Commodity Trade Mantra

High Uncertainty Makes This Completely Certain: High Gold Prices

High Uncertainty Makes This Completely Certain: High Gold Prices

High Uncertainty Makes This Completely Certain: High Gold Prices

Gold Rated fund manager BlackRock’s Evy Hambro on finding mining stocks with solid fundamentals and predicting the bounce in gold prices.

Emma Wall: Hello, and welcome to the Morningstar series, “Why Should I Invest With You?” I’m Emma Wall and I’m joined today by BlackRock’s Evy Hambro, Manager of the Gold and General Fund.

Hello, Evy.

Evy Hambro: Hi, Emma. How are you?

Wall: I’m very well. Thank you. Looking at your three-year figures, very positive, up 12% on an annualised basis. But it’s been a bumpy ride, hasn’t it? Last year, in particular, had some very interesting figures when you compare it to the benchmark and that is because your quality bias. What was that disparity?

Hambro: Yeah. Well, last year was an extraordinary year. We always had so many different moving parts with culminating really in the peak of the gold market in 2016 around the Brexit timeframe when gold prices had a massive spike. So, a lot of the junior stocks in the sector with kind of lower-quality assets, more marginal, when we had that move higher in the price, their share prices took off.

And our fund has never really had that much exposure to some of those companies and that left us behind a bit. But I guess it’s a little bit like kind of the tortoise and hare. Over time, we caught up and if you look at the numbers now, I think, those days are a bit of memory. So, we’re pretty comfortable with our strategy that’s worked well for 25 years now.

Wall: Obviously, gold is in the name and you are reliant in a lot of ways on the gold prices. But how correlated is it? Is it an exact correlation? Are you beholden to that gold price?

Hambro: Yeah, that’s a really good question because that data changes a lot. So, there are periods of time in the history of the fund where gold prices have been going up and gold shares as a group and obviously, that’s what we invest in, have actually been going down. So, if you look at the periods, kind of 2012 was a good example, 2011, when the gold prices were rising very rapidly and heading up towards those peaks.

Gold shares were being left behind. And actually, in some of those years they actually fell. The reason for that is that the management of the gold mining companies at that time were focusing their businesses on growth and making some fairly value-destructive investment decisions and gold equities were being de-rated. So, they were losing their multiple. So, their businesses were performing, the profits were rising, but because the multiples were contracting, the share prices weren’t actually going up. Those are anomalous.

Normally, we tend to move in the same direction as the gold prices and at a multiple of it. So, the historical number is about 1 to 3. So, for a 1% change in the price of gold up or down, the shares normally go up about 3% or go down by 3%.

Wall: And gold prices tend to fare well when there is a lot of uncertainty around. I think the current political climate certainly speaks to that. You have Donald Trump in the White House who is unpredictable if not exciting. You’ve got European elections this year. How much do you take into consideration those macro factors, not least the Middle East and Korea, when you are making investment decisions?

Hambro: Yeah. So, we tend to think primarily about the companies because we think we can add value by spotting opportunities that sit inside companies that might not necessarily being recognised by the market. And if we can get those bits right, if gold prices go up or down, those individual events that we’re targeting should release value. If they release value when gold prices are going up, they will make that company significantly outperform in a rising market and in a falling market, it should stop those companies from falling as much as the sector. So, it’s that that’s our main focus.

I would agree with you though that gold is a safe haven asset and in times of trouble it does tend to deliver the kind of insurance qualities that people look to it for. In today’s environment where you have got a lot of uncertainty, and you’ve mentioned a number of the factors, we have seen a significant increase in investors coming to us and on the basis that they want to take a little bit money off the table – you’ve got the DOW and then NASDAQ and equity markets as a whole at all-time highs, people have made a lot of money by having exposure. So, to take a little bit of money off the table and put it into something that will protect you seems to make sense. And a lot of clients are choosing gold as a diversification tool and thankfully, they are choosing our fund as one of the things to use.

Wall: As a fund manager in any sector I imagine that you want the stocks that you hold in times when they don’t do so well, to take a step back and look at the way that they can cut costs… so they can take that difficult medicine in order to, when times rally again, they absolutely appreciate from that upside. Has that been done in the mining sector? Have they made the changes that were necessary?

Hambro: Yes. Well, the mining sector has been through a horrendous time for the sector as whole as much as gold equities. So, we’ve had the kind of Chinese-related boom in the last decade and that kind of peaked after the injection of capital in 2009 with share prices getting to the highs in 2011. And so, the unwinding of some of the mistakes as the kind of capital tide went out and left people with their mistake fully exposed, that’s taken a long time to resolve, whether it’s cost inflation that was baked into the businesses, inefficiencies, lack of productivity, poor investment decisions either by building things inappropriately in terms of the cost or buying stuff at too higher prices.

We’ve been through now five years of kind of sorting that out and now the businesses have re-based themselves a little bit like kind of Ctrl+Alt+Delete on a computer. And we’ve got businesses today that are in much, much better shape than they have been for a long and actually, in fact, that process probably came to an end at the beginning of last year.

Wall: Evy, thank you very much.

Hambro: Thanks very much, Emma.

Can’t Afford to Miss Buying Physical Gold Now, Soon Most Won’t Really Afford It

Can't Afford to Miss Buying Physical Gold Now, Soon Most Won't Really Afford It

Sell-Offs Are Buying Opportunities: Reasons to Buy Physical Gold Now

Sean Brodrick: Gold investors, forget Europe. Yeah, yeah, gold prices went down on the idea that France might vote for someone boring. Panic leaked out of the market like an old balloon.

So, gold prices went down. That’s nice. I told you why this is actually good. Meanwhile, there is a tidal wave of demand building in Asia.

I’m going to tell you some big news on China. Big for gold. But first …

First, let’s deal with India.

Earlier this month, I told you how gold imports into India jumped sevenfold in March. India’s physical gold imports rose to 120.8 metric tons in March from a year earlier.

Demand from jewelers in anticipation of India’s wedding season was off the charts. That’s partly due to the fact that demand was suppressed last year.

Last year, India’s gold consumption fell 37% to hit the lowest level in seven years. That was due to all sorts of chaos caused by a hike in taxes on imported gold, a resulting jeweler’s strike, and general government shenanigans.

This year, India is getting back in its golden groove. And yeah, that’s bullish.

Also in that same story, I reminded you that “India is the world’s No. 2 consumer of physical gold, after China.”

So we’ve all been waiting to see what’s happening with China.

Hoo, doggies! Something’s happening all right.

Here is a chart of gold imports into China through Hong Kong.

Source: Goldcore/goldchartsrus.com

Whee! In fact, Reuters reports that physical gold bullion arriving into China via Hong Kong — its main vein for gold imports — more than doubled month-on-month in March.

Well, that’s pretty bullish. But part of the frustrating thing about China is they’re so danged secretive about their gold markets, gold holdings, you name it.

However, there is another measure of Chinese demand for imported gold: its flows through Switzerland.

And sure enough, somebody has been buying A LOT of physical gold from Britain and shipping it into Switzerland.

Source: Goldcore/goldchartsrus.com

What happens to the physical gold there? Well, big bars of gold, the kind stored in London, are melted down and recast into smaller bars for sale in Asia.

“Gold exports to China from the refining hub of Switzerland almost doubled to 46.4 metric tons in March,” according to Bloomberg. That’s up from 23.6 tons in February.

Another 30.29 tons went to China. You get one guess where that gold ended up.

And let’s not forget India. India’s physical gold imports from Switzerland soared to 72.5 metric tons at the same time.

Singapore is a big buyer, too. Singapore is often a “back-door” channel into China. Singapore also exports physical gold all across Asia.

So, you get a Swiss gold export chart that looks like this.

Source: Goldcore/goldchartsrus.com

The four big bars I’ve circled are Swiss gold exports in March to China, Hong Kong, India and Singapore.

So yeah, you might say that Asian demand for physical gold is rising. Heck, I’d say we’re seeing a tidal wave forming. It’s all part of the surge in demand by Asia’s the ballooning middle class that I warned you about.

So now we can add renewed Chinese demand to that long list of bullish forces for gold.

So now gold is selling off. This is due to panic leaking out of the market as France chooses the middle road. And the market seems to be hanging a lot of hope on President Trump’s tax cuts.You know what I’m talking about: declining physical gold reserves, a lack of spending on new exploration, a top in the U.S. dollar, declining gold grades, peak gold, rising inflation, the cyclical nature of gold. And more.

To be sure, these tax cuts are not paid for. Which means, even if President Trump is successful in getting his tax cuts, the federal deficit and America’s national debt will balloon.

The debt used to matter to the markets. It might matter again. And when it does, you’ll know what you want to know.

So go on. Give me a big pullback in gold prices. We’ll get the best buying opportunities we’ve had in a long time. And then on the next turn of the wheel, the profit opportunities won’t just be good. They’ll be glorious.

You’re Exiting The Worst Months for Gold — The Best is Yet to Come

– Sean Brodrick: Boy, gold is having a tough slog in April — and that comes on the heels of rough March.

This is no surprise for calendar traders, though. They know that the best time of the year for physical gold is yet to come.

And by that, I mean it’s well-known that gold performs better in the second half of the year.

This is due to seasonal buying. In August, jewelers around the world traditionally stock up for various cultural holidays. These include Muslim Ramadan, Hindu Diwali, Christmas, and the New Year in China.

This doesn’t mean gold demand and price must rise in the third quarter — it didn’t last year — but it’s more likely to.

However, the worst bear market in precious metals in living memory has taken its toll. Let me show you a chart and you’ll see what I mean.

Data source: Stockcharts

This is gold performance by month from 2006 to 2016. The chart separates the performance of gold by individual months. So all the January performances are averaged together, and so on.

Heck, looking at that, you can’t be blamed for thinking you don’t want to stick around for May.

But this is the bear-market effect. It has warped the regular market trend. Take a look at gold performance over the longer term — from 1975 to 2016.

Data source: LBMA

You can see that March and April are traditionally months when gold goes down. Gold historically pops higher in May … but the real blast-off comes in the third quarter.

This doesn’t mean physical gold demand and price must rise in the third quarter — it didn’t last year — but it’s more likely to.

We just exited a 4½-year long bear market in gold. That dragged down the metal’s seasonal performance. And because miners are leveraged to the metal, it hammered mining shares lower.

Now, we’re back in a new bull market. So I would look for a return to the normal trend. That means strong periods of outperformance in the metals and the companies producing them, especially in the second half of the year.

Heck, we may even see better-than-average performance. That’s what bull markets are all about.

Warren Buffett Hates Gold… But Here’s Why You Need To Own It

Stephen McBride: In a 1998 speech at Harvard, legendary investor Warren Buffett shared his thoughts on physical gold:

“[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again, and pay people to stand around guarding it. It has no utility.

 Buffett is correct—gold doesn’t produce earnings or pay dividends. There are, however, some good reasons physical gold should be an essential part of every investor’s portfolio.

#1: Real Interest Rates Are Still Negative

Even with the Fed raising nominal interest rates, real rates—that is, the nominal interest rate minus inflation—are still in negative territory. And real rates are what really matters to your portfolio.

In the first quarter of 2017, inflation averaged 2.57%.

Today, a one-year bank CD pays about 1.4%. Therefore, to keep all of your money in a bank account means to watch your purchasing power erode.

Of course, there are other options. You can put your money in U.S. Treasuries or dividend-paying stocks. However, with the 10-year Treasury yield hovering around 2.25% and the average dividend yield for a company on the S&P 500 at 2.33%, you would still be in negative territory.

Gold is known as the yellow metal with no yield, but simple math tells us no yield is better than a negative one. In fact, real interest rates are a major determinate of which direction the price of gold moves in.

So, gold will protect your capital from the eroding forces of negative rates… and help it grow at the same time.

#2: The Dollar’s Value Has Collapsed

The U.S. dollar may be rising against other currencies like the euro and yen. Nonetheless, in the last 50 years, its purchasing power has fallen by 86%.

As this chart shows, keeping your savings in cash is a poor wealth-building strategy. On the other hand, gold has more than kept up with inflation. Since 1972—the first year private ownership of physical gold became legal again—the price of gold has increased by 2,400%.

 #3: Gold Is Money

 Why has gold retained its value while fiat currencies have fallen? It’s because gold is money.

2,000 years ago, Greek philosopher Aristotle theorized that any sound form of money must be: durable, portable, divisible, and have intrinsic value.

Gold has all these characteristics— that’s why it has proven to be a long-term store of value. Fiat currencies like the dollar cannot be considered money as they don’t have intrinsic value.

In other words, gold is payment in and of itself, but the dollar is only a promise to pay.

 #4: Negative Correlation to Stocks and Bonds

The world’s largest asset manager, BlackRock, pointed out recently that in the last decade, the correlation between stocks and bonds has been at almost double its long-term average.

Therefore, a portfolio comprised of 60% stocks/40% bonds no longer offers investors adequate diversification. Sure, it’s great when markets are rising—but when the tide turns, that’s going to be a problem.

To keep all your eggs “out of one basket”—buy gold. Recently, the correlation between gold and the S&P 500 stood at its second-lowest level in over 30 years. That’s also the case with gold and bonds.

#5: No Counterparty Risk

 Gold is one of the few assets that has no counterparty risk. What does that mean?

No counterparty risk means that once you have physical gold in your possession, you don’t depend on someone else to fulfill a contract or keep a promise for it to retain its value.

Stocks, bonds, ETFs—essentially all paper assets require another party to make good on their end of the deal. Physical gold’s value does not hinge on someone else’s obligation to pay.

Aside from being a long-term store of value and diversification tool, there’s another reason you should buy physical gold.

Bonus Round: A Profitable Portfolio

 Since the beginning of 2017, gold is up over 10%, making it one of the best-performing assets of the year. And this is no anomaly.

Since late 2015, gold has outperformed the S&P 500 by 30%. In fact, gold has been the best-performing asset class since the turn of the millennium.

Not only will gold preserve your wealth and insulate your portfolio from market sell-offs, it can earn you a profit at the same time.

Given the negative real rates, a falling dollar, and heightened correlation between stock and bonds, physical gold should be an essential part of every investor’s portfolio today.

A Few More Reasons to Buy Physical Gold Now

John Persinos: It’s time to give the “gold bugs” their due.

