Commodity Trade Mantra

Why has the Price of Silver been Suppressed to this Extreme Degree?

Why has the Price of Silver been Suppressed to this Extreme Degree?

Why has the Price of Silver been Suppressed to this Extreme Degree?

Many previous commentaries have described and discussed the various ways in which the silver market has been manipulated in the past and is being manipulated today. What has been explained in years past, but missing from recent editions, are the reasons for the serial manipulation of the silver market.

Before getting into the basis for this systemic market crime, it is necessary to briefly identify this manipulation for the sake of newer readers. The parameters could not be more obvious.

Silver is money. Legal tender silver coins are still produced in the national mints of numerous nations – and these mints often struggle to keep the market supplied. Silver is jewelry. In many parts of the world silver jewelry continues to be widely fabricated, and even at its reduced/suppressed price, silver jewelry remains present in our societies.

Nothing has changed there. But over the past century, numerous important industrial uses have also emerged for silver. It is even more valuable today. Now look at the silver/gold price ratio . For over 4,000 years; this price ratio has gravitated around 15:1, virtually identical to the supply ratio between the two metals (17:1).

Despite being more valuable than ever, in the 1980’s and 1990’s the price of silver was driven to a 600-year low in real dollars. The silver/gold price ratio was driven to extremes as great as 100:1. Total perversion of market fundamentals.

This bankrupted more than 90% of the world’s silver mines and drove the silver market into a permanent supply deficit . The silver industry has never recovered because it has never been allowed to recover.

Why?

Why has the banking crime syndicate (the One Bank) found it necessary to not merely attack the silver sector, but to practically destroy it? Knowledgeable precious metals investors can supply part of the answer here.

Because precious metals are money; silver and gold function as the monetary equivalent of canaries in the coal mine. The supply of gold and silver money is practically flat. Thus when the bankers significantly inflate the supplies of their paper currencies (which they are always doing) the price of gold and silver must rise to reflect this relative change in supply.

A numerical example will illustrate this fundamental monetary principle: the Bernanke Helicopter Drop.

Why has the Price of Silver been Suppressed to this Extreme Degree?

Between 2009 and the end of 2013, B.S. Bernanke ultimately quintupled the supply of U.S. dollars, from a monetary base of $800 billion up to $4 trillion. Thus denominated in U.S. dollars, the price of gold and silver had to also quintuple to reflect this supply increase. That then becomes the new base price for these monetary metals .

The prices of silver and gold were never allowed to quintuple, if you discount the fact that the price of silver was torpedoed by 60% immediately before Bernanke began his money-printing binge. Since that time, the supply of U.S. dollars has never decreased.

Yet despite the fact that silver and gold were never allowed to rise as far as monetary fundamentals dictated, the price of silver has since been driven down 70% from its temporary high and the price of gold has been driven down nearly 40% from its temporary high. More total perversion of market fundamentals.

However, this is only one reason that the silver market is subjected to an even greater degree of permanent price suppression from the Big Bank crime syndicate than the gold market. As an example of this oppressive manipulation, the permanent short position in the silver market (held by just four Big Banks) is roughly 4,000% larger than the short position in the crude oil market, in proportionate terms. Totally illegal.

The reason why the banking crime syndicate has a pathological hatred (fear?) toward silver is because silver is more than money. Silver is the People’s Money .

The banking crime syndicate manipulates precious metals in general terms in order to hide its relentless, reckless inflation (and dilution) of our paper fiat currencies. But why is the One Bank constantly inflating the supply of these paper currencies in the first place?

Bernanke’s predecessor, Alan Greenspan, explained the Big Crime of the Big Banks, in a quote now familiar to regular readers.

In the absence of the gold standard, there is no way to prevent the confiscation of savings through inflation.

– Alan Greenspan , 1966

When Greenspan uses the verb “confiscate”, he means “steal”. And when he uses the noun “savings”, he means our wealth. The banking crime syndicate inflates the supply of our paper currencies in order to steal our wealth.

But Greenspan’s warning is not entirely accurate. There is a way to prevent the bankers from stealing our wealth with their money-printing, even in the absence of the gold standard. Understanding this requires understanding how the theft takes place.

Dilution.

When the One Bank inflates the supply of our currencies, this naturally dilutes the value of all this currency, just like when a corporation prints up new shares. All the currency is worth less (worthless?), but the Big Banks don’t care – because they hand themselves trillions of units of new currency, for free.

How do we avoid this theft-by-dilution with respect to our paper currencies? We don’t allow our wealth to be stored in these ever-depreciating currencies. We store our wealth in the People’s Money (silver), where it is safe from the bankers’ game of theft-by-dilution.

As master financial criminals, the felons of the One Bank understand that this financial lifeboat exists. So what did they do? They destroyed the lifeboat.

By driving the price of silver to a 600-year low even as the world was using more silver than ever, this resulted in extremely limited recycling of all this silver. Where is the People’s Money today? Somewhere in excess of 80% of all the silver ever mined is now strewn across the world’s landfills, in tiny amounts, in billions and billions of consumer items.

This wasn’t the Crime of the Century. It is the Crime of the Millennium.

In order to begin its theft-by-dilution crime, the bankers destroyed the gold standard. One of the criminals (Paul Volcker) bragged that he was the driving force behind this dirty deed.

In order to steal all of our wealth (over time); the Big Bank crime syndicate prints up more and more and more and more of their fraudulent paper currencies. This is why the value of these paper currencies always collapses to zero. Always – going back 1,000 years.

In order to prevent us from sheltering our wealth from their crime, the bankers have destroyed most of the world’s supply of the People’s Money. They have destroyed this supply by engineering the literal “consumption” of the world’s stockpiles of silver.

Why has the price of silver been suppressed, going back 100 years? Why has the silver market been ruthlessly attacked, to a far greater degree than even the gold market?

Both gold and silver help reveal the bankers’ monetary crime: their theft-by-dilution. In addition, however, silver helps to protect us from this monetary crime. We can do this by sheltering our wealth in this eternal metal – and using silver money for our day-to-day commerce .

This form of financial salvation was deemed to be intolerable by the One Bank. It hasn’t been able to outlaw the ownership of silver (yet), so it did something even more diabolical: it destroyed the world’s supply of silver.

Why continue to keep the price of silver suppressed to this ultra-extreme degree? To prevent the resurrection of the silver sector, and the rebirth of silver as the People’s Money.

There are still enormous amounts of silver locked away within the Earth’s crust. At a sufficient price, humanity would be able to rebuild its stockpiles of silver. The One Bank deems this to be intolerable too.

What about the regulators of this market? There are no “regulators”. The pretend-regulator of this market is the Commodity Futures Trading Commission (CFTC). The CFTC claimed to “probe” this obliterated sector, for five years.

What did it find? Nothing. See-no-evil; hear-no-evil; speak-no-evil. Accomplices to the crime.

While most of the world’s supply of silver is gone, the reasons for us to store our wealth in silver have never been stronger. As we do so, we expedite the date when the last ounce of silver disappears from the banksters’ crooked warehouses.

On that day, this Crime of the Millennium will finally be exposed for the world to see. More importantly, it will be the day when all artificial price-manipulation of this market is shattered. Then silver can once again become the People’s Money. – Jeff Nielson

Is a US Dollar Rally Imminent or will Gold and Silver Continue Rising?

Is a US Dollar Rally Imminent or will Gold and Silver Continue Rising?

Is a US Dollar Rally Imminent or will Gold and Silver Continue Rising?

For most of the past eight weeks, the financial media have been attempting to tilt the scales of conversation away from the weak macro backdrop in favor of the new initiative on Afghanistan and/or the Trump White House and/or domestic and international terror. As stocks rally in the face of flat earnings growth and rising P/Es, I have noticed an unwavering tendency for dips to be bought firstly by the pre-programmed computer programs, then by traders, and finally by the investing public who continue to behave as instructed by the Behavioral Architects that reside within the Working Group on Capital Markets and execute through the N.Y. Federal Reserve. Similarly, gold now above $1,300 and silver above $17.10 have in the past been faded like old swimsuits as all eyes are glued to the rising open interest and bullion bank aggregate short positions that are historical precursors for criminal takedowns.

As we head into the final week of August with the kiddies all headed back to school, I wonder whether or not the world of stock trading has finally assumed the role of an RPG not unlike Final Fantasy or Grand Theft Auto.

The chart below tells me that stocks are certainly not cheap and are indeed fraught with risk. That is based upon years upon years of data that, as you can all see so clearly, suggests that the current market ranks in the top three most overvalued markets in the past 100 years. Only the insanity of the dot.com bubble of 1999 that created billionaires out of garage floor entrepreneurs and the drunken orgies of stock-buying binges made famous by the likes of Livermore and Baruch comes close to exceeding the ridiculous valuations seen today. It also explains why the Serial Manipulators at central bank trading desks around the globe are so obsessed with keeping a lid on gold and silver. Like the addict protecting that last hit of junk, the central bank price managers are desperately and defiantly keeping a vice-grip lock on stocks and the precious metals knowing full well the dire ramifications of a meltdown/melt-up outcome for stocks/gold.

Stock chart

Now, given the level and tenacity of these interventions, how can it be even vaguely possible to initiate positions that are counter to the full faith and credit of the sovereign treasuries? How can you possibly get an edge on a bullion bank trader sitting in NY or London or Tokyo with a margin facility of several billion dollars and full authorization to ensure gold does not break out above $1,310 and silver remains capped at $17.10? What I have found over the years is that the level of aggregate shorts held by the bullion banks offers clues to the duration of any up or down move but it in no way predicts the amplitude of the move. For that reason, the past three weeks have seen a sharp increase in Commercial long liquidation coupled with accelerated shorting but the aggregate number of shorts is still well below the level seen at major tops in the summer of 2016 and with gold approaching U.S.$1,400 per ounce. The risk in this assumption that the U.S. Dollar index ($USD) is about to stage a reversal to the upside, forcing the algo’s to sell gold. Observe this chart:

Dollar Gold Correlation

The problem with the rallying US dollar concept is that as long as the U.S. economy continues to produce sub-par inflation numbers, the Fed will forego the rate hikes because the U.S. banking system needs inflation in order to underpin the collateral held by the member banks against which they have trillions of dollars in loans. As you can see, the USD is nowhere near oversold and in fact looks like it is ready to roll over. So, if we do not get a USD rally, then it will be up to the Interventionalists to find another cover story to explain why gold and silver are pulling back or else the odds favor a continuation move to the upside until the end of November.

Gold Price

Shown below is the breathtaking ascent in the Geek Squad’s answer to fiat currencies—Bitcoin. You will recall all of the table-pounders from 2001 calling for $4,000 gold and $400 silver and were able to show us all just how frail were the underlying fundamentals for the big five currencies—dollar, euro, pound, yen, and Swiss franc. Not only were these erudite thinkers correct, they were spot on as gold took off from the 1999 low around $250/ounce reaching over $1,900 by 2011. Since then, the price managers exhibited their OCD with great aplomb as they perpetually carpet-bombed gold and silver while completely missing the creation of the ultimate, untraceable, uncontrollable, manipulation-immune alternative currency called Bitcoin and all of the Bitcoin wannabe’s that fall into the category of “cryptocurrencies.” Since the central bankers all recall the immortal words of former Fed Chairman Paul Volcker who reflected back to his tenure in the 1980s by admitting error in “not controlling the gold price,” the Geeks decided to step around the CBs and run a “covert op” alternative currency—and it has worked beautifully.

Bitcoin

Inflation Adjusted Gold Price

Gold COT Report

Gold’s enormous breakout will have all of the technicians salivating but the real question is how long it takes the Commercials to exert their criminal influence over the near-term price action. In my earlier comments, I predicted an epic battle of seasonal demand pitted against interventionalist supply for the upcoming September-November period and today’s price action confirms it. Beware of the “technical breakout” at all costs and use tight stops at all times. – Michael Ballanger

 

Gold Breaks Out – With Ratio still in High 70’s, Can a Massive Rally in Silver be far Behind?

Gold Breaks Out - With Ratio still in High 70's, Can a Massive Rally in Silver be far Behind?

Gold Breaks Out – Can a Massive Rally in Silver be far Behind?

Gold’s naysayers and doubters came out in full force earlier this summer as sentiment reached its nadir. The mid-year pullback in prices did, too.

There can be no doubt about it now – gold has broken out of its summer doldrums. On Monday, the yellow metal finally broke through the longstanding $1,300/oz resistance zone to make a new high for the year at $1,316.

Gold - Continuous Contract (August 28, 2017)

Assuming the breakout holds, the next upside target is $1,375/oz, the high point for 2016.

There are plenty of bullish factors behind the recent upside momentum to continue pushing gold prices higher in the days and weeks ahead. The gold mining stocks are starting to show relative strength again. And the US Dollar Index appears to have begun another new down leg this week, falling Monday to a two-and-a-half-year low.

Another bullish factor is geopolitics. Gold gained a few more dollars in early trading Tuesday morning in Asia after North Korea launched a missile over Japan. Japanese Prime Minister Shinzo Abe said, “Their outrageous act of firing a missile over our country is an unprecedented, serious and grave threat and greatly damages regional peace and security.”

On any ordinary news day, this dangerous provocation from North Korea would be the top story on all the cable news channels. Hawks would be calling on the U.S. to retaliate, and doves would be warning of the potential for millions of deaths in the event war breaks out in the densely populated region.

For now, though, the unprecedented flooding caused by Hurricane Harvey is the Trump administration’s top priority. Early estimates are that the storm has caused $40 billion in damage. Water levels are still rising in Houston, and surrounding areas extending to Louisiana, so the scale of the catastrophic losses stemming from 11 trillion gallons of water will continue to grow in the days ahead.

Several major oil refineries have been shut down by the storm. However, crude oil production is little affected. Oil inventories are expected to build even as gasoline prices rise (gasoline futures jumped 3% on Monday).

The disaster is bringing Americans from disparate backgrounds and worldviews together, united in a common purpose to help provide relief to those in need. Perhaps Congress will set aside some of its partisan acrimony when it goes back into session next week. Unfortunately for taxpayers, though, outbreaks of bipartisanship are usually associated with emergencies that cause both sides to agree on even more spending.

The political pressure to make sure federal agencies are equipped to handle Harvey relief efforts (which will be ongoing for months) figures to be overwhelming. Conservatives who had aimed to force concessions in an upcoming budget fight may conclude that they now have no leverage to do so.

President Donald Trump so far hasn’t backed off his vow to pursue border wall funding even if Congress refuses and a government shutdown occurs. But a government shutdown in the aftermath of a major natural disaster could be a political disaster for whoever gets blamed for it.

With so many risks hitting investors this week, it’s no surprise that the gold market is benefiting from safe-haven inflows.

Silver is benefiting as well. Although the silver market has not yet hit a new high for the year, prices advanced nearly 2.5% Monday to close above the 200-day moving average.

If silver can now start showing leadership, that would be bullish for the entire precious metals complex. The gold silver ratio currently stands at about 75:1. Gold is still trading at a high price historically relative to silver.

The ratio can move rapidly to the downside when silver prices are surging. That was the case from late 2010 to early 2011, when the ratio dropped from the high 60s to the low 30s. An even bigger move could be in store for those who buy silver now, while the gold silver ratio is still in the 70s. – Stefan Gleason

 

Gold Outperforms Stocks – And This Bull Market in Gold and Silver is Just Beginning

Gold Outperforms Stocks - And This Bull Market in Gold and Silver is Just Beginning

And This Bull Market in Gold and Silver is Just Beginning

What happened yesterday in the gold market was VERY bullish. After looking like it was topping out at its April and June highs, gold surged through them. While we were wary of it topping out here like a lot of traders, we definitely have a handle on the big picture which couldn’t be more positive, with the dollar set to crash as it heads towards loss of its reserve currency status, and a slowly dawning awareness among the hordes of fools holding paper denominated gold, that the only thing that matters is physical possession—if you own paper gold, you could find yourself well and truly out in the cold. You can wave your piece of paper in the air and demand delivery, only to be bluntly informed “Sorry, mate—none left—go ask the Chinese if they’ll let you have a little”.

