two days after the election when another key gold support zone at its 200-day moving average failed to hold.
These extreme early-October and mid-November episodes of gold futures selling perfectly illustrate how disproportionate its impact can be. Speculators dumped 43.4k and 45.6k contracts respectively in those two key CoT weeks, unleashing the equivalents of 134.8 and 141.9 metric tons of gold. That is far too much selling for the gold market to absorb in such short spans of time, which cratered the gold price.
For perspective, consider the latest global gold fundamental data available from the World Gold Council current to Q3’16. That 9-month year-to-date span saw massive gold-investment demand, huge by recent years’ standards. Yet it still only averaged 35.6t per week. So whenever gold futures speculators get spooked or forced into dumping 100t+ in single-week spans, gold is certainly going to get kicked in the teeth.
The resulting sharp drops really crush gold psychology, leaving investors and speculators alike much more bearish and pessimistic. They start to extrapolate that trend, expecting gold to keep falling farther. So they buy less or sell more, and gold’s futures-driven selloff soon becomes self-feeding. It is amazing how much gold futures impact overall gold sentiment, these speculators’ influence is wildly disproportional.
That extreme post-election selling initiated by speculators’ gold futures stops being run finally ran its course by the day after the Fed hiked rates again last month. Futures speculators have long feared Fed rate hikes’ impact on gold, which is supremely irrational. During the exact spans of all 11 previous Fed-rate-hike cycles since 1971, gold rallied an average of 26.9% higher! They have proven very bullish for gold.
By the time gold finally bottomed last month, its correction had ballooned to 17.3%. That is huge, but still shy of 20%+ new bear territory. In addition to heavy differential GLD-share selling, the other primary driver was heavy gold futures selling by the speculators. Over that entire correction span since early July, they had liquidated an astounding 174.0k long contracts while adding 32.2k short ones, serious selling.
That equates to 641.3 tonnes of gold, or nearly half of the 1389.2t of global gold investment demand in the first 9 months of 2016! Speculators had unwound fully 69.8% of all the long positions they had added to help drive gold’s new 29.9% bull market between mid-December 2015 and early July. All this extreme selling along with GLD’s blasted gold so low that it erased a staggering 75.4% of its bull’s progress.
With speculators fleeing gold futures at a magnitude that defies belief, they had to be exhausting their selling as I wrote in mid-December. These traders only have so many contracts they can sell, so the more they’ve sold the less selling is still to come. And soon after gold’s 10.6-month low in mid-December, these gold-futures spec long positions had collapsed back down to 255.7k contracts. That was a 10.4-month low.
American speculators hadn’t held fewer gold-futures longs since way back in mid-February before gold had even entered new-bull-market territory yet at a 20%+ gain. So with the great majority of the entire young bull market’s gold-futures long buying already unwound, spec longs are very low today. That is a super-bullish omen just like it was at past major gold lows. These traders have vast firepower to buy back in!
A week after that recent longs low, spec shorts surged to 138.6k contracts. That was also the highest level seen since early February, and way above last year’s 95k-contract support line. While there was some modest covering in the latest CoT report available before this essay was published, shorts are still relatively high. That means speculators have to buy lots of gold futures to cover and offset their shorts.
With speculators very bearish on gold today as evidenced by low longs and high shorts, you couldn’t ask for a more-bullish gold setup. Just as in the past, gold tends to bottom right as these influential traders are reaching selling exhaustion. That leaves nothing but buyers, so gold soon starts rallying in major new uplegs. Indeed one has already begun, despite futures speculators not doing any significant buying yet.
Major gold uplegs are usually born when speculators buy gold futures to cover their short positions. As they are legally obligated to pay back those borrowed contracts, and have to buy to protect their capital when gold rallies, short covering is involuntary. Speculators do it regardless of how they feel about the gold outlook. But that very short covering drives gold higher and starts to erode bearish bottoming psychology.
So the much-larger contingent of gold futures speculators on the long side soon start buying as gold’s short-covering-fueled rally convinces them it is reversing higher. That starts to turn sentiment bullish again, with buying begetting buying. Eventually that long-side buying drives gold high enough for long enough to get investors, with their vastly-larger pools of capital, interested in starting to buy gold again.
While we saw modest spec short covering of 6.4k contracts as of January 10th, the last CoT data before this essay was published, there has been no material long buying yet. Since that 255.7k-contract trough of spec longs a couple CoT weeks ago, speculators have only added 2.4k contracts. That’s practically a rounding error. Seeing gold blast 7.7% higher in just a month with no real gold futures buying is remarkable!
And there hasn’t been any differential GLD-share buying either. Gold’s initial rebound out of its deep post-election lows apparently came from Asia. There have been plenty of days in recent weeks where gold rallied significantly overnight when American traders were sleeping. That global gold demand that is pushing up prices without any help from gold’s dominant couple drivers is going to ignite big buying.