In this newsletter in recent weeks, I’ve been recommending various gold-backed exchange-traded funds (ETFs) and gold miners. In response, I regularly get letters (sometimes heated ones) from the hard-money crowd, who think of paper dollars as worthless “fiat money” and physical gold as “real money.” These yellow-metal zealots don’t even trust gold ETFs or miners; they insist on the tangible asset.

As one reader writes:

“Gold ETFs can be good investments, but they confer many risks. For example, you must rely on a counterparty to make good on your investment. If the fund’s management, structure or chain of custody break down during a crisis, your money is at risk.” — Thomas H.

The chances of those events occurring are scant, but Tom raises an interesting point. The major motivation for owning gold is protection from risk, but a gold ETF or mining stock is part of the financial system you’re trying to hedge against.

While I don’t consider myself a gold bug, today’s worsening dangers make it worth considering the purchase of physical gold. Below, I examine convenient ways to purchase the Midas Metal. As an alternative, I also highlight an under-the-radar gold play that could be poised for outsized potential.

The newspaper sitting in the driveway every morning is starting to resemble a ticking bomb. What explosive headline will confront you today? Face it: the dust will never settle during a Trump administration. And when uncertainty rules the news cycle, investors flee to the safe haven of physical gold.

This issue, I focus on the advantages of owning bullion. Why physical gold? Here are three key reasons:

1) The yellow metal maintains its intrinsic value despite a government’s ability to back its currency. If your country’s currency implodes and becomes worthless, you’ll still be able to spend your physical gold.

2) Physical gold is universally accepted around the world, without the need to convert it into the local currency. It can be bartered anyplace at anytime.

3) If there’s ever an economic crisis and banks freeze individual accounts, a physical gold investment can always be accessed.

The Trump era is undeniably turbulent, with a stock market correction and perhaps economic recession looming in the wings. Gold will be responsive this year to the ubiquitous threat of terrorism, right-wing nationalism and continued disarray in Washington, DC.

The conditions that are favorable for gold, will prove fatal for overvalued stocks that are looking for a trigger to tumble. Gold also is a time-tested hedge against inflation, which is showing signs of new life.

The yellow metal is proven protection against crises. During the Great Recession of 2007-09, the worst economic downturn since the 1930s, gold prices rallied from $840 per ounce at the end of 2007 to over $1,200 by the end of 2008, even though inflation over this period stayed in check.

Remember, diversification is crucial to any investment strategy. As a fraught 2017 unfolds, consider re-balancing your portfolio to accommodate the likely economic, business and market volatility ahead. You can hedge your bets, with physical gold.

 

 

A Government Shutdown Could Change The Picture For Gold

A Government Shutdown Could Change The Picture For Gold

A Government Shutdown Could Change The Picture For Gold

With the first round of the French presidential election in the rearview mirror – and the potential for significant unintended consequences if a major country were to leave the euro currency abating, allowing markets a sigh of relief – many market trends have reversed in recent days. One such example can be found in the gold market, Goldman Sachs research points out. But where will this new market trend abate? Could a US government shutdown reverse recent market trends?

Markets breathe a sigh of relief as investment banker expected to win in France

Immediately following the French election results – where investment banker Emmanuel Macron bested populist Marine Le Pen to lead the top two finishers into a May 7 run-off election – stock markets around the world were giddy, rocketing higher by more than 4% in one day in France.  The yield spread between French and German interest rates, a proxy for risk of France leaving the euro, tightened and market uncertainty, measured by the European VSTOXX volatility index, fell dramatically.

Amid this market fervor, gold, a proxy for global risk, quickly fell $12 per ounce immediately following the election and has continued the counter trend lower.

In an April 24 report, Goldman commodities research analysts Max Layton, Mikhail Sprogis and Jeffrey Currie think volatile trading is likely to continue as the downside gold trend moves with a steady target in mind.

Near-term catalysts for a push lower in gold prices includes higher US interest rates and President Donald Trump unveiling a tax plan Wednesday, the analysts observed. But there is a potential fly in the market ointment.

Government shutdown gold  chance of a government shutdown

Watch for Chinese buyers to emerge at $1,200, but a US government shutdown could reverse market trends — sharply

As US Treasury yields rise in the wake of the French election – over 2.3% in early Tuesday trading, a reversal of a short-term downtrend that started in early March – gold prices moved lower.

Helping push gold lower is the expectation that the Trump administration could release new tax policies as soon as Wednesday, the Goldman report noted. A market positive move on tax policy could result in strong force of trend, but there is a point to watch for significant buyers from China to enter the market.

The gold market could continue to weaken over the near term, with Goldman eyeing a three-month gold price target near $1,200 per ounce. This was a key level at which Chinese buying had previously held and reversed a then downtrend. Goldman expects this level “to be important again,” should such a price drop occur.

Other fundamental catalysts moving gold lower would be new thinking on interest rate hikes. Goldman estimates there will be two hikes between now and September, which is one ahead of the consensus forecast.  The withdrawal of quantitative easing will be faster than anticipated, Goldman predicts, as hard data from economic growth statistics will confirm the soft survey data that has been expressing market positivism.

But there is a reasonably significant fly in the ointment on gold and the stock market. If the US fails to reach a settlement on a government shutdown, gold could take flight and stocks might find gravity.

The initial deadline is this Friday, and Goldman estimates only a one in four chance of a government shutdown occurring. If the deadline is extended a week, the investment bank’s economists estimate a one in three chance of a government shutdown. US Senator Ted Cruz (R-TX) speculated last Tuesday that Democrats wanted a shutdown “to appease the radical left.” – Mark Melin

 

Gold Prices Could Hit $1,500 in 2017 Amid Imbalances & Weak Supply

Gold Prices Could Hit $1,500 in 2017 Amid Imbalances & Weak Supply

Gold Prices Could Hit $1,500 in 2017 Amid Imbalances & Weak Supply

Coming up Frank Holmes, CEO of U.S. Global Investors joins me to share his thoughts on Trump’s first 100 days, the resetting that’s going on the global political front and gives what he sees as a very realistic price target for gold before the end of the year. – Mike Gleason

Mike Gleason: We are fortunate today to be joined again by Frank Holmes, CEO and Chief Investment Officer at US Global Investors. Mr. Holmes has received various honors in recent months including being named America’s Best Fund Manager for 2016 by The Mining Journal and received two more Lipper awards just last month in both the three year and five year precious metals equity funds categories.

He’s also the co-author of the book The Goldwatcher: Demystifying Gold Investing and is a regular guest on CNBC, Bloomberg, Fox Business, as well as right here on the Money Metals podcast. Frank, welcome back and thanks for joining us again. How are you today?

Frank Holmes: I’m well, thank you.

Mike Gleason: You mentioned back in January when we had you on right before Donald Trump’s inauguration that the first 100 days of his presidency would be a key on several fronts. Give us your thoughts on what these first 100 days have looked like. What have you gleaned from the last few months as you’ve been evaluating his policy decisions and the market’s reaction to those?

Frank Holmes: Well, I think it’s really difficult to grasp the difficulties of getting change in Washington. There’s just so many people that are addicted, from lobbyists to whatever on regulations and more rules and regulations. Regulations for taxation for every agency there is. It’s been much more difficult for him to tackle that than it was expected, and that’s recently showing up with interest rates falling back below and giving a negative interest rates, gold rallying from that. I think it’s hard for the average investor because something like 70% of the media is biased, and they’re pro-Democrat no matter what it is, and so you find the narrative from even so many business columns are wanting Trump to fail.

I find that really saddening because a great investor, the greatest in the world, Warren Buffett, who bet on Hillary Clinton and then when Trump won he said, “Well, I’m behind the President and if he does well we all do well, so that’s what I’m going to do,” and I’m more of a Buffett cheerleader in a thought process, so I think it confuses a lot of people that how difficult it is, and I think that to really read through his message, that he wants bilateral agreements, he wants to renegotiate agreements with the benefit to the middle class of America. I think that that’s very positive, but no matter what he does, we’re just getting skewed with a negative sentiment.

Government’s basically have two levers to manage the economy. One is monetary policy, the other is fiscal policy. Monetary policy is money supply and real interest rates. Fiscal policy is tax and spend and regulations are an indirect taxation on a sector of the economy. When it comes back, what we witnessed under Obama was an administration that was on steroids in every department on new regulations. It was a massive increase, and the only way to have economic growth with this massive increase in regulations which has always been a drag on the economy, is to have cheap money. Low interest rates, and to a point where they went negative. When I say negative, is that every month we get what’s called the “CPI number.” The CPI tells us what Consumer Producer Index of inflation is.

That inflation index is an important factor because if it’s 2% and the government wants you to buy their 10-year government bonds, and they’re only going to pay you 1.5%, you’ll say, “Well, that’s a bad deal. I’m going to lose half a percent every year for 10 years.” Whenever that happens, gold becomes a very attractive asset class, and so do companies that are paying dividends and have the capacity to raise dividends. That’s the other part where you see in the stock market rally for the past eight years predominately, and we’ve had negative interest rates. And you see gold fall and rise every time we’ve had this positive/negative.

For your listeners, every month the CPI number comes out, and you deduct that from whatever the government wants you to pay for their 5-year and 10-year government money, and the core relation is immense. Anytime they’re paying you more than the CPI number, gold falls. Anytime they’re paying you less, gold rises.

Mike Gleason: Yeah, very well put. It is obviously a big thing that we look at, and we’ll need to continue to look at. What are you expecting for that situation here going forward? Do you expect a negative real interest rate environment to persist here, Frank?

Frank Holmes: Yeah, I think that as long as you have this massive burden of regulations, you’re going to have to have cheap money. Raising interest rates right now is only going to hurt the economy, and there’s some parts that are already trying to show up with that. The concerns, stay away from auto parts. Automakers have a huge inventory, and a lot of the recent cars have been financed with basically junk paper, because a lot of people can’t qualify. It seems to be a very risky sector. So, what happens if that short term interest rates now, I remember I wouldn’t call and ask some car dealers locally, and if you want to use their services, it’s 4% for a car. If you can get one of the credit unions here, you can get it down to 2%, but a year ago it was one and a quarter.

Mike Gleason: Yeah, I think that as long as you have this massive burden of regulations, you’re going to have to have cheap money. Raising interest rates right now is only going to hurt the economy, and there’s some parts that are already trying to show up with that. The concerns, stay away from auto parts. Automakers have a huge inventory, and a lot of the recent cars have been financed with basically junk paper, because a lot of people can’t qualify. It seems to be a very risky sector. So, what happens if that short term interest rates now, I remember I wouldn’t call and ask some car dealers locally, and if you want to use their services, it’s 4% for a car. If you can get one of the credit unions here, you can get it down to 2%, but a year ago it was one and a quarter.

Frank Holmes: I was in London also and I had a lovely lunch with Nicholas Vardy. Very insightful. He’s a newsletter writer that went to Stanford and then did his law degree at Harvard, and was there when President Obama was there, and our new Supreme Court judge. So, he’s very insightful and talkative, and gave me lots of color, and whenever I travel to these places, I always ask the taxicab drivers what do they think, and the thoughts of Brexit, it was ubiquitous. Everyone was happy for Brexit to go through, and they felt that the unions have taken control of the government policies in Spain and Italy and France, have prevented young people from getting jobs, and the only place for opportunity is in the UK.

They can handle only 50,000 families a year and there’s 500,000 coming in a year. So, they feel that you can’t stop these socialist unelected officials, and they’d rather control their own destiny. So, I think the Brexit is an interesting event, and I think that probably the vote will still remain very strong, even though most of the media don’t want to see it happen, but I think it will. I saw when I was in Zurich the construction was booming, there’s lots of reservations on the regulatory world globally. They believe that globalization, the slow down of that took place 10 years ago with the difficulty of moving money, the proof of burden that your money is your money, and the paperwork that goes with it, that they will not open an account for any American taxpayer today.

Neither will Bermuda, I found out. So, you get this different idea that the ability to move freely with yourself or money around the world is becoming restricted, but more so the advent has been before building a wall between America and Mexico, all that drama that’s taken place is actually really showing up in the movement of capital. It’s much more difficult, and there are things I learned. They’re big believers in gold. They believe that this mismanagement of fiscal monetary policy, the French government, the socialist there was proposing a 100% income tax, basically taking people back to feudalism. Bizarre that he would think that, and I think what happens is that when you don’t get mainstream thinking, that is we want to have the streamline regulations, have taxes that are appropriate and accountable for what we’re spending the money for, whenever you get this excessive right wing or excessive left wing, you create volatility for investors.

That’s something that’s coming out of France. France is the second most important part of the Europe, when England’s gone. The other thing you need to realize is that England was the second biggest contributor to the EU budget, and that was offending a lot of the British taxpayers that not only were all these immigrants coming in because of the bad government policies of other countries, they were sending their tax followers out to build better places for France and Spain, and other countries. So, I think that the world is resetting. I think that’s positive, to get a rebalance there, and I think that we’re going to continue to live with low interest rates and suffer with these regulations until we get finally a breakthrough. And once we get a breakthrough, because whenever you get fiscal policy incentives, streamline regulations, create tax incentives, you get a much bigger bang for your dollar and growth in the economy.

That’s why when China started its revolution with Deng Xiaoping in 1978, they created seven tax free zones. You see that in San Antonio to get Toyota to build a car plant here a decade ago, it was to provide all these tax and training concessions, and it’s been a big windfall to us. So, it is so key and right now Washington’s in a stalemate of streamlining regulations.

Mike Gleason: Do you expect the bullishness for gold that you were seeing there in Europe to make its way here to the U.S.? I mean, since gold is really the anti-dollar, it seems that we need U.S. hedge funds and some hot money to come into the market in the Western world to really take it to the next level. Do you see that happening here, Frank? And what could possibly trigger the renewed appetite for precious metals among U.S. investors? Because retail demand is quite soft and it seems like most of the rest of the world are really the ones that are focusing on gold right now.

Frank Holmes: I think it’s not so much this conspiracy theory on gold and money and the dollar. I think it’s better to look at the imbalances that take place in an economy’s fiscal and monetary strategies. And whenever you get these imbalances, gold will perform exceptionally well during that process. It’s in America and it’s in many other countries in the world, of this monetary driving the equation, and not fiscal policy that’s driving the equation, except for more taxation and regulation. I just think that the U.S. still has this imbalance. Europe clearly has a much greater imbalance, and difficulty in this monetary/fiscal policy imbalance. And I think we’re going to mutter along with it.

