Commodity Trade Mantra

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

 

Analysis – The Macroeconomic Drivers of the Gold Price

Analysis - The Macroeconomic Drivers of the Gold Price

Analysis – The Macroeconomic Drivers of the Gold Price

Fundamental Analysis of Gold

As we often point out in these pages, even though gold is currently not the generally used medium of exchange, its monetary characteristics continue to be the main basis for its valuation. Thus, analysis of the gold market requires a different approach from that employed in the analysis of industrial commodities (or more generally, goods that are primarily bought and sold for their use value). Gold’s extremely high stock-to-flow ratio and the main source of gold demand  – which is monetary, or investment demand – suggest that gold has to be analyzed as though it were a currency rather than a commodity.

The stock-to-flow ratios of gold and silver compared to those of industrial and food commodities. Gold’s large StFR is one of the most important features (and to a lesser extent this also applies to silver) making it useful as a money commodity.

One implication of this is that reservation demand is an extremely important factor in determining the gold price. Data on the annual flow of gold in terms of mining supply, jewelry demand, retail buying of gold eagles or net demand from central banks are insignificant by comparison.

Since none of us are mind readers, we cannot know the reservation prices/ supply schedules of current gold holders – they are not measurable. We do however know what motivates potential gold buyers and sellers, which allows us to analyze the market’s underlying trend by looking at the associated macroeconomic fundamentals.

Our friend Keith Weiner employs another approach, which attempts to determine the strength of physical gold demand by comparing spot gold prices to spreads in the futures curve. These spreads provide information on the incentives arbitrageurs have to buy or sell bullion against offsetting futures positions.

The extent of speculative buying in “paper gold” relative to buying in the physical market is one of the forces driving said spreads. Even though a data error has recently made it seem as though the derived “fundamental price” of gold was higher than it actually is, its current level of $1290 still remains above the market price.

We have recently remarked on the fact that the gold price is holding up relatively well in spite of the fact that most macroeconomic price drivers appear not particularly supportive at the moment. We will take a closer look at these drivers below.

There are essentially two types of gold price drivers worth discussing: measurable ones and those that cannot be measured (there is some degree of indirect overlap between them). The latter are inter alia described by Jim Grants simple gold price formula, according to which the price of gold is equal to 1/n. The variable “n” is “the trust in the capacity of people like Ben Bernanke [or Janet Yellen, ed.] to manage paper money”.

Drivers of the Gold Price

1. Real interest rates: when speaking about “real interest rates”, one has to define what one actually means. After all, the so-called “general level of prices” does not really exist. Adding up the money prices of completely disparate goods and services and then “averaging” them and calling the result the “general price level” is bereft of logic.

Moreover, the supply of and demand for money itself is also an important factor determining its purchasing power. This factor (which once again cannot be measured) must perforce be ignored in exercises like the calculation of CPI. For all its faults, CPI nevertheless does give us a rough idea of the speed with which the purchasing power of fiat money is evaporating.

Debt securities the yields of which are tied to future trends in CPI are providing us with a “real interest rate”. The difference between nominal rates and market-based inflation expectations is expressed in the yields of TIPS (treasury inflation-protected securities). Real interest rates are a very important gold price driver, as the charts below attests to. It shows the inverted 5 year TIPS yield compared to the gold price.

Inverted 5 year TIPS yield (red line) vs. the gold price (blue line) since mid 2012.

The longer term chart above illustrates that the negative correlation between gold and real interest rates is very strong indeed. If one looks closely at the most recent moves, we can see that a gap is currently opening between the two, which will presumably be closed one way or another. Here is a close-up view:

A close-up of the above chart showing the recent drift more clearly.

Unfortunately, there are no hard and fast rules as to which data series is more prone to lead or lag – hence we cannot say whether the gap will be closed by a decline in real interest rates, a decline in the gold price or both. However, if we simply compare the federal funds rate directly to the annual change rate in CPI, we can see that the Fed currently remains “behind the curve”, in spite of having  hiked rates three times already:

The Fed has not yet updated this chart to reflect the most recent rate hike, so here you see that the “real” federal funds rate stood at minus 2.13% based on February CPI data and prior to the March rate hike. If we incorporate the rate hike, it stands at minus 1.88%, which is equal to its level in January.

Overall, we would have to say that this is a mixed bag, but in the short term real rates (based on TIPS yields) are a slight negative for the gold price.

2.Credit spreads: we are keeping this simple by comparing the price of HYG (junk bond ETF) to that of IEF (7 to 10-year treasury bond ETF). It is well known that credit spreads are very tight at present, and the chart of the HYG-IEF ratio is reflecting this well enough. Junk bond yields are barely above their all time lows registered in 2014, while the yields on treasury bonds are actually still quite a bit above their previous lows (but lately decreasing again).

Credit spreads are therefore within spitting distance of their all time lows, which indicates extremely high economic confidence. In fact, economic confidence based on this indicator is currently so high that it should be considered suspect:

The HYG – IEF ratio as a proxy for credit spreads shows us that economic confidence is uncommonly high.

Tight credit spreads are normally held to be bearish for the gold price, but in view of how extremely tight spreads currently are, one might want to question the traditional interpretation. We would rather see them as a contrary indicator at the moment.

3.Steepness of the yield curve: traditionally a steepening yield curve is seen as gold bullish. The reason is that the curve normally steepens for one (or both) of two reasons: a loosening of monetary policy and/or increasing inflation expectations.

Steepness of the yield curve measured by deducting 2 year note yields from 10 year note yields. After steepening sharply between September and December 2016, the curve has begun to flatten again.

This indicator had a strong positive correlation with the gold price from 2000 – 2003 and again from 2007 – 2011, but occasionally the correlation breaks down (e.g. in 2005-2006 and recently). We suspect this tends to happen most often in “transitional periods” in which a gold-bearish macroeconomic backdrop is about to shift to a gold-bullish one, but the shift has not actually happened yet.