Sooner or later gold will have rallied enough to convince both American gold-ETF investors and gold-futures speculators to return. And with specs’ longs so low and shorts so high, they are going to buy with a vengeance to mean revert their excessively-bearish bets back up to more-normal levels. In addition to higher gold prices, there are a couple more key catalysts that will soon spark big gold-futures buying.
Gold futures traders are highly sensitive to the US dollar, since gold is ultimately the universal world currency. So as today’s wildly-overcrowded long-US-dollar trade inevitably reverses, speculators are going to flood back into gold futures. They will also aggressively buy when the overvalued US stock markets sell off and roll over into their long-overdue bear market, which will lower perceived Fed-rate-hike odds.
With speculators way too bearish today as their low longs and high shorts prove, there’s heavy gold futures buying coming. It will catapult gold sharply higher in the coming months, as always happens soon after these guys as a herd get too pessimistic. Some combination of higher gold prices, a lower US dollar and/or stock markets, and less-hawkish Fed speak is going to soon kindle serious gold futures capital inflows.
This coming major new upleg in this young gold bull can certainly be played with GLD or call options on it. But the gains in the gold miners’ stocks will dwarf the gains in gold, since their profits growth greatly leverages gold’s upside. As I discussed in depth a couple weeks ago, we’re already seeing that. Over that recent single-month span where gold rallied 7.7%, the leading gold-stock index already surged 25.3% higher!
The bottom line is the gold futures setup today is exceptionally bullish. Speculators grew excessively bearish in the wake of the election, dumping a colossal amount of long contracts while adding plenty of shorts. This huge liquidation left their longs low and shorts high, a strong contrarian indicator that has always signaled major reversals higher in gold. These elite traders as a herd are always wrong at extremes.
So big spec gold futures buying is coming soon, which will help catapult gold sharply higher again just like it did a year ago. It is already starting with initial short covering, but will soon expand into far-larger long buying as gold continues powering higher. After selling their longs to such low levels, these influential traders will need to buy big for months on end to restore normal positions. That’s great news for gold!
Courtesy: Adam Hamilton
– Sumit Roy: Last year was a rollercoaster ride for gold. Gold prices zoomed higher during the first half of 2016, rising by nearly 30% by the summer. But a sell-off at the end of the year left the yellow metal with a much more modest gain—8.6%.
This is a pattern we’ve seen a number of times in the gold market. A strong start to the year followed by a much more lackluster end.
In fact, in three of the last four years, the high-water mark for gold prices was reached as early as the first quarter. The only exception was last year, when gold prices continued higher until July.
|Year||Gold’s High Date||Gold’s High Price ($)||Gold Year-End Price ($)|
It’s too early to say whether 2017 will fit that mold, but at least the first part of the pattern is continuing. So far in the new year, spot gold is up 4.3%. According to traders, this year’s January resurgence in the yellow metal is due to a drop in the U.S. dollar, which sagged more than 2% since the start of the year.
ETF Investors Not Buying
However, unlike last year, it’s not ETF investors that are driving gold prices higher in 2017. In the year-to-date period ending Jan. 18, the SPDR Gold Trust (GLD) and the iShares Gold Trust (IAU)?the two largest physically backed gold ETFs?have had combined net outflows of $440 million, according to FactSet.
In contrast, the two had net inflows of $870 million at this time last year, on their way to a record-shattering $15 billion worth of inflows by midyear.
The worst start to a year ever for the stock market in 2016, tumbling oil prices, concerns about China, negative interest rates and Brexit were several of the big factors driving ETF investors into gold last year. Most of those factors aren’t present, or have even reversed, this year.
Case in point, the stock market is at an all-time high, oil prices are double where they were a year ago, China’s economy is relatively stable, interest rates are rising, and Brexit hasn’t turned out to be the negative shock everyone thought it would be. All this could change, but the economic and financial market outlook is starkly different today than it was a year ago, which has dampened enthusiasm for gold among ETF investors.
That doesn’t mean gold prices can’t continue to climb. ETF investment is only one—though an increasingly important—component of global gold demand. Jewelry demand, the largest segment of overall gold consumption, is pro-cyclical, and may get a boost if economic growth in the U.S. and globally accelerates this year as many expect.
That holds even truer for other precious metals, which garner a larger chunk of their demand from pro-cyclical areas. Silver, where industrial demand accounts for 60% of consumption, outpaced gold last year, and is outperforming again this year, with a 7% year-to-date gain.
Meanwhile, palladium, the top-performing precious metal of last year, is leading again this year, with a 10% return so far. Strong demand for automobiles, and particularly gasoline-fueled cars, is driving the autocatalyst higher, according to analysts.