The great news is that this nascent bull market in gold and silver, or more accurately second upleg of the larger bull market that started in about 2001 is set to dwarf the 2001—2011 upleg, and if you can’t own physical, forget ETFs and other paper rubbish—own shares of the companies that dig the stuff out of the ground—the large and mid-cap producers which are still selling at silly cheap prices, especially when you consider where gold and silver are headed. We started going for them a shade early a few months ago, and ended up looking temporarily stupid, but things are looking a lot better now and the key point to make here is that there is still everything to go for and there is a nice long list of them to choose from, and here’s another point—some of the biggest of these companies may seem lumpy and boring, but even these ones look destined to rise to many times their current prices during the mega-bull market that is about to start gaining traction.

Now we’ll quickly review some key charts. On gold’s 6-month chart we see how it broke strongly through resistance at its April and June highs today, that had threatened to turn it lower again.

chart1

On the 10-year chart for GDX, a proxy for gold stocks, we see that we are at a truly great entry point for gold and silver stocks, as GDX is just starting to rise up from near to the Right Shoulder low of its giant Head-and-Shoulders bottom pattern. GDX could rise surprisingly quickly towards its 2011 highs, especially if the dollar breaks down from its Broadening Top pattern, which is expected to trigger a dollar crash, and very possibly a stock market crash, since a crashing dollar will choke off the inflow of funds to the U.S., and this time, unlike 2008, gold and silver are unlikely to crash as they will be about the only game in town.

chart2

We are well aware that the dollar is oversold here with a high short position, but that won’t save it if breaks down from its Broadening Top, which would likely trigger a crash. Remember that we are headed towards a new paradigm where the dollar loses it reserve currency status, and the U.S. for the first time has to face the true consequences of its bankruptcy.

chart3

China and other Eastern powers, which have built up big quantities of physical, and can back their currencies with gold if they so choose, are going to ride the storm much better than frail, debt-wracked Western economies who have stupidly sold all or most of their gold. As a citizen of a Western country you don’t have to go down the gurgler like most of your compatriots whose investments will head rapidly in the direction of worthlessness, because you have the option to invest in the one sector that will outshine all the others in the coming financial mayhem—the Precious Metals sector.

The path ahead is clear—buy physical gold and silver that you can either have in your possession or securely stored. Failing that avoid ETFs, paper contracts and other IOUs and instead invest in the better mining stocks, starting with the large and mid-cap producers. U.S. investors should try to get some of their funds into mining stocks on the Canadian market, because the Canadian dollar should do well as the US dollar crashes, in part because Canada is more of a resource based economy. – Clive Maund

As Gold Outperforms Stocks, Mainstream Starting to Sit Up and Take Notice

Earlier this month, we reported that gold has outperformed stocks so far this century. If we index both gold and the S&P 500 to 100 as of Dec. 31, 1999, gold has returned 86% more than the market.

Gold also looks good on a shorter timeline. Despite Dow Jones records that have kept all eyes focused on the meteoric rise of the the S&P 500, gold has actually outpaced stocks in 2017. Now the mainstream is starting to sit up and take notice.

A CNBC article Friday noted “gold is doing something unusual and quite bullish.”

With a 12.2% year-to-date rally for gold futures and a 9.3% year-to-date rise for the S&P 500, 2017 is set to be the first year in which the yellow metal has beaten stocks since 2011. In that year, gold advanced 10.2% while the S&P 500 finished flat.”

CNN also jumped on the gold bandwagon, reporting the yellow metal has outpaced the stock market in a battle between “fear and greed.”

Greed is obviously alive and well. Confidence in the American economy has lifted the S&P 500 to an impressive 9% jump this year. But gold, which is thought of as a safe place during times of fear, is doing even better. The precious metal has soared 12% this year to nearly $1,300 an ounce, putting it on track for the best performance since 2010.”

Axel Merck told CNN that investors feel pulled in two directions. Greed – they don’t want to miss out on the surging stock market. And fear – growing concern stocks are significantly overvalued. Even some of the world’s big bankers are worried. A recent CityA.M. article put it pretty bluntly.

Whichever your preferred metric, historical regression analysis suggests expected returns for equities, from today’s starting point, are very low.”

Meanwhile, another fear factor – geopolitical risk – continues to push gold higher. Tensions between the US and North Korea coupled with political uncertainty in Washington D.C. have a lot of people jittery.

“Trump’s twitter handle still stirs nervousness in the marketplace,” Lindsey Bell, investment strategist at CFRA Research, wrote in a report. He went on to say gold is a “smart and defensive way” for investors to diversify their portfolio “ahead of an increasingly uncertain near-term environment.”

We recently reported on four factors that could help sustain a gold bull run. Exante Data founder Jens Nordvig appeared on CNBC Futures Now last week to talk up gold. He pointed out three key macroeconomic factors he’s focused on that appear bullish for gold.

I would say it’s the low-yield environment, the trend of the dollar, and strong growth in emerging markets. Those three things together are some of the things that have underpinned the gold rally, and they’re still here.”

Nordvig focused particularly on the dropping dollar, noting its 9% plunge since the beginning of the year. He said he thinks “dollar retrenchment” will continue into 2018.

Along with the three macroeconomic factors, Nordvig also factored in geopolitical risk, particularly the political uncertainty in the US.

There’s the government shutdown risk and then there’s the debt ceiling risk. There’s been an elevated risk since Trump started to talk about it in more casual terms at his speech earlier this week. That’s definitely something that’s holding the market back, and it’s something that could potentially give a boost to gold while dragging the dollar down.”

We’ve been focusing on these factors for months. Now it seems that the mainstream is starting to catch on. – Peter Schiff

Trump Shutdown Threat Is a Win-Win for Gold and Silver Owners

Another government shutdown could be coming down the pike if Congress doesn’t give in to President Trump’s demands for border wall funding.

But no matter how the situation plays out, it could be a unique win-win situation for gold and silver owners.

Here’s how gold and silver owners stand to benefit, whether Trump gets funding for his wall or not…

The Clock Is Ticking

Congress needs to pass a federal budget by September 30. If that doesn’t happen, a government shutdown is inevitable.

But Congress can’t do this alone. Any spending bill they devise will have to pass President Trump’s desk. However, he’s threatening to veto any bill that doesn’t include funding for the border wall he promised on the campaign trail.

Trump reiterated his commitment to the wall at his recent and highly publicized rally in Arizona:

If we have to close down our government, we’re building that wall… We’re going to have our wall. The American people voted for immigration control. We’re going to get that wall.

Trump’s threats come at a time when Congress is already struggling to reconcile a slew of tax cuts and spending requirements. To make matters worse, the president is losing support not just among Democrats, but among many members of his own party as well.

So with the chances of a shutdown appearing relatively high, what will happen to markets and metals prices when Congress and the president get stuck at an impasse?

How to Profit From a Shutdown

During the last government shutdown, economic output dropped by an estimated $24 billion, and markets took a notable hit. It’s logical to expect similar effects if we see another shutdown this September.

But there is a way to guard yourself from the financial turbulence of the next government shutdown.

Recent history demonstrates that physical precious metals perform superbly during government shutdowns. During our last shutdown in 2013, for example, gold prices spiked considerably. Similar trends can be seen in the historic data from several other government shutdowns since 1981.

That said, physical precious metals could be one of the smartest assets to hold if/when Trump decides to bring the government to another screeching halt.

But what if Trump succeeds in getting funding for his wall, and we avoid a shutdown? Then there’s actually another opportunity for metals owners to make huge gains…

No Shutdown? This Metal Will Surge Anyway

Here’s what makes this situation so unique: Even if there’s no shutdown and Trump does get his way, metals will still likely get a notable price bump… especially silver.

The reason why is simple. Trump is using an extensive solar power component to sell his border wall plans to opponents across the aisle.

And all those solar panels will require vast amounts of pure silver.

If you do the math on how much silver would be required for Trump’s proposed solar wall, a reasonable estimate reveals that the project would create a whopping 11 million ounces of new silver demand in the market. Meanwhile, silver supply and production around the world is steadily dropping.

Anyone who’s taken a basic economics class understands what this kind of situation means: Excessive demand in conjunction with dwindling supply could quite likely send silver prices soaring.

Trump’s Gift to Metal Owners

No matter what happens, Trump is giving a big gift to anybody holding precious metals. If he digs in his heels and forces a shutdown, there’s a good chance we’ll see a jump across the metals market. And if he gets his way and proceeds with his plan for a solar wall… it will give silver prices tremendous upward momentum.

Nobody knows exactly how the situation will play out. But one thing’s for sure… this is a unique buying opportunity for anyone savvy enough to spot in advance. – Peter Reagan

This Is What Points To Much Higher Silver Prices

This Is What Points To Much Higher Silver Prices

This Is What Points To Much Higher Silver Prices

Silver is currently trading around $17 an ounce. This is around 34% of its 1980 all-time high of $50. However, this is an incomplete representation of what silver is really trading at, relative to US dollars. When you look at silver prices, relative to US currency (the amount of actual US dollars) in existence, then it is at its lowest value it has ever been.

The US monetary base basically reflects the total amount of US currency issued. Originally, the monetary base is supposed to be backed by gold available at the Treasury or Federal Reserve to redeem the said currency issued by the Federal Reserve. This is not the case any more, therefore, the amount of dollars have grown exponentially over the years.

The lower the silver prices are relative to the monetary base, the more the currency is debased. The US dollar is now at its most debased it has ever been over the last 100 years, relative to silver (and gold). With all the excess dollars out there, the market will eventually seek an equilibrium, which means that silver will spike in price relative to the US monetary base, as it did in the late 70s.

Below, is a long-term chart of silver prices relative to the US monetary base (in billions of dollars)

Silver and Monetary base edited

Note that the ratio, or price of silver, in terms of US dollars in existence, is indeed at its all-time 100-year low.

In 1980, the all-time high was 0.361, whereas the ratio is currently at around 0.004. The US monetary base is currently around 3 946 billion dollars (or 3.946 trillion). Therefore, if silver was today at its 1980 value, relative to the monetary base, it would be around $1 424 (3946*0.361).

So, in terms of US dollars in existence, silver is trading at 1.19% (17/1424) of its 1980 high – it is the bargain of the century.

There are many signs that point to the fact that silver prices are about to correct this situation, by spiking much higher. This will come about with a lot of financial pain, as I have pointed out on various occasions, especially since it will come with a massive debt collapse. – Hubert Moolman

 

Base Metals Breakout, Reversing Their Decade-Long Downtrend

Base Metals Breakout, Reversing Their Decade-Long Downtrend

Base Metals Breakout, Reversing Their Decade-Long Downtrend

  •  Base metals are showing signs of real strength, with prices across the complex breaking out, or threatening to do so.
  • Copper and zinc have looked the strongest of the bunch and both have recently broke out of multi-month consolidation patterns.
  •  The moves we are seeing have the hallmarks of a supply (destruction) driven rally, which tend to be sharp and ferocious in nature.
  • An industry-wide decline in reserve quantity (depletion) and quality (grade), accompanied with a complete lack of new discoveries means we believe we’re likely to see an increase in M&A as prices begin to rise, which is why we’re interested in quality exploration and development stage plays.

Every now and then you get a feeling that the market is sending a message. Last week was one of those weeks as we witnessed a whole host of commodities either breaking out of multi-month consolidation patterns, or seriously threatening to do so.

The topside moves were generally spread across the commodity complex, but by far the most significant moves were seen in the base metals where we witnessed breakouts across the board, some in rather spectacular fashion.

From a higher level, this is best shown in a chart of the Bloomberg Industrial Metal Index, which has now broken out above a down trend that has been in place since the index peaked way back in 2007, over a decade ago.

fig1.jpg
Figure 1: Monthly candlestick chart of the Bloomberg Industrial Metals Index as of Friday, 18th of August, 2017.Source: Investing.com

When we dive into the individual metals, the recent top performers have undeniably been zinc (+ lead) and copper, both breaking out of multi-month consolidation patterns over the last few weeks to new multi-year highs.

This is not surprising to us given the strong fundamental drivers we see impacting the industry (largely supply side) and the moves we are seeing have all the hallmarks of one of Rick Rule’s favorite sayings playing out in reality – “Bear markets are always the authors of bull markets”.

That is because we are finally seeing signs of real supply destruction as a result of the brutal five to ten year bear market we’ve experienced in the commodity complex. Crucially for investors, it appears as though this is also starting to have an impact on commodity prices.

So, let’s take a closer look at two of the more dramatic movers in base metals – zinc and copper.

Zinc:
Zinc in particular has looked extremely strong and you can clearly see the week’s breakout on the chart below. The metal most commonly used as a galvanizing agent now appears to have successfully consolidated its 2016 run, which saw it claim the status of the best performing metal last year (with the exception of iron ore).

As of its close on Friday, the zinc price is up 115% from its January 2016 low of $1,440/t.

fig2.jpg
Figure 2: Weekly zinc price candlestick chart, as of Friday, 18th of August, 2017. Source: Thomson Eikon

Zinc’s run has all the hallmarks of a supply (or lack thereof) driven move, which tend to be swift and devoid of major pullbacks or periods of choppiness.

This is supported by the hard data, which shows that since 2012, we’ve seen over 1 million tonnes (Mt) of shuttered production in a 13Mt market*1. Glencore alone (the world’s largest zinc producer) cut its zinc production by 24% in 2016, a year which also saw the closing of two of the world’s major zinc mines in Century (Australia) and Lisheen (Ireland).

We have been hearing of potential tightness in the zinc market for a while now, only to see “hidden” supply (likely of Chinese origin) dumped on the market whenever prices rallied.

However, this dynamic seems to have completely changed and Chinese figures now show the country is dealing with a significant mined deficit caused by declining production from the countries domestic mines.

Last week’s news that the Chinese government ordered a shutdown of all the lead and zinc mines in the Hunan province’s Huayuan county (a major zinc producing region) suggests that the countries zinc deficit is only likely to grow in the near to mid-term, further adding to the already strong tailwinds currently affecting the zinc price.

Copper:
Whilst not quite as spectacular as zinc, copper has shown signs of a real resurgence in 2017. The move started late in 2016 after the copper price ground out a text book basing pattern throughout the first three quarters of the year before breaking out proper in November.

2017 saw those gains consolidated as price traded in a sideways range before leading the base metals complex in breaking out topside a few weeks ago back in late July. Price is currently testing the key $3/lb level, as shown in the chart below.

fig3.jpg
Figure 3: Weekly copper price candlestick chart, as of Friday, 18th of August, 2017. Source: Thomson Eikon

As with most commodities we follow, we believe the most reliable drivers of the copper price into the foreseeable future are going to come primarily from the supply side of the equation. This is because we know that the industry is mining well above its reserve grade, meaning that over time the industry average mined grade is almost certain to decline.

Lower mined grades mean miners will have to increase the volume of ore they process every year, just to “tread water”. It also means we’re likely to see a climbing industry wide average cost of production (less copper produced per ton of ore mined/processed), increasingly rendering mines at the higher end of the cost curve uneconomic unless the copper price rises enough to compensate for the declining grades.