4.Trend of the US dollar: The US dollar was in a quite strong uptrend for a while and more recently is moving sideways with an upward bias. Technically the dollar certainly continues to look strong and a number of fundamental reasons supporting dollar strength could be cited as well, even if that is a somewhat less straightforward exercise (to what extent the rally in the US dollar has already discounted these positive factors is open to question).

DXY weekly –  a strong rally from early 2014 to early 2015, followed by an upwardly biased consolidation.

This would normally be considered bearish for gold, but there are time periods during which a strong dollar and a strong gold price can co-exist (most recently demonstrated on occasion of the euro area debt crisis).

5.The performance of financial stocks relative to the broad market. This is an indicator for the gold price that was to our knowledge first mentioned/ discovered by Steve Saville, author of the excellent Speculative Investor newsletter. The health of the banking system is certainly an important factor for gold demand, as demand deposits at banks are for the most part uncovered money substitutes, while depositors are legally considered unsecured creditors of banks (although it often appears that many are unaware of this status, we still see bank runs whenever push comes to shove).

It stands to reason that the ratio of bank stock indexes to broad market indexes inter alia reflects confidence in the banking system. Since gold is an asset without a corresponding liability and contrary to bank deposits does not depend on anyone’s promise to pay, gold demand should rise when this confidence is undermined and fall when it strengthens. That can indeed by seen in a comparison of the performance of the BKX-SPX ratio vs. that of the gold price. In the chart below the gold price is inverted in order to illustrate this (negative) correlation more clearly:

Performance of the BKX-SPX ratio (black line) vs. the inverted gold price (red line).

From mid 2016 to early 2017 the trend in this indicator turned bearish for gold, but recently it has become more bullish again. The (inverse) correlation remains remarkably strong, so we would regard this as one of the more important indicators at the moment.

6.The trend in commodity prices: it is no secret that the price trends of commodities and gold are usually aligned. One must keep in mind though that considerable leads and lags can be observed in this context (generally the gold price tends to lead commodity prices). As an aside, gold has strengthened relative to commodities for quite a long time and is not exactly cheap compared to them.

CRB Index, daily: since its low in early 2016, the CRB has been in a sideways trend. Note that the CRB reflects the “roll effect”; when most of its components are in contango in the futures markets, it will underperform (and vice versa when most of them are in backwardation).

The CRB Index appears to give a neutral/ bearish signal at present, but things look a bit better in terms of the BLS cash commodity index, which doesn’t reflect the roll effect from futures contangos:

While the BLS spot commodities index has weakened a bit recently, it has previously  also moved to higher levels than the CRB.

We would say this indicator is neutral at the moment.

There are two more “measurable” indicators we could show charts of. One of them is the rate of change in money supply growth, which we have recently discussed. A chart of the money AMS growth rate can be seen here. Clearly this would currently be deemed rather negative for gold prices, but as we pointed out, a loss in excess liquidity may at the moment affect risk assets more significantly  than gold, which may well benefit from if the former come under pressure.

Other charts we could show in this context are the trends in the prices of risk assets such as stocks and junk bonds, but these are well known anyway. Their current strength is clearly a negative factor for gold. Once again this strength could almost be seen as a contrary indicator though, considering how extremely stretched valuations have become.

Conclusion

In conclusion, most of the “measurable” macroeconomic fundamentals that are considered important drivers of the gold price are either mixed/neutral or bearish at the moment. However, there are good reasons to believe that several of them will turn gold-bullish as a result of the current tightening of monetary policy, which will ultimately undermine risk asset prices and various bubble activities in the economy – “forcing” central banks to execute another u-turn.

We will discuss non-measurable gold price drivers such as trust in government and the monetary authority, confidence in the solvency of the banking system, the demand for money/ desire to increase precautionary savings, economic confidence in general and similar aspects in a separate post. Naturally, many of these are indirectly reflected in the measurable indicators shown above, but there is still more to be said about them. – Pater Tenebrarum

Watch Out for Gold and Silver Amid Talk of War & Nuclear Conflict

Watch Out for Gold and Silver Amid Talk of War & Nuclear Conflict

Watch Out for Gold and Silver Amid Talk of War & Nuclear Conflict

Whenever the world starts going crazy, investors instinctively begin flocking to gold and silver.  So it wasn’t exactly a surprise when gold and silver prices started to move upward aggressively as global leaders continued to talk about the possibility of World War III and nuclear conflict.  The price of gold spiked to a five month high on Tuesday, and as I write this article, gold is currently sitting at $1277.10 an ounce.  Right now silver is at $18.35 an ounce, and many analysts believe that it is poised for a dramatic jump in the weeks and months to come as global tensions continue to rise.  Google searches for the phrase “going to war” are the highest that they have been at any point in recent years, and many people out there are starting to understand that the U.S. could soon be facing military conflicts in Syria and in North Korea simultaneously.

In response to persistent threats from the Trump administration, the North Koreans are promising that they will not hesitate to use nuclear weapons if they are attacked by the U.S. military.

In particular, an article that was just published in North Korea’s official state newspaper says that U.S bases in South Korea and the Pacific operation theater but also in the U.S. mainland would be targeted.

Most analysts do not believe that North Korea has any missiles that can reach the U.S. mainland, so that is probably an empty threat, but they can definitely hit Seoul, Tokyo and all U.S. military bases in South Korea and Japan.

And even if the U.S. was able to locate and take out all North Korean nukes in an overwhelming first strike, the North Koreans would still have thousands of artillery guns and rockets aimed at Seoul.  Military analysts in the western world have estimated that North Korea could fire off up to half a million rounds within one hour of being attacked, and the devastation that such a barrage would cause in Seoul would be beyond anything that we have ever seen in the modern world.

Personally, I have come to the conclusion that it is going to be nearly impossible to conduct a conventional military assault on North Korea that does not result in an absolutely catastrophic death toll.