You saw India has a surtax on gold imports and finally after all the currency debauchery that took place where they wiped out 86% of paper money. 86% of Indian money, paper money, was in 10’s and $5 bills. 86%. They said, “If you can’t show where you got that money from, then you lose 30% of the dollar value. You better run to the bank and show where that cash came from, to stop the corruption as they’re going through an election cycle. Well, that’s all done and immediately you saw a surge in gold prices. The demand that India’s getting back to, it was up 300% from a year ago. I think there’s other positive parts to take a look at that gold demand, the supply from around the world is just not growing the way paper money is growing. It’ll just be these continuous imbalances and you should have your exposure to gold and it should be 5-10%, and the magic is to rebalance.

So, when we get these incredible runs, you have to take some profits off the table because we will get these big corrections, in particular in the (gold) stock prices. I think the real shocker here in this first quarter is last year in the first quarter when gold jumped 6%, you had a massive move from 40-80% in gold stocks. This year, it’s a very modest increase of like 14% I think for the first quarter, and gold is up six and a half percent. The big part of that is this GDXJ rebalancing and it’s garnered, it’s almost 10% of all gold equity funds. Money’s not really going into the gold equity funds. They’re going into the gold ETF which has nothing, no thought process on taking stocks for values. It’s just market cap.

Now, they’re making a decision that they don’t want to have as much small cap because they could own too much of a company and they’ve been dumping, and it’s going to happen now over the next month, something like three billion dollars’ worth of the junior gold producers. These are disruptive in the capital markets. They make people skeptical, et cetera, but you know what? They provide an opportunity. If you can understand an index as doing this and all the regulations around that index and that’s what they say as the reason they have to do this, then it becomes your opportunity.

Mike Gleason: Obviously geopolitics are starting to flare up here as tensions between us, Syria, Russia, North Korea, and China are making headlines. Where does this all head and what investment class do you see being the primary beneficiary of all this global tension? Because it does feel like we’re in maybe the calm before the storm here, especially when you throw in everything that’s going to happen in Europe, with those key votes in the EU later this year. What are your thoughts there, Frank?

Frank Holmes: I think that dividend stocks and stocks that have the capacity to raise dividends are going to still do well. I really do. I think that gold is going to be… that there are so many great quality gold stocks, and I think that they’re going to do well. I think that MLPs are involved in the shipping of energy, not the processing of energy, they’re going to still do extremely well. I’m constructively bullish, it’s just I think we’re going to have more volatility. And volatility should be to your benefit. You should understand what that DNA of volatility, and let me help you with your listeners. When you do a rolling 12 month period for the past decade, it is a nonevent, that is 70% of the time gold can go plus or minus 20%. That’s the same thing with the S&P.

They’re both the same. They both have the same DNA of volatility. But gold stocks have a DNA of volatility which is two times that, that is 70% of the time, it’s a nonevent for them to go plus or minus 40%, and so is biotechnology, and so are other sectors of the economy that have a greater volatility to them. So, the magic is to understand that DNA of volatility, and every time you get a big sell off on the gold stocks, you want to be a buyer because the math is in your favor to rebound back to the mean. The same thing is with other asset classes, like technology, especially biotechnology, which has the same DNA volatility as gold stocks.

Emerging markets have the same volatility of gold stocks, and that’s another classic for your listeners. If you read New York Times, it always has negative news on emerging markets and Trump is bad because emerging markets, et cetera. Did you know that the Chindia ETF, which is basically China and India equally weighted ADRs, big cap stocks in that particular ETF, which represents 40% of the world’s population, was up two times what the S&P was last year? In the first quarter of 2017, its return was twice the S&P 500. So, emerging markets are actually doing well. When I look at our emerging European fund, the dividend yields on there are averaging like 4%. When I look at our global resource fund, the dividend yields there are like 3%.

I mean, I’m buying a real resource, I’m getting a dividend that’s growing, it’s growing at 3%. There’s still lots of M&A activity in the chemical industry, so there’s lots of places I’m actually constructively bullish on. If you believe of this other part, the whole theme on military spending, it’s 600 billion dollars. They’ve sold off here recently, but I think stocks like Boeing which is in our JETS ETF, is not only making all the airlines that you’re flying, but they also make a lot of components that’s for the military. That stock has been on a beautiful climb. When you look at the budget that’s going to go towards military spending, and technology towards the element of technology in defense spending, those stocks I think are going to do exceptionally well over the next five years.

Mike Gleason: Well gold and silver are off to a good start in 2017. We’ve talked earlier about negative real rates supporting prices, and some other potential market movers that could drive demand for the yellow metal specifically. As we begin to close here, what else if anything are you focusing on in terms of potential catalysts that may drive things for the rest of the year? And do you think there’s still some more upside in the metals?

Frank Holmes: Yeah. I think you’re going to see… I have to forecast what I thought the price of gold could do, and I said it can run to $1,500 this year. You have that probability on a rolling 12 month period. When I look at my quant models and I look at the fundamental factors around the world, it could easily do that. I’d also like to point out to all your listeners that every president in the ’90s, and we’ve seen in the past decade, starts off with a campaign that “China’s a currency manipulator,” until they get into power and they realize they’re really not manipulating the currency.

The New York Times is anti-China, they’re anti gold and they’re anti the Clintons, so it seems to be this pervasive, don’t get confused with all those headline news, and recognize that China, there’s a lot more in common with China’s leader with Trump than you would normally think, and the same thing is with the leader of India, Modi. These are three mavericks that the media liked to attack. They do things their own way, they go after corruption, they want to renegotiate deals, they all believe big in their own country. They’re very country centric. They want to trade with the rest of the world, but their priority is to be focused on their own domestic economy first. So, I think this is a really positive dynamic and I’m going to bet like Buffett, I’m being positive.

Mike Gleason: Well thanks for the fantastic insights as usual, Frank. It’s always great to hear your thoughts and we really appreciate your time once again. Now before we let you go, please tell our listeners a little bit more about your firm and your services and then also about your fantastic Frank Talk blog.

Frank Holmes: Well, thank you. Very kind, gentle worlds. I love it, and we do work very hard. We’ve done 88 awards in a competitive arena in the fund business on education. We have 40,000 readers in 180 countries, and I welcome to go to USFunds.com, and sign up for Frank Talk. I talk about my travels around the world, as we started off this conversation, and try to relate to investors my tacit knowledge along with my quant explicit models, to try to navigate through the world. So, please go to USFunds.com, we have the top performing gold funds, we have also, I love the short term tax refund called NEARX. It’s stable, $2 approximate price, and it’s much better than a money fund because of its higher coupon. Much higher. We have many different types of funds from China to Eastern Europe and domestic funds.

Mike Gleason: Well excellent stuff. Thanks again, Frank. Congratulations on picking up some more awards. Very well deserved, keep up the good work, and we’ll look forward to speaking with you again in the coming months. Take care.

Frank Holmes: Thank you once again, my friend. Cheers.

 

Can An OPEC Production Cut Extension Push Oil Prices To $60?

Can An OPEC Production Cut Extension Push Oil Prices To $60?

Can An OPEC Production Cut Extension Push Oil Prices To $60?

It now seems quite likely that OPEC will agree to an extension of November’s production cut agreement at their May meeting. The question facing analysts and market watchers is how much a cut extension will impact the market going forward, and whether it will deliver the boost in oil prices that OPEC is hoping for.

In November, the agreement was a boon to the oil price, sending WTI north of $50, only for oil prices to fall a few months later. The impact of the deal, which was publicized for months beforehand and enjoyed blanket coverage from all major market media outlets, was significant but temporary. Inventory reports in February caused the oil price to crash back down, and apart from a brief swing upwards after U.S. missile strikes in Syria, an event which had analysts crowing over the return of the risk premium, oil prices have slumbered near $50, far below where OPEC needs them to be.

Undoubtedly, OPEC is hoping an extension of cuts will have a more lasting effect, delivering true stability to markets and lifting oil prices up to $60. The level several OPEC members have indicated they want oil prices to rest over the long-term, in order to balance their budgets. But a string of bearish signs have pushed the oil price below $50, and barring another bout of “geopolitical risk,” it seems only significant changes in fundamentals will deliver the boost OPEC needs.

The impact of the first round of cuts was blunted in part due to the ramp-up in oil production during the fourth quarter of 2016. Huge inventories were reported in the U.S. early in 2017, though there were declines in OECD inventories according to the IEA, evidence that the OPEC and non-OPEC cuts totaling 1.8 million bpd were having some effect, despite low compliance from non-OPEC states.

American oil inventories were expected to fall, boosting price in the short-term. Instead, unexpectedly high gasoline inventories pushed the price to its lowest point in weeks in mid-April, despite simultaneous drops in the crude supply. The decline of about 1 million barrels was less than analysts predicted.

American inventories are falling, which bode well for a price recovery if OPEC does decide to extend cuts. Yet the effect may not be immediate enough for OPEC to declare victory in June, as rising production in the fourth quarter of 2016 in OPEC and outside of OPEC in early 2017 basically obviated the cumulative effect of the cuts.

Nevertheless, plenty of analysts see bullish conditions ahead and a tighter market. Goldman Sachs and CitiGroup, among others, feel that prices will recover near $60. Goldman feels that recent declines are due to short-range factors, as fundamentals slowly shift towards tighter supply. The IEA, which has been warning of a much tighter supply situation in the years ahead as investment fails to keep up with demand, feels that inventory declines are likely in the summer despite demand falling for a second straight year. If inventories post big enough declines, the continued absence of 1.5 million bpd taken off the market early in the year could finally have the desired effect.

The IEA also predicts U.S. oil production growing by 680,000 bpd by the end of the year, an upgrade to initial forecasts.

Goldman’s feeling that recent drops in oil price are from short-term, speculative factors should give investors and analysts cause for optimism. The steep drop last week came on the back of a higher-than-expected rig count report and doubts over Russia’s possible compliance with further OPEC cuts. These could be interpreted as the emotional response of the markets, rather than a sure sign of shifting fundamentals. Five rigs were added in the most recent report, the lowest increase since February, and a possible sign that the boom in U.S. shale could be slackening.

Like the week-long boost after the U.S. missile strike in Syria, the sudden dip in prices last week could be offset once inventory draws deepen. If OPEC succeeds in lengthening, or even deepening cuts, and pulls Russia on board, there’s a chance that the IEA and Goldman’s prediction of a stabilizing oil market and a closer balance between supply and demand by the late-summer 2017 could come true.

But there’s plenty of skepticism out there. Inventory draws will have to be deep, and compliance among OPEC and non-OPEC members strong, for the anticipated increase in U.S. production to be successfully offset. – Gregory Brew

Gold Prices Just 1% Shy of Ripping Higher – All Upside Indicators Intact

Gold Prices Just 1% Shy of Ripping Higher - All Upside Indicators Intact

Gold Prices Just 1% Shy of Ripping Higher

Precious metals are on the verge of a legendary move, says Lior Gantz, editor of Wealth Research Group, and details the indicators he watches for.

Gold 10-Year Chart

With the first round of the French elections over and a potential beginning of the end for the Eurozone might be within sight, this is only one of the macro-political events that are causing gold prices to be within 1% of shuttering its 10-year resistance level.

In the first quarter of the year, insiders have been unloading massive shares of their own companies. Insider selling is at the highest levels since 2013, but it is the conclusion of my 16 years of market participation and of the due diligence conducted by Wealth Research Group, that tells me this bull market is not over—the mania phase is still 12–18 months away.

Like Warren Buffett, Ray Dalio, and Paul Tudor Jones, the legendary trader, Wealth Research Group sees a correction—even a severe one, to the tune of 10–30% for the major indices—before the markets make their final ascent toward a blow-off top.

The indicator that Buffett tracks closely is a market cap of S&P 500 vs. U.S. GDP, and this is extremely wise.

Think about it: This ratio is a clear sign of how expensive America’s stock market is—if the valuations of the companies that are responsible most for the GDP are excessive, it’s not a buying opportunity.

Market Cap of S&P 500 vs U.S. GDP

Buffett’s rule of thumb is that 0.6% is bargain territory, and he is a buyer up to 0.9%, but over that, he becomes particularly picky, often not making any large decisions.

The U.S. economy is now over 1.1% with its selling territory, and either stocks will correct or GDP must miraculously adjust higher—be very selective with new opportunities in the mid-cap and large-cap indices.

Volatililty Index

This year started off with complacency levels at their lowest, but investors are now coming back to the real world and reality is beginning to sink in. The U.S. government is about to face the debt ceiling debate, the British people are about to exercise Brexit, escalation of conflict in the Middle East seems plausible, and it’s not surprising to see the establishment making Trump’s life miserable as they roadblock his plans at every junction.

That’s why the volatility index is now heading higher.

Volatililty Index

VIX is a contrarian indicator. The time to buy stocks and use stock option strategies, like covered calls and selling puts, is when it’s above 25, and the best time for traders to sell is when VIX is below 16.

VIX is going higher because Trump’s promises are looking like they’re not materializing at the expected speed originally forecasted.

Since there was such a euphoric state of mind from the election up until the Obamacare issue, the dollar is selling off at a rapid rate right now.

US Dollar Weakening

Two financial factors are positive for precious metal prices more than anything else:

  1. U.S. dollar decline.
  2. Negative interest rates.

That’s why the 1970s were the ultimate bull market and the early 2000s followed the same pattern.

Today’s economic landscape is the most fertile ground for precious metals to gain in price.

Silver has already broken out and trades above its 200-day moving average and long-term resistance levels, and gold is about 1% away from cracking its own price wall of $1,300.

If that happens, junior mining companies will, with a high degree of likelihood, repeat the move made in the first half of 2016 when gold last tested these levels.

Gold 200-dma

We have both of the strongest indicators of rising precious metal prices intact.

The U.S. dollar index is down 2.57% for the year, compared with gold, which has risen 12% so far in 2017.

The second factor, which is even more rare and is why this could be the early stages of a run up to $1,425.32, as Wealth Research Group forecasted two weeks ago, is because 10-year Treasury yields are declining while inflation is still rising.