A text book example of this phenomenon can be seen at the Escondida mine in Chile, currently the largest copper mine in the world, producing over 5% of global annual supply.

The Escondida mine is currently mining ore that grades around 1% Cu, which is 1.4 x the life-of-mine reserve grade of its sulfide ore body, which currently sits just under 0.6% Cu. In other words, the mine is being “high graded”, meaning simple mathematics dictates that mine grades are set to steadily decline into the future.

This phenomenon is clearly visible in BHP’s (57.5% owner) 2016 operational update which highlighted a huge 28% year-on-year decline in mined grade during the year. Whilst part of the decline was due to grade variability within the ore body, it highlights a trend of a declining grade profile that’s only going to worsen over time.

fig4.jpg
Figure 4: Excerpt from BHP’s June 2016 year end operational review. Source: BHP’s June 2016 news release, page 6.



This problem is by no means limited to Escondida, but rather is pervasive across the entire copper sector. With the world’s copper mines not only rapidly depleting in absolute terms (depletion), but also falling in quality by way of grade decline (result of high grading), we believe we’re likely to see significant downward pressure on the amount of the copper the industry is able to produce.

Completely ignoring the demand side of the equation (which is harder to quantify, but we are generally bullish on – think the increasing push towards electrification), an industry wide flat to declining production profile is usually a key ingredient in the recipe for higher prices.

To compound matters, low copper prices have all but killed the copper exploration sector, both at a brown fields (near existing mines) and green fields (new discoveries) level. The result, with a couple of notable exceptions, is that there is almost nothing in the way of new world-class copper projects ready to replace depletion from existing stock of copper mines.

This is why we are paying particular attention to exciting exploration projects, new copper discoveries and the few existing high-quality development plays which we believe are becoming increasingly attractive acquisition targets as the copper market turns and producer are forced to look at options to replace their rapidly depleting reserves.

Elsewhere in the base metals complex – nickel and cobalt look interesting

I wanted the focus of this article to be on zinc and copper, however it’s important to note there have been equally as important moves elsewhere in the sector, particularly in the metals that are leveraged to the rapidly growing lithium ion (Li-ion) battery sector like nickel and cobalt.

Nickel:
For example nickel, has been slowly but surely attempting to grind out a base over the past 18 months. This is shown on the chart below with the June/July low potentially forming the first major “lower high” since way back in 2011.

fig5.jpg
Figure 5: Weekly nickel price candlestick chart, as of Friday, 18th of August, 2017. Source: Thomson Eikon

Nickel prices peaked at almost $54,000/t back in 2007. This means that at the current price of just under $11,000/t, the key ingredient in stainless steel is still down almost 80% from its peak seen over a decade ago, making it probably the single most contrarian metal within the base metals complex.

Nickel prices have shown a recent bout of strength, moving higher over the past few months and are now threatening to break out above the 2016 highs of $12,000/t – a key level to watch.

At face value, the fundamentals driving the sector look less favorable than the likes of zinc or copper (near record high warehouse inventory levels being key). However, there are enough green shoots out there to suggest it’s a metal that’s at least worthy of adding to your watch list.

One of the key drivers to watch is the growth of the electric vehicle and Li-ion battery industry, where nickel is a key (and becoming increasingly important) ingredient in most battery chemistries.

It’s difficult to predict the growth of the Li-ion sector (an industry prone to hyperbole), however the demand it is generating looks to be already having an impact, with nickel inventories declining for the first time in half a decade in 2015/16 in a world of flat to slightly increasing global mine production.

Whilst it’s far from a perfect indicator, I am also keeping a close eye on warehouse inventory levels as I believe an increase in the rate-of-decline will be a key “tell-tale” that the supply/demand balance is moving in favor of higher prices.

Should we see the continued strong growth in Li-ion uptake as the world moves towards electric vehicles, I believe there is potential for the nickel price to surprise a lot of people to the upside over the coming years.

Cobalt:
I’ve touched on cobalt a lot this year because it’s a metal with a very unique set of factors that affect its supply/demand balance, the key ones being:

* A tiny market size meaning it is prone to demand induced price shocks

* Supply that is dominated by production from one of the worlds least geopolitically unstable countries, the Democratic Republic of Congo (DRC)

* Demand that appears to be soaring thanks to cobalt being arguably the key input in most of the Li-ion battery chemistries that electric vehicles industry is moving towards.

Without going into the details, the cobalt story is playing out largely as I expected with cobalt prices up over 140% from the 2016 lows.

The cobalt price has been consolidating in a relatively narrow range over the past 4 months, forming a bullish ascending triangle, a continuation pattern that often forms during strong up-trends.

Price is now threatening to breakout topside, as shown in the chart below by the weekly close at the high of its trading range.

fig6.jpg
Figure 6: Weekly cobalt price candlestick chart, as of Friday, 18th of August, 2017. Source: Thomson Eikon

Whilst technical patterns are never a guarantee of higher prices, a topside break over the coming few weeks would indicate continued buying pressure and would suggest the balance of probabilities has moved in favor of further price increases.

Lastly, we are moving towards the time of the year where the DRC political issues are likely to come to a head as the current president, Joseph Kabila, has promised that he will hold democratic elections by the end of 2017, something that now looks to be an almost impossibility.

Given the country is responsible for 60% to 65% of global mine production, there’s the potential for us to see a serious impact to global supply should we see material unrest in the country.

In other words, if you’re invested in the cobalt space, keep a very close eye on the DRC over the next four months.

Concluding comments:

Just as night becomes day, bear markets are always authors of an ensuing bull market and it appears as though this process is finally playing out in the base metals sector. This is seen by the stagnant-to-decreasing supply environment now present across many of the world’s key industrial metals.

This has started to cause sharp moves in base metals such as zinc and copper, price action that is typically associated with rallies driven primarily by constrained supply.

Whilst there is no guarantee that this breakout in base metals will continue, after almost a decade of declines the recent strong price action suggests it’s time to (at the very least) pay close attention to the complex.

We favor companies at the exploration to development stage of the spectrum given we see reserve replacement being arguably the key issue for the base metals sector moving forward.

However, given the prolonged bear market we’ve experienced, we see opportunities across the spectrum of explorers through to major miners. – Sam Broom

Gold Prices may be Slow to Rise, but the Direction seems Completely Certain

Gold Prices may be Slow to Rise, but the Direction seems Completely Certain

Gold Prices Breaking $1300 after Consolidation – will signal further Dollar Weakness

Gold is challenging the $1300 level for the third time this year. If it breaks upwards out of this consolidation phase convincingly, it could be an important event, signalling a dollar that will continue to weaken.

The factors driving the dollar lower are several and disparate. The US economy is sluggish relative to the rest of the world, the rise of Asia from which America is excluded is unstoppable, geopolitics are shifting away from US global dominance, and the end is in sight for monopolistic payment for oil in US dollars.

These subjects have been covered in some detail in my recent articles, which will be referred to for further clarification where appropriate. This article summarises these trends, and explains why the consequence appear certain to drive gold, priced in dollars, much higher.

The importance of Gold and reasons for its suppression

The post-war Bretton Woods Agreement confirmed the US dollar to be fixed to gold at $35 per ounce. All other national currencies were linked to gold through the dollar at the central bank level. Ordinary civilians, businesses and commercial banks were not permitted to exchange their currencies for gold through central banks, so this was simply a high-level arrangement designed to maintain control of gold priced in dollars.

A few years after Bretton Woods, in 1949 and when the newly-fledged IMF began to collate statistics on national gold reserves, the US Treasury was recorded owning 21,828.25 tonnes of gold, 74.5% of all central bank reserves, and 43.6% of estimated above-ground gold stocks. However, over the years the proportions changed, and by 1960, US gold reserves had declined to 15,821.9 tonnes, 47% of central bank reserves, and 24.9% of above ground stocks.

Clearly, American control of gold had weakened considerably in the two decades following Bretton Woods. This weakening continued until the failure of the London gold pool, the arrangement dating from 1961 whereby the major American and European central banks collaborated to defend the $35 peg. The Americans had abused the gold discipline by financing foreign ventures, notably the Korean and Vietnam wars, not out of taxation, but by printing dollars for export, and it began to put pressure on the dollar. The London gold pool effectively spread the cost of maintaining the dollar peg among the Europeans. Unsurprisingly, France withdrew from the gold pool in June 1967, and the pool collapsed. By the end of that year, the US Treasury was down to 10,721.6 tonnes, 30% of total central bank gold reserves, and 15% of above-ground stocks.

Inevitably the decline continued, and by the time of the Nixon shock (August 1971 – the abandonment of the gold exchange commitment) it was clear the US Government had lost control of the market. She had only 9,069.7 tonnes left, representing 28.3% of central bank gold, and 11.9% of above ground stocks. Monetary policy switched from the fixed parity arrangements centred on gold through the medium of the dollar, to a propaganda effort aimed at removing gold from the monetary system altogether, replacing it with an unbacked dollar as the international reserve standard.

The result was the purchasing power of the dollar and the other major currencies measured in gold has all but collapsed, as shown in the chart below.

Currencies priced in gold

Between 1969 and today, the dollar’s purchasing power relative to gold declined by 97.3% (the blue line). By banning gold from having any monetary role, the US removed price stability from the dollar. More recently, since the great financial crisis the quantity of fiat money in the global currency system has expanded dramatically relative to the long-term average growth rate of money and bank credit. This is illustrated in our second chart, which records the growth in the total amount of fiat dollars in the US banking system.

Fiat money quantitiy

The fiat money quantity is the sum of true money supply and commercial bank reserves held at the central bank (the Fed). It is the measure of all deposits, including those of the commercial banks. Monetary inflation has expanded dramatically since the great financial crisis, illustrated by its acceleration above the long-term trend. The consequences for the dollar’s purchasing power in time will be to accelerate the dollar’s decline even more.

The monetary expansion of the dollar has been echoed in the other major currencies, with negative consequences for global price inflation in the coming years. Meanwhile, gold’s inflation, at roughly 3,200 tonnes annually, is about 1.9% of above-ground stocks. The different rates of increase between above-ground gold stocks and the fiat money quantities of unbacked state-issued currencies is what ultimately drives the price of gold measured in those unbacked currencies. It is easy to see why a higher gold price, reaffirming gold’s role as sound money at a time of excessive fiat currency inflation, is viewed by the major monetary authorities as a potential threat to their currencies’ credibility.

There can be little doubt that without the propaganda war against gold led by the US monetary authorities, without the expansion of unbacked paper gold constituting artificial gold supply in the futures and forwards markets, and without the secret interventions of the US’s Exchange Stabilisation Fund, the gold price would be considerably higher, expressed in dollars.i

However, gold remains centre-stage as a global hedge against the decline in purchasing power of fiat currencies. Besides rescuing the financial system from collapse nine years ago, the expansion of bank credit is inherently cyclical.ii The credit-cycle for China’s yuan appears to be moving into a new expansionary phase, reflected in a rising trend for nominal GDP. This will be put into context later in this article, but it is noticeable that on the back of China’s GDP growth, Japan, the EU and the UK are also enjoying export-led revivals.

The US does not share these benefits, partly because China and Russia, the founders of the Shanghai Cooperation Organisation (SCO), are deliberately freezing America and her money out, and partly because of America’s own tendency towards trade isolationism.iii It is therefore less certain that America is close to moving from the recovery stage of the dollar’s credit cycle into expansion. In the absence of other factors, the difference in interest rate outlooks this implies should be reflected in a declining dollar exchange rate against the other major currencies, a trend that has been under way since last January.

Despite the massive expansion of fiat money over the last nine years, it is possible for governments to stabilise the future purchasing power for their currencies. It will require their fiat currencies to be tied convincingly to the characteristics of gold. It depends on the government concerned accepting that gold is superior money to its own currency, owning sufficient physical gold reserves to convince the markets, and the gold price being at a level where the arrangement sticks. There is no doubt that China, Russia, as well as the other SCO member states and their populations regard gold as a superior money to fiat currencies, partly because their fiat currencies do not have well-established records of objective exchange value.

In the US, Japan, the UK and through much of Europe, the populations have experienced a longer, generally more stable objective exchange value for their currencies. Under pressure from their governments to use only state-issued currency, they have lost the habit of regarding gold as money. The monetary authorities of these countries, with a few exceptions, also do not regard gold as having any monetary role at all, beyond paying lip-service to a vague concept it has value as an asset which is no one else’s liability.

Therefore, understanding the role of gold and the protection it can offer fiat currencies is split into two geographic camps: the governments of Asia which are actively accumulating, or would like to accumulate additional reserves of monetary gold, and the governments of North America and Western Europe which see the gold price as irrelevant from the monetary point of view.


Gold reserves and gold secrets

We shall now briefly comment on the positions of the main monetary authorities on the global gold stage, their current gold policies, and how they are likely to change. These are the US, China, and the member nations of the SCO.

United States

The US monetary authorities were behind the push to remove gold from the monetary system, when they terminated the Bretton Woods Agreement in 1971. They are somewhat schizophrenic on the issue, the US Treasury claiming it still owns 8,133 tonnes of gold, reflected in the Fed’s balance sheet at the last official price of $42.22 per ounce. Interestingly, when the previous Fed Chairman, Ben Bernanke, was questioned on the subject by Senator Ron Paul in 2011, it was clear he did not regard it as money, only a legacy asset. If this is true, the Fed should substitute the reference to gold in its balance sheet with an unsecured loan to the US Treasury, which if Ben Bernanke is right, has a greater monetary credential than gold. It would also end the embarrassing calls to audit the Fed.

The resistance to leaving go of gold rather proves that gold is still money. However, the monetary policies of the Fed since the great financial crisis are predicated in the belief that gold is not money. This dichotomy is also shared with the Bank of England, the Bank of Japan, and the European Central Bank.

They all say that the world has moved on from the days when gold was part of the monetary system, so they are ill-prepared to discard the Keynesian beliefs upon which their current monetary policy is based. Their advanced, welfare-state economies are simply too far down the road of the state theory of money to turn back. However, this exposes their currencies, and particularly the US dollar as the world’s reserve currency, to a substantial loss of purchasing power as the rapid monetary expansion of the last nine years works its way through to consumer prices. The election of President Trump promising to make America great again is turning out to be a failure. The removal only last week of Steve Bannon, his chief strategist, clears the way for the pre-Trump establishment to reassert itself. Gone is Bannon’s talk of a financial war against China and Russia, and doubtless, with a trio of the Generals Kelly, Mattis and McMaster now in control of the White House, it will be back to military options.

General Kelly, who was appointed to bring some order into the White House is doing this by removing dissenters from the mainstream. This was why Bannon had to go, and why President Trump himself will have to knuckle under and become as anodyne as President Obama. The mainstream is back and little has changed.

Meanwhile, the US economy muddles along without clear signs of improving consumer demand. It seems increased trade tariffs against China remain on the agenda, in which case they will amount to a self-harming tax on American consumers. Furthermore, global economic growth and progress is being driven primarily by China, from which America is excluded. And as the interest rate differentials start to widen between a stagnating US economy and an expanding Asia that also benefits Japan, the EU and the UK, the dollar is likely to weaken considerably in the foreign exchanges, as well as in terms of the commodities a dollar will buy.

Some forecasters believe that the US economy is stalling and deflation beckons. This is a mistake. The conditions replicate an inflationary outlook, whereby prices start rising at an accelerating rate, driven by a falling purchasing power for the dollar. The dollar is likely to lose more purchasing power through the effects of the last nine years’ monetary expansion working through to consumer prices. Additionally, foreign nations and commodity suppliers doing business in Asia are likely to be sellers of dollars for other currencies as the world moves towards an Asia-centric global economy. For deflation to take hold, there must be a shortage of dollars, not the substantial excesses in existence today.