“The recent spike [in palladium ]has a bit of everything thrown into the mix—improving fortunes of automakers, growing mistrust of the diesel engine [courtesy of VW and Fiat Chrysler scandals] and supply/demand permutations,” Charles Long, mining analyst at Beaufort Securities, told the International Business Times.
On the other hand, platinum?used as an autocatalyst in diesel vehicles?is the laggard of the group, as those types of vehicles fall out of favor.
– Taki Tsaklanos: The price of gold is up 6.1 percent year-to-date. In doing so, it is one of the outperforming assets in the first three weeks of the year.
However, the recent rise in gold prices has the lookings of a ‘relief rally’. As the short to medium term chart on the daily timeframe shows (see first chart below) the gold price recovered after a strong decline of 20 percent which started early November.
Visibly, former support is now resistance (see red horizontal line on the first chart). In other words, the daily chart shows the importance of $1220 gold. A firm move higher would suggest strong buying, and bullish tactical momentum.
Tens of millions of Americans and their employers pour money into pension plans each month, counting on those funds to grow and to be there when needed at retirement.
But a time bomb awaits. The bulk of U.S. pension funds are dangerously underfunded, and the assets are often invested in securities that have bleak prospects for providing income that keeps up with a general decline in purchasing power.
A pension plan requires an employer to make contributions into a pool of funds set aside for a worker’s future benefit. In 1875, when the American Express Company established the first private pension plan in the United States, the face of retirement was fundamentally changed. Before that time, private-sector pension plans did not exist, as most employers were small “mom-and-pop” businesses.
The innovation at American Express caught on. By 1929, 397 private sector pension funds were in operation throughout the United States and Canada. As of 2011, according to the Bureau of Labor Statistics, 18% of private sector workers are covered by pension plans. At the end of 2015, the value of U.S. pension funds was $21.7 trillion.
Millions of Americans will rely on pensions once they’ve reached the age of retirement. Pension fund managers have a fiduciary duty to safeguard funds against foreseeable risk. With the practices of today’s Federal Reserve, there is no risk more foreseeable than inflation, but these fiduciaries are not fulfilling their duty to protect against this significant risk by investing in assets which are specifically suited to defend against the perpetual loss of the dollar’s purchasing power.
Chief among these assets are physical gold and silver, the most reliable inflation hedges from time immemorial.
In today’s uncertain times, few things are as certain as the devaluation of the dollar. Having lost more than 95% of its value since the creation of the Federal Reserve in 1913, America’s unbacked fiat currency has a 100-year track record of declining value year after year. There is no reason to expect this trend to reverse, and the possibility of a total collapse of the dollar at some point cannot be ruled out. This is important because of the dollar’s inverse relationship to the price of gold.
As the unbacked Federal Reserve Note continues to be abused and devalued, it becomes clearer every day that pension funds should increase their precious metals holdings.
According to the Asset Allocation Survey by the U.S. Council of Institutional Investors, only 1.8% of pension fund investments are in the broad commodities category, which includes monetary metals. That means only a fraction of 1% in pension assets are held in gold and silver.
Instead, pension funds today focus their investments in U.S. Treasury securities, investment-grade bonds, stocks, real estate, and other interest-rate sensitive assets.
Whether it is an individual investing $1,000 or a fund manager in charge of investing millions of dollars, risk management is crucial.
Fund managers typically will not invest in extremely risky investments for fear of losing their investment, and potentially, their jobs. Conventional wisdom is that government bonds are paramount in safety and security.
But these bonds, as well as the Federal Reserve Note “dollar” itself, are backed by nothing more than the full faith and credit of an insolvent U.S. government. Washington D.C. has accumulated astronomical debts of more than $20 trillion and total long-term entitlement obligations now top $100 trillion. Officials will only be able to “meet” these long-term commitments by inflating them away. That is why money creation at the Federal Reserve has become standard operating procedure. Gold, on the other hand, appreciates as the dollar’s value falls, not to mention offering resilience to financial and political crises.
The financial establishment remains hostile to gold, but influential people are making the case for larger gold holdings. Alistair Hewitt, head of market intelligence at the World Gold Council, said, “Unless investors are willing to accept a loss-making investment strategy, they may need to consider increasing their holdings of gold. We believe this should resonate especially well with pension funds and foreign managers whose investment guidelines are typically stricter and who hold a large portion of bonds in their portfolios.”
Getting fund managers to include physical gold in pension funds is a difficult challenge. While they have a fiduciary responsibility to protect and grow their clients’ investment, most prefer to stick with the conventional wisdom and avoid bucking the system – but there are other pressures as well. Guy Christopher writes, “Precious metals in your possession have no counterparties and no continuing fees and commissions, unlike the thousands of investments brokers sell. Once you own gold, that part of your wealth and your future is out of Wall Street’s hands.”