Unfortunately, Donald Trump appears determined to do something anyway.  A couple of days ago we learned that he “has ordered his military advisers to be ready with a list of options to smash North Korea’s nuclear threat”, and on Tuesday he told the world that the U.S would “solve the problem” whether China helps or not…

Trump, who has urged China to do more to rein in its impoverished ally and neighbor, said in a tweet that North Korea was “looking for trouble” and the United States would “solve the problem” with or without Beijing’s help.

Just like he did with Syria, Trump’s words have now committed us to taking military action in North Korea.

Let us hope that any military action is delayed for as long as possible, but it is definitely alarming that Trump boasted to the Fox Business Network about the “very powerful” naval armada that is sailing toward North Korea right now…

“We are sending an armada. Very powerful,” Trump told Fox Business Network. “We have submarines. Very powerful. Far more powerful than the aircraft carrier. That I can tell you.”

Meanwhile, it is being reported that the Chinese have deployed 150,000 troops to their border with North Korea as they continue to warn both sides against taking military action.

Over in the Middle East, things continue to get even more tense as well.

Russia and Iran have pledged to “respond with force” to any additional U.S. attacks, but the Trump administration is not showing any signs of backing down.  In fact, White House press secretary Sean Spicer has substantially lowered the threshold for more military conflict by suggesting that the use of “barrel bombs” may be enough to justify another attack.  Considering the fact that everyone in the Syrian civil war has been regularly using barrel bombs for many years and that approximately 13,000 were used in 2016 alone, it is very alarming for Spicer to say such a thing.

On Tuesday, Trump told the American people that “we’re not going into Syria”, but what happens if he orders another missile strike and the Russians and Iranians respond by shooting down some U.S. aircraft or by sinking an entire aircraft carrier?

I can guarantee you that members of Congress from both parties will be absolutely screaming for war if CNN starts endlessly playing footage of a U.S. aircraft carrier sinking after it has been struck by the Russians or by the Iranians.

We are so close to World War III erupting in the Middle East, and there was no need for the U.S. to get involved in the first place.  According to former CIA officer Philip Giraldi, evidence continues to mount that Assad had absolutely nothing to do with the chemical attack that Trump got so upset about…

Philip Giraldi, former CIA officer and director of the Council for the National Interest, stated on the Scott Horton show that “military and intelligence personnel” in the Middle East, who are “intimately familiar” with the intelligence, call the allegation that Assad or Russia carried out the attack a “sham.”

Giraldi said the intelligence confirms the Russian account, “which is that they [attacking aircraft] hit a warehouse where al-Qaeda rebels were storing chemicals of their own and it basically caused an explosion that resulted in the casualties.” Moreover, Giraldi noted, “Assad had no motive for doing this.”

Investors that can see the writing on the wall are already getting out of stocks and into gold and silver while there is still time to do so.

Because if we get into a direct military conflict with Russia and Iran in Syria, global financial markets will crash and gold and silver will soar into the stratosphere.

And of course a similar scenario would play out if we attack North Korea and the North Koreans respond by firing off nuclear or chemical warheads at targets in South Korea and Japan.

I did not expect that we would be on the verge of World War III less than three months into the Trump administration, but here we are.

These are perilous times, and those that are wise are moving their money and are making key preparations before things spiral completely out of control. – Michael Snyder

Report on Currency Manipulation Expected to be Bullish for Gold Prices

Report on Currency Manipulation Expected to be Bullish for Gold Prices

Report on Currency Manipulation Expected to be Bullish for Gold Prices

The US Treasury report on currency manipulation was ordered by Donald Trump to address the issue of countries manipulating their currencies, normally to devalue them and give an unfair advantage to their own exporters.

The report is expected to be published mid-April and it expected to have a strong impact on the currency markets.

Another market, the findings may impact is that of Gold, which is heavily influenced by sentiment flows as it is used as a safe-haven in times of stress.

If they are made, allegations of currency manipulation are likely to create greater geopolitical tensions, increasing demand for the precious metal. The most gold-bullish outcome would be if the report actually named a big country a currency manipulator, according to James Steel, Chief Precious Metals Analyst at HSBC.

“This is potentially the most bullish scenario for gold, despite likely USD strength, as outlined by the FX team. There is a long running inverse correlation between the USD and gold and under normal circumstances a strengthening USD would be expected to weigh on gold prices. In this scenario however we do not believe a strengthening USD would necessarily undercut gold prices, as such a scenario could increase gold’s appeal as a safe haven. It is possible in this scenario that both gold and the USD attract flows simultaneously,” added Steel.

The naming of a large country, such as China, for example, as a currency manipulator could trigger risk-off trading which would benefit bullion.

Another possibility is that the report labels a small country as an FX manipulator. This would result in milder gold gains due to the moderate risk aversion associated with such a release.

The third possibility, according to HSBC, is that without naming and shaming a particular country big or small, the “US Treasury ratchets up the rhetoric.” This is HSBC’s base case scenario and would be expected to be neutral or modestly bullish for gold prices.

The treasury could cite some countries as having ‘currency misalignment’. “In this scenario, the FX team suggest the USD could weaken as policy makers elsewhere become more tolerant of local currency strength for fear of being named.” Gold prices would rise as a result of its inverse relationship with USD.

“No notable changes from previous report: neutral/modestly bullish gold. Although the FX team believe it is very unlikely, the US Treasury could decide to deviate very little from its previous publications. If this is the case, then the USD would likely weaken as it could suggest the US administration’s rhetoric appears to be ‘more bark than bite’.”