China

In partnership with Russia, China is ringmaster for all Asia. The Chinese economy is run with a beneficial mercantilist approach. The primary political objective is to plan an economic future for the benefit of its people. Instead of democratic responsibility, the leadership commands the economy strategically in the universal interest of its citizens, crushing all individual dissent.

The Chinese state, having embraced important concepts of free markets, operates rather like the East India Company of old. Through a series of five-year plans, hundreds of millions of workers are being moved from less productive employment, redirected and retrained to more productive, higher technology and service occupations. The whole economy is in a planned transition. Low-skill jobs are being mechanised. Already, China is expanding into the rest of Asia, promising to move whole communities and countries out of relative poverty. The trans-shipment of goods across the Eurasian continent is expanding rapidly. The Chinese have also taken economic control over much of sub-Saharan Africa to secure the natural resources for the Grand Plan.iv

Most of this expansion is financed through bank credit, issued through the large state-owned banks. Unlike economic policy in the West’s welfare states, which is aimed at preserving legacy businesses, the positive redeployment of capital resources limits the build-up of malinvestments in China. Furthermore, the expansion of nominal GDP, which is the direct consequence of the expansion of bank credit, is accompanied by genuine economic progress, which is decreasingly the case in the West.v

Consequently, China’s credit bubble is arguably less dangerous than those in the US, EU, UK, and even in Japan. However, credit bubble there is, and it is part of a global credit cycle that afflicts all fiat currencies. Undoubtedly, the Chinese authorities are aware of this danger, evidenced by their repeated actions to contain credit-fuelled speculation before it gets out of hand. [Crypto-currency enthusiasts, beware!]vi

So far, China has pursued a policy of managing the yuan’s exchange rate against the US dollar, and consequently records $3.08tr in foreign reserves, the vast bulk of it in dollars. At some point, China will need to abandon foreign exchange support of the dollar, because the dollar’s purchasing power measured in commodities is likely to continue its decline. This policy is making the raw materials China needs more expensive priced in yuan.

It is therefore becoming more sensible for China to dispose of her dollars and encourage the yuan to rise against it on the foreign exchanges. Admittedly, this will damage the profits of exporters to dollar-denominated markets, but should have the beneficial effect of redirecting capital and labour resources from these legacy businesses towards the new activities favoured by the five-year plan. Now that the process of refocusing the economy from manufacturing and exporting cheap goods towards a technology and service driven economy is well underway, China must be getting closer to ditching the dollar as the yuan’s reference currency. It is near the time for China to stop supporting the one currency she wants to do away with.

All the indications from China’s gold policy are that the end-plan is to tie the yuan to gold. In 1983, China introduced regulations appointing the Peoples Bank with the role of acquiring gold on behalf of the state. Analysis of contemporary prices, Western central bank sales and leasing into a prolonged bear market, shows China could accumulate significant quantities of gold bullion. In the 1980s, China had capital inflows she wished to neutralise, followed by the trade surpluses that began to accumulate in the 1990s. Adding to her programme of acquisition of gold from abroad, China beefed up her gold mining capacity and her gold refining state monopoly. Today, she is the largest mine producer by far, and takes in gold doré from other countries to refine and keep.

By 2002, she had accumulated enough bullion by then permit her own citizens to buy gold, and even advertised on television and other media to encourage them to do so. Deliveries into private ownership through the Shanghai Gold Exchange (controlled by the Peoples Bank) has totalled over 15,000 tonnes after 2002, though some of that will have been recycled as scrap. I have speculated that by 2002, the Chinese state could easily have accumulated over 20,000 tonnes before the Shanghai Gold Exchange was established, rather than the paltry figure of 1,843 tonnes in declared reserves today. Whatever the true figure, the Peoples Bank has purposefully been acquiring gold for thirty-four years, and by 2002 had built a strong and satisfactory position, clearing the way over the last fifteen years for her people to do the same.vii

China now has an iron grip on the physical gold market. The launch of the Hong Kong owned LME’s new gold contract is the latest move, building on China’s policy of using the Hong Kong and London connection for the development of her interests in international capital markets. The contract has been a success from day one. While the American banks push the price round on the Comex futures market, the real control over the market is now in Chinese hands.

China and her citizens are still accumulating gold. Basically, gold that goes into China does not come out. This contrasts with the US and the EU, where people are strongly discouraged from regarding gold as money or a store of value. For geopolitical purposes, it matters not who is right, but who has the power to be right. By ending the yuan’s exchange relationship with the dollar and transferring it to gold, global monetary hegemony would be transferred from America to China and her sphere of influence in one big step.

The Shanghai Cooperation Organisation

The SCO is driven by China in partnership with Russia. As well as a population of 3.3bn, it is the principal trade partner of Japan, the Koreas, and all the South-east Asian nations, adding a further 830 million people into the SCO’s sphere of influence. Dependents on the SCO for their exports of raw materials takes in nearly all sub-Saharan Africa, adding another billion. Europe, Australia and New Zealand are also drawn into the SCO’s circle of trade influence, a further 700 million. That totals over 5.8bn, leaving nations with a population total of about a billion either neutral or siding with America. Yet, it is the US dollar that settles the bulk of world trade.

There are strong indications that gold will be part of the settlement medium for the SCO’s future trade. Not only is China driving the SCO in partnership with Russia, which appears to be gold-friendly as well, but central bank demand for physical gold has mostly been from SCO member states and affiliates.

India, which lacks enough gold at the state level to support her membership, is using increasingly desperate measures to acquire gold from her own citizens. India’s economic renaissance, since the socialist Gandhi dynasty was ousted, has been on the back of Keynesian policies, so there is likely to be a strong intellectual resistance to gold in the monetary elite. Furthermore, senior appointees to the Reserve Bank have traditionally been on the advice of the Bank of England, which is anti-gold, and at the same time conscious that Indian gold demand on top of that of China is undermining control over the London bullion market. India’s gold policy as a member of the SCO is somewhat confused,

The imbalances between gold ownership of the various SCO member states rule out a new super-currency, so it is likely to be the yuan that is predominantly used for Eurasian trade settlement, with other members pursuing a currency board approach for their own currencies.


Control over the oil market

The most significant post-war financial agreement achieved by America was with Saudi Arabia, whereby the Saudis agreed to only accept dollars in payment for oil in return for American protection. The agreement was adopted by all OPEC members, in return for the ability to fix oil prices as they pleased. This put the American banks firmly in control of the expansion of global credit, as well as the recycling of the currency surpluses arising from sales of oil to oil consuming nations, particularly benefiting the friends of America. That one decision, negotiated by Nixon and Kissinger, set up the dollar as the world’s reserve and trade currency after the end of the Bretton Woods agreement, and remains so to this day.

Today, Saudi Arabia is no longer the stable theocracy it was, and at current oil prices is running into financial difficulties. It plans to sell a five per cent stake in the national oil monopoly, Aramco, to raise $200bn to plug the gap in state finances. It can only do this by way of a public listing and offering if it can verify its stated oil reserves, which may prove difficult. If one was to guess an outcome for this dilemma, it would be that Saudi’s largest customer, China, could come to the rescue. And it would be expected that China would gain some influence over the disposition of Saudi’s oil sales.

It would be a typical Chinese strategy, repeating in the case of energy what China has already achieved in gaining control over the global economy. Other than America, whose consumption exceeds its supply by a significant margin, Russia is the largest global supplier (just), followed by Saudi Arabia. Between them they account for 22.4% of global supply. Other Asian suppliers in the SCO or allied to it gives a further 12%, making 34.4%. Coordinating these supplies gives China and her partners more production leverage on the global oil market than Saudi Arabia had in the 1970s.

Already, China is showing a preference to settling trade and energy deals in yuan, but to take this much further, it will need to offer gold convertibility to compete with the dollar. This appears to be being pursued in two steps, the first being oil suppliers given the opportunity to sell their oil for yuan, and to sell their yuan on the Shanghai futures exchange for gold, before the second step, a formal yuan convertibility, is eventually offered.

The yuan-gold contract already exists, the oil-yuan contract will shortly be introduced. The Shanghai International Energy Exchange is currently training potential users and carrying out systems tests prior to launch later this year. Obviously, these futures contracts in gold and oil may need to be initially supported by the state banks to enable them to build liquidity. But importantly, it will allow Iran, Russia and other Asian producers to avoid Western banking sanctions by selling oil for gold.viii


Geopolitics could set the timing

The course of economic and monetary events in Asia was predetermined by the Chinese some time ago. We saw evidence of this in the UK, when China decided its international financial markets would be operated between Hong Kong and London, cutting out New York entirely and the dollar as much as possible. The Hong Kong Exchange bought the London Metal Exchange in 2012, and a year later London’s role was cemented when the then Chancellor of the Exchequer, George Osborne, visited China. This was followed by Britain becoming the first developed nation to join the Chinese-led Asia Infrastructure Investment Bank, much to the annoyance of the US.

The Obama administration had no effective response to China’s strategy, and continued to attack China’s partner, Russia, through proxy wars in Ukraine and Syria. The bid to take control of resource-rich Afghanistan failed. The election of President Trump brought with it uncertainly in US foreign policy, prompting a visit by President Xi to President Trump last April. There was no doubt that Xi decided he needed to assess Trump personally. He is likely to have come away with the view that Trump was unpredictable, and so it has proved.

We can only guess as to whether Xi’s visit has caused the Chinese to accelerate their planned move away from the dollar to their ultimate trade settlement and monetary plans. The threat of an American invasion of North Korea will be watched closely by Beijing in this context. The prospect of American troops on the Chinese border only 500 miles from Beijing will be prevented at all costs, so retaliation by an attack on the dollar would be the most effective response.

The removal of Steve Bannon last week and the control of the White House passing to three generals are important developments. In his last interview while still officially appointed, Bannon correctly analysed the geopolitics between China and the US. His analysis was very much on the lines presented in this article. However, his assessment was that the US needed to fight a trade and financial war against China, and forget anything military. In his words, “unless someone solves the part of the equation that shows me that 10 million people in Seoul don’t die in the first 30 minutes from conventional weapons, I don’t know what you are talking about, there’s no military solution here, they got us.”ix

Bannon’s mistake is to assume America still wields its traditional financial power, when it is clear to informed outsiders that this is no longer true. However, the generals now in charge of the White House are more likely to stoke up proxy wars, either because that is where their skills lie, or more cynically perhaps they are influenced by the arms manufacturers who are looking for defence contracts. They have taken no time in ratcheting up the American presence in Afghanistan and clearly have a desire to gain influence in Pakistan, both of which are on China’s eastern flank, where she is building commercial and infrastructural ties.

So, geopolitics are back on familiar ground. Trump is now neutralised and will increasingly look like a cowed Obama. Perhaps more troops will be sent to Syria. Perhaps more advisors will be sent to Ukraine. Perhaps more missiles will be installed in Poland, or the Baltic states. North Korea will rumble on, in a stalemate protected by its nuclear weapons. But increasingly, China’s interests are now served by taking the next step to disentangling herself from the dollar, and that will mean selling down her dollar reserves to stockpile the copper and the other industrial materials she needs. It will also mean lending dollars to trade counterparties, such as Saudi Arabia, to be repaid in yuan.


Conclusion

China and Russia’s geopolitical strategy has been evolving long enough for observers to understand it and the implications for the West. We can assume the strategic thinkers and intelligence agencies of all the major players have a reasonable grasp of the implications, including America, which is determined not to lose in this Great Game. That was the point behind Steve Bannon’s candid interview with Politico.

Bannon was deluded about the extent of America’s economic and financial power. He is now out. We are back to geopolitics being decided by the military. Meanwhile, China’s interests have almost certainly moved firmly towards dumping the dollar. This can only be done successfully by linking the yuan to the characteristics of physical gold, the market which China has effectively cornered.

If gold crosses the $1300 Rubicon, it may be taken as an early sign that China’s long-term plan of monetising her gold is progressing towards the next stage. The oil-for-yuan futures contract is due to be launched very shortly, allowing countries like Iran to buy gold freely, paid for by oil sales.

Alternatively, if China defers securing the yuan to gold, the dollar still looks like weakening against other currencies, reflecting a US economy isolated from the positive Asian story. The pace of the rise in the gold price might be slower, but the direction seems equally certain.

Eventually, gold will need to rise to a level where the Chinese are prepared to set a conversion rate. Expect China to use its control over physical gold markets to achieve it at a time of its own choosing. Leaving the $1300 price behind could well be the start of the move towards this objective. – Alasdair Macleod

Gold and Silver Prices in Consolidation mode before another Bout of Rising Higher

Gold and Silver Prices in Consolidation mode before another Bout of Rising Higher

Gold and Silver Prices in Consolidation mode before Rising Higher

Gold Prices in US Dollar Consolidating below $1300.

– Yann Quelenn: Gold has broken strong resistance given at 1296 (06/06/2017 high) before bouncing lower. Hourly support is given at 1251 (08/08/2017 low). Stronger support lies at 1204 (10/07/2017 high). Expected to show continued consolidation below $1300.

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1392 (17/03/2014) is necessary ton confirm it, A major support can be found at 1045 (05/02/2010 low)

Gold

Silver Prices in US Dollar Consolidation before another leg higher.

Silver’s bullish pressures are on despite ongoing consolidation. Hourly resistance is given at 17.32 (18/08/2017 high) while support can be found at 16.58 (15/08/2017 high). The commodity lies in a short-term uptrend channel. Expected to show another leg higher.

In the long-term, the death cross indicates that further downsides are very likely. Resistance is located at 25.11 (28/08/2013 high). Strong support can be found at 11.75 (20/04/2009).

Silver

The Gold Direction Indicator Keeps Rising

Peter Degraaf: The last time our ‘ Gold Direction Indicator’ was as positive as today, gold rose from $1220 to $1280. The date was July 12th and we wrote an article titled: “The Gold Direction Indicator Just Turned Positive”. Less than three weeks later price had advanced by $60. Well here we are, and the GDI just turned up from 52% to 79% (fully bullish). Following are some charts that support a Rising Precious Metals Scenario.

This chart, courtesy of goldchartsrus.com, shows the seasonal tendencies for gold. Disregarding the 5 year trend, (red line), because it includes a four-year long correction – (now ended), we see a steady historical uptrend in three different measures, all beginning in the month of August.

This chart is also courtesy of goldchartsrus.com and it shows US M3 Money supply continues to rise. The more money in the system (monetary inflation), the higher prices will rise for items that cannot be produced at will, such as silver and gold (price inflation).

Featured is the daily gold chart. Price is oscillating around the $1280 level. A breakout at the blue arrow will be a very bullish signal. The supporting indicators are positive, including the A/D line at the bottom – it has already broken out to the upside. The moving averages have been in positive alignment (blue line above red line), since late May.

Featured is the weekly bar chart for GDX, the miners ETF. Price is carving out a large triangle, and the supporting indicators are positive. The moving averages have been in positive alignment since November. A breakout at the blue arrow appears to be just days away, and it will turn the trend very bullish, with an initial target at the green arrow.

Featured is a chart that compares PHYS the Sprott gold trust, to the US stock market. The pattern is a large triangle, and price is breaking out on the upside. If this trend continues, it will cause money to leave the stock market and move into gold.

Featured is the ten year Palladium chart. Price is breaking out to a 10 year high level. Palladium is often a leading indicator for the precious metals sector. The supporting indicators are positive and the moving averages are in positive alignment and rising.