US Real Rates

In the summer of 2016, when gold rose 14.5% above its 200-day moving average, it ran out of steam—its price was $1,367 at the time.

If gold makes a similar move today, it will even surpass Wealth Research Group’s conservative short-term target of $1,425.32, reaching $1,452.86.

Gold vs. 200-DMA

Here’s how you should consider adjusting for this moment:

  1. Wait: The risk of this trade totally subsides if gold pushes 1.2% higher from here and surges through the $1,300 technical line.
  2. Physical Bullion: Gold and silver bullion and coins are safe havens: forms of insurance outside of the system and away from governments’ hands. Like all forms of insurance, you only need sufficient coverage. Nobody ever became rich from owning too many policies, and the same goes here.
    The best time to purchase insurance is when it’s cheap, so with gold and silver rising, don’t chase prices higher.
  3. Junior Mining Stocks: Wealth Research Group had published stock suggestions since early 2016 and, like many investors, the gains were absolutely captivating: 348%, 267%, 117%, 68%, 405% and 81% gains were made in the first half of 2016.

Gold and silver stocks are trading vehicles, leveraged tools to use when the price of bullion is rising sharply and valuations are depressed.

Well, valuations are depressed and we could now be heading for a time of sharp price gains. The entire sector could light up fast, so you need to prepare properly and thoroughly.

The coming weeks (or even months) could be exactly what you’ve been preparing for.

When junior gold and silver stocks rise, the trickle effect reaches industrial metals, such as cobalt, zinc and copper, and might even impact uranium companies.

 

Gold Prices Likely to Stay Elevated on Safe Haven Demand

Gold Prices Likely to Stay Elevated on Safe Haven Demand

Gold Prices Likely to Stay Elevated on Safe Haven Demand

This week spot gold closed at $1,284.77, down $3.11 per ounce, or 0.24 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 3.62 percent. Junior-tiered stocks outperformed seniors for the week, as the S&P/TSX Venture Index off just 1.16 percent. The U.S. Trade-Weighted Dollar Index finished the week lower by 0.62 percent. – Frank Holmes

http://goldseek.com/news/2017/4-24fh/image002.jpg

Strengths

  • All the precious metals were off slightly this week with platinum, gold and palladium off 0.16 percent, 0.24 percent and 0.28 percent, respectively. Treasuries extended their gains earlier in the week as soft inflation data from the U.S. fed into the markets and the dollar dropped, reports Bloomberg. Macro news ranging from inflation data casting doubt on the pace of rate hikes to the U.S. decision not to label any countries as currency manipulators have extended the advance in haven assets.
  • Gold climbed to a five-month high in New York, reports Bloomberg, with the Bloomberg Dollar Spot Index falling 0.3 percent. “Gold will likely stay elevated given safe haven demand,” Barnabas Gan, economist at OCBC, said. “I won’t be surprised if gold breaches above its $1,200 handle in the foreseeable future.” On Friday, gold traders and analysts surveyed by Bloomberg were bullish on the yellow metal’s price outlook for a sixth week.
  • Sberbank, Russia’s largest bank, is looking to finance the direct import of gold to India, according to Aleksei Kechko, Managing Director of the company’s Indian subsidiary. India is the world’s second largest importer of gold, and a direct trade between India and Russia would be beneficial to both countries. Russian officials have already signaled their desire to conduct transactions with BRICS nations using gold, writes Russia Insider. In related news, India’s Trade Ministry is preparing a proposal to cut the gold import duty to 2 percent in two years from 10 percent, ET Now and Newswire reports.

Weaknesses

  • Silver stood out as the worst performing precious metal for the week with a loss of 3.30 percent, as hedge funds cut net bullish silver positions in the futures market. According to analysts at Commerzbank, demand for gold coins in the U.S. proved very muted in the first three months of the year. Analyst Eugen Weinberg wrote “Retail investors in the U.S. have clearly been put off by the increase in the price of gold.” The U.S. Mint sold 166,000 ounces of gold coins in the first quarter of the year, a third less than a year earlier.
  • Gold fell sharply for the second day this week as someone dumped $3 billion notional ahead of the London Fix, reports ZeroHedge. In a somewhat related note, analysts from Standard Charteredbelieve the relative strength index implies gold prices are overbought at the moment, reports FXStreet.com, which could stall prices in coming sessions.
  • Shandong Tyan Home Co. says it is no longer pursuing Barrick Gold Corp.’s stake in its Kalgoorlie Super Pit mine in Australia, reports Bloomberg. The Chinese company is blaming tightened controls on outbound investment and foreign exchange, the article continues. In other company news, Newcrest’s shut down of its Cadia mine could cost the company nearly 9 percent of annual earnings, writes UBS analysts led by James Brennan-Chong. Shares of the company fell 4.6 percent on Tuesday after it announced Cadia will not meet fiscal year 2017 guidance after the seismic event.

Opportunities

  • Gold’s top forecaster for the last quarter, Intesa Sanpaola SpA, says that the metal’s price could hit $1,350 by year end, citing faster inflation and geopolitical tensions. Similarly, silver could climb to $19 an ounce by year end, after already gaining 15 percent so far in 2017. BMI Research also noted this week that it remains bullish on gold and expects silver to perform even stronger as well. Platinum and palladium on the other hand, are likely to face pressure from a slowdown in car demand in the U.S. and China, said Daniela Corsini with Intesa Sanpaola.
  • According to the Bloomberg Intelligence team, the Fed could be “one and done” in 2017 when it comes to rate hikes. “Unless things are very different this time, declining crude oil prices, bond yields and copper vs. gold aren’t consistent with further interest-rate increases,” the article reads. Looking at history, expectations for higher rates may be too aggressive unless these Fed tightening companions reverse higher, the article continues. In a separate article from BI, the team writes that $1,400 gold resistance might be the new $1,300. On a related note, ZeroHedge reports this week that Li Ka-shing, the richest man in Asia, has a renewed and urgent interest in diversifying his assets into gold, both mining firms and the physical asset itself. Some of the biggest billionaire investors on the planet are seeking out the metal as wealth protection insurance.
  • Seeking Alpha writes that 2016 was a record year for Klondex Mines, with production of 151,007 gold-equivalent ounces (GEOs) from its Nevada operations and 10,199 GEOs from True North. This brings total production to 161,289 GEOs, or an increase of 26.3 percent from the previous year. For 2017, Klondex is guiding for production of 210-225k GEOs. Klondex is a proven mid-tier gold producer that owns and operates all of its mines. M Partners, in a note out this week, announced that it is increasing its target for Klondex to C$8.25 from $8.00, driven by its revised estimates on Klondex’s True North mine and Midas. Even Clarus Securities writes, “Our thesis continues to be that Klondex offers best-in-class production growth, low cost production and a solid management execution track record. Clarus maintains its buy target price of $8.50 per share.

Threats

  • Currency traders and strategists (who make a living in the $5.1-trillion-a-day currency market) say that the core assumptions of U.S. dollar appreciation being one of the selling points of Trump’s border tax plan is “laughable,” reports Bloomberg. These traders are saying you’d be hard-pressed to find anyone in the market who believes it will result in the greenback strengthening 25 percent as the border tax plan suggests. Another note from Bloomberg states that the dollar has resumed the downward trajectory it established at the start of the year, and could fall an additional 4 percent in the coming weeks (if one believes that the U.S. currency moves in sync with real yields and Treasuries).

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  • Laurence Fink, CEO of Blackrock Inc., says that lackluster growth in the U.S. economy and uncertainty around the Trump administration’s ability, poses a risk to markets, reports Bloomberg. Fink mentioned a pullback in car sales and a slowdown in M&A activity as indications of the uncertainty. “There are warning signs that things are getting darker,” he said. Speaking of the U.S. economy, U.S. central bankers appear to be on course to raise interest rates twice more this year and remain confident in their forecast for growth around 2 percent, reports Bloomberg.
  • A new study out shows that exchange-traded funds appear to be making stock markets dumber and more expensive, reports Bloomberg. Researchers from Stanford University, Emory University and the Interdisciplinary Center of Herzliya in Israel uncovered evidence that higher ownership of individual stocks by ETFs widens the bid-ask spreads in those shares (making them more expensive to trade and therefore less attractive), reports Bloomberg. “Our evidence suggests the growth of ETFs may have unintended, long-run consequences for the pricing efficiency of the underlying securities,” wrote the researchers for the study. In a related matter, the SEC this month gave its final go-ahead for measures that would trigger the delisting process for an ETF should its index become overly concentrated, or stocks and bonds in an index become hard to trade.

 

Gold is Good as an Inflation Hedge, but Better as a Crisis Hedge

Gold is Good as an Inflation Hedge, but Better as a Crisis Hedge

Gold is Good as an Inflation Hedge, but Better as a Crisis Hedge

Gold is known as an inflation hedge, but its role as a crisis hedge is even more important.

Gold is anti-fragile, to use the term coined by risk analyst and bestselling author Nassim Taleb. When currencies collapse and economies falter, Gold can ensure your survival, financially and literally.

Below are 3 examples of crises during which you would have been fortunate to own Gold, as follows:

1: An Economic Crisis

During the Great Depression, 37% of all non-farm workers were unemployed and many families were financially destitute. Investments and economic growth were at abysmal levels: from Y’s 1929 to 1933, the Dow Jones fell by 90% and the US GDP dropped 30%.

Up until Y 1934, the US was on a Gold standard, which allowed citizens to redeem paper dollars for gold. There are many indications that Americans flock to gold when economic problems begin to emerge.

After the initial crash of Y 1929, redemption’s of paper for Gold skyrocketed. Withdrawals were so large throughout Y’s 1929–1930 that interest rates had to be raised to halt the outflows.

Just like Indians today, Americans understood that Gold was superior to paper (fiat) currency. As Gold is money, it is payment in and of itself. Paper currency is simply a promise to pay.

Withdrawals eventually became so overwhelming that on 5 April 1933, President Franklin D. Roosevelt signed Executive Order 6102, which prohibited private ownership of Gold. The following year, as part of the Gold Reserve Act, the government changed the Gold price from $20.67 to 35oz

Another indicator of the move into Gold was the performance of the largest Gold mining company at the time, Homestake Mining. While the Dow Jones fell 90%, Homestake was up 474% between Y’s 1929 and 1933.

From increasing redemption’s to investing in Gold companies, the actions of Americans show that even in a deflationary collapse, Gold is the “Go-to” asset.

2: A Currency Crisis

During Weimar Germany’s episode of hyperinflation, inflation peaked at 200,000,000,000% (that is 200-B %) in 1923. Prices 2X’d every 15 hours. Millions of hard-working, thrifty Germans found that their life’s savings would not buy a cup of coffee.

My family was from Germany and I recall as a boy them saying that it once took a “wheel barrel” full of Marks to buy a loaf of bread.

While the German Mark was being inflated out of existence, the price of Gold increased exponentially. In January 1919, one ounce of Gold sold for 170 Marks; by November 1923, it cost 87-T Marks.

As in many currency crises throughout history, those who held a portion of their savings in Gold escaped total wipe-out.

But Gold doesn’t need a full-blown currency crisis to perform well.

In the 2 weeks in Y 2016 following Britain’s Brexit vote, Gold priced in Sterling rose 24%. The same happened in Russia in late Y 2014 when Gold priced in rubles rose 79% in only months.

3: A Banking Crisis

Bank holidays are directly punishing depositors and savers, as the citizens on the island of Cyprus discovered 1st hand.

Needing a cash injection to stay afloat, Cypriot banks raided customer accounts in early Y 2013, taking 6.75% of deposits in accounts under EUR 100,000 and 40% in accounts over EUR 100,000.

This happened overnight, and without warning.

By the time depositors pulled their money out of the banks, it was too late.


Source: Central Bank of Cyprus

Cypriots with savings outside of the banking system, such as in Gold escaped intact. During the debacle, Gold priced in EUR’s rose by around 50 Euros.

Gold has proved a useful asset to own during banking crises throughout history. Not only is it useful when banks move to take your savings, Gold also profits from the uncertainty that arises from such events.

The Big Q: Having looked at the precious Yellow metal’s performance during different crises, what lessons can we learn?

The Big A: Gold is crisis insurance

Whether there is hyperinflation or a banking collapse, Gold has historically been the asset to own in times of turmoil. Given its intrinsic value and safe-haven status, there is no doubt that Gold will remain a wealth preservation tool during financial crises.

The reaction of the Indian people to a potential Gold ban is the latest reminder of why owning Gold is important.

Crises do not come along often, but when they do, it is  better to be safe than sorry. – Paul Ebeling

Gold and Silver at Never-to-be-seen-Again Prices vs Financial Assets

Gold and Silver at Never-to-be-seen-Again Prices vs Financial Assets

Gold and Silver at Never-to-be-seen-Again Prices vs Financial Assets

How can ordinary people ever understand the importance of gold when they are continuously fed with false and distorted facts. The latest publication to publish false and ignorant propaganda on gold is the British weekly magazine the Economist. The article begins with a graph of gold starting in September 2011. Anyone who knows anything about gold recognises that this is the time when gold reached a peak of $1,930. Between 1999 and 2011 gold had gone from $250 to $1,930 which is an increase of almost 700%. During the same period, the Dow was virtually unchanged and the UK index, the FTSE 100 was down 3%. So whilst gold was up 8x during those 11 years, stock markets were static but the journalist did not mention this. Instead, he starts the graph at the very top of gold after an 8 year rally.

False propaganda and incompetence

In my article last week I talked about “Lies, Damned Lies and News” and this is the perfect example of the most blatant lies and misinformation that we find in the media today. It has now gone so far that I and many others don’t trust anything we read in the papers or hear on television or radio. And how can you, when journalists either deliberately publish biased and false news or by sheer incompetence cannot bother to find out the true facts. But that is not enough, the article goes on as follows:

“Although gold is seen as a hedge against inflation, it cannot be relied on to fulfil this function over the medium term; between 1980 and 2001, its price fell by more than 80% in real terms.”

Yet again, the author picks a point in time that is totally misrepresentative. For anyone who knows anything about gold, 1980 was a peak after a run from $35 per ounce in 1971 to $850 in 1980. The fact that gold had gone up 25x between 1971 and 1980 was of course not mentioned by this ignorant writer. Instead he starts from the peak in order to spread his false propaganda. I am not sure if it is a coincidence that the Rothschild family is a major shareholder in the Economist.