However, on the downside for Gold prices is that fact that a due to a lack of safe haven buying gold’s appreciation would be limited. As such the bull move would be dependent, “on the severity of the USD decline,” concluded Steel. – Joaquin Monfort

Weak Silver Demand & Record Shorts – The Cartel is Winning the Manipulation Game Both Sides

Weak Silver Demand & Record Shorts - The Cartel is Winning the Manipulation Game Both Sides

Weak Demand & Record Shorts – Best Indicator of a Massive Rise in Silver Prices

– Rajesh J. Shah

Weak physical silver demand has been seen starting 2016 & is taking larger proportions. It seems that the “Cartel” is gaining success in its silver market (and gold) manipulation schemes from both ends. The Cartel has been quite successful in manipulating silver prices (and gold) down on all occasions ever since 2011. Every major rise has been slammed with unimaginable record paper shorts ever since. The “TRUE Measure” of the Cartel’s success at manipulating the bullion markets is that it has now succeeded in manipulating the minds of the physical gold and silver investors. They have made sure that these investors believe that more sharp declines in gold and silver prices are imminent. After all these (over 5 years) of die-hard price manipulation to the downside, these investors (after having seen their optimism being smashed multiple times) seem more inclined to now “Sell” at all rises. Some prefer not to buy at all, even at dirt cheap rates. Their affinity seems to have shifted to being sellers after having accumulated massive loses by being buyers.

PERFECT! Well Done! Now with the Cartel “on the ropes” (read – amidst what appears to be the nuclear phase of their “200 day moving average war” with the physical gold and silver markets), they may be soon be playing the other side of the markets. These manipulators that, till now, needed buyers for each of their rate slamming operations (while the cartel buys at sharp sell-offs), will now need sellers at every major rise. After-all, if all are on the buying side, how will the trade be executed. This mind-manipulation was a necessity & they seem to have played their cards pretty well – at least up till now. The majority of analysts expect a physical run on the COMEX, which may trigger a massive rise in gold and silver prices. While that may eventually come true, the Cartel will have made massive gains playing both sides till then. Who is to stop them? None, none at all.

Weak gold and silver demand is not just a North American phenomenon as higher prices and market regulation take their toll on demand in India and China. Weak bullion demand is one of the major reasons investors remain bearish on gold and silver. Silver demand was weak in February, with sales of American Eagle Silver bullion coins falling to their lowest levels since December 2015, with the U.S. mint selling 1.215 million one-ounce silver coins, down more than 74.5% compared to sales seen last year.

Gold and Silver coin sales go soft in March

Surging gold prices since the start of the year created significant weakness in the physical market, with bullion coin demand falling to its lowest levels in 14 months, according to the latest sales data from the U.S. Mint.

Sales of silver American Eagle one-ounce bullion coins were weak in March, but not quite as weak as the month before. The Mint’s Authorized Purchasers acquired 1,615,000 silver Eagles. This figure is 400,000 higher than the 1,215,000 taken in February. In comparison, January monthly sales totaled 5,127,500. For the first quarter of 2017, sales were down by 46 percent. Buyers took 7,957,500 coins compared to 14,842,500 in the same period of 2016.

March numbers for gold American Eagle bullion coins continued their decline. The U.S. Mint’s records show that it sold 27,500 ounces of gold in various denominations of American Eagle gold coins, its lowest sales record since December 2015, when the Mint sold 500 ounces of bullion. Gold coin sales fell 67% compared to sales seen in February 2016.

A total of 21,000 ounces were sold in March compared to 27,500 in February and 117,500 in January. The sales total for the first quarter of 2017 is 166,000 ounces, down 32 percent from the first quarter of 2016.

Though the Mint sells four sizes of gold American Eagles, most of the precious metal is sold in the form of the one-ounce coin. Sales in the first quarter totaled 123,500 pieces. In the first quarter of 2016, the number was 185,500.

Here is more proof on the Cartel’s mind manipulating game….

A Record Number Of Investing Pros Are Betting Against Silver

Dana Lyons: Commercial hedgers have never had a larger net short position in silver futures. We talk about investor sentiment fairly often in these pages. Of course, sentiment analysis is well known for its “contrarian” nature, i.e., that “fading” the crowd often ends up being the correct move. What folks often get wrong with sentiment indicators, however, is that going with the prevailing opinion is usually the right play – until the opinion becomes too widely accepted. That is, sentiment-based indicators only become contrarian when they become extremely one-sided. Based on one measure, we are seeing extremely one-sided sentiment in the silver market.

That measure is the positioning among Commercial Hedgers in silver futures, which is now at the largest net short position (-112K contracts) on record, going back to 1986 (according to the CFTC’s Commitment Of Traders report).

image

Why is this significant? Commercial Hedgers are often considered the “smart money”. Again, this isn’t because they are always right. They take positions opposite trend-following Speculators, e.g., hedge funds, etc. Therefore, during long trends, they can be on the wrong side for awhile. However, at important junctures and turning points, when positions typically become extreme, they are almost always correctly positioned.

Of course, we always have to add the disclaimer that these positions can certainly get more extreme – and more wrong, temporarily – before they start paying off. Indeed, last spring, we noted that the Hedgers’ net short position in silver futures had reached a record then. After a brief dip, silver prices proceeded to tack on about another 15% over the next few months while the Hedgers’ net short position grew even more extreme. Eventually, silver prices would tumble some 25%, rewarding the Hedgers’ positioning.

Likewise, silver prices could possibly continue higher in the near term while the Hedgers’ record net short position continues to grow even larger. However, one of the disturbing things for silver bulls must be that, despite the record bullish sentiment (e.g., speculator longs), prices are still well below last summer’s peak. Thus, in our view, the eagerness of the crowd to adopt such a bullish stance relative to the moderate gains in the commodity is a bit unsettling.

Will silver continue higher in the face of this record positioning? It is possible in the near-term. However, to adopt that stance is to join an already unprecedentedly crowded position. Historically, that is when one should be fading the crowd.

And More……

Charts Spelling ‘Big Trouble’ for Silver

Silver’s latest charts show that it is set up for a potentially severe decline, says technical analyst Clive Maund.