We believe gold has entered a new bull market. Here are four reasons why

James Luke and Mark Lacey: Despite significant US dollar weakness, gold price performance has been muted recently.

It has been held back by factors such as a rebound in real interest rates and increased stability in the Chinese yuan, which has dampened near-term investment demand for gold in China.

But these are short-term factors, which do not change our view that gold has entered into a new bull market. As we have discussed previously, there are four main reasons for our stance:

  1. Global interest rates need to stay negative
  2. Broad equity valuations are extremely high and complacency stalks financial markets
  3. The dollar might be entering a bear market
  4. Chinese demand for gold has the potential to surge (indeed, investment demand in China for bar and coin already increased over 30% in the first quarter of 2017, according to the World Gold Council)

Right now it is the second of these factors which we think is particularly pertinent.

At this time of heightened geopolitical risk, when Venezuela is on the brink of chaos and tensions are growing between North Korea and the US, there is the possibility of an event in the coming months which causes investors to seek to reduce their risk exposure.

In such circumstances, we strongly believe gold could turn out to be an underowned and well-priced insurance policy.

Why do we think there are high levels of complacency?

Complacent (definition) – “pleased, especially with oneself or one’s merits, advantages, situation….often without awareness of some potential danger or defect” (dictionary.com).

Let’s start with the US stockmarket. The S&P 500 made an all-time high of 2478 in July and is now up just under 11.5% year-to-date (source: Bloomberg, 17 August 2017).

The valuation of this index is expensive on a variety of measures. Whether we look at simple price/book, trailing price/earnings or enterprise value/cashflow (each of which are different ways to value a company), the index is trading on valuation multiples which are 60% to 100% higher than the historical median over the last 90 years.

Whichever your preferred metric, historical regression analysis suggests expected returns for equities, from today’s starting point, are very low.

The latest justification for current high valuations include President Trump’s drive to cut corporate tax and the belief that companies’ cost of capital being at an all-time low supports future earnings growth.

US companies may well receive a welcome reduction in the corporate tax rate, but the low cost of capital argument is flawed. Increasing interest rates are not supportive for equity valuations that are already high (versus history) as companies’ cost of capital increases. As unemployment continues to fall, inflation will start to pick up at the margin, regardless of the lag. Like it or not, we are firmly in a cycle of increasing nominal (not real) interest rates.

Does gold really perform well in weak equity market environments?

If we look at history for guidance, then we see gold has the potential to perform very well in periods of stock market weakness.

Gold’s perceived “safe haven” status is well-supported with hard evidence. For example, if we look back at gold price performance between 1961 and July 2017 (see chart 1 below), it is very clear that gold price annual returns were positive, particularly during periods of high inflation, while stock market returns were negative.

We see no reason why this relationship should not continue in the future; an argument for holding a minimum weighting in gold or gold equities in a well diversified portfolio. It is important to remember, however, that past performance should not be used as a guide to future performance.

High equity valuations alone are not a reason to bang the table hard to promote the upside in gold prices, but when overall market complacency is high, the risk reward looks compelling.

It is a known fact that the best time to buy insurance is at a time when the insurers don’t think it is very likely that the “risk event” will happen. For example, in the UK, household insurance premiums to cover flood risk increased by as much as 550% post the flooding in 2007 and again in 2014.

Which brings us on to the VIX, an index which illustrates the implied volatility of the S&P 500 over the next 30 days. The VIX is based on the implied volatility priced in to the exchange traded options of the equities underlying the S&P 500.

At the moment the VIX is trading at a 27-year low. Investors are currently pricing in not just a stable pricing environment for the S&P 500 for the next few months, but basically the most benign risk environment in the history of the index.

To us, this is odd from many angles. Not least because current extreme equity valuations are set against the startling fact that global central banks are moving towards an attempt to reverse the most extreme set of policies in the history of monetary policy. More visceral external factors are also lurking in the background.

From our perspective, it is difficult to see how the market’s implied volatility does not pick up over the coming months as any external shocks will result in implied volatility increasing, given that valuations of broad equities appear overstretched. Not gold equities though; we believe they are cheap and our holdings are currently discounting gold prices of less than $1,200/oz. At the time of writing the gold price is $1291.

 

Cheap & Despised, but Climbing steadily – Silver signals to load the Weapons

Cheap & Despised, but Climbing steadily - Silver signals to load the Weapons

Cheap & Despised, but Silver Prices climbing steadily

Silver is cheap and will outperform all other metals, says Lior Gantz, founder of Wealth Research Group, and highlights one company he expects to do well.

I’ve been looking at this chart for hours—it says it all, and I want you to get a full grasp of this because in February of last year was when Wealth Research Group last touched on this subject and the subsequent boom brought six 300%+ winners to our newsletter by August.

Silver-Gold Ratio
Courtesy: GoldSilver.com

Now Keith Neumeyer, who is basically Mr. Silver, sent me this chart and asked me to make sure that people that are important to me have a chance to examine this, so I immediately made it a top priority to get published.

The bottom line is we’ve entered that unique stretch of time in which silver is absurdly cheap and will outperform all other metals for a brief—but insanely profitable—time frame.

I want to show you three major components of this bullish silver move and the one obvious conclusion to draw from them:

1. The Gold-to-Silver Ratio: As you can see in the chart above, the 80:1 support for silver is like a brick wall, and when reaching it, silver bounces back and outperforms gold for one to three years.

The key to understanding momentum and capturing these invaluable moments is that junior mining shares outperform both of the metals when silver outperforms gold.

Let me repeat: When silver outperforms gold, the mining shares outperform them both radically.

The perfect investment for this surge in silver price, according to our research, is the ultimate and purest silver miner, First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE).

There’s no need to get complicated or oversophisticated when picking the ideal company for this silver price explosion.

Keith’s company is my No. 1 way to ride this wave with safety and maximum leverage.

2. ETFs and Institutional Buying: You can rest assured that we’re not the only professionals who are reading the map correctly and connecting the dots.

First Majestic Silver is a component of most mining ETFs, most commodity-related hedge funds, pension funds, and even the world’s most conservative central bank, that of Switzerland, owns shares and will be looking to increase their position.

We’re talking about world-class institutions hitting the bid here—judging by history, when silver soars, this company makes new highs, plain and simple.

First Majestic Silver

In 2016, holding First Majestic was smart, and with one click of a button you gained a front-row view of how a well-managed company receives investors’ full attention.

3. Sentiment: Some investors are permanent bulls on precious metals, which is a horrible mistake, specifically with natural resources, which are cyclical by nature.

It’s exactly why we sometimes avoid new investments altogether, at other times we short ETFs, and sometimes we decide to dollar-cost average into quality companies. When all the lights turn green, we know how to get aggressive.

The best time to become focused and zoned in is when your peer investors are fed up, and this is happening now.

GDX Shares Outstanding
Courtesy: Stansberry Research

When the shares outstanding are rising, it means investor demand exceeds supply and gold stocks are loved.

When this number is falling, such as today, investors are throwing in the towel.

You can see that gold investors finally started giving up on gold stocks in April and they’ve continued to surrender to their emotions.

This is a gift given to us by those with less conviction and education regarding market cycles, and we’ll take it any day of the week.

Silver is cheap, despised, and climbing in price—the classic contrarian signals to load the weapons.

 

Blockchain to Replicate the Reliability of Gold via a Cryptocurrency called GOLD

Blockchain to Replicate the Reliability of Gold via a Cryptocurrency called GOLD

Custody Bot Will Automate Putting Gold on Blockchain

Gold is thought to be the only real money by many. It has been a time-tested hedge against inflation and a store of value.

A large problem for gold investors though has been the storage, transmission and trading of the precious metal.

Harnessing the power of the Blockchain now makes it possible to replicate the reliability of gold but take it to the next level. GoldMint, who are holding an Initial Coin Offering (ICO), starting on Sept. 20, 2017, are aiming to free up the hidden potential of gold.

Custody Bot is what sets GoldMint apart

At the heart of GoldMint’s plans is something called ‘Custody Bot.’ This device can temporarily hold, inspect, convey or even store for the long-term. Using the Custody Bot, GoldMint would be able to receive gold from institutions and individuals and transform it into a cryptoasset that can be instantly traded and transmitted.

Custody Bot can process gold given to them by small banks or non-credit financial institutions as well as private individuals.

The device’s dimensions make it useable in a variety of circumstances. Custody Bot is only 1.5 meters high, 0.65 meters deep and 0.8 meters wide. Gold is placed in a tray that is similar to a CD-ROM tray, this tray measures 15×20 cm.

The machine includes a gold retrieving mechanism, gold checking mechanism and individual deposit boxes, which can be as many as 40.

Custody Bot uses the Linux operating system for the computer it contains. Using a Custody Bot, the user can have their gold analyzed and weighed. It can then be stored inside the safe deposit box contained in the machine.

The machine can share the data of the gold on the Blockchain and the user can get their gold out by entering a code provided by GoldMint.

What is GOLD?

GoldMint has basically created a new cryptocurrency called GOLD, which will run on a Blockchain like many different cryptocurrencies in existence.

However, the difference is that GOLD will be based on the value of Gold, the precious metal. Transformation of real gold into this new decentralized Blockchain gold will help users carry out trading in futures contracts and take advantage of price movements.

They can also use GOLD as a sort of collateral. Giving gold the shape of a digital currency also makes it extremely tradeable and transportable. In fact, users can send GOLD to any part of the world without having to take the risk of transporting precious metal themselves.

GOLD is backed by both physical gold as well as gold exchange traded funds (ETFs.)

What is the GoldMint ICO all about?

The GoldMint ICO, which will begin on Sept. 20, 2017, and end on Oct. 20, 2017, will offer investors MNT pre-launch tokens (MNTP).

This is a pre-launch token, which would be converted to the Blockchain currency GOLD after the amount necessary to reach independent supply the platform is raised. This is the first step towards the launch of a new digital currency which would create gold backed cryptoassets. Investors can purchase MNTP tokens by using Bitcoin (BTC) or Ethereum (ETH) during the public crowdsale. During the crowdsale the price of each MNTP token would be US$ 7. It is expected by GoldMint that the price of MNTP tokens would grow as they are limited in supply and are used as a stake in the Proof of Stake (PoS) consensus algorithm. Early investors stand to benefit according to GoldMint as they will benefit from a progressive bonus scale which will earn users more tokens for their BTC or ETH investments.

The total amount of MNT tokens that exist are 10 mln, out of which,  seven mln will be distributed under the ICO. MNTP tokens utilise the Ethereum blockchain. The ICO will provide a special bonus to earliest ICO investors and they can earn additional tokens. The ICO will run for a period of one month or till all tokens are sold out, whichever is earlier. We were told by GoldMint that they have received over 700 participation requests from users in 23 countries already.

After the ICO concludes, ICO investors will be able to trade Ethereum MNTP tokens for internal MNT tokens to be used on Graphene, which is GoldMint’s own blockchain. When Graphene is deployed the converted MNT tokens can be used in GOLD transactions. GoldMint will offer future MNT-GOLD digital conversions at 1:1 according to a white paper released by them. We were also told that all GOLD transactions will be certified by MNTP holders, who stand to receive a 75 per cent commission for mining.

As for what GoldMint plans to do with the funds they raise. They have earmarked 30 percent for Marketing, 35 percent for Development, 10 percent for the team, five percent for Legal, registration uses and 10 percent for Staff expansion. 10 percent of the funds will be used for other purposes.

A transformation of Gold?

While gold trading has been a fact due to ETFs and other means, GoldMint has brought in an element of automation and transparency into the use of gold.

It will now be possible for people to get a fair valuation of their precious metal and to make it tradeable and transferable in very less time without human intervention.

The potential for this is endless and the element of trust in gold can be increased manifold. Gold can now be moved across international borders, can be used as a hedge against inflation and can be used to finance new businesses and enterprises.

It may be the case that we come to view gold very differently as an asset as we do today because GoldMint has the potential to free gold from its limitations.

– Shivdeep Dhaliwal

Fireworks in the Gold Market could start pretty soon

Fireworks in the Gold Market could start pretty soon

Fireworks in the Gold Market could start pretty soon

This week is set to be one that you’ll remember for decades to come.

The event occurring this week is one that could have a huge impact on your family’s wealth. I’m talking about the kind of wealth that you can pass on from one generation to the next. The kind of wealth that can make a difference in your life, and in the lives of the ones you love.

That is, of course, if you act before it’s too late.

Today, I want to show you one of the most powerful charts that I’ve seen in years, and explain how this chart is proof of a wealth building opportunity that we’ve been covering here at The Daily Edge for some time.

Let me explain…

The Truth Behind Charts, Patterns, and Breakouts

The human nature is a very interesting phenomenon. Despite the diverse personalities in the world, there are a few characteristics that are common to most all of us. And those characteristics can predict how individuals will react to certain situations.

I enjoy learning about the way our brains are wired, because understanding people and our natural reactions makes me a better dad, a more empathetic friend, a stronger co-worker…. and a more successful investor.

You see, markets (the stock market, real estate markets, commodities market and more) are made from the buy and sell decisions of individuals. And individuals act in predictable patterns at key points in history.

This week is one of those key points. And the chart below proves it.

chart: Gold just broke through a critical level

The chart shows the spot price for an ounce of gold.

So far this year, gold has been trading back and forth in a wide range. When gold moves down to about $1,200 per ounce, buyers have stepped in and pushed the price higher. And when gold has approached $1,290 per ounce, sellers have taken profits and pushed the price lower.

But Friday, this pattern was broken. And if you know anything about markets and trends, you know this is a big deal.

Gold pushed above its April and June highs on Friday, briefly crossing the key $1,300 per ounce price point. That “breakout” above two previous highs proves that demand for gold is picking up. It proves that buyers are becoming more aggressive, as they’re willing to pay a higher price for gold.

And best of all, this breakout should catch the attention of momentum investors, causing more traders and investors to buy ounces of gold this week.

I’m expecting the price of gold to start moving higher this week, and to continue to move higher throughout the year.

The Time to Invest in Gold is NOW

Hopefully, you’ve been paying attention to The Daily Edge and our recommendation to buy gold. If so, your investment is already starting to grow. Gold continues to be an excellent way to grow and protect your wealth. After all, gold is a precious metal whose value cannot be manipulated like the world’s fiat currencies.

There are a number of “fundamental” reasons why gold should continue to move higher:

  • The U.S. dollar has been losing value all year. And as the dollar trades lower, the price of gold naturally rises.
  • The U.S. stock market is exceptionally high. Investors are buying gold as an alternative (in case stocks trade lower).
  • Geopolitical risks (think N. Korea, Russia, China, the Middle East and more) threaten to destabilize our financial system — gold is a good insurance policy for this scenario.
  • Gold production has not kept up with demand. Miners have not invested in new resources so there is less gold available for investors.

You can think about these (and more) fundamental drivers for gold as “dry kindling” for a fire. Once the match is lit, the intensity of the fire grows, the more fuel is added…

On Friday, we saw the match lit for the gold market. Traders pushed the price of gold above the key $1,300 mark, adding the spark needed to set off the next big trend.

This week, investors who were waiting to see if gold would really move higher will have concrete proof that the bull market has begun.

As more buyers push the price of gold higher, human nature will take over. The fear of missing out on the next gold rally will cause investors to buy more. And this will become a self-reinforcing pattern.

The stage is set for a huge gold rally. And now that gold looks to be breaking out above $1,300 my short-term profit target is a quick move to $1,500.

Historically speaking, September is the best month for gold (over the past few decades no other months compare). In other words, the fireworks in the metals market could start very soon.