The Texas Teacher Retirement Fund and the University of Texas own nearly $1 billion in physical gold, which will soon be transferred from Wall Street vaults to a brand-new depository in the Lone Star State thanks to the recently passed Texas Bullion Depository legislation.
Shayne McGuire, portfolio manager of the Gold Fund for the Teacher Retirement Fund of Texas said that “one of the main reasons we considered gold was the diversification benefits it provides to portfolios dominated by equities, as most pension funds are.”
While most managers of pension funds shy away from gold, they do so at their own risk and the risk of their pensioners. As a non-correlated asset to bonds, stocks, and other paper-based investments, precious metals are key to true diversification. It’s time for pension fund managers to break out of their Wall Street groupthink and include a meaningful allocation to physical gold and silver bullion for protection against inflation and financial turmoil.
Courtesy: Jp Cortez
The Silver Market will experience a significant trend change in the future due the unraveling of the paper markets. Already we are witnessing a lot of political turmoil and havoc as President-elect Donald Trump gets ready to take over the White House in the next few days.
It’s also logical to assume the policy changes President-elect Trump wants to make will cause serious ramifications to the highly leveraged debt-based fiat monetary system… whether he realizes it or not.
Craig over at TFMetalsReport.com recently interviewed Paul Myclhresst about the huge problem the Chinese government is dealing with as they liquidate Dollars to prop up their banking and economic system. I highly recommend listening to that interview if you haven’t.
Thus, the continued liquidation of U.S. Dollar Reserves by China and other countries is probably the reason for the ongoing decline in International Reserves covered in Hugo Salinas Price’s newest article, The Further Decline In International Reserves:
Over the past 29 months, the decline in Reserves took place at a rate of about $42 billion dollars a month. At this rate, by the end of 2017 International Reserves will likely decline by another $504 billion dollars, to $10.31 Trillion, which will increase the decline from the peak in 2014 to 14.31%.
As we can see from Hugo’s chart above, countries continue to liquidate their official reserves (mostly U.S. Dollar reserves) to prop up their financial and economic systems. This is a very BAD SIGN… likely to get much worse in the future.
The Global Silver Market will experience a huge trend change in the future, thus impacting the price in a BIG WAY. There are two critical reasons why this will occur:
Let’s take a look at the Global Silver Market annual net balances from 1975 to 2016:
Let me explain this chart as it contains some interesting trend changes. First, the majority of annual net surpluses occurred from 1975-1987. This was after the U.S. and British Govt’s colluded to start the Gold and Silver Futures trading markets, which funneled investors funds into paper precious metals rather than physical.
This was also the same time when governments and big investors were dumping old silver coins onto the market that were no longer being used as currency. You will notice that in 1978 the net silver surplus was very low. This was due to the huge demand by investors as the price of silver skyrocketed. However, as the silver price was capped by the “Financial Doctors” at the Fed and CME Group in 1980, many investors dumped silver back into the market.
According to GFMS’s data, there was a 306 million oz (Moz) surplus of silver that year. And, as the silver price continued to decline in the 1980’s, more silver was dumped into the market, especially in 1983 (140 Moz) and 1984 (149 Moz).
I don’t want to get into too much detail from years 1987-1999, but annual net surpluses continued as governments such as China, Russia and India sold official silver stocks into the market. But, this all changed in 2000 when the Global Silver Market started to experience net deficits.
And… since 2000, the Global Silver Market has experienced 17 consecutive years of net silver deficits. According to GFMS and the Silver Institute, the world will suffer another 185.5 Moz net deficit in 2016.
So, how can the Global Silver Market suffer 17 years worth of consecutive silver deficits? Well, because there was over 2 billion oz of silver surpluses (1975-1999) put away for a rainy day:
Of course these figures are best estimates and do come from an official source that may have the motivation to under-report the real situation, but we can clearly see that a lot of silver has moved out of the market and is now likely be held by extremely tight hands.
While the market is nothing more than one huge “Intervention”, these official figures reporting 17 years of consecutive net silver deficits means the silver market is poised for something extremely big. And, I am not saying that just because I am a silver investor. The PROOF is right in front of us. No need to hype something that is totally making the CASE for us.
While many precious metals investors believe that market intervention and manipulation can continue indefinitely, we are already witnessing the collapse of International Reserves. Furthermore, if President-elect Trump is allowed to run the White House for a while, we are going to see serious financial dislocations due to trade wars and increased U.S. inflationary pressures.
In addition, GFMS and the Silver Institute forecast continued net annual silver deficits for the next several years (at least) as global silver production declines while demand continues to be strong. This will be just more FUEL for the SILVER MARKET FIRE ahead.