6-month Silver Chart

Silver’s latest charts show that it is set up for a potentially severe decline, a situation that is aggravated by its latest COTs and Hedgers charts showing record extreme readings, which mean BIG TROUBLE for silver. Now, you might think, like so many traders did on Friday morning, that with Cruise Missiles flying around the Mideast, the outlook for the Precious Metals couldn’t be better, but the charts are saying that this is an opportunity—on the short side—dressed up in a crisis that will soon ease.

Action in silver on Friday was very bearish as we can see on its 6-month chart below—it tried to break higher in the morning but the breakout attempt failed and it dropped back, zig-zagging around and leaving behind a high volume “Spinning Top” candlestick on its chart, so that it looks like it is about to break down from a Double Top with its highs of late February.

6-month Silver Chart

The 1-year chart shows silver perched on the edge of a cliff, at the top of a big expanding downtrend channel with no relief in sight until it reaches the support level shown, and COTs and Hedgers charts show that it could drop much further—to the lower boundary of this expanding channel.

1-Year Silver Chart

The risk of silver tipping into a potentially severe decline from here is amplified by its latest COT chart readings, which show that Commercial short and Large Spec long positions have risen to at least one-year extremes. This is viewed as meaning BIG TROUBLE for silver.

Silver COT

The gravity of the situation facing silver is made even more clear by the latest Hedgers’ chart, which shows that Hedgers’ positions are at all-time bearish extremes. This chart makes it extremely unlikely that silver will or can advance from here—more likely is a severe decline back towards the lower boundary of the expanding channel shown on silver’s 1-year chart above. Needless to say, the grim outlook for silver set out here also has bearish implications for gold, where the COT and Hedgers’ charts are nowhere near as decisive.

Silver Hedgers Position

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CRITICAL SHORT-TERM SILVER PRICE TREND: Put into Perspective

SRSroccoreport: The current silver price trend is once again at a critical juncture.  It has been four years since the price of silver crossed an important trend line.  However, the present setup will result in either another correction lower, or a much higher price.

This is a ten-year chart which shows the current trading setup for silver:

The blue line represents the 50 month moving average,and the red line, the 200 month moving average.  Since the price of silver fell below the blue line at the beginning of 2013, its support has been the red line.  It did not fall below the red line at its low in the beginning of 2016 and has bounced twice off the blue line, which is now acting as resistance by traders.

Currently, the silver price is hitting up against the 200 month moving average blue resistance line.  If the silver price breaks above and closes above it, we could see a much higher silver price.  However, if does not, then we could experience another short-term correction.

Looking at the current silver COT REPORT, there is a record commercial short position against silver.  The Commercial short positions are from the large bullion banks:

The red lines at the bottom of the chart represent the total Commercial net short positions in silver.  As we can see, it is at a record high.  This high Commercial net short silver position normally means the silver price will likely head lower…. over the short term.

That being said, I have become less concerned about the SHORT-TERM silver price movement.  While some investors are able to trade and make money trading silver, I am not one of them.  My focus on silver is to hold onto it for the LONGER-TERM.  Short term silver price movements are not a concern when we focus on the disintegrating energy and economic fundamentals.

Some precious metals investors have become frustrated or complacent due to the low silver price.  This is understandable because some may have purchased silver at a higher price and feel as if they made the wrong investment decision.  However, acquiring physical silver should be done over a period of time and be held as a SAFE HAVEN for the future…. just like any other retirement plan.

The BIG difference between owning physical silver and most paper retirement plans, is that the value of most retirement assets will most certainly plunge in value in the future while the price of silver will likely be much higher.  Unfortunately, most investors are either too impatient, fickle or lack the ability to understand this LONG-TERM fundamental setup.

Lastly, if Americans who are mainly invested in STOCKS, BONDS and REAL ESTATE, diversified into a small 2-5% allocation of physical gold and silver, it would totally overwhelm the market…. forget about the rest of the 7 billion people in the world.

Which is precisely why the MANIPULATION of gold and silver has been done mainly through psychology, rather than price.  Why?  Because the current algorithm pricing mechanism for gold and silver is based on their cost of production.  So, to see a current $18 silver price and $1,275 is not that ridiculous if it is based upon what it cost to produce them.

But, gold and silver behave much differently than most commodities, energy, goods and services.  While most commodities and energy are consumed, a lot of gold and silver are saved.  So, gold and silver must be valued differently.  If individuals realized the dire energy predicament we are facing in the future, they would realize it would be prudent to own some physical gold and silver.  However, they are being mislead by the Mainstream media, so they cannot really be blamed.

When the markets finally crack…. the Fed and Central Banks may have one last RABBIT to pull out of the hat, and that would be a HYPERINFLATIONARY event.  Unfortunately, this will not last long and will end quite badly.

Thus, when we reach this point… there is NO GOING BACK.  The United States and world will look like a much different place and at that point, it will be too late to sell paper and buy gold and silver.

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Geo-Political Effects on the Short Term Outlook in the Silver Prices

Starting with the developments of the past 24 hours, news that the US and Japan are strategizing military options against North Korea, should China fail to reign in the rogue state, has impacted the markets widely. Notably, safe havens such as gold and silver have spiked significantly and, in both instances, this has erased the effects of last week’s US employment data. Technical bias in silver is highly supportive of ongoing gains which may mean that it is now poised to make that final push towards the $19 handle. Less than a week ago the US struck a blow against the Syrian Regime in response to their use of chemical weapons in the ongoing crisis. Trump-era foreign policy seems to have no qualms with the use of force to project its ideals and protect its interests. Nevertheless, this in of itself is adding to the overall political risks buoying silver prices as the tangled web of alliances in Syria put the US in danger of sparking a conflict with an increasingly firm-handed Russia.