So if you’re not yet invested in gold — or if you could use more exposure to the coming bull market for gold, you’ll want to act now, before the price moves any higher.

Here’s to growing and protecting your wealth! – Zach Scheidt

 

With Fundamentals in Place, a Breakout & Compelling Technicals – Watch Gold Take-Off

With Fundamentals in Place, a Breakout & Compelling Technicals - Watch Gold Take-Off

With Fundamentals in Place & Compelling Technicals – Watch Gold Take-Off

Here’s a wonderful interview with Greg Weldon of Weldon Financial and author of the book Gold Trading Boot Camp. Greg gives us his thoughts on the dangerous scenario that could ensure if a selloff drives everyone out of stocks all at the same time, shares his opinion on Bitcoin and also tells us why he views gold as a coiled spring waiting to release. – Mike Gleason

Mike Gleason:It is my privilege now to welcome in Greg Weldon, CEO and President of Weldon Financial. Greg has over three decades of market research and trading experience, specializing in the metals and commodity markets, and even authored a book in 2006 titled Gold Trading Boot Camp, where he accurately predicted the implosion of the U.S. credit market and urged people to buy gold when it was only $550 an ounce. He’s a highly sought-after presenter at financial conferences and is a regular guest on financial shows throughout the world.

Greg, thanks so much for joining us and it’s a real pleasure. How are you?

Greg Weldon: I’m great. Mike. Thanks for the invite.

Mike Gleason: Well, before we get into the metals specifically, Greg, to start out here, give us your thoughts on the U.S. stock market, the state of the U.S. economy, and the geopolitical environment, and so forth. Obviously, there’s a tremendous amount of exuberance still in the equity markets despite a lot of headwinds or black swans circling about, but yet things keep rolling along, and we keep seeing records made in the Dow. What are your thoughts about how long this might continue?

Greg Weldon: Well, you got a couple hours, I’d be happy to share all that with you, because there really is so much going on. I think you’re right to pick on the stock market to kind of center the viewpoint, because right now that kind of is, to me, a potential land mine. It’s not so much that the simple fact that the fundamentals and the expectations seem to have gotten a little bit out of alignment if you want to talk about the macro economy. You want to talk about you’ve gone through earning season. You want to talk about individual companies. You want to talk about certain businesses. That’s well and good. There’s always a place to look in the stock market where you can find opportunities.

But from a general, bigger, macro picture view, it gets to the Fed that has projected their going to be more hawkish than they have been really since 2014 when taper went to tap-out; when they stopped buying U.S. treasury debt, when they stop monetizing debt. They’ve continually stated on their dot plots that they would be much more hawkish than they turned out to be and I think that that’s finally come to the fore and you can’t get away with that for only so long until it’s impacted the Dow. And now the Dow has come down and what’s interesting about that is you haven’t seen the normal reaction you might see in commodities. It certainly hasn’t hurt the stock market, but nor did the stronger dollar, which you might have thought would be a negative headwind for the stock market.

All of that is one thing. The second thing being, of course, well you mentioned, the expectations based on the fact that this rally kicked off in November. No doubt about it. You can map it back to November 9th. It doesn’t take a rocket scientist. And, the expectations for three to four percent GDP growth that was going to be something you might see by the end of this year, maybe the fourth quarter. If not for sure next year, based on policies that were to be implemented that, right now, are nowhere on the radar screen. That’s an issue, as well.

But then you take it to the third level, and this is where is gets a little troubling, and you take some of the high-flying tech stocks. And I’m not bashing the business. I’m not bashing the people running companies. I’m not bashing anybody. What I’m saying is, you have widely owned stocks that have gotten to such high levels of nominal prices, you think like an Amazon or Google, and you trade a thousand dollars a share. Widely owned, for the most part, I don’t think you really can argue that the people that want to own these stocks, own them. And from that perspective, if you get any kind of dynamic that is landmine-ish in terms of some of the peripheral stuff you have going on. North Korea would fall into that category, we can talk about a lengthy list there, as well. I think there’s a situation where you’ve had diminishing volume. You’ve had huge ownership and if you go to see any kind of liquidation, even if it’s just profit taking, it starts as profit taking, you could hit a real vacuum of volume, a vacuum of buyers, and you could see something begin to roll into a bigger picture story that kind of comes out of that. So, in this U.S. stock market, that’s my biggest fear right now.

Mike Gleason: Certainly the dollar has showed signs of weakness. You touched on that a bit ago. That’s generally a pretty good tailwind for gold and silver. Are you looking for inflation to start to rise here as the dollar gets weaker?

Greg Weldon: No, not at all. In fact, we’ve called inflation, I’d have to, humility aside, say exceptionally well. And it’s been pretty simple. It’s been linked to energy. And you could see the peak coming in February, because you had the big moves in energy over the past 12 and 24 months that played out to see exactly what we saw, which was a peak in inflation in the U.S., and globally, frankly, in February. And since that it’s been down, as we anticipated, given that the big positive year over year effect out of energy was stripped out of the equation. And if you look at what’s going on in commodities right now, energy is renewing, kind of, it’s breakdown. It had a perfect Fibonacci retracement, depending on what contract you look at, above 50. We watch the December contract. Came right to the 200 and moving. It’s textbook stuff and now it’s breaking down again.

The grains have gotten destroyed. The crop report from Friday, rice was the only bullish light along with dairy. Everything else, from livestock to corn to soybeans to cotton to sugar, were all bearish revisions in terms of the expectations for this crop. So, CRB (Commodity Research Bureau index) is actually negative on a 3 month, 6 month, 12 month, 24 month basis right now. That doesn’t support any thought process right now around inflation, unless it were to come from wage inflation. Do we see it coming from wage inflation? Sporadically, in certain industries, skilled laborers, yes. More broadly, to the point where the Fed wants to see it above three? Absolutely not.

So, no, I don’t see inflation in the medium term horizon. That’s not to say that things couldn’t change in the meantime in terms of monetary policies, but as it stands, no, absolutely not.

Mike Gleason: Obviously the Fed is very much concerned with inflation, so you got to think that that is likely to dictate some of their monetary policies as we move throughout the rest of the year here. I know you follow pretty much all the commodities. What do you make of copper’s recent surge? They call it Dr. Copper because it’s a pretty good indicator of global economic growth. So what is copper telling us right now, Greg?

Greg Weldon: Well, I’ll tell you what, the base metals, we’re long bullish to base metals. The DBB is the ETF that you could play there. We have liked aluminum and zinc, in particular. But even the weakest link, nickel, is breaking out here, too. So it is a broad base rally that extends beyond copper.

In terms of copper being the widely watched benchmark, I have a couple of comments. The first one is, Asian demand is still very good. You have some pretty hot areas globally in terms of the economy and that’s one of the reasons the dollar is down is because other currencies are stronger. And, in the case of a place like Korea or Thailand or Taiwan or China even and some of the peripheral Asian countries, emerging markets are fairly strong, so those currencies have been strengthening.

But in the context of what you’re asking me, I think that the dollar ultimately looks lower because you don’t have inflation. So really, it’s all about the Fed’s fund rate right now. And the expected Fed’s fund rate and where you’ve come and where you’ve been and what you’ve expected and what the Fed has said they expected. This is a shell game that’s been going on for really since 2014. And the expectations right now are pretty, again, broadly diverse from the market thinking maybe you have one and maybe you have 25% chance of two rate hikes between now and the end of next year. For the end of next year, the Fed’s dot plot is 2 to 2.25 (percent).

So, that’s a massive divergence and I think, as the Fed continues to disappoint, even though it’s priced into Fed’s fund futures, I think the dollar has further downside, too, and I think if you look at what’s going on in Europe, it’s important, because you have economies there that are actually strong. The U.S. would die to have some of the numbers you’re seeing in Europe in places like Poland, and the Czech Republic, and Germany, all liked to the German export juggernaut. Record high exports. Tremendous numbers. Historic lows in unemployment. And these economies are cooking. So, to think the ECB is going to be continuing to be buying bonds beyond the end of this year, I think a taper is coming there, too, and that will further support the interest rate dynamic that moves away from the dollar.

Mike Gleason: Kind of expanding the point here on some industrial metals. Silver, which is both an industrial metal and a monetary metal, can often get caught in the cross currents. Is it a safe-haven when things don’t look good? Or does lagging demand for hard assets do to a slowing economy hurt it? What are your thoughts on silver, Greg?

Greg Weldon: Well, you know, silver really has lagged all over the place. And silver has been subject to some pretty sharp swings on really a lack of depth almost. Silver has — I love silver. I grew up in the silver pits. To me, there’s always an emotional tie to silver, as there is for a lot of people out there. But it’s unfortunate the market has kind of deteriorated to the point where you really need to break out in gold about $1,295 here to give silver any chance. And to think that the gold-silver ratio can get a big move right here, I’m not sure I see it.

To touch upon industrial metals, we were speaking about copper — I actually didn’t finish my thought there. It’s kind of the same for silver. It’s kind of the same for platinum. Outside of palladium, which is on its own universe, these metals are kind of tied together as industrial metals. And if you look at what’s happened in copper, you have the big rally that’s predicated upon growth you’re expecting to see down the road. It’s not predicated upon growth you see now. At least not in copper’s fundamentals, because the swap rates for copper are at new lows. In the deepest contango we’ve seen throughout this entire rally. That belies the thought that copper is a tightened market and that you’re actually building on expected future demand that hasn’t materialized yet based on policy implementation that doesn’t seem likely anytime soon.

I kind of have a problem with copper itself. The other base metals we kind of like, but in terms of silver, it will only trail gold if gold breaks out about $1,295. Right now, I’d rather be long gold.

Mike Gleason: In our space, we have seen a few people looking for an anti-dollar investment instead turn to Bitcoin and other cryptocurrencies, rather than to gold and silver. What are your thoughts there? Is Bitcoin a suitable substitute for the time-tested value of gold and silver as true money?

Greg Weldon: I think the immediate answer to that is a resounding no. I think that there’s a lot more we could talk about with Bitcoin in terms of A, is it drawing money away from gold? And I think right now it has. If you see the latest little blurb in stock market, Bitcoin takes off. I think people are kind of using it as an alternative currency, obviously, and that does draw away from gold. So, I think it’s interesting to note that, as the dollar has declined like 7% since, I guess it was maybe December, January, gold went down like three or four percent. I don’t remember the last time I saw that and I wonder at the same time Bitcoin is soaring, whether that’s a function of the rally in Bitcoin?

I could go much deeper on this in terms of what does this mean for monetary authorities and controlling money supply globally? I think that’s, obviously, the biggest tipping point with something like Bitcoin. Will they try and regulate it? The SEC has already made some noise on that, so I think that’s the way to look at Bitcoin in terms of the risk. The risk is that it’s a disruptor of magnitude that we really don’t even want to contemplate.

But is there an alternative to gold? No. Not in the long run. In the long run, if you have some kind of situation where you need hard currency, Bitcoin’s not a hard currency, case closed. If you have an electronics failure, who cares about Bitcoin? What you’re going to care about is the bar of silver you have in your hand or bar of gold. So, from those perspectives, you could talk all you want about the new age of money, but, at the end of the day, in terms of a store of value that will, as you say, stand the test of time, it’s a resounding no.

Mike Gleason: Getting back to the stock market here. Do we need to see a significant correction in order for gold to catch a bid and drive a bunch of global safe-haven buying? Or is it possible to see it rise on other factors?

Greg Weldon: In terms of the stock market, does it take a decline of stock market for gold to catch a bid? No, I don’t think it does. It’s awfully tough, because where I go with gold is dollar down and dollar down’s not necessarily bearish for stocks. So what I kind of really see might be some scare in stocks that actually causes the Fed to back off or to kind of change their tone even more away from hawkishness maybe even with a dash of devilishness in there.

If you look at St. Louis Fed Bullard, he is very staunch in his belief and has been since March and we detail his speeches all the time, because we’re right in line with his view. But the Fed’s not likely to hike rates at all between now and the end of next year. That’s completely against the grain of the Fed. I agree with that. I think that puts the dollar at risk. And yet, that’s supportive to stocks, but I think there’s still a case there for gold… that gold prices start appreciating on, hey, maybe, what are we doing here? Are we getting a little crazy with the reflation again?

Let’s not forget that you’ve had consumer credit grow an unprecedented level. The collateral is the stock market. The collateral is the 401K. You can take housing and the market back in 2007/8 and make some similarities. I’m not saying it’s the same, but there are a lot of similarities in the dynamic between the way consumers have borrowed to sustain their own spending in a feel good economy. That’s given us two to three percent growth and everyone scoffs at, but without QE, we wouldn’t even be here.

So, from that perspective, when you look at the degree of consumer borrowing that’s taken place, against the rise in the stock market, that’s little scary and that’s where a decline in the stock market would probably elicit a Fed response. The Fed’s very well aware of this, because if the stock market were to decline materially, that would really cause the consumer to re-tense very quickly, because of the link to credit and the immediate situation where the collateral base has dropped and the consumer still owes the money. Then what? That could be a bad economic scenario. The Fed’s not going to want to see that happen. And I think that’s the bottom line, end game, bullish story for gold.

Mike Gleason: In your view, what do see happening if we do get that little pull back here in the stock market that so many people have been waiting for? Will it have a snowball effect and really get bloody quickly as everyone heads for the exits all at once? People always talk about the movie theater analogy where a fire erupts and then it becomes mass chaos as everybody’s trying to go through a small little exit point all at the same time and some people get left behind. Talk about this, Greg, and give us your thoughts on what you see happening if we do finally get that pull back in the U.S. stock market. Will it be short lived or could we see a major correction that feeds on itself?

Greg Weldon: I kind of liken it to the exact scenario you just laid out. That’s something we’ve been saying in our daily research and some of the other interviews I’ve done recently. Specifically, that, that this is a real situation where you could see some very quick damage done. It’s almost like you start thinking about the old portfolio insurance days. This is a situation where people are long with big positions, cash managers, low levels of cash, not something we recently, in a lot of these other dips, you’ve had cash cushion. You don’t see that now. You’ve had public investments huge and passive investments, which own all of these stocks, and more recently now, they’ve expanded their inflow into actively managed funds again.

So, the public’s invested, too. Maybe not fully, but right now it doesn’t matter because these stock prices, again, it’s just to me, so many people own them, the volume has dried up. And if you get into a position where you start rolling to the downside and people want to liquidate, it’s a potential vacuum of buyers and vacuum of volume underneath this market where you could shave off 20% so quickly it’d make your head spin.

Does that then become a bigger picture story? It absolutely could, because of how extended technically these markets really are. And how vulnerable it would be in terms of the impact it could have on the consumer. So, from that perspective it’s kind of like you always got to watch out who could get hurt here, because they usually do. So, in that case, unfortunately, it’s the consumer. And then the question becomes, how quickly and forcefully does the Fed potentially react? And you’re talking about the entire flip side of what we’re looking at right now. So, how does that all play out remains to be seen, but I think the stock market’s a potential catalyst for that, for sure.

Mike Gleason: I’ve heard you call gold a coiled spring. Talk about maybe the technical side there. What you’re looking for on the charts. Obviously you follow this stuff very, very closely. What do you see ahead for the yellow metal and why do you have that view that it’s “a coiled spring”?

Greg Weldon: Again, it links back to the correlations with other markets i.e., the dollar. And when you tie the technicals with the fundamentals and you kind of come up to where we are now, it seems, I’m kind of wondering, is it too obvious? You know and I know, I’ve been around long enough that if it seems this obvious, you want to ask yourself what’s wrong with my thinking? What’s wrong with my scenario.