The author then comes up with a conclusion which is total proof of his ignorance of the role of gold:

“So buying bullion is really a bet that things will go spectacularly wrong: that events escalate in the Middle East and North Korea or that central banks lose control of monetary policy. It could happen, of course, but it helps explain why gold bugs tend to be folks with a rather gloomy attitude towards life.”

If you understand history and economics, you understand gold

What the author cannot grasp is that for the very small minority of people who understand the significance of gold, it is not a question of being gloomy. No, if you understand history and economics, you also understand that gold is the only money that has survived in history. Since fiat money begun, whether it was metal coins or paper money, governments have consistently destroyed its value by either diluting for example the silver in the coin from 100% to 0% as with the Roman Denarius in 180 to 280 AD. Or they have extended credit and printed money without any economic accomplishment in return. If you make a loan or print money without a compensating delivery of a service or goods, that money is by definition worthless. And this is exactly what governments are doing whenever they are under pressure. In the last few decades, over a couple of quadrillions of dollars of debt, unfunded liabilities and derivatives have been created out of thin air. Before this bubble period is over, those quadrillions of debts and liabilities will return to just air. And so will all the assets that were backed by this debt.

War drums are turning louder

The world is now entering the most dangerous period since the end of WWII. The sound of war drums is now becoming too loud to feel comfortable about the future. Trump’s declared policy until last week, was not to interfere in other countries politics. Since then the US has bombed Syria and Afghanistan and is continuing to bomb Iraq. All of these bombs are killing many more civilians than Syria allegedly killed a week ago. The bomb in Afghanistan is the biggest non-nuclear bomb ever dropped. North Korea is continuing with its nuclear bomb testing and the US is sending warships to the area and also threatening to strike. The conflict between China and the US regarding the islands in the South China Sea can easily escalate. Russia has not attacked any country outside its own territory for a very long time. But Russia is now feeling threatened from many directions. With US nuclear missiles directed towards Russia from both Eastern Europe and Turkey, the Russian bear is now feeling threatened. In Syria, Russia has been invited to assist in the fight against ISIS. Russia is unlikely to withdraw and if the US continues to bomb Syria, the outcome could be fatal. In addition, the whole of the Middle East is a time bomb. Saudi Arabia, for example, could be destabilised at any time.

Looking at military spending, the US is as big as the rest of the world. But we have seen in Vietnam, Afghanistan, Iraq and Libya that with all its fire power, the US could not win any of those conflicts against powers with a fraction of its military resources. Nuclear bombs would of course be decisive, but Russia also has enough nuclear missiles to destroy most of the world, just like the US.

US military spending greater than the rest of the world

If you understand history and economics, you understand gold

I am certainly no war expert but I am also aware that experts get it wrong most of the time. Throughout history very few people have forecast major wars or conflicts, just like no expert ever forecasts a financial crisis. But I do understand risk and it is absolutely clear to me that the risk is greater than ever for a major conflict. Let us hope that this risk does not materialise into a major nuclear war since that could be the end of life on earth for many people.

It was clear to me after the US election that Trump was never going to live up to all his promises to make America great again. He took over the country at the end of a 36-year era of continuous stock and bond market rally fuelled by the biggest credit expansion in US history. It would have been an impossible task for anyone to expand all the bubbles and it seems that Trump unsurprisingly has already failed at the first hurdle. After just under 100 days, he is already a lame duck president. This is why he has turned to war which is the last desperate attempt of a leader who fails on the home front in a bankrupt nation.

To prepare against war is extremely difficult for most people. Very few have the financial means or the inclination to leave their country for some remote region or island. So let’s hope that the war drums will go quiet. However, many more people can prepare for financial Armageddon which is guaranteed to come in the next few years.

“Stocks and Property prices always go up”

Very few investors understand the meaning of wealth preservation. For most people, “the stock market always goes up.” They are of course right since with a few major exceptions, stock markets worldwide have appreciated for over 100 years. Same with the property market: “Property prices always go up.” This is why it has been so easy to grow generational wealth for the last century. What few investors understand is that this massive asset price inflation is a function of credit growth and money printing. Even fewer investors understand that this period is now coming to an end. No trees grow to heaven even though many believe that this trend will go on for ever.

In coming years, we will not only see a credit and asset collapse, but also a wealth destruction of devastating proportions. But since 0.1% of the richest own the same as the bottom 90%, only a few will experience losing most of their wealth. But for the masses it will still be devastating because many will lose their jobs, house and pensions. The social security safety net will disappear since governments will be bankrupt with massive debt, interest expenses, and entitlements with very little tax revenue.

Stocks and property = wealth destruction

So in coming years, stocks, bonds and property will not constitute wealth preservation assets but instead wealth destruction assets. This is something that very few people will realise until it is too late.
A house has been an ATM for the last few decades with people borrowing against it to spend on holidays or cars, or just to live. In coming years, a house will not be an asset but a liability. For people who have a mortgage loan, it will be impossible to keep up with interest payments. In addition, most home owners will not be able to afford property taxes, maintenance, electricity, heating etc. The same with investment properties. Tenants will leave or stop paying rent and the buildings will be impossible to sell.

Stock valuations totally unrealistic

If you understand history and economics, you understand gold

As regards stocks, I have not changed my mind that against gold, they will decline 90-95% in the next 5 years or so. One exception will be precious metal stocks. But investors must of course worry about custodial risk. Another sector which is benefitting is the weapons industry.

Bonds – the riskiest investment ever

Investment advisors today recommend bonds as wealth protection assets. I cannot understand how anyone can invest one penny in a bond. Governments are bankrupt and will never repay their debts.

They might attempt to repay them with worthless paper money or they will declare a 100-year moratorium. Same with corporate bonds. Corporations will not have sufficient earnings power to even pay the interest. The other factor which will make bonds worthless is that rates will go from a 5,000-year low to levels in double figures or to infinity as bonds become worthless.

If you understand history and economics, you understand gold

Cash will of course be a terrible form of wealth preservation as governments will destroy the value by printing unlimited amounts of paper money.

Agricultural land in a safe jurisdiction and a safe area that you can protect will be a good investment.

A true wealth preservation asset has many important characteristics:

  • It must be recognised as money anywhere in the world
  • It must be portable
  • It must be physical
  • It must be liquid
  • It must be indestructible
  • It must have a high value to weight
  • It must be divisible
  • It must be scarce
  • It must represent stable purchasing power
  • It must have a long tradition of being real money

And this brings us to gold and silver. No other wealth preservation asset has these characteristics. Certainly not bitcoin and not even diamonds.

Gold and silver can and should be kept outside your country of residence. This means you can flee to it if necessary. This certainly is not the case with a property for example.

All currencies will soon start the next phase of downward acceleration in their race to the bottom. The dollar is likely to be the next currency to fall. The effects of the dollar’s collapse will be devastating for the global financial system. As currencies decline, governments will introduce exchange controls and it will be impossible to transfer money, gold or other assets outside your country. That is why it is imperative to own gold and silver outside the country you live, in private vaults and in safe jurisdictions.

How much gold

Many people ask what percentage of their assets should be held in gold and silver. This clearly depends on the size of their assets. My personal view is that you should hold sufficient metals to last for many years if other assets or income disappear. So this could be 10% if you are very wealthy or it could be over 50%. Personally, I consider 25% to be a minimum but since I believe there is no better form of wealth preservation, I would be quite comfortable with a much higher percentage.

Own real assets – Sell financials

Real assets are at historical low against financial assets. Since the graph below includes real estate, which is a bubble asset, remaining real assets such as commodities (including gold and silver) are even more oversold.

If you understand history and economics, you understand gold

Investors still have a unique opportunity to acquire physical gold and silver at prices which will not be seen for a very, very long time, if ever.

Egon von Greyerz

 

Higher Gold Prices shift Sentiment back to Self-feeding Bullish Mode Again

Higher Gold Prices shift Sentiment back to Self-feeding Bullish Mode Again

Higher Gold Prices shift Sentiment back to Self-feeding Bullish Mode Again

Gold’s young upleg just enjoyed a major upside breakout, bolstering strong technicals and heralding a coming Golden Cross buy signal.  Investors have started aggressively buying gold again after record-high stock markets distracted them.  This upleg’s upside in gold prices momentum is really building, portending accelerating gains in coming months.  Yet sentiment remains poor, with traders still quite bearish on gold prices.

Virtually no one is excited about gold prices these days.  Mainstream investors continue to ignore it like usual, while contrarians largely expect a lackluster sideways grind at best.  This apathy is the natural result of gold’s recent consolidation between late February and mid-April.  With 6+ weeks seeing no net progress, there was little to spark any enthusiasm.  Thus gold gradually faded from speculators’ and investors’ radars.

That’s exactly why consolidations and corrections exist, to rebalance sentiment.  At preceding interim highs, greed grows too intense to be sustainable.  So subsequent drifts or selloffs bleed off this greed, replacing it with apathy or fear.  That forces out most marginal traders, paving the way for the next major rally higher.  That looks to have started just over a week ago in gold, as evidenced by multiple indicators.

Gold prices just surged to a major technical breakout above its key 200-day moving average, which greatly strengthens its latest uptrend.  Technically-oriented traders carefully watch price action relative to this most important of moving averages.  200dma breakouts following correction-magnitude selloffs are powerful buy signals.  So funds have already started moving serious capital back into gold since that breakout.

Gold’s technicals and fundamentals are both very bullish, contrary to the lingering bearish sentiment still dogging this metal.  Let’s start on the price-action side, since that is kindling investment demand.  This first chart simply looks at gold along with its key moving averages during its young bull market birthed near the end of 2015.  Gold prices are now in this bull’s second major upleg, and momentum is really building.

The day after the Fed’s first rate hike in 9.5 years in mid-December 2015, gold plunged to a brutal 6.1-year secular low.  Everyone thought gold was doomed, convinced a zero-yielding asset simply couldn’t compete in a higher-rate environment.  Yet as I discussed a few trading days before that initial Fed rate hike, gold actually thrives in Fed-rate-hike cycles historically!  Gold’s young bull since again proves this out.

Gold prices started surging in mid-January 2016 as the US stock markets rolled over into their worst selloff in 4.4 years, a mere 13.3% correction in benchmark S&P 500 terms.  Then in early February gold broke above its 200dma decisively, like it just did again in April 2017.  That critical technical breakout sparked major buying by speculators and investors alike, catapulting gold prices across that formal +20% new-bull threshold.

That first major upleg of gold’s new bull had ups and downs, like all bull-market uplegs.  A hawkish Fed crushed gold last May, but then a major miss on monthly US jobs followed by the UK’s surprise pro-Brexit vote blasted gold back up.  Ultimately this metal surged 29.9% higher in just 6.7 months after being left for dead right after the rate hikes started!  But that left it very overbought, drenched in greedy sentiment.

As I warned last July right after gold prices peaked, it faced an ominous record selling overhang from the gold futures speculators who dominate its short-term price action.  That portended a high consolidation at best or correction at worst.  These both accomplish the same mission of restoring sentiment balance, but in different ways.  Consolidations bleed away greed more slowly with less pain, corrections do it hard and fast.

For several months last summer the easier high consolidation came to pass, with gold prices drifting sideways from its uptrend’s resistance to support.  But futures speculators were still excessively long using their usual hyper-leveraged bets.  So when gold threatened to break below key $1300 consolidation support, the futures stop losses started tripping.  That triggered more, igniting a cascading selling futures mass stopping.

That rare event hammered gold prices back down to the 200-day moving average for the first time since just after this new bull was born.  200dmas are the strongest and most-important support lines within ongoing bull markets, high-probability-for-success times to buy following normal healthy corrections.  So gold prices caught a bid and surged again into early November, starting its next upleg.  All this was typical bull-market behavior.

The Friday before the election, gold was back near $1305 on mounting odds Trump’s chances of beating Clinton were growing.  But the following Sunday, the FBI cleared Clinton a second time on her classified e-mails.  So gold prices plunged the Monday immediately before Election Day.  For months gold had traded as if a surprise Trump win would be bullish for it and bearish for general stocks, due to soaring uncertainty.

Gold closed right at its 200dma on Election Day, and gold futures rocketed 4.8% higher that evening as Trump began taking the lead as votes were counted.  But stock markets started surging on big-tax-cuts-soon hopes instead of plunging as feared on a Trump win.  So demand for gold, a unique asset tending to move counter to stock markets, withered.  The Thursday after the election, gold prices plunged through their 200dma.

That was a decisive breakdown, defined as 1%+ beyond a key technical level.  Traders view 200dmas as critical demarcations between bulls and bears.  Bulls are healthy as long as prices remain above their own 200dmas.  But once that strong bull-market support fails, all bets are off.  It impairs the assumption that a bull actually still remains in force.  So technically-oriented traders start unwinding their long positions.

Thus gold prices plunged sharply in mid-November following that 200dma breakdown.  That dragged gold’s other main moving average lower, its 50dma.  50dmas provide strong support within bulls except during major corrections, when 200dmas take over.  That plunging 50dma soon crossed below gold’s 200dma in mid-November, triggering the infamous Death Cross.  That’s a powerful warning signal preceding new bear markets.

Major moving-average crossovers are particularly important for futures speculators, who dominate gold’s short-term price action.  These traders can run extreme leverage to gold prices approaching 30x, way over an order of magnitude greater than the 2x legal limit in the stock markets.  So they can’t afford to be wrong for long, or risk catastrophic losses.  Thus 200dma breakdowns and death crosses are taken very seriously.

So the extraordinary mass exodus of speculators and investors from gold in the wake of those surprise election results continued.  There was massive selling in both the gold futures favored by speculators and the leading GLD SPDR Gold Shares ETF favored by investors.  It was an anomalous bloodbath, which ultimately climaxed in mid-December the day after the Fed hiked rates for the second time in 10.5 years.

That extreme post-election anomaly in gold was driven by a potent combination of failing technicals and the stock markets surging to new record highs as Trumphoria reigned.  But it wasn’t able to force gold’s young new bull back into bear-market territory, with a huge-but-not-bear-magnitude total correction of 17.3% over 5.3 months.  Gold was again universally despised and left for dead, just like a year earlier.