Again, this is not hype. What I am explaining here is the same setup as those characters portrayed in the movie the BIG SHORT, who were betting against the disaster called the Mortgage-Backed Securities industry. They knew it was a huge house of cards ready to implode… it was just a matter of time.
While the gold market will likely experience a huge run, I believe silver will outperform gold many times over. This is due to the fact that there is about the same amount of invest-able silver in the world as there is gold:
According to the best sources I could come across, there is about 2.2 billion oz of investment gold and 2.5 billion oz of investment silver in the world today. Of course, there is likely more physical gold and silver we don’t know about, but it will not change the ratio all that much.
That being said, just a doubling of physical gold and silver demand will put a lot more pressure on the silver price than gold as big traders and hedge funds jump aboard for larger percentage gains.
As we begin to see fireworks going off in the United States as President-elect Trump stirs up the pot, 2017 will likely be the year things really start to fall apart.
After a sudden surge in demand for gold on the eve of demonetisation, which led to record high gold prices, the gold buyers seem to have all gone into hibernation. With 80% of the Indian currency turning into trash, people can no longer step into jewellery stores, making a display of wads of notes in return for the precious metal.
Even straight-laced, honest tax payers seldom buy jewellery electronically. The gold industry has been worst hit by the cash crunch in the short term and no amount of numbers and statistics can paint this picture better than the empty jewellery stores.
Shri Shravanthi Jewellers, a known name in the gold business in Southern India, saw its domestic business suffer great losses in the months after note ban as turnovers were slashed by 90%. Footfall in retail stores witnessed an all-time low, making the gold industry go through an unprecedented depression.
Countering this popular view, Uday Rathi, owner of Vishal Jewellers, Hyderabad, said that there hasn’t been any adverse effect. “The only difference I’ve encountered is that earlier, we had 80 out 100 customers paying in cash, which has now translated into 60% cheque and RTGS payments. In my view, other retailers have also had a similar experience.”
Talking about labour issues, Shreeganth S, owner of Shri Shravanthi Jewellers, Coimbatore said “Cash crunch didn’t affect labour because 90% of the labour in gold industry is paid in gold, not in cash.” The 1g wastage that is incurred in making of gold jewellery is bloated to 10g on its way to retail outlets due to value additions along the way, inclusive of labour costs.
“The demand will revive sooner or later. The lull in sales gave me ample time to speed up production and stock enough to be ready to meet orders promptly when normalcy resumes. Those who lacked working capital to do so had to cut down production by huge volumes, incurring losses,” said Arun Saboo, CEO, SAP Jewels LLP, Hyderabad.
Voiding any positive regulatory impact of demonetisation, Shreeganth said that there has been no impact on the gold smuggling business. The old currency that was supposed to lose all its value has found its way back into banks. Hoarders of black money do business as usual and gold keeps coming in through unlawful channels, evading 10% customs duty.
“Demonetisation cannot bring down the unorganised sector. Unless there is a cut in customs duty, gold smuggling will flourish and regulation will suffer,” said Jagdish Kamisetty, General Manager, Vasavi Bullion Corporation, Kurnool.
The Indian gold industry, recovering with great difficulty from the shock of demonetisation, has been further attacked by a sudden hike in UAE’s gold import duty. UAE, which accounts for a third of India’s gold exports has increased duty on gold imports from 0.36% to 5%.
With its annual exports to UAE averaging 60 crores, Shri Shravanthi Jewellers is a big player on the Indian gold exports market. Like all other exporters, only 25% of its export volume, which is meant for consumption in UAE, stands to be affected. The duty hike, not applicable to re-exports from UAE, will not tarnish Dubai’s image as a hub of gold re-exports.
“It’s still too early to judge the impact of the duty hike on the Dubai gold markets. We’ll have to wait and watch. In the long term, I don’t think demand will be affected due to 5% duty. We don’t see an average 10% increase in gold prices every year preventing people from buying gold. The same logic applies here because the duty will be borne by the customers, not the exporters,” Shreeganth S, owner of Shri Shravanthi Jewellers said.
Many have speculated that such a move by Dubai was motivated by revenue collection to finance projects like the Dubai Shopping Expo, the world’s biggest shopping mall, targeting completion by 2020. The falling crude oil prices may have forced the governments in the middle east to consider alternative streams of revenue.
Many tycoons predict export bases in India shifting to UAE to avoid the duty. Meheer, from Ramniklal Sons, Ahmedabad, a jewellery exporting concern says that Indian gold exporters may open additional production untis in Dubai to escape the duty.
Also, foreigners may not see Dubai as the go-to shopping destination for gold jewellery anymore. The price difference from home countries simply may not be as attractive after imposition of the hike. Does that mean an increase in demand back home? We’ll just have to wait and watch.