So, part of what we do every day here is not only just look to confirm what we think we know, but to look to refute it, too. And in that vein, it looks almost too perfect, because the technical situation, in the dollar, flips off to the technical situation with the gold extremely well right here. And the technical situation in gold, Mike, is really exciting. It is long term secular stuff where if you get above $1,300 here, $1,295, then you’ve got $1,377, and beyond that, this is a new bull leg. And a new gigantic structure type of bull market going on where you’re thinking about these metals going to new all-time highs.

How all that plays out, obviously, remains to be seem. That’s why we love doing this every single day. Digging in and finding out where we’re at and finding what’s changing and finding what’s happening. But the technical structure is such that it goes all the way back and you’re talking about the big move 12 years from ’99 into 2011. You had, basically, a four year correction one third of that time frame. ABC, down to the lows, just below $1,100, that you set, not too long ago, and then you bottomed in 2016. You’ve had this pattern that you’ve now been congesting and setting up this coiled spring like we said, where you bust out to the upside and, man, you’re turning all the long term momentum is poised here to really accelerate. So, it’s huge $1,296 and then sometimes you get above it a little bit and it’s a false start. We want to keep some dry gunpowder to try this several times in case it takes a couple times. But we think the breakout is here, we think the fundamentals are in place, and we think the technicals are compelling.

Mike Gleason: Well, Greg, it’s been a real pleasure and I thoroughly enjoyed having you on. I definitely hope we can do this again. Now, before we let you go, please tell folks about Weldon Financial or any other information that they need to know about you and your firm. Tell them how they can do that.

Greg Weldon: Sure. We’d love to offer a free trial to any of your listeners that haven’t trialed with us previously and it’s at WeldonOnline.com. We do WeldonLive. It’s a short video. It’s a PDF chart pack that comes every day; it’s about 60 pages. And we go through everything from global macro to fixed income to foreign exchange. Current to stock indexes and ETFs, precious industrial metals, energy and agriculture commodities.

Every single day we have specific trading recommendations in the WeldonLive, in our trade lab, and we do portfolio breakdown’s in the U.S. stock market in terms of what sectors do we overweight, underweight, stuff like that. There’s a lot of great information in there and, most of all, we try and help the smaller guy. We kind of act more like a hedge fund and we serve the hedge funds. So, from that perspective, anyone can trial it and we feel its value for any type of level of trader. So, WeldonOnline.com. Sign up for WeldonLive.

Mike Gleason: Well, great stuff. Again, I really did enjoy speaking with you and look forward to maybe doing it again down the road and thanks so much for the time and I hope you enjoy the rest of your summer. Thanks very much, Greg.

Greg Weldon: Thanks, Mike. Take care.

 

Oil Market Tightening Puts a Firm Floor Beneath Oil Prices

Oil Market Tightening Puts a Firm Floor Beneath Oil Prices

Oil Market Tightening Puts a Firm Floor Beneath Oil Prices

One of the key objectives for OPEC is to bring down inventories, a goal that has been elusive this year. But if the oil futures curve is anything to go by, the oil market is showing signs of tightening.

The Single Biggest Bullish Catalyst For Oil Prices

Brent futures have recently begun to exhibit a state of backwardation, which is when near-term oil futures trade at a premium to contracts dated further off into the future. This is the first time in years that backwardation has occurred, and most analysts are taking it as a sign that the oil market finally could be getting closer to rebalancing. In the past, backwardations have accompanied a rebound in the oil market after a bust, while a contango (the opposite of backwardation) tends to occur when the market crashes because of a supply glut.

There are several reasons why backwardation is bullish, which has been discussed in previous articles. A declining futures curve makes it uneconomical to store oil, so backwardation could accelerate the drawdown in inventories. It also complicates the hedging strategies of shale producers, which could hold back expansion plans. It also is a symptom of tightening near-term supplies, although, to be sure, the flip side of that argument is that it could merely be a reflection of expectations that the supply glut will reemerge at some point in the future.

Still, backwardation is occurring at a time when there are other bullish indicators starting to crop up. The U.S. has seen a sharp drawdown in inventories in recent months, down more than 60 million barrels since March. The IEA and OPEC both recently upgraded their oil demand estimates. “World economic growth has gained momentum,” OPEC said. “With the ongoing growth momentum and an expected continued dynamic in second-half 2017, there is still some room to the upside.”

The view of Wall Street is also becoming more bullish. Hedge funds and other money managers have amassed a large number of long positions on recent weeks. For the week ending on August 8, investors stepped up their bullish bets on Brent by the equivalent of 58 million barrels, according to the FT, which was the largest weekly increase towards net length since December.

“It’s hard to be aggressively negative if every week you’re getting stronger numbers,” Paul Horsnell, global head of commodities research at Standard Chartered, told the FT, although he added that “there is still resistance. The market is not willing to push oil prices too far up.”

Indeed, there is little prospect of oil prices moving much beyond $50 per barrel. Not everyone is even sold on the notion that the market is tightening. OPEC production is at its highest point so far in 2017, U.S. shale continues to rise, and some long-planned projects are coming online later this year in Canada and Brazil, for example. “There is no way this oil can be accommodated into the market so oil prices are going to have to give at some point,” Mr Dei-Michei of JBC Energy told the FT. “This bullish sentiment cannot last.”

In fact, swings in sentiment, like a pendulum, are typical. More than once this year, the bullish positions have built up too far, only to be undone when sentiment shifted, causing a steep selloff in oil prices. Following the price crash in June, the profoundly bearish positioning amongst hedge funds and other money managers also went too far, causing shorts to be liquidated and bullish bets to remerge – which, again, accompanied a rebound in oil prices.

All of that is to say that the most recent shift towards long bets on oil futures probably can’t carry oil prices all that far. The underlying fundamentals simply don’t justify significant price gains…at least for now. “They’re going to have to dig in for the long haul,” Neil Atkinson, head of the IEA’s oil markets and industry division, said on Bloomberg TV, referring to the OPEC cuts. “Re-balancing is a stubborn process.”

In short, the shift into backwardation in the futures market suggests that the supply balance is heading in the right direction, and it probably puts a floor beneath oil prices for the time being. But it doesn’t necessarily mean that oil be heading much higher than $50 per barrel anytime soon. –  Nick Cunningham

Oil Prices Rise As Saudi Exports Hit 33-Month Low

Saudi Arabia’s crude oil exports in June dropped to their lowest level in 33 months, while Saudi oil inventories were down to a level last seen in early 2012, according to data by the Joint Organizations Data Initiative (JODI), suggesting that Saudi exports had likely further dropped in July and continue to fall in August.

Saudi crude oil exports fell in June by 35,000 bpd from May to hit a 33-month low at 6.89 million bpd, while crude oil stockpiles hit a 65-month low, or the lowest since January 2012, at 257 million barrels.

“You can assume exports will fall even further going forward because they can’t keep running down stockpiles,” Amrita Sen, an analyst at Energy Aspects in London, told Bloomberg.

In addition, Saudi Arabia is one of the few countries that burns oil to produce electricity, and the summer season with scorching heat is a peak demand season for the domestic electricity needs to keep air conditioning running.

Saudi Oil Minister Khalid al-Falih said last month that OPEC’s biggest producer and exporter would further cut its crude oil exports in August, to 6.6 million bpd, which would be nearly 1 million bpd lower than the exports in the summer of 2016.

The Saudis are also significantly cutting their crude oil exports to the United States, after Riyadh stated a couple of months ago that it would purposely reduce exports to the U.S. to force a reduction in the world’s most transparently reported inventory.

On Wednesday, the EIA reported a hefty draw in U.S. commercial oil inventories a day after the API surprised analysts by estimating inventories had declined by 9.2 million barrels.

The EIA calculated that commercial inventories of crude oil had gone down by 8.9 million barrels in the week to August 11, after a draw of 6.5 million barrels a week earlier.

Oil prices, however, did not rally on the hefty draw, because the EIA also reported that U.S. crude oil production rose last week to 9.502 million bpd from 9.423 million bpd the previous week, to the highest weekly level since the third week in July 2015.

As of 11:01 AM CST, WTI is up 0.26 percent at $46.90 per barrel. – Tsvetana Paraskova

 

Blockchain Revolution is Gunning for the $27 Billion Gold Market Trading

Blockchain Revolution is Gunning for the $27 Billion Gold Market Trading

Blockchain Revolution is Gunning for the Gold Market

Public online ledgers that emerged from the explosive markets for bitcoin, a virtual currency, already have drawn the attention of businesses from banks to retailers who see blockchain systems as a revolutionary way to verify and record transactions. Now, companies including exchange owner CME Group Inc., IEX Group Inc. spinoff TradeWind Markets and financial technology firm Paxos are rolling out similar platforms to bring gold into the digital age.

About $27 billion of gold changes hands every day in over-the-counter markets where settlements can sometimes take days, leaving price risk for buyers and sellers. Using blockchain promises more transparency, security and speedier deals. It also could attract new participants at a time when investors are souring on gold-backed exchange traded-funds, a key source of growth in physical demand over the past decade.

“Digital gold would take market share away from other gold instruments: futures, physical gold bullion, gold ETFs,” Ebele Kemery, head of energy investing at JPMorgan Asset Management, said in a phone interview Aug. 9. Using the technology to trade the precious metal would create “another avenue for where investors can look to find value,” she said.

Bitcoin, the first instrument to use blockchain, has more than quadrupled in 2017 to more than $4,000. The cryptocurrency this year surpassed the price of gold for the first time.

CME Group, the world’s largest exchange owner, teamed up last year with the U.K.’s Royal Mint to create a bullion product called Royal Mint Gold. CME, according to its website, worked with blockchain security company BitGo to provide a “fast, cost-effective and cryptographically secure method” of buying, holding and trading the precious metal.

Testing System

The RMG trading platform is now being tested with major financial institutions and will be offered to customers by the end of the year, according to CME. That’s in line with a timetable set in November 2016, when the exchange first announced the plan. The product, which is geared toward institutional and retail investors, will be backed up by as much as $1 billion of bullion stored at the mint, according to the exchange.

TradeWind, backed by Sprott Inc., a money manager focused on precious metals, is using blockchain for an electronic platform that would match buyers with sellers of gold stored in any London Bullion Market Association-approved vault. TradeWind also provides a distributed ledger that will handle trade settlement, account management and record-keeping. The company expects to launch the product late this year or early next.

Paxos built Bankchain Precious Metals. It’s a blockchain settlement service to allow for the instantaneous transfer of payments and ownership of the bullion stored in various vaults in London, Charles Cascarilla, Paxos’s chief executive officer, said in a phone interview.

Clearing Trades

In a pilot test with Euroclear, before its partnership with Paxos was dissolved, Bankchain cleared more than 100,000 transactions with participants including Citigroup Inc., Societe Generale SA, Barrick Gold Corp. and INTL FCStone, according to a statement in April.

Paxos, which built the infrastructure, conducted another test, this time involving the actual movement of dollars through the Federal Reserve and the ownership of gold in London vaults, proving that the system is ready to process instantaneous settlements, Cascarilla said. The service will be launched by the end of the year, as planned, even after breakup of Paxos’s partnership with Euroclear, he said.

Still, blockchains won’t solve any problems related to the physical delivery of gold, said Adrian Ash, a research director at BullionVault. The company runs an online platform for retail trading of about $2 billion of metal stored in vaults around the world, including Zurich, London, New York and Singapore. It handles 38 metric tons of gold, more than the reserve holdings of Peru.

“People don’t trust the government, so why would you leave it at the government vaults?” Ash said. “Our customers don’t want it sitting in a commercial bank vault because they could go bankrupt. When we buy it from a bank, we put it in a specialist custodial facility. You need a truck to move it. Blockchain doesn’t solve the truck problem.”

Paxos’s settlement service may lure clients like Tornado Bullion, an online trading platform for coin dealers, metal recyclers and bullion buyers. Tornado is tracking the progress of Bankchain, hopeful the technology could lower the transaction costs, co-founder Peter Thomas said in a telephone interview.

Currently, Tornado buys and sells gold over the counter through JPMorgan Chase & Co., one of the five clearing members of the London Bullion Market Association. That way, same-day payments can be transferred to Tornado’s JPMorgan account in New York, Thomas said. Settlements take longer for smaller players who don’t deal directly with LBMA clearing members.

Given the transaction takes a couple of days to be cleared and the gold delivered, Thomas said his clients use a hedging tool that costs 10 cents for every ounce of gold to protect them against price fluctuations. The metal traded Thursday at about $1,286.29 an ounce. Avoiding that cost on about $500 million of trades every month would be useful, but Thomas says Tornado Bullion isn’t rushing to join the Paxos system.

“The biggest concern to me is reliability,” Thomas said. “The last thing I want to do is come in and find 700,000 ounces of gold are missing. We’ll give it a few years to see how it goes. Once accountability has been tested, then we’ll be a little more comfortable with it.” – Bloomberg

Fed Minutes on Inflation, Debt Limit, Balance Sheet & the Effect on Gold

Fed Minutes on Inflation, Debt Limit, Balance Sheet & the Effect on Gold

Fed Minutes on Inflation, Debt Limit, Balance Sheet & the Effect on Gold

Fed minutes might show that moving ahead on the balance sheet will, for the time being, take some of the tension out of the Fed’s debate over inflation. That’s partly because hawks and doves appear to have different expectations for the impact on financial conditions of trimming the balance sheet. Everyone’s OK with moving on the balance sheet. The hawks think that will reduce the risk of inflation, while those worried that inflation is too low aren’t worried about the impact of the balance sheet.

Analysts expect the start of a gradual unwind of the balance sheet to be announced in September, with the next rate hike delayed until the final month of the year. The most likely market-moving discussion will be around inflation. The Fed’s preferred gauge of inflation slowed to 1.4 percent in June, well below the central bank’s 2 percent target.

Many officials, including Chair Janet Yellen, have pinned the weak inflation reports mostly on “transitory” and “idiosyncratic” price drops in specific sectors such as mobile phone services and pharmaceuticals. Yellen, however, conceded in testimony before Congress on July 12 that “there could be more going on.”

Fed Minutes – What to expect of Gold?

Fxstreet: The Federal Reserve left interest rates unchanged after its July 25-26 meeting and indicated it could begin shrinking its bond portfolio as soon as September. The minutes of the meeting will be released today at 18:00 GMT.

Key things to watch out for-

Is Fed still willing to look through weak inflation? The wait for pick up in US inflation continues. The official number for July released last week once again printed below estimate. The inflation expectations as represented by the 5-year, 5-year forward inflation expectation rate fell sharply during March – June period. The USD was offered across the board during the same time period. It clearly shows the outlook for the USD is primarily dependent on the inflation numbers. However, it is worth noting that the pick up the inflation expectations from the June low was ignored by the greenback till last week.

The US Dollar is finally catching up with rising inflation expectations this week. If the Fed minutes indicate that more Fed policymakers see the weak inflation as long-lasting, it could reduce the chances of an anticipated hike, thus the USD would drop.  On the other hand, the corrective move in the USD would gather pace if the policymakers blame low inflation on transitory factors.

Debt limit: The Treasury Department has said the government has enough money to pay its bills on time through September. Meanwhile, the Fed is widely expected to start its balance sheet runoff program in September.

The Fed minutes due today would shed light on whether policymakers are worried about the debt showdown. Cautious comments could weigh over the USD and vice versa.

Balance Sheet Runoff: The July statement said the policymakers are in favor of reducing the Fed’s $4.5 trillion portfolio of bonds and other assets “relatively soon”. The markets believe ‘relatively soon’ means September. The minutes may provide a more definitive signal on the timing of the runoff. Hint at September could lead to a steeper Treasury yield curve and strong dollar.