Yet out of that very despair the second upleg of gold’s young bull was born.  Everyone susceptible to being scared into selling low in the election’s wake had exited, leaving only buyers.  Gold soon started surging sharply into the new year despite the stock markets still levitating on big-tax-cuts-soon hopes.  By mid-January a new bull-upleg uptrend channel was forming.  Gold’s 50dma soon stabilized and turned north.

Gold prices powered higher into late February, nearly regaining its key 200dma lost a couple days after the election.  But then something else super-unprecedented happened, fitting in these crazy times.  Futures-implied rate-hike odds for the Fed’s imminent mid-March meeting skyrocketed.  They were just 22% on February 24th when gold prices closed near $1257, but quadrupled to 86% in just 6 trading days on hawkish Fed jawboning!

So gold futures speculators fled for the hills on imminent-rate-hike fears, despite the fact gold has climbed an average of 26.9% during the exact spans of the previous 11 Fed-rate-hike cycles since 1971.  The day before the Fed’s March meeting when rate-hike odds hit 93%, gold slumped to $1198.  That was just under its fast-rising 50dma, forming the lower support of gold’s newest uptrend channel.  Then the Fed hiked.

That was universally expected and fully priced in.  But top Fed officials didn’t raise their forecast for the total number of rate hikes in 2017, as gold futures speculators had feared.  So gold started surging within minutes of that third Fed rate hike confirming the Fed’s 12th modern rate-hike cycle was underway.  But as gold neared its 200dma again, it stalled.  That key moving average also offers strong overhead resistance.

Just as prices knifing down through 200dmas from above are seen as likely signaling new bears, prices bursting through from below are seen as heralding new bulls.  This isn’t always true.  Though close, gold prices didn’t enter a new bear following its early-November 200dma breakdown.  And since its young bull had never ended, it can’t be starting a new bull now.  Still, 200dma crossovers motivate traders to buy and sell en masse.

After spending over two weeks leading into early April stuck just under its 200dma, gold finally surged 1.5% on the 11th and broke through.  Mounting geopolitical fears motivated both futures speculators and GLD-share investors to buy aggressively.  That 200dma breakout was decisive, carrying gold more than 1% above its key moving average.  And once that heavy perceived resistance yielded, gold buying accelerated.

Over the decades if not centuries, 200-day moving averages have become the most-important technical line followed universally by nearly all traders.  This is essentially a 10-month moving average, long enough to distill down major trends while filtering out volatile daily and weekly price noise.  Prices above 200dmas are seen as being in bull uptrends, which traders want to ride.  So 200dma breakouts ignite big buying.

As gold prices showed in February 2016, that soon becomes self-fulfilling.  The more capital pouring into gold, the faster its price is bid higher.  The more gold’s price rallies, the more it catches the attention of other speculators and investors who want to chase this momentum.  So they too start buying in.  The reason technical analysis works is because big traders move big capital based on long-proven-out price signals occurring.

So gold’s newest decisive 200dma breakout last week is likely to prove as bullish as this bull’s initial one from early last year.  It changes the entire perception of gold prices, shifting collective sentiment from late-2016’s watch-out-for-a-bear mode to a gold-is-heading-much-higher outlook.  In markets buying begets buying, regardless of what first sparked that buying.  Traders just love to chase winners, so momentum builds.

And that psychological impetus to redeploy in gold is likely to soon grow much stronger.  Gold is nearing a fabled Golden Cross buy signal!  That’s when a 50dma crosses back above a 200dma from below.  It’s one of the best-known and strongest technical buy signals, universally seen as heralding the early days of new bull markets.  In gold’s case today, its nearing golden cross will prove its bull is very much alive and well.

The timing of this next golden cross depends on how fast gold keeps advancing and thus dragging its 50dma higher.  Its 50dma could cross back over its 200dma within a couple weeks at best, or a couple months on the outside.  Either way, that big technical event is going to really accelerate the shift in prevailing gold sentiment from bearish back to bullish.  That will clear the way for much-larger capital inflows into gold.

So momentum is really building in this gold bull’s young second upleg.  Interestingly this is right in line with this metal’s usual strong spring rally from mid-March to late May.  After last year’s 200dma breakout and golden cross confirmed the first new gold bull since 2011, the resulting momentum was so strong, gold prices rallied right into early July before regrouping.  Gold’s technicals today are very bullish for the coming months.

The sentimental impact of this technical action has already been big enough to fuel big bullish changes in gold’s fundamentals.  It’s not just futures speculators buying aggressively, but longer-term investors.  This is very important for this gold upleg’s longevity, as investment buying is far more resolute.  Investors are holding gold for longer time horizons, usually with zero leverage.  And they control huge sums of capital.

The readiest proxy for gold investment demand is the holdings of that leading American GLD gold ETF.  Unlike global gold supply-and-demand statistics which are only compiled and published quarterly, this dominant gold ETF releases its holdings daily.  So they are the highest-resolution read available of what is going on in gold investment in real-time.  GLD has seen big capital inflows since gold’s latest 200dma breakout.

GLD’s mission is to mirror the gold price.  But GLD shares have their own supply and demand totally independent from gold’s.  So GLD’s price is constantly threatening to decouple from gold’s.  The only way to maintain tracking is for GLD’s managers to shunt any excess buying or selling pressure on its shares directly into gold itself.  Thus GLD’s physical gold bullion holdings rise and fall with capital flows.

In the first half of 2016, stock investors were buying GLD shares far faster than gold itself was being bought.  So GLD issued new shares to supply and offset this excess differential demand.  The proceeds were then immediately plowed into gold, growing the bullion GLD holds in trust for its shareholders.  So quite literally, GLD is a conduit for the vast pools of stock-market capital to flow into gold.  That bids gold higher.

This chart notes the quarterly changes in gold’s price and GLD’s holdings, the latter in both percentage and tonnage terms.  Gold prices surged in 2016’s first couple quarters on stock-market capital flooding into GLD shares.  Then gold prices stalled in Q3’16 because that differential GLD-share buying ceased.  Then right after the election, heavy GLD-share differential selling emerged which drove gold prices sharply lower in Q4’16.

When stock investors dump GLD shares faster than gold is being sold, GLD prices face running away from gold to the downside.  So that excess GLD-share supply must be sopped up.  GLD’s managers raise the capital to buy back these shares by selling physical gold bullion.  That directly weighs on the world gold price.  Amazingly, capital flows via the American GLD are one of gold’s dominant primary drivers globally!

Realize gold is strong when investors are buying it via GLD, and weak when they are selling it through this same stock-market conduit.  Following their post-election plunge, GLD’s holdings stabilized in late January and started surging again in early February.  Large funds were reestablishing gold positions.  But once the general stock markets started powering higher again on Trump teasing tax cuts, that buying ceased.

After those promising builds, GLD suffered draws again in early March after Fed-rate-hike odds soared.  But contrarian buying drove a modest holdings rebound leading into that rate hike.  Then that fund buying petered out again as gold stalled under its 200dma.  Differential GLD-share buying didn’t resume until, you guessed it, gold’s 200dma breakout last week!  That convinced large investors gold’s bull remains alive.

Since then, GLD has enjoyed big daily builds of 0.5%, 0.8% and even a monster 1.4% this Wednesday!  The mounting technical momentum after that 200dma breakout is fueling real fundamental investment buying.  Again the self-feeding psychology of rising prices argues this trend will only accelerate.  The more American stock-market capital flows into gold bullion via GLD shares, the faster gold’s price will climb.

The faster gold rallies, the more investors and speculators alike will want to buy it to ride the momentum.  While these lofty Trumphoria-distorted stock markets continue to retard gold investment demand, the big 200dma breakout is starting to overcome that.  And the nearing golden cross will further cement the shift back to bullish sentiment.  This upleg in gold prices is really set up to accelerate considerably in the coming months!

While this gold bull itself should continue to see nice gains, they will be dwarfed by those of the leading gold miners’ stocks.  The major gold miners tend to leverage gold’s upside by 2x to 3x, reflecting the outsized impact of higher gold prices on operating profits.  And smaller gold miners often amplify gold’s upside even more.  Gold’s bull is fueling a parallel much-larger bull in gold stocks, greatly multiplying wealth.

During roughly the first half of last year when gold powered 30% higher, the leading gold-stock index actually rocketed up 182%!  Gold stocks just staged a major breakout of their own, and their bull-market upside targetsare vastly higher than today’s levels.  Sooner or later everyone will figure this out, and bid gold stocks radically higher.  But for now they are flying under most radars, creating excellent buying opportunities.

The bottom line is momentum is really building in this second upleg of gold’s young bull market.  Despite plenty of lingering bearishness, gold just achieved a major breakout back above its key 200-day moving average.  This signaled to large technically-savvy traders that gold’s bull is very much alive and well, so they are moving capital back in.  This is evidenced by surging differential buying of GLD shares post-breakout.

The resulting higher gold prices are finally starting to shift gold sentiment back to bullish again.  And as usual, that will become self-feeding.  Speculators and investors alike love chasing winners, so buying begets buying.  The more capital flows into gold, the higher its price climbs.  The more gold rallies, the more traders want to buy it.  This virtuous circle can run for months, gold’s new 200dma breakout is only the start. – Adam Hamilton

Long Term Technical Analysis for Silver Prices

Long Term Technical Analysis for Silver Prices

Long Term Technical Analysis for Silver Prices

More uncertainties are good for precious metals, but it looks like either gold or silver is losing its shine even though the market remains under high uncertainty. There is a nuclear & missile problem from North Korea, Brexit, Syrian missile attack, and elections in Europe which might determine the fate of European Union.

In the past, under high uncertainties, gold and silver shone the brightest. The 2008 crisis is one example where gold and silver were moving up triumphantly. Will it repeat the history and start moving up this year again?

Monthly chart

The progress of the bull on the monthly chart encounters resistance at $18.50. It has been three months with no sustained break above $18.50 yet. The price might continue below the resistance level until the end of the month. Traders could take this opportunity to enter for long position targeting $21.350 and later $25-26 resistance area.

Weekly chart

The Recent close of the weekly chart is bearish for silver. The $18.50 level proves itself as a long-term resistance and will not give way for the bull easily. This week, the price of silver might consolidate and move downward breaking two bearish candlestick patterns. The downside target of breakout is $16.80 – $17.10 where traders could look to enter for a long term position.

There is a possibility the bull might disregard the bearish pattern and boost the price higher than $18.50.

Daily chart

Silver prices closed lower on the daily chart, but at an acceptable level. The price needs to maintain its position above $17.75 to avoid more sell-off. Otherwise, it will slide further toward the blue trendline before finding any support.

Trade plan

Bullish: A long position near $17.75 and blue trendline.

Bearish: A break below weekly candlestick might trigger more sell-off toward $16.80 – $17.10 but low probability. – FXDaily

Warnings of a Stock Market Bubble from Major Investors

Warnings of a Stock Market Bubble from Major Investors

Warnings of a Stock Market Bubble from Major Investors

“Be afraid!” That’s the message billionaire investor Paul Tudor Jones wants to give to Janet Yellen and investors.

According to a Bloomberg report, Tudor is saying publicly what many money and hedge fund managers are privately telling investors: Stocks have risen to unsustainable levels and a stock market crash may well be imminent.
“The legendary macro trader says that years of low interest rates have bloated stock valuations to a level not seen since 2000, right before the Nasdaq tumbled 75% over two-plus years. That measure – the value of the stock market relative to the size of the economy — should be ‘terrifying’ to a central banker,” Jones said earlier this month at a closed-door Goldman Sachs Asset Management conference, according to people who heard him.

Tudor isn’t alone waving warning flags. Guggenheim Partner’s Scott Minerd said he expects a “significant correction” this summer or early fall, and Willowbridge Associates macro manager Phillip Yang was even willing to put a number on it, predicting a stock market plummet of between 20% and 40%.

This underscores the problem facing the Federal Reserve as it tries to “normalize” interest rates. Tudor rightly points out that Fed monetary policy since the 2008 crash has “bloated stock valuations.” That’s a more technical way of saying the central bank blew up a giant stock market bubble.

Last spring, Yahoo Finance reported an analysis showing that 93% of the entire stock market move since 2008 was caused by Federal Reserve policy. As we’ve said before, any attempt to significantly raise rates will likely spark a giant taper-tantrum.

Bloomberg cited another multi-billion dollar hedge fund manager who warned rising interest rates will create a significant problem for the business sector, saying it will mean fewer companies will be able to borrow money to pay dividends and buy back shares.

“About 30% of the jump in the S&P 500 between the third quarter of 2009 and the end of last year was fueled by buybacks, according to data compiled by Bloomberg. The manager says he has been shorting the stock market, expecting as much as a 10% correction in US equities this year.”

So what will finally prick the stock market bubble? Nobody really knows for sure, but there are plenty of pins lying around that could do the job.

Geopolitical tensions continue to rise with the ongoing conflict in the Middle East threatening to explode into a firestorm, and the US and North Korea are seemingly determined to maintain a collision course.

There is economic uncertainty in Europe as Brexit moves forward, with talk about a more generalized unraveling of the EU. There are also question marks surrounding the Trump administration. The so-called “Trump effect” spurred the y hope of major policy reforms nudged markets even higher since the election, but it could be running out of steam.

Expectations for major overhauls in healthcare and the tax code, along with massive infrastructure spending have run headlong into political reality. In fact, the president has seemingly reversed many of the positions he took during the campaign, creating a great deal of confusion.

In a word –  there is a lot of uncertainty out there – and a lot of pins to pop a bubble. Is it any wonder many investors are piling into safe havens like gold and silver? – Peter Schiff

Gold also in Demand for Environmental Cleaning & Energy Production

Gold also in Demand for Environmental Cleaning & Energy Production

Gold in Demand for Environmental Cleaning & Energy Production

Gold is an investment as well as money, but gold is also increasingly in demand for environmental and energy production applications. In 2011, new catalytic converter technology utilizing gold was introduced to the market. Catalytic converters remove pollutants from automobile exhaust. They are made from a heat resistant substrate, with a large internal honeycomb structure covered with a thin coating of tiny particles of metal.

According to the World Gold Council, research has shown that a stable and effective formulation can be obtained using a combination of gold, palladium, and platinum. Cleaning up auto emissions is just one of several new ways the yellow metal is helping clean up the environment.