Given there is no shortage of fundamental momentum behind silver, the metal may finally be able to recruit the support needed to push past the 18.47 handle that has, until now, capped upsides. If this is the case, the broader ABC wave should complete which would be in line with the highly bullish moving average bias and the neutral RSI readings. Additionally, that MACD signal line crossover that had some traders worried yesterday looks as though it may be a little bit of a false flag and can likely be ignored.

Ultimately, the combination of the fundamental and technical biases should see gains extend over the coming weeks. Indeed, should the state of global politics not improve in the medium to long-run, this rally could push beyond even the $19 handle that has been forecasted on a technical basis.

Definitely No Dearth of Catalysts for Gold & Gold ETFs

Definitely No Dearth of Catalysts for Gold & Gold ETFs

Definitely No Dearth of Catalysts for Gold & Gold ETFs

Gold exchange traded products, including the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), were boosted last Friday following a disappointing March jobs report and after the U.S. launched 60 missiles against Syria.

Safe-haven assets, including gold, were favored after President Trump revealed Thursday U.S. Navy warships launched tomahawk missiles against a Syrian military installation believed to be the starting point of a savage sarin gas attack against Syrian civilians earlier last week.

Friday’s rally in gold brought the aforementioned exchange traded funds close to their 200-day moving averages and to year-to-date gains of just under 9%. Political risk is seen as a potential catalyst for gold and bullion-backed ETFs.

“According to a CNBC.com report, the markets gave up most of their gains Thursday when President Trump stated he is “willing to act alone on North Korea if China does not step up.” What’s more, Secretary of State Rex Tillerson did an about-face on Syria and stated Bashar Assad must be removed from power in Syria. The reversal in policy was based on reports of a sarin gas chemical attack purportedly by the Syrian government. This could turn out to be a big problem as Russia does not agree with Trump’s conclusion,” reports Seeking Alpha.

Gold’s recent bullishness is impressive when considering that the Federal Reserve raised interest rates earlier this month, setting the stage for two more rate hikes later this year. However, the yellow metal has been boosted by the dollar’s disappointing showing this year.

Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.

“Furthermore, the Fed chair’s decision to not increase the trajectory of rising rates incited a strong bid for commodities and foreign currencies after leaving the forecasts for future rate hikes in 2017 at two. I believe the Fed is playing it safe by maintaining such a dovish stance. This happens every time. The Fed always seems to tighten or loosen interest rates for long after they should have stopped,” according to Seeking Alpha.

Gold prices could move modestly higher with some help from emerging markets, namely China and India. However, the dollar has recently retreated in noticeable fashion, helping aid gold’s ascent along the way. – Tom Lydon

Gold Price Drivers will turn Unequivocally Bullish on This

Gold Price Drivers will turn Unequivocally Bullish on This

Gold Price Drivers will turn Unequivocally Bullish on This

Something odd happened late in the day in Wednesday’s trading session, which prompted a number of people to mail in comments or ask a question or two. Since we have discussed this issue previously, we decided this was a good opportunity to briefly elaborate on the topic again in these pages.

A strong ADP jobs report for March was released on Wednesday, and the gold price dutifully declined ahead of it already, while the stock market surged concurrently. Later in the day, the Fed minutes were published, and their tone was definitely seen as very “hawkish”, at least by today’s standards.

There was quite a bit of talk about rate hikes and  – gasp! – even about ending reinvestment of funds the Fed receives when debt securities in its QE portfolio mature. The merry pranksters also bemoaned the egregious bubble their own policies have given birth to.

According to Reuters:

Most Federal Reserve policymakers think the U.S. central bank should take steps to begin trimming its $4.5 trillion balance sheet this year as long as the economic data holds up, Fed meeting minutes showed.

The minutes also showed “some participants viewed equity prices as quite high relative to standard valuation measures.” [duh…]

(emphasis added)

Here is a 15 minute candle chart encompassing Wednesday’s intra-day moves in June gold futures:

June gold futures, 15 minute candles. After at first declining in anticipation of a strong ADP report and hawkish Fed minutes, the gold price rebounded when said minutes were released – and actually sounded even more hawkish than expected.

Talk about “balance sheet normalization” – with the added twist that “most” committee members seemed to think it was an idea whose time had come – apparently was indeed a bit of a surprise to market participants, who probably (and quite reasonably) assumed it would never happen. Not surprisingly, they have already gotten over the “shock” as of Thursday’s trading, but in this case, their initial reaction actually made sense.

An Endangered Bubble and Discounting the Future

What will happen, if the Fed actually allows its balance sheet to shrink by no longer reinvesting money it receives for maturing securities? Unless inflationary bank credit expands at a faster rate than the repayments, this will invariably result in shrinking the money supply. Essentially, it would be a reversal of QE – a part of the deposit money created by debt monetization would return to where it originally came from, namely thin air.

You have one guess what will happen to “risk assets” if and when free excess liquidity in the system begins to evaporate. Here is a hint: it will be time to wave good-bye to the bubble. Stock market traders actually had the right idea on Wednesday afternoon:

S&P 500 intra-day – the Fed minutes triggered a brief moment of quite apposite bubble doubt.

Before we continue, we want to stress that we are using Wednesday’s odd market moves merely as an opportunity to illustrate an important point – we are well aware that one-day moves are usually meaningless and best categorized as “noise”. Nevertheless, these moves in a way provided an illustration of an effect of longer term relevance.

We have discussed said effect a few times in these pages before. Recall that back in 2014 – 2015, assorted Fed heads were talking incessantly about impending rate hikes, which they then kept postponing over and over again. At the same time, a whole host of gold bears in the mainstream financial media never tired of reminding everyone of the merciless decimation that was certain to be inflicted on the gold price once the Fed actually did hike rates.

Long time readers may also remember that we said to this: bring it on! Luckily they finally did bring it on in December of 2015. One day after the first rate hike, we published a final, extensive debunking of the claims made by the afore-mentioned authors with respect to the gold price and Fed policy in an article appropriately entitled “Gold and the Federal Funds Rate”.