Courtesy: Sneha Gilada
The CIA recently released a series of declassified 1970s memos relating to the gold market and the newly created SDR. These memos give new insight how the CIA viewed the gold market, the perceived manipulation of gold and the potential for the SDR to become a gold substitute in the international monetary system.
The classification of the documents is significant because “secret” is the CIA’s second-highest classification. The CIA notes unauthorized disclosure of secret information would cause “serious damage” to national security.
Each of the declassified gold and SDR documents was marked “SECRET” with a warning: “The document contains information affecting the national defense of the United States within the meaning of Title 18 sections 793 and 794 of the US Code.”
CIA Concerns of Gold Market Manipulation (link) – Document: Intelligence Memorandum – The World Gold Market- Semi Annual Review January – June 1970.
The 1970 CIA memorandum reviewed in the video below shows a CIA concerned about gold market manipulation by the Swiss whom they characterize as “in an excellent position to influence the London free market fixing.” The memorandum points to “strong circumstantial evidence that Zurich bullion dealers, under the leadership of the Union Bank of Switzerland are again manipulating the gold markets“
This manipulation in turn was interfering with an IMF agreement with South Africa to sell its gold to the IMF under certain conditions when it could not sell its newly mined out put on the free market:.
“While the [IMF] agreement essentially provides a floor of $35 an ounce for South African gold, it guarantees a free market supply large enough to keep the free market price at or near the floor at least through 1970.”
The CIA memorandum bemoans Swiss manipulation of the gold market: “There is strong circumstantial evidence that Zurich bullion dealers, under the leadership of the Union Bank of Switzerland are again manipulating the gold markets” “London bullion dealers had hoped that the 1969 agreement between the IMF and South Africa would restore London as the focal point of the world gold market. It has not.”
Ironically, as page 5 of the memorandum notes, much of the recent gold fix rigging exposed in recent year, was correctly anticipated by the CIA some 47 years ago:
“Manipulation of the free market price is suggested by the extremely narrow price range that prevailed for eleven consecutive weeks — from later January through mid-March. During this period, more than 85% of all morning and afternoon fixings fell within the $34.97 to $35.01 range, with nearly 40% of all quotations set at exactly $35.00.
Moreover, Swiss bullion dealers are in an excellent position to influence the London free market fixing. At each of some 255 morning fixing a year, the manager of Rothschild’s bullion and foreign exchange department suggests an opening price based on a previous half hour of intensive telephone conversations with people at the Bank of England and a host of others, mainly dealers in Switzerland. Representatives of the four other houses are in constant telephone contact with their trading rooms and these in turn are in direct communication with as many as a dozen key clients scattered across Europe. The result is that supply and demand conditions in Zurich are strongly reflected at the London fixings.”
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CIA Talks up the IMF’s Strategic Drawing Rights (link) – Document: Intelligence Memorandum – Special Drawing Rights: Paper Gold In Action – September 1970
The gold standard under Bretton Woods Agreement was showing cracks in 1970. The CIA memorandum notes: “the only available means of increasing reserves abroad was through continued deficits in the US balance of payments, But the US no longer had excess gold reserves and other countries had become reluctant to accept large additions to their dollar holdings.”
The CIA memorandum reflects the tenuous position of the gold market and the inclusion of gold in the international monetary system just prior to the break up of the Bretton Woods Agreement in 1971. The CIA viewed the newly created SDR as a potential replacement for gold calling it: “a new type of liquidity as permanent as gold it self – to insure increases in liquidity”… “The SDR is a form of money and credit”
“SDRs can not be extinguished by being exchanged by gold -they can only be traded among central banks. And unlike gold, there are no private uses for SDRs that compete with their use as an international currency.”
CIA however concludes that “Nevertheless, SDRs are not soon likely to supplant the dollar in the international monetary system. Foreign central banks need working balances which are presently denominated largely in dollars.”
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CIA Worries of Substantially Higher Gold Prices (link) – Document: Intelligence Memorandum Recent Trends in the Gold Market – October 1970
This memorandum grapples with the question; Why has there been a sharp rise in the price of gold? “in the absence of any monetary crisis there seems to be no obvious explanation for the recent substantial price in gold.”
“There is however strong circumstantial evidence that Zurich bullion dealers, under the leadership of the Union Bank of Switzerland are again manipulating the gold markets”
“London bullion dealers had hoped that the 1969 agreement between the IMF and South Africa would restore London as the focal point of the world gold market. It has not.”
“The present situation implies effective control of free market supplies by the Swiss commercial banks.”