Renewable Energy

Gold is an important component in the development of renewable energy sources. Researchers at Stanford University have developed a gold-based sheeting shown to improve the performance and efficiency of solar panels. Gold nanoparticles have also been shown to increase solar panel performance. Gold-based materials show promise in the search for new, more effective fuel cell catalysts.

Clean Water

Groundwater contamination creates significant problems in industrialized areas. Chemical catalysts provide one of the most efficient and cost-effective ways to manage such pollution. The chemical process breaks down contaminants into their component parts.

Researchers from Rice University, Stanford University, and DuPont Chemicals use this approach to tackle chlorinated compounds, pollutants resulting from a range of industrial activities. Led by Professor Michael Wong at Rice, researchers have developed a gold and palladium catalyst that removes chlorinated compounds from water in laboratory conditions. This catalyst underwent a successful trial at a pilot plant installed at a polluted site in Kentucky in 2014.

The “Green” Future of Gold

Much like the industrial uses of silver, the demand for gold for environmental cleaning technology, energy production, and other high-tech applications will only continue to grow in the future. This demonstrates the multi-faceted value of gold.

You probably don’t need to buy gold in order to build a solar panel, but you can certainly benefit from the yellow metal’s historical wealth-preserving properties. – Peter Schiff

Will Gold Trump Politics In 2017? Prospects for Gold Investors in a Trump Economy

Will Gold Trump Politics In 2017? Prospects for Gold Investors  in a Trump Economy

Will Gold Trump Politics In 2017? The Prospects for Gold Investors

An Exclusive Webcast by Sprott US Media – Transcript (edited for readability)

Albert: Hello and welcome to the webcast. My name is Albert Lu and I’m the CEO of Sprott US Media. I’ll be your moderator for this afternoon’s discussion. The topic today is “Will Gold Trump Politics in 2017?” and I’m very pleased to be joined by 3 experts today. James Rickards is a New York Times bestselling author of Currency Wars, The Death of Money, The New Case for Gold, and most recently, The Road to Ruin. He’s also the chief investment strategist of Meraglim Incorporated.

Trey Reik is a senior portfolio manager at Sprott Asset Management who has dedicated the past 14 years to comprehensive analysis of publicly traded gold mining companies. And Rick Rule is the CEO of Sprott US Holdings. Rick has dedicated his entire adult life to many aspects of the natural resource securities investing field and is particularly active in private placement markets having originated and participated in hundreds of debt and equity transactions with private pre-public and public companies.

Gentlemen, welcome to the round table. Today, I want to address 4 specific questions and I like to get each of your thoughts. I’m going to direct the first question to James Rickards for comment and I’d like to invite the other two also to participate. It’s the question that we led with in the title and that is will Trumponomics be bullish or bearish for gold? James, what is Trumponomics? And do you think it’ll be bullish or bearish for gold?

James: Well, the answer to the first question, Albert, is no one knows what Trumponomics is including President Trump. In other words, he has shown himself through the campaign, through the inauguration speech. He’s addressed to joint session congress, has executive orders to be, I would say, pragmatic, flexible but also a little unpredictable. Let me give you some concrete examples. During the campaign, we heard Trump label China as a currency manipulator, said “On my first day in office, I’m going to give an order branding China a currency manipulator, etc.” And if you took that literally, if you took that at face value, you would say, “Well, if he thinks China is keeping its currency too cheap and he’s going to do something about it, that means the dollar is going to get cheaper” which is usually a tailwind for gold. In a lot of ways, the dollar price of gold is simply the inverse of the strength of the dollar, So, weak dollar usually means a higher dollar price for gold. Not always but there’s a pretty strong correlation there.

No one knows what Trumponomics is including President Trump.

So, that’s kind of one way of analysis. But, in fact, Trump has done nothing of the kind. He did not brand China a currency manipulator on his first day in office. So, I mean his job particularly—I mean you can say what you want, but that designation to the extent it has any legal impact comes from the Treasury department. It comes in an annual report. That report actually is scheduled for later in April, So, it’s coming up pretty soon. But I haven’t seen any indications that the Treasury is actually going to do that. Of course, President Trump and President Xi of China had this meeting in Mar-a-Lago and does seem to be at least getting off on a fairly cordial basis, but we will see what happens.

So, the whole analysis that somehow Trump was going to brand China currency manipulator and etc. has disappeared. Now, it might come back; it might not. Looks like the Trump Administration has decided to pursue the economic agenda with China not so much through the currency wars as the trade wars. They have a group—Peter Navarro, Robert Lighthizer, the US Trade representative—I’m not sure it’s confirmed yet, but certainly he’s there. He’s selected. He should be confirmed if he’s not already, and Wilbur Ross, the Secretary of Commerce. So, they seem to be more willing to go after China on the trade front with tariffs and countervailing duties and attacking subsidies, etc., maybe even providing new subsidies of our own rather than the currency front.

So, I give that as an example of how the Trump economic agenda is, let’s say, pragmatic and flexible. Maybe it’s all the art of the deal. You put some stakes on the ground. You lay down some markers and then you give ground in exchange for something else. By the way, we have been getting some help from China in a completely different arena which is North Korea and this is a good example of how the politics of the global capital market aspect and the geopolitics and the strategic considerations have all merged. So, maybe if we’re going easy on China on the currency front, they’ve cut off coal imports from North Korea. I know North Korean coal exports to China had been cut off and China at least acquiesced in what we call the de-SWIFT’ing of North Korea basically kicking them out of SWIFT which is the international payment system. So, we’re back putting sanctions on North Korea.

So, the point is it’s a little bit difficult to say what Trumponomics is, number 1, even from a policy point of view and then from actually getting things done. I think the whole thing has been thrown into doubt by the failure of the healthcare reform based on the actions of the House of Freedom caucus without getting in the weeds on the pros and cons of that debate. I think people can argue any way they want, but the way I look at it, as an analyst, is to say, “Well you’ve got a group of Republicans who want to support you and none of the Democrats will help out. So, basically Trump can’t get anything done. If he can’t get—if he can’t round up a Republican caucus and the Democrats are not willing to throw a lifeline and I don’t see any indication that they are, that puts the tax reform into doubt. That puts infrastructure spending into doubt. It could mean the stock market is way, way out on its skis.

It was interesting to watch the stock market after the election. Of course, it was down in the early hours of the day after election but ended up flat at the open and then rallied and then we had one of the strongest rallies in history over the following 3 months. But the stock market went up in November on the prospect of Trump tax cuts, then it went up again in December on the prospect of Trump tax cuts and then when he gave the State of the Union and a speech to the joint session of Congress in January, it was early February, it went up again on Trump tax cuts. So, I watched the stock market rally 3 times on the same tax cuts. This is almost the definition of a bubble, meaning it’s not as if Trump was going to cut taxes 3 times. He was only going to cut them once, if at all, but the stock market found 3 reasons to rally on the same news.

So, that’s kind of bubble behavior and now there’s some doubt about whether anything significant will happen on the tax front. I mean you think healthcare is difficult. The last time they did a major overhaul of the Internal Revenue Code was 1986 when Ronald Reagan was president. So, that’s 40 years ago and—or sorry, 30 years ago and so it just shows the difficulty of getting these things done.

Read the entire transcript here…

Can Base Metals like Lead be Turned into Gold? Well! Actually YES

Can Base Metals like Lead be Turned into Gold? Well! Actually YES

Can Base Metals like Lead be Turned into Gold? Well! Actually YES

A few months ago I spoke with a woman who challenged my profession in precious metals. “Don’t you know gold can be created from lead?” she said. She then informed me that the best thing to do in the coming years was to avoid the purchase of precious metals, fiercely warning me of a coming gold collapse. “There will be a mass production of gold!” she hung up the phone before I had a chance to respond.

To date, I’m not exactly sure why this woman called our company. It’s obvious she wasn’t about to buy precious metals or at the very least have a conversation. Most likely she wanted to justify her decision to steer clear of buying gold and silver by pushing her views on me. To her credit, she was articulate and sounded a lot like Peter Schiff, barring the fact she was concerned with the future of gold instead of US dollars!

Where did this woman get the idea of turning lead into gold?

For those who don’t know, she was referring to alchemy. Broadly speaking, alchemy is simply Medieval chemistry; however, the study is best know for the transmutation of elements such as lead into gold or chrysopoeia.

Original alchemists could be labeled many things: medieval chemists, spiritualists, philosophers, and people of the occult. They were tucked away in dark rooms conducting chemical and magical experiments to find the philosopher’s stone, a mystic stone that could supposedly give eternal life and convert any base metal like lead into a precious metal like gold.

Many fortunes have been spent financing the research for the chemical composition and process of such a stone. It’s even rumored some have succeeded, such as the famous alchemist, Nicolas Flamel. As strange as this sounds historians believe the research of the early alchemists laid the foundation for modern chemistry. Their work influenced famous scientists like Robert Boyle and Isaac Newton.

Can base metals such as lead actually be transmuted into gold?

Surprisingly the answer is yes.

While there is no such thing as a philosopher’s stone, we can in fact artificially transmute or nuclear transmute base metals into gold. This has been the case since the 20th century. Scientists have the ability to change a number of protons in an element’s nucleus thereby transforming one element into another element.

Does this have any impact in the market price for gold?

The answer is no.

The costs involved in producing gold is significantly greater than the actual price of gold. Glenn Seaborg, a Nobel Prize-winning chemist said, “It would cost more than one quadrillion dollars per ounce to produce gold by this experiment,” referencing a 1980s gold experiment that transmuted base metal into gold. Additionally, the gold produced by this same experiment was radioactive.

While alchemy is cool it’s not economical. Saying,“The price of gold will collapse because of alchemy,” is the same as saying, “The price of bananas will collapse because scientists discovered we can grow banana trees on Mars.” Both statements aren’t taking into account the difficulty of the process.

Conclusion

While gold can be created by artificial transmutation, precious metal owners have no need to fear. The price of precious metals has not and will not be affected by alchemy in the foreseeable future. Science still has a long way to go.

 

This article was submitted by Joel Bauman, SchiffGold Precious Metals Specialist. Any views expressed are his own and do not necessarily reflect the views of Peter Schiff or SchiffGold.

The Events That Could Spark The Next Gold Bull Market

The Events That Could Spark The Next Gold Bull Market

The Events That Could Spark The Next Gold Bull Market

Gold had a satisfying first quarter, rising 9% since the beginning of the year. While that can be considered a good start, five events sprinkled throughout 2017 could send it much higher.

Event #1: Gridlock In Washington

With Republicans winning the presidency and both houses of Congress, the gridlock that has plagued Washington since 2010 was sure to be broken. The scaling back of regulation and $1 trillion in fiscal stimulus would return the US to 4% annual growth.

While we’re only 11 weeks into proceedings under the Trump administration, it looks as if Washington’s arteries are still clogged by politics. With healthcare reform failing to even make it to a vote, the pressure is now on the GOP to see if they can push through tax reform and fiscal stimulus.

Given the healthcare debacle, there’s a real worry about their ability to do so. If the pro-growth policies aren’t passed, markets will likely come crashing back down to earth. This would create panic—and that’s good for gold.

Event #2: Populists Take Over Europe

There are several elections in Europe this year that could spell trouble for the future of the EU.

In the Netherlands, although populist candidate Geert Wilders and his Party for Freedom failed to win the election, they did come in second. As such, they may be able to force concessions on the EU from the winning party. Remember, British Prime Minister David Cameron was partly forced to call the Brexit referendum by the UK Independence Party, which only won a single seat in the 2015 election.

Next up is the French election on April 23. The latest polls have Marine Le Pen, leader of the National Front, tied for first place.

Then there’s Germany in September. Although the populist Alternative for Germany has gained in the polls, its chances of recording a victory are slim. Then again, pundits once thought the same about Donald Trump.

The real wildcard in Europe is Italy whose anti-euro Five Star Movement is leading by around 4 points in the polls. While an election doesn’t have to be held until May 2018, the three biggest political parties have called for one to take place this year.

As the continent continues to be shrouded in political uncertainty, gold will do well. If populists actually win, the yellow metal could take off as it did following 2016’s Brexit vote.

It’s no coincidence gold hit its all-time high of $1,896 per ounce amid the 2011 European sovereign debt crisis.

Event #3: China’s Domestic Problems Explode

China’s domestic difficulties have been going on for a while, but it seems the situation has deteriorated further in the last few weeks.

The first quarter of 2017 was the worst-ever start to a year for defaults on corporate bonds in China. Seven companies defaulted on a total of nine bonds year to date, compared to a grand total of 29 for all of 2016.

As a result, bond yields are rising, which will likely lead to more defaults.

With a slowing economy and a total debt-to-GDP ratio of 277%, China’s issues won’t be easily fixed. As the world’s second-largest economy, China has accounted for over 30% of global growth since 2008, and a severe downturn would have global implications.

If the cracks become craters, there will likely be a shift into safe-haven assets like gold. Chinese investors and the central bank are already accumulating gold at a record pace. If the economy does crash, it will only accelerate this trend.

Event #4: Indian Gold Demand Returns

In 2016, Indian gold demand was the lowest since 2003. This was due to the shock of Prime Minister Narendra Modi’s demonetization in November, which brought gold imports to a standstill.

However, with imports for February up 175% year over year, the Indian gold market looks to be back on track.

With pent-up demand for gold plus wedding season in full swing, we should see strong buying over the coming months, which would support higher prices.

In fact, demand could be even higher this year as Indians are still reeling from the government’s move to eliminate 86% of the currency in circulation. Indians don’t trust banks with their money. As such, they are choosing to buy gold instead of keeping their money in an account.

Event #5: Unrest In South Africa

Last week, President Zuma fired most of his cabinet and chose to replace them with close allies. On the news, the South African rand plunged to its lowest levels since December. The country’s credit rating was later downgraded to junk for the first time since 2000.

In February, the ruling party passed a bill that will expropriate more land from white farmers, without compensation. With rising political and social tensions, unrest could break out anytime.

This matters to gold investors because South Africa is the world’s sixth-largest producer and the fourth-largest exporter of the precious metal.

There are already calls for Zuma to step aside, and social tensions are running high, so anything from a civil war to a political revolt could happen. That, in turn, would cause labor disruptions—and any disruption to gold mines would negatively affect supply.

Economics 101 tells us if supply takes a hit and demand stays the same, prices will rise.