As it turned out, the first rate hike coincided almost to the day with what was so far the post-2011 correction low in the USD gold price (gold bottomed much earlier in other currencies). Not only that – gold price has rallied by almost 20% since then. We haven’t heard back yet from Mr. and Mrs. Pet Rock (generic name for the flood of “gold experts” no-one had ever heard of before who suddenly flooded the pages of Bloomberg, the FT, the WSJ, etc., throughout 2015).

Gold, weekly – the first rate hike so far marked the end of the bear market that started in late 2011.

To this one must consider what happens when the threat of the markets losing excess liquidity becomes manifest. Gold is potentially the greatest beneficiary of such a development (treasury bonds may benefit as well to some extent). That may indeed appear counter-intuitive at first glance… after all, higher interest rates and weaker money supply growth are traditionally held to be negative for gold price.

Indeed, they are – however, it is important to look at the situation holistically and consider potential leads and lags. Traditionally the gold market is one of the  markets that are most sensitive to changes in the liquidity backdrop. It often (but not always) also looks ahead the farthest.

In other words, it is not necessarily always reacting to what is happening right now, or in the near future – at times it is discounting future events long before they happen.

Below is a recent chart by Dr. Frank Shostak of AASE showing the rate of change in the US money supply measure AMS (adjusted money supply). This is essentially a narrow version of the broad money supply TMS-2, which excludes savings deposits. That makes it more volatile than TMS-2, but it is nevertheless a quite useful measure of the money supply.

A swift collapse in the y/y growth rate of money AMS to levels last seen in 2007 – i.e., right around the time when the last bubble peaked.

It may still take a while for the effects of the slowdown in money supply growth to take hold – as can be seen above, the 12-month moving average remains fairly elevated, and there is always a considerable lag between a slowdown in money supply growth and declines in asset prices and a slowdown in economic activity.

Still, we consider this chart to be the biggest warning sign for “risk assets” since the beginning of the stock market rally in early 2009.

Asymmetric Central Bank Policy

If and when free liquidity is choked off to a sufficient extent, the bubble in risk assets is definitely going to stumble. What will happen when this enormous bubble bursts? Our guess is that the entire financial and economic system will once again find itself on the very brink.

Perhaps banks will weather a systemic seizure better this time around, as a much larger percentage of their deposit liabilities consists of covered money substitutes due to QE. Moreover, they have taken quite a few measures to bolster their capital – but that is a bridge we will cross when we get there. What is important with respect to gold is this:

Gold is an asset that isn’t offset by a corresponding liability, i.e., it is not dependent on any counter-party promises.  Thus it becomes the go-to asset in times of systemic crisis. In terms of discounting the future, it also reflects the inevitable response of central banks to a bursting bubble. Keep in mind that the tightening of policy that puts an end to the further expansion of an asset bubble and the subsequent reopening of the liquidity spigots are always asymmetric.

When Paul Volcker tightened policy in 1979 to 1981, the true money supply fell by a small percentage in 1981 – but it expanded by nearly 50% y/y in 1982 after he began to lower rates. In fact, it doesn’t matter which period of tightening one compares with the subsequent period of loose monetary policy – the asymmetry is glaringly obvious every time.

Conclusion

Once central banks try to arrest a decline in asset prices and a contraction in aggregate economic activity, a great many of the fundamental drivers of the gold price that look neutral or even bearish at the moment will turn unequivocally bullish.

We can probably assume that market participants have learned from the experiences of the past two decades – which means that an early discounting of such future developments has become much more likely (whereas they were quite slow in responding to an obvious improvement in gold’s fundamentals in 2000– 2001).

That may also explain why the market-based measure of the “fundamental gold price” calculated by our friend Keith Weiner is currently at a far higher level than one would normally expect if one were to solely look at the macro-economic gold price drivers. What his indicator is essentially telling us is that someone is busy accumulating physical gold in the market place (reservation demand for bullion has presumably increased as well) in spite of the fact that the macro-economic fundamentals are not yet bullishly aligned.

Some market participants are probably taking out insurance against a variety of potential negative outcomes (even an unexpected surge in price inflation may be on the list of things that require guarding against). We happen to believe that the are likely to constitute what is generally known as “smart money”. – Pater Tenebrarum

 

The Calm In The Precious Metals Market Before The Silver Storm

The Calm In The Precious Metals Market Before The Silver Storm

The Calm In The Precious Metals Market Before The Silver Storm

There is an eerie calm in the precious metals market as investors continue to pile into the broader stock indexes.  Precious metals sentiment that was flying high last year when the Dow Jones Index fell 2,000 points, is now at an all-time low.  Investors who are highly fickle, have no idea that they will lose a great deal of their “supposed” paper wealth.

The word out on the street, as it pertains the precious metals retail sales market, is that investors are no longer waiting on the price of silver to fall to start buying, rather they are now waiting to see what happens to the broader markets.  Speculation, is that if Trump is able to get the corporate tax cuts passed, then the Dow Jones will head up towards 25,000 or higher.

While this is a possibility, investors should realize the market is already seriously overextended.  Sure, it could continue to move up, but the correct way to invest in precious metals is not to make a perfectly timed purchase when the rest of the market is crashing, rather it should be done on an ongoing basis.  Investors should be purchasing precious metals over a period of time, not one large amount due to the timing of a market collapse.

If we look at the Dow Jones Index versus the Silver Price, we can see a very interesting trend that took place when the Fed announced QE3 back at the end of 2012:

At the end of 2012, the price of silver really started to decline as the Dow Jones Index continued higher and higher.  Some precious metals investors are worried that the next time the stock market crashes, so with the price of silver, as it did in 2008.  However, this time will be different because the silver price fell by more than 70% from its high in 2011, whereas the Dow Jones Index has surged toward the heavens.