The memo also cited a study that says “gold demand from industrial users and hoarders already exceed free world output…and several – less than interested individuals point to the inevitability of the free market gold price rising to as much as $100 per ounce by 1980.” That would represent a three-fold increase to the then prevalent price.
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More in the video below
The geopolitical uncertainty of Brexit and Trump’s approaching inauguration are sending gold and silver on an early rally for the year.
Britain’s Prime Minister Theresa May is clarifying her plans to ensure the UK makes a clean break from the EU’s single market, expressing the desire to remain a “good friend and neighbor in every way,” according to Bloomberg. However, her diplomatic tone is also backed by warnings about any attempts to punish the UK for its decision to leave the European bloc.
“That would be an act of calamitous self-harm for the countries of Europe. And it would not be the act of a friend,” she stated.
Some see May attempting to have her cake and eat it too by brokering a deal that gives Britain political and economic autonomy with the same benefits of being an EU member. May wants to change membership requirements for Europe’s customers union to allow her country to keep tariff-free trade with the EU without being required to impose a tax on imports for other non-EU countries.
Some members of the EU see May’s requests as setting a dangerous precedent for the entire trading bloc. “We shall never accept a situation in which it is better to be outside the European Union,” stated Guy Verhofstadt of the European Parliament. Countries that are seen as getting too good of an exit deal may motivate other member states to consider the same move.
President-elect Trump has weighed in on the Brexit issue, predicting that other nations will also leave the EU. In a quote from the Times of London, Trump connects the inevitable departures with one of the overarching issues of his campaign: immigration.
“I do believe this, if they [EU countries] hadn’t been forced to take in all of the refugees, so many, with all the problems that it … entails, I think that you wouldn’t have a Brexit. It probably could have worked out but this was the final straw … I think people want … their own identity, so if you ask me … I believe others will leave.”
Recently, Trump has also renewed his disapproval of the North American Treaty Organization (NATO) calling it “obsolete” and criticizing German leader Angela Merkel for accepting “all of these illegals” into her country.
Traditionally, gold experiences bump at the beginning of the year, but unknowns surrounding the EU’s response to May’s Brexit deal and Trump’s future policy decisions are intensifying haven investing and causing traders to turn to precious metals. Also affecting gold prices is the dollar’s continued fall from its rally since the end of last year.
Gold for immediate delivery rose 0.9% to $1,212.90 an ounce on Tuesday, the highest since late November, according to Bloomberg. The jump represents a 5.7% increase for 2017.
Comex silver was up 38 cents to $17.15 an ounce while palladium was up by over 10.5% since the start of the year, according to International Business Times. Used by auto, chemical, and electronics manufacturers, palladium has benefited from “positive industrial production” and has risen 20% on an annualized basis in 2016, outperforming both silver and gold.
Hussein Sayed, chief market strategist for online trader FXTM, said he sees Trump uncertainties have short-term positives for gold, with a breakout above $1,210 “sparking a further up move towards $1,230.”
Investors could be looking at a window of opportunity for diversifying their portfolios by buying gold, silver or palladium as protection against a falling dollar and the political uncertainties that lie ahead.
Courtesy: Peter Schiff
How and why should you invest in silver? Investors flock to precious metals like silver to protect against inflation and hedge against uncertainty. Because of all the ongoing uncertainty, precious metals like silver have, especially since the onslaught of the Great Recession, become retirement portfolio staples.
Despite the so-called decent economic indicators, there are a lot of reasons why silver prices will remain bullish in 2017: uncertainty around the Trump presidency and his policies, the U.S. economy, the global economy, geopolitical tensions, etc.
While silver prices made a strong run in the first half of 2016, climbing 53% to a multi-year high of $21.23, silver prices retreated in the second half of the year on improved economic data and optimism around the Trump presidency.
Still, silver ended 2016 up more than 15%. That’s a good year for a commodity that investors had shunned for a record four years. And 2017 is shaping up to be a solid year for silver prices. Silver is up 5.3% in the first two weeks of 2017, near $16.80 per ounce. By comparison, the flying-high S&P 500 is up just one percent.
Why? With stocks overvalued and momentum stalled, investors are taking a wait-and-see approach to what the Donald Trump presidency will look like. Investors aren’t known for their patience either. If Donald Trump’s campaign-trail promises—which have been behind the post-election market melt-up—don’t materialize and stock market momentum fades, silver sill be another contender for top investments in 2017.
If you’re interested in adding silver to your portfolio or are looking to diversify your holdings, below you’ll find a number of different ways to invest in silver & increase your exposure to silver.
Buying physical bullion is a great way to get your hands on silver. After all, if the markets crash or the dollar tanks, silver is better than any fiat currency. When you buy silver bullion, you know exactly where your money went, and you have immediate access to it whenever you want.