Add Gold To Your Portfolio

If the aforementioned events come to fruition, it will likely create uncertainty and panic… and that’s good for gold. Therefore, now could be an excellent time to add some bullion to your portfolio.

As gold is known as crisis insurance, doing so buys you protection from the fallout of these events. Along with serving as insurance, it could be an excellent investment given today’s low prices. – Stephen McBride

 

Opportunities to Buy Gold Cheap, Dwindling – Watch-Out for this Indicator

Opportunities to Buy Gold Cheap Dwindling - Watch-Out for this Indicator

Opportunities to Buy Gold Cheap, Dwindling

With much of the action in gold prices driven by sentiment and technical analysis, you should keep an eye on the broader trends, even if you consider yourself a buy-and-hold investor.

The Last Time This Happened, Gold Prices Rallied 20%

Traders use technical analysis to predict future market moves based on recent price action. Most of it sounds complicated, but it really boils down to simple math.

One of the most commonly cited technical indicators is a moving average. Day traders often use moving averages based on very short time frames—sometimes as short as one minute—while longer-term investors refer to 50-day and 200-day moving averages to spot opportunities.

According to Newton’s First Law of Motion, a body in motion will remain in motion unless acted upon by an outside force. Investments work the same way: once a trend has gained momentum, it tends to continue—be it up, down, or sideways.

This has largely been the case for gold, which kept trending down over the past five years.

But now the trend seems to be reversing: gold is up over 20% since its December 2015 low of $1,050/oz. and over 10% since the beginning of 2017.

That means opportunities to get gold “on the cheap” may be dwindling, as the most recent price hike to $1,275/oz. this week indicates.

But How Can We Be Sure?

The short answer is, we can’t. But one technical indicator has proved extraordinarily reliable in forecasting larger trend changes. It’s known as the “Golden Cross.”

We see this cross (which has nothing to do with gold itself) when a shorter-term moving average crosses “up” through a longer-term moving average. Longer-term moving averages typically are better predictors of significant trend changes.

The following chart of GLD, a good proxy for the price of gold, contains three simple moving averages, 50-, 100-, and 200-day.

Note that the 50-day crossed up through the 100-day in mid-March, and gold subsequent rallied from $1,200 to $1,275/oz.

With the strong rise this week, gold has moved above its 200-day moving average.

The 50-day average is also getting close to crossing above this critical threshold. If the move materializes, it would form the above-mentioned Golden Cross.

This is a strong, supportive technical indicator for the coming months.

The last time gold crossed above its 200-day moving average, in early 2016, gold went on to rally $230/oz., from $1,130 to $1,360. The Golden Cross occurred a few weeks later.

While past is not prologue, the reasons for owning gold are as strong as ever. Whether it’s mounting tensions with Russia/Syria and North Korea, a US stock market looking more vulnerable to a correction, the Fed attempting to unwind its massive balance sheet and tighten monetary policy, or the upcoming election in France—there are ample catalysts to propel gold prices higher.

If the Golden Cross fails to materialize and gold consolidates some of the gains from this year, you should view this as a buying opportunity before the next move toward $1,400/oz.

Since December 2015, gold has consistently moved a few steps forward and then taken a step back, making higher lows in the process, a constructive view from a technical standpoint. I recommend you watch gold’s price action closely in the coming months and use the fluctuations to be opportunistic in building your position. – John Grandits

 

Gold Prices Can Test $2,000 in 18 months on Weak Dollar & Geo-political Tensions

Gold Prices Can Test $2,000 in 18 months on Weak Dollar & Geo-political Tensions

Gold Prices Can Test $2,000 in 18 months

Juerg Kiener, managing director and chief investment officer of Swiss Asia Capital had presented an extremely bullish view on gold prices in a July 2016 interview with CNBC, predicting at the time that it could hit all-time highs in the subsequent 18 months.

Back then, Gold was trading at $1,340. On Wednesday, the precious metal was trading at about $1,289.

Speaking to CNBC’s “Squawk Box” on Wednesday, he defended the commodity, saying that “from a fundamental point of view, I think we’re going to get a break out on the upside.” Still, he acknowledged that gold prices had been basically flat over the last year.

“Look, the markets don’t always move (too well) in the short term, but I think in the medium term it does,” he said, pointing to gold’s strong historical performance. “I think this trend will continue until we start seeing again stability coming into the financial system and government behavior.”

Part of the bullish case for gold prices, according to Kiener, is an emerging distrust towards U.S. geopolitical behavior, and accelerating physical gold purchasing in the rest of the world.

While some may be discussing the dollar or equities’ impact on gold prices, Kiener said the driving factor behind the metal’s price will become “the loss in trust of leadership and governments and financial markets.” With only a small percentage of the global assets currently devoted to gold, Kiener said it would make sense for more investments to pour into such alternatives.

Looking to the medium term, within eight to 18 months, Kiener said gold’s first resistance is between $1,400 and $1,450, and if that breaks, then the metal would test its all-time highs.

In a week dominated by mounting geopolitical tensions, “safe-haven” assets such as gold and low-risk government bonds rose. The metal price increased to about $1,289 an ounce from a low of $1,198 in March. – Vaibhavee Sinha

Gold prices may ‘sky-rocket’ on weak dollar and rising geo-political tensions

A strong run in gold prices could continue as the US dollar weakens and investors seek safe-havens in the face of increasing geo-political risks, according to Prestige Economics.

The price of gold bullion has risen 11% this year as investors look to the commodity as a refuge from the uncertainty surrounding US President Donald Trump’s political and economic policies.

Gold bullion rose 0.8% to $1,296 per ounce on Monday, its highest level since 9 November, but has since fallen back. Bullion is currently trading at $1,287 per ounce.

Jason Schenker, founder of Prestige Economics told Bloomberg: “Gold is going higher here. We see a gradually weakening dollar on trend.

“Although we expect two more rate hikes this year – September, December – and four rate hikes next year, what we also think is that a lot of that is priced in.”

Markets are responding to geo-political tensions across the globe, especially military actions from the US.

Last month, investors went into risk-off mode as opposition from his own party meant Trump failed to pass his healthcare reform bill in Congress, prompting a fall in the US equity markets.

Meanwhile, this month, the US bombed Syria and the Islamic State in Afghanistan,while Trump said he was willing to consider a military strike on North Korea after a ballistic missile launch by the country failed.

Furthermore, in a survey conducted by Bloomberg last week, analysts were the most positive on gold prices since December 2015.

Schenker added: “If we get weak Q1 GDP numbers, equities are going to take a big hit, the dollar is going to take a big hit and gold prices are going to sky-rocket.” – Tom Eckett

 

Rising Gold Prices & Gold Demand in India – A Major Cause for Optimism

Rising Gold Prices & Gold Demand in India - A Major Cause for Optimism

The World’s Top Gold Market – India’s Strongest Buying In 3 Years

Sentiment has turned up in the gold market the last few weeks. And new data from the world’s top consuming center — India — shows there may indeed be cause for optimism amongst bullion buyers.

Data reported in the local press showed that India’s gold imports saw a big jump during the most recent quarter, January to March 2017. With total imports for the period hitting 230 tonnes.

To put that in perspective, consider some numbers from recent quarters — during which India’s gold imports showed some of the weakest figures on record.

During April to October 2016, gold imports totalled just 264 tonnes. Meaning that incoming shipments for that entire seven-month period were barely above the figures for the most recent three months.

That suggests a major surge in gold demand is happening here. In fact, imports for the Jan-Mar 2017 quarter were the strongest for those months since 2013.

The pick-up in buying appears to be related to the Indian government’s recent crackdown on cash. With the government having banned small banknotes effective as of early November.

Since that event, gold imports have jumped to 360 tonnes for the five months from November to March. More than 35% higher than total imports for the preceding seven months.

India’s citizens are reportedly turning to gold as a safe haven amid doubts about paper money. Which bodes well for continued support in this key gold market as 2017 goes on.

How big a lift could that give to global gold prices? If we annualize the figures from the past quarter, India is on pace to import 920 tonnes for this year. Which would represent a massive improvement from the 13-year low imports of 571 tonnes the country saw in 2016.

It’s notable that global gold prices also perked up during the past quarter. As the chart below from Kitco shows, we’ve gone from $1,150/oz at the beginning of January to $1,280 recently.

Gold Market
The gold price jumped in Q1 as imports to India also showed a notable rise
Gold Market

It’s actually unusual to see India’s demand growing when gold prices are going up — with Indian buyers usually cutting back purchases when the metal gets more expensive.

The fact that prices and demand are rising in tandem could signal an important and positive shift in fundamentals — watch for April import figures in a few weeks to see if the trend continues.

Here’s to coming back to life. – Dave Forest

Gold prices may ‘sky-rocket’ on weak dollar & rising geo-political tensions

Gold’s strong run could continue as the US dollar weakens and investors seek safe-havens in the face of increasing geo-political risks, according to Prestige Economics.

The price of gold bullion has risen 11% this year as investors look to the commodity as a refuge from the uncertainty surrounding US President Donald Trump’s political and economic policies.

Gold bullion rose 0.8% to $1,296 per ounce on Monday, its highest level since 9 November, but has since fallen back. Bullion is currently trading at $1,287 per ounce.

Jason Schenker, founder of Prestige Economics told Bloomberg: “Gold is going higher here. We see a gradually weakening dollar on trend.

“Although we expect two more rate hikes this year – September, December – and four rate hikes next year, what we also think is that a lot of that is priced in.”

Markets are responding to geo-political tensions across the globe, especially military actions from the US.

Last month, investors went into risk-off mode as opposition from his own party meant Trump failed to pass his healthcare reform bill in Congress, prompting a fall in the US equity markets.

Meanwhile, this month, the US bombed Syria and the Islamic State in Afghanistan,while Trump said he was willing to consider a military strike on North Korea after a ballistic missile launch by the country failed.

Furthermore, in a survey conducted by Bloomberg last week, analysts were the most positive on gold since December 2015.

Schenker added: “If we get weak Q1 GDP numbers, equities are going to take a big hit, the dollar is going to take a big hit and gold is going to sky-rocket.” – Tom Eckett

A Bullish Breakout for Silver Prices more Probable than Rally Reversal

A Bullish Breakout for Silver Prices more Probable than Rally Reversal

A Bullish Breakout for Silver Prices more Probable than Rally Reversal

COT Silver Futures: Large Speculators Vs Commercials

COT Silver Futures: Large Speculators Vs Commercials

Silver Non-Commercial Positions:

Zachary Storella: Large speculators and traders continued to boost their bullish net positions in the silver futures markets last week for a third consecutive week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday.

The non-commercial futures contracts of Comex silver futures, traded by large speculators and hedge funds, totaled a net position of 105,515 contracts in the data reported through April 11th. This was a weekly gain of 4,133 contracts from the previous week which had a total of 101,382 net contracts.

The latest data brings the net position to the most bullish speculative level on record and marks the second straight week over the +100,000 net contract level. Silver speculative positions have grown by +26,403 net contracts in just the past three weeks.

Silver Commercial Positions:

The commercial traders position, categorized by the CFTC as hedgers or traders engaged in buying and selling for business purposes, totaled a net position of -114,414 contracts last week. This is a weekly change of -2,068 contracts from the total net of -112,346 contracts reported the previous week.

Silver Prices On Brink Of A Bullish Breakout

– Taki Tsaklanos: Silver prices are as close as can be to a major breakout point. Silver could start a tactical bull market once it goes higher from here, and remains above $19 for 3 consecutive weeks.

However, readers should not confuse a major breakout with a secular breakout. A major breakout indicates that a tactical bull market is starting. A secular breakout suggests a multi-year bull market is starting. That is a big difference.

The chart below shows the weekly chart on 5 years. The breakout point is indicated with the red circle.

Note that a secular bull market can only be spotted on a +10 year chart.

The price of silver successfully tested support in January, only to find strong resistance at $19 in March. That is when we became bearish and saw silver going back to $15 or lower. Slightly later, we observed that March 2017 would be a decisive month for the price of silver. Indeed, silver went higher in March and April, a more bullish development than we expected.

Interestingly, silver prices look stronger than gold at this point.

The secular breakout will occur between $20 and $22. Silver prices still have some resistance to overcome, but, admittedly, the grey metal looks quite constructive at this point.

Silver bulls want to see a strong breakout at $19 with at least 3 consecutive weeks of trading above $19. After that, it will probably move quickly to the $21 area where it will find the ultimate resistance.

Note that seasonality is not in favor of gold and silver. May and June are typically the weakest months of the year for precious metals. We still cannot believe that silver will jump right into a major secular bull market in the coming months, but the odds of a new bull market in 2018 are definitely increasingly strongly. We will follow silver prices very closely this year.

Could Seasonality Put An End To Recent Rally in Silver Prices?

 – Taki Tsaklanos: As discussed above, the focus was on a potential tactical breakout in silver prices, leading to a short to medium term bull market.

Exceptionally, we will also look at seasonality in silver prices. Although we do not consider seasonality a primary indicator, but rather a secondary indicator, we believe this is an interesting month for reasons outlined below.

Silver bear market continues until it breaks out

As said before, silver is still in a bear market. The falling channel indicated in purple on the chart below makes that point.

Interestingly, silver is right now exactly in an area in-between a falling channel (purple) and a rising channel (green dotted lines). The intersect of both the bearish trend and the bullish trend has, so far, delivered great fireworks.

Silver price seasonality effect about to kick in?

Seasonality in silver prices could play an important role in the weeks to come. Why? Because on an annual basis silver tends to peak during the month of April. In May and June, silver prices tend to go sharply lower, only to recover in July, and continue its downtrend and stabilize throughout the second half of the year. That is based on the seasonality chart of silver over the last 3 decades, courtesy of our good friend Dimitri Speck from silver seasonal charts.

As said, this is an average behavior over 3 decades, so it could well be that 2017 will be an exceptional year. Nobody knows.

The point we are trying to make is this: when combining the seasonality chart of silver prices with the chart pattern in silver’s long term chart, it becomes very interesting. If silver is peaking for the year, then it would be right at major resistance, and would indicate that weakness will continue in silver prices, exactly in line with our silver price forecast for 2017. If things will turn out differently, our forecast for silver prices could be invalidated.

The coming weeks will be extremely interesting and also important for the silver market.

silver price seasonality chart

 

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