As I mentioned in my interview on Crush The Street, there was a near record GOLD ETF Inflow (364 metric tons) when the Dow Jones Index fell 2,000 points during the first quarter of 2016.  The only other large Gold ETF inflow surge (450 metric tons) was during the first quarter of 2009, when the Dow Jones Index was crashing into the toilet to a low of 6,700 points.

What is going to happen when investors really get spooked as the Dow Jones corrects 5,000 points or more??

Well, I can tell you that we will see record flows in the Gold and Silver ETFs.  However, I don’t believe it is wise to go from one paper asset into another.  And, I am not the only one to believe this.  If we look at silver investment demand in physical bar and coin compared to ETF’s since 2007, this is the result:

From 2007 to 2011, total physical silver bar and coin demand was 687 million oz (Moz) versus 419 Moz for the net silver ETF (and similar products) inventory builds.  But, look what happened from 2012 to 2016.  Physical silver bar and coin demand nearly doubled to 1,152 Moz, while the net build in silver ETF inventories only increased 112 Moz.

Which means, investors put ten times the amount of money in physical silver than into paper silver ETFs.  Of course, when the markets finally crack, mainstream investors will move into the silver ETFs because they don’t know any better.  However, it will be the precious metals investors who will be buying physical silver hand over fist.

Unfortunately, trying to time the market crash and purchase silver when the situation gets really ugly will likely not work out as many expect. Rather, I see a silver market that is totally overwhelmed with very little available physical silver.

It is impossible to forecast when the broader markets will finally correct and likely crash.  But, I would not try to time this market to get into physical silver.  I am not giving out advice, but instead stating what is sound logical reasoning.

Lastly, it is not a matter of “IF”, but a matter of “WHEN” the stock and bond markets are going to crack.  Yes, the Fed and Central Banks have defied gravity for nearly a decade by propping a market that died in 2008, but time is not on their side. – SRSroccoreport

Investors Bullish on Gold are Back – Buy Before the Mania Sets In

Investors Bullish on Gold are Back - Buy Before the Mania Sets In

Investors Bullish on Gold are Back

Inflation is picking up and political risk is high, so it seems a good time to look at investing in gold. Schroders fund manager James Luke assess its merits.

Gold, one of the oldest known metals, was revered by all the great ancient civilisations and the first gold coins were minted as far back as 550BC.

Relatively scarce and notoriously difficult to produce, gold has been widely used both as a store of value and as an adornment throughout history. Today, however, it often divides opinion – at least among investors.

One reason for this is that it is difficult to value. Compared to valuing a company or a bond, with gold there is relatively little to work with. Analysing the ‘fundamentals’ of it is tough, when some investors argue there are none: it has no true intrinsic value, no cashflow, no earnings, no coupon and no yield, say gold sceptics.

But demand for gold is undeniably affected by global macroeconomic factors. Although the prospects of rising interest rates is normally bad for gold as it is a non-yielding asset, with inflation picking up and the focus on political risk increasing, gold bugs (investors who are bullish on gold) are back.

What’s happened to the gold price recently?

It had been a pleasant 2016 for gold investors until August. After a steep climb from around $1,050 to $1,360 per oz, the price of the precious metal started to fall and by December was back at around $1,130.

For gold bugs this was a chance to top up their holdings. Since then gold has been on the rise once again and at the time of writing is back at $1,256 (source: Bloomberg, 6 April 2017).

So, what next for this most divisive of investments? As well as investing in gold itself, equities from gold mining companies are also finding favour.

The primary reason for investing in commodities, and especially gold and silver, should always be as an inflation hedge. Given the printing of money by the world’s central banks through quantitative easing, there is every reason to argue that higher inflation is coming in the future.

Gold and silver investments in particular remain very under-owned. Some investors fear the prospect of an increasing base interest rate in the US is reason alone to avoid these types of investments.

However, although past performance is not a reliable indicator of future results, the gold price has tended to rise from the beginning to the end of Federal Reserve (Fed) hiking cycles. In the last four instances when the Fed embarked on a hiking cycle, in three of the four instances gold saw +10 to +20 per cent returns from beginning to end.

Gold set to prosper as interest rates remain low

The environment for gold investments remains positive. In the background, global record debt burdens have not magically vanished. These make global growth highly sensitive to any real increase in interest rates and the cost of servicing these debts.

This is a key reason to expect that central banks will be highly wary of raising interest rates too quickly and that real interest rates (a key driver of gold prices) should continue to remain very low and have the possibility of being negative as inflation accelerates.

Given investors’ high exposure to the traditional asset classes, there is an urgent need to find uncorrelated and attractive alternative investments.  Liquid and tangible portfolio diversification options are limited, making gold and gold-related investments unique and of use to all investors.

Gold mining stocks looking attractive

Although there will be some good tactical opportunities to invest in gold in the coming years, we think the best gold-related opportunities are in gold mining stocks. Valuations are very attractive and miners have also become more disciplined than in the past, with better management focusing on free cashflow and controlling costs.

Marcus Brookes, head of multi-asset, adds: ‘We began to get more positive on gold-related equities in the third quarter of 2015, driven by the significant bear market that many of these companies had experienced from 2010 and what looked like an attractive entry point at the time. As a result we added to our position in a gold equity fund.

‘We then added further to the position in over the summer of 2016 as we believed that many investors had taken a significantly skewed position for a deflationary backdrop – the secular stagnation argument being so widespread – and away from the more ‘value’ areas of markets such as gold equity. In our eyes, inflation expectations were too low and any signs of inflation were due to benefit the more value-orientated areas of markets.

‘While there was something of a correction in gold in the latter part of 2016, our view of it as a valuable asset to hold in an inflationary backdrop remained.

‘Inflation expectations are now relatively well-established and whilst there are various factors to unravel over the course of 2017 (how the US dollar fares and the extent of Donald Trump’s fiscal measures to name a couple), we expect it to remain an important part of our portfolios in what could prove to be a tricky year.’

 

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