When you buy physical silver, it’s going to cost you a little more than what you see quoted in the news. The price you pay to buy a physical ounce of silver over the spot price is called the “premium.”
Another way to invest in silver is through silver mining stocks. Silver prices are cyclical; this presents good buying opportunities for investors who want exposure to silver stocks. Investing in silver stocks does not give you access to physical silver, but like the broader stock market, offers an excellent opportunity for serious growth that outpaces actual physical silver. On top of that, some silver stocks also provide dividends.
Here are a few silver mining stocks worth investigating.
Silver Wheaton Corp. (NYSE:SLW, TSE:SLW) is the world’s largest silver streaming company. Silver streaming is the process in which one company purchases a mining company’s production to refine and distribute the silver.
In 2016, a year in which physical silver prices advanced 15%, Silver Wheaton’s share price soared more than 50%. Silver Wheaton also provides an annual dividend of 1.19%, or $0.24 per share.
Pan American Silver Corp. (NASDAQ:PAAS, TSE:PAA) is one of the largest silver producers in the world and is working to diversify into gold. Pan American’s mineral reserves are estimated to contain 280 million ounces of silver and 2.1 million ounces of gold. Pan American Silver provides a modest annual dividend of 0.29%, or $0.05 per share.
In 2016, Pan American Silver’s share price soared 126%. (Source: “Pan American Silver Corporation Mineral Reserves and Resources,” Pan American Silver Corp., last accessed January 13, 2017.)
Coeur Mining Inc (NYSE:CDE) is the largest U.S.-based primary silver producer. Founded in 1928, the company has operations in North America, South America, and Australia. The company produces around 18 million ounces of silver and more than 226,400 ounces of gold annually with silver accounting for around three quarter of revenue.
In 2015, Coeur achieved record production of 35.6 million silver-equivalent ounces, a year-over-year increase of 11%. Production in 2016 is projected to be 34.4 to 37.0 million silver-equivalent ounces. Most of the bullion is sold to bullion-trading banks and to smelters. In 2016, Coeur’s share price climbed 330%. (Source: “Fact Sheet,” Coeur Mining Inc, last accessed January 13, 2017.)
Great Panther Silver Ltd (NYSEMKT:GPL, TSE:GPR) is primarily a silver mining and exploration company with activities focused in Mexico. The company recently announced an agreement to acquire a 100% interest in the Coricancha Mine Complex in the central Andes of Peru.
In 2017, the company expects to produce between 4.0 and 4.1 million silver-equivalent ounces from its Mexico operations. In 2016, Great Panther’s share price increased 225%. (Source: “Overview,” Great Panther Silver Ltd, last accessed January 13, 2017.)
Exchange Traded Funds (ETFs) are an excellent way for silver bulls gain access to a wide number of different silver stocks. When it comes to silver exposure, there’s an ETF for almost every segment of the silver market: physical bullion, futures, and mining stocks.
iShares Silver Trust (ETF) (NYSEARCA:SLV) is the most popular way for investors to access physical silver. SLV holds 362.3 million ounces of silver in trust, with net assets of $7.0 billion. Its silver bars are held in vaults in London, England and New York City. (Source: “iShares Silver Trust,” iShares by BlackRock, last accessed January 13, 2017.)
Silver Trust (NYSEARCA:SIVR) is an ETF that also tracks physical silver bullion. SIVR has 19.3 million ounces of silver in trust, with $327.3 million in assets under management. (Source: “ETFS Physical Silver Shares SIVR,” ETF Securities, last accessed January 13, 2017.)
Global X Silver Miners (NYSEARCA:SIL) is an ETF that provides investors access to a number of popular silver mining, refining, and exploration companies from around the world. The fund has net assets of $318.2 million, and the top holdings include Fresnillo Plc (13.27%), Silver Wheaton Corp. (12.93%), Pan American Silver Corp. (11.25%), and Tahoe Resources Inc (8.78%). (Source: “SIL Key Features,” Global X, last accessed January 13, 2017.)
PureFunds ISE Junior Silver ETF (NYSEARCA:SILJ) is an excellent way for investors to get exposure to small-cap silver companies. The benefit to a junior silver play is that they could experience much higher growth rates than large-cap companies. They could also become an acquisition target. The fund holds 24 stocks, with total assets worth $58.5 million. The top holdings include Coeur Mining Inc, Pan American Silver Corp., First Majestic Silver Corp., Excellon Resources Inc., Fortuna Silver Mines Inc, Endeavour Silver Corp, and Mag Silver Corp. (Source: “SILJ,” Pure Funds, last accessed January 13, 2017.)
2017 is poised to be a strong year for silver prices. Fortunately, there are a number of different ways for silver bulls to invest in silver, diversify their portfolios and gain exposure to silver.
Courtesy: John Whitefoot, BA