Other key things that warrant attention are-

  • Commentary on interest rate: Fed Minutes are likely to reiterate that policymakers favor gradual rate hikes. Major changes aren’t expected on this front.
  • Commentary on consumer spending

Gold – Rising channel intact

Daily chart

Fed Minutes on Inflation, Debt Limit, Balance Sheet & the Effect on Gold

  • The chart above clearly shows the rising channel is intact… meaning the pull back from the recent high of $1292 could be another opportunity for investors to board the freight train.
  • Only an end of the day close below the trend line support of $1264 would signal that a top has been made. The metal could then test demand around $1248-1242 levels. Such a move looks likely if the Fed minutes ignore weak inflation and hint at September balance sheet runoff.
  • On the other hand, a solid rebound to $1285 levels could be seen if the Fed minutes sound dovish.

Yield curve

Fed Minutes on Inflation, Debt Limit, Balance Sheet & the Effect on Gold

  • Traders are advised to keep an eye on the yield curve, i.e. the difference between the 10-yr yield and the 2-yr yield. The USD loves a steeper yield curve and vice versa.
  • The changes in the yield curve would indicate if the markets believe what the Fed minutes say.
  • A steeper yield curve is gold bearish and vice versa.
  • An upside break of the falling trend line on the chart above would open doors for more steepening of the yield curve.

Gold Prices Poised for an Upside Explosion after Paper Gold Bear Raids Failed

Gold Prices Poised for an Upside Explosion after Paper Gold Bear Raids Failed

Gold Prices Poised for an Upside Explosion after Paper Gold Bear Raids Failed

The outlook for gold prices has changed quite a bit over the last month. In early July, Gold and gold stocks were weak and threatening severe breakdowns below key levels such as $1200 Gold and $21 GDX. Those moves reversed course and now Gold and gold stocks are threatening resistance.

Gold prices are testing critical resistance in the $1290-$1300 area & could close the week at its highest weekly close in 2017, just weeks after breaking its 2017 uptrend. Gold prices have broken the downtrend line since 2011 but the most important resistance is $1300. With a break above $1300, Gold prices  could be on their way to a retest of the 2016 high at $1375. Silver has a little ways to go before it can break its downtrend line but its relative strength in recent days is quite encouraging.

There are several reasons we have turned bullish. First, precious metals were breaking down in early July yet that reversed course entirely. Gold prices have rallied back to +$1290 and well above resistance at $1240-$1250. If Gold prices were going to break below $1200 then the rally would have rolled over again around $1240. Second, intermarket activity has turned quite favorable for Gold prices  The US$ index has not made a new low but Gold prices have perked up. Meanwhile, Gold is benefiting (as it should) from weakness in the equity market. We think the weakness could continue and drive Gold prices to $1375.

The Coming “Break Out” in Gold Prices

Jim Rickards: Gold prices have conducted what some are calling a “stealth rally” over the past month.

After bottoming at $1,206 per ounce on July 10, gold prices are at $1,286 this morning, a healthy 6.5% gain in just over one month.

The has been welcome relief for gold investors after a series of “flash crashes” on June 14, June 26 and July 3 contributed to a gold drawdown from $1,294 per ounce to $1,206 per ounce between June 6 and July 10. At that point it looked as though gold might fall through technical resistance and tumble to the $1,150 per ounce range.

But the new rally restored the upward momentum in gold prices we have seen since the post-election low on Dec. 15, 2016. Gold seems poised to resume its march to $1,300 after the paper gold bear raids of late June.

The physical fundamentals are stronger than ever for gold prices. Russia and China continue to be huge buyers. China bans export of its 450 tons per year of physical production.

Gold refiners are working around the clock and cannot meet demand. Gold refiners are also having difficulty finding gold to refine as mining output, official bullion sales and scrap inflows all remain weak.

Private bullion continues to migrate from bank vaults at UBS and Credit Suisse into nonbank vaults at Brinks and Loomis, thus reducing the floating supply available for bank unallocated gold sales.

In other words, the physical supply situation is tight as a drum.

The problem, of course, is unlimited selling in “paper” gold markets such as the Comex gold futures and similar instruments.

One of the flash crashes was precipitated by the instantaneous sale of gold futures contracts equal in underlying amount to 60 tons of physical gold. The largest bullion banks in the world could not source 60 tons of physical gold if they had months to do it.

There’s just not that much gold available. But in the paper gold market, there’s no limit on size, so anything goes.

There’s no sense complaining about this situation. It is what it is, and it won’t be broken up anytime soon. The main source of comfort is knowing that fundamentals always win in the long run even if there are temporary reversals. What you need to do is be patient, stay the course and buy strategically when the drawdowns emerge.

Where do we go from here?

August and September are traditionally strong seasonal periods for gold prices. This is partly due to proximity to the wedding and gift season in India, when strong buying prevails.

Yet there’s more to the gold demand story this year.

Deteriorating relations between the U.S. and Russia will only accelerate Russia’s efforts to diversify its reserves away from dollar assets (which can be frozen by the U.S. on a moment’s notice) to gold assets, which are immune to asset freezes and seizures.

The countdown to war with North Korea has begun. A U.S. attack on the North Korean nuclear and missile weapons programs is likely by mid-2018. The stock market may not have noticed, but the gold market has. This is part of the reason for recent gold strength.

Finally, we have to deal with our friends at the Fed. The strong jobs report on Friday, Aug. 4, gave life to the view that the Fed would raise interest rates at least one more time this year. Rate hikes make the dollar stronger and are a head wind for the dollar price of gold.

But the Fed will not hike rates again this year. Once the market wakes up to the reality of a prolonged “pause” by the Fed, they will conclude correctly that the Fed is once again attempting to ease by “forward guidance.” This relative ease will keep the dollar on its downward trend and be a boost to the dollar price of gold.

The Fed will not hike rates regardless of the strong jobs report. The reason is that strong job growth was “mission accomplished” for the Fed over a year ago. Jobs are not the determining factor in Fed rate decisions today. The determining factor is disinflation.

The Fed’s main inflation metric has been moving in the wrong direction since January. The readings on the core PCE deflator year over year (the Fed’s preferred metric) were:

January 1.9%
February 1.9%
March 1.6%
April 1.6%
May 1.5%
June 1.5%

The July data will not be available until early September.

The Fed’s target rate for this metric is 2%. It will take a sustained increase over several months for the Fed to conclude that inflation is back on track to meet the Fed’s goal.

There’s no chance of this happening before the Fed’s September meeting. It’s unlikely to happen before December, because of weakness in auto sales, retail sales, discretionary spending and consumer credit.

A weak dollar is the Fed’s only chance for more inflation. The way to get a weak dollar is to delay rate hikes indefinitely, and that’s what the Fed will do.

And a weak dollar means a higher dollar price for gold.

Current levels look like the last stop before $1,300 per ounce gold. After that, a price surge is likely as buyers jump on the bandwagon, and then it’s up, up and away.

There’s an old saying that “a picture is worth a thousand words.” This chart is a good example of why that’s true:

Gold Breakout Coming?

Gold analyst Eddie Van Der Walt produced this 10-year chart for the dollar price of gold showing that gold prices have been converging into a narrow tunnel between two price trends — one trending higher and one lower — for the past six years.

This pattern has been especially pronounced since 2015. You can see gold prices have traded up and down in a range between $1,050 and $1,380 per ounce. The upper trend line and the lower trend line converge into a funnel.

Since gold prices will not remain in that funnel much longer (because it converges to a fixed price) gold will likely “break out” to the upside or downside, typically with a huge move that disrupts the pattern.

At the extreme, this could imply a gold price on its way to $1,800 or $800 per ounce. Which will it be?

The evidence overwhelmingly supports the thesis that gold will break out to the upside. Central banks are determined to get more inflation and will flip to easing policies if that’s what it takes.

Geopolitical risks are piling up from North Korea, to Syria, to the South China Sea and beyond.

The failure of the Trump agenda has put the stock market on edge and a substantial market correction may be in the cards.

Acute shortages of physical gold have set the stage for a delivery failure or a short squeeze.

Any one of these developments is enough to send gold soaring in response to a panic or as part of a flight to quality. The only force that could take gold prices lower is deflation, and that is the one thing central banks will never allow. The above chart is one of the most powerful bullish indicators I’ve ever seen.

Get ready for an explosion to the upside in the dollar price of gold. Make sure you have your physical gold and gold mining shares before the breakout begins.

 

What are You going to put Greater Faith in Now – Stocks or Gold?

What are You going to put Greater Faith in Now - Stocks or Gold?

What are You going to put Greater Faith in Now – Stocks or Gold?

Knowing which assets to be in and when is the secret to investing success.

Easy to say, harder to do.

Today we look at the ratio between gold and stocks over time, and ask which of the two we should be erring towards just now…

How smart timing can make your fortune (and bad timing can destroy it)

Given perfect hindsight, why would you have bothered owning stocks in the 2000s when you could have owned gold? Gold began the decade at below $300 an ounce, and ended it above $1,100.

Stocks, meanwhile, as measured by the S&P 500, began the decade around 1,450, experienced two epic crashes and ended the decade nearly 25% lower around 1,100.

The 2010s have witnessed a rather different scenario. The S&P 500 has more than doubled, while gold is up little more than 10%. If you take September 2011 as your starting point, when gold hit $1,920, the numbers look even uglier (if you are on the gold side of the trade).

September 2011 was the point at which the ratio between the two reversed. In 2011, with gold worth $1,920 and the S&P 500 at 1,170, it took about 0.6 of an ounce of gold to buy one unit of the S&P 500. Now, with the S&P close to 2,500 and gold around $1,250, you need roughly two ounces.

Let’s say you had sold one S&P 500 unit in 2000. You could have got around 5.4 ounces of gold. You then sold that gold in September 2011, when you could buy the S&P 500 for 0.6 ounces of gold. What was a single S&P unit in 2000, is now nine S&P units in 2011. That’s some gain.

If you were then to sell those nine S&P units, now you’d get 18 ounces of gold.

Play the ratio between the two right – in other words, get your asset allocation right – and over time you compound your wealth considerably.

However, let’s say you did the opposite. You sold 5.4oz of gold in 2000 and bought one S&P 500 unit. You switch back in 2011, that 5.4oz is now just 0.6oz. Ouch.

Switch back now, with the S&P 500 trading at two ounces of gold, and for 0.6 ounces you end up with about a third of an S&P unit. (If I’ve got the maths wrong, please correct me in the comments. I’ve tried to keep it readably simple.)

You’ve lost about two-thirds of your wealth and you haven’t even been buying high-risk assets. You’ve just got your asset allocation wrong.

So where are we now?

The gold/S&P 500 ratio – where to next?

Below is the ratio between gold and the S&P 500 over the last 100 years. The red lines indicate the periods where you would have been better off in stocks (the 1920s, the 1950s and 60s, the 1980s and 90s). The gold lines (the 1930s, the 1970s, the 2000s) indicate when it’s proved best to have been in gold.

Chart of the ratio of gold vs US stocks

The point of maximum extreme, reached in the 1930s and in 1980 – when stocks were at their cheapest – was when it took just 0.2oz of gold to buy the S&P.

However, you will note the extreme at the other end has grown steadily higher over the past century. In 1929, the S&P could be bought for 1.5oz of gold. In 1970, it was 2.5 times. In 2000, it was 5.6 times.

There is a simple explanation for this. As Western society has progressed, if that’s the word, over the 20th century, gold has become less prized. Meanwhile, the value of 500 of the largest companies in America has grown and grown. I know it’s a statement that will break the heart of many a gold bug, but gold is just not as prized as it once was.

That is not to say, however, that gold has no value.

Below is a logarithmic version of the same chart for your information.

Chart of the ratio of gold vs US stocks

At the moment we are pretty much slap bang in the middle of the range. Where’s that chart going next? Up towards the top of the range at four, five or six times the S&P, or back towards the bottom? That’s the million-dollar question.

Right now, I’m inclined to say up towards the top. The world currently seems to believe more in companies and all the enterprise that comes with them than it does in gold. Companies keep getting bigger and more valuable.

But, who knows? Maybe we are re-living the 1970s and the market is set to turn, just as it did in 1976 (when it was also in the middle of the range), and head back towards the point where it costs just 0.2 oz to buy the S&P.

What is gold – money, or an Armageddon play?

When thinking about your own answer to where the ratio is heading, it’s worth asking what gold is.

I’ll have a go at answering that question. It’s a beautiful and prized metal which was once official money. That’s no longer the case, although its main use is still as a store of value, as well as in jewellery.

Gold’s main problem, in terms of investor psychology, is that it is no longer official money, and it is no longer perceived by the mainstream as having any real world use beyond being something quite nice to look at.

That perception has to change. It was starting to change in the 2000s as gold fever took over, but that has now dissipated.

When I first learned about the arguments for gold in 2005, as readers of these pages will know, I fell for it. Not only the metal itself, but its potential use as money once again: the discipline and honesty it instils in those in charge would do us all a great deal of good.

Digital gold would solve a lot of money transaction issues. And with all the various abuses of fiat currency that go on – printing it, manipulating interest rates, debt and deficit – I thought there was a genuine chance the whole thing would go pop and gold would reclaim its historic role.

As readers of these pages will also know, six years of bear market have taken their toll and as time has gone by I’ve grown more and more cynical. When a gold bug now says: “What about Asian demand?”, I argue that Asian fascination could erode away just as Western demand did in the 20th century.

When a gold bug says: “gold has always been money”, I say: “The horse was always transport. Then we invented the car.”

I do buy the argument, however, that gold is money in extremis. At times of crisis, gold is the money of last resort. But the strategic decision to buy gold, so that when Armageddon comes you rake it in, doesn’t make any sense to me. Armageddon doesn’t happen all that frequently. And, when it does come, you’re often too busy dealing with Armageddon to be trading gold.

However, readers of these pages will remember last week I was intrigued by a chart I saw showing the ratio between gold and the S&P over the last few years. There were signs the ratio between the two had flatlined.

Here’s another version, showing the ratio between gold and stocks since 2009. When the price is rising, it means the value of stocks is rising vs gold; when it is falling, it means the value of gold is rising relative to stocks.

Chart of the ratio of gold vs US stocks

Have we reached a turning point here, with the S&P 500 at two times the price of an ounce of gold?

That’s a question we all need to think about. What is the world going to put greater faith in from current levels given the current state of the world – stocks or gold?

I’ll leave you to think about that. And meanwhile, I’ll be keeping a close eye on that ratio. – Dominic Frisby

 

The Shine of Silver Or the Glitter of Gold – Brightest of the two in Years Ahead

The Shine of Silver Or the Glitter of Gold - Brightest of the two in Years Ahead

The Shine of Silver Or the Glitter of Gold

Gold is the preeminent monetary metal, and throughout history to this day, it has projected the most enduring images of wealth. Consider how often gold bars are used to depict glamour and riches. Silver is in its shadows, but as an asset, it contains similar wealth-protecting qualities, perhaps with even greater return potential.

Unlike physical gold, which is used very little in industry, physical silver is an input in a wide range of industries including photography, medicine, defense and electronics. Silver is the best conductor of electricity and heat and is a highly reflective metal.

Modern medicine has recently rediscovered silver’s anti-bacterial qualities, with its germ-fighting properties leading to an explosion in products containing silver. From silver-impregnated sportswear (to kill the germs which cause body odour), fabrics for public transport and airline seats to prevent the spread of infections, coatings for fridges and washing machines and even in antiperspirant sprays and band-aids.

As the best conductor of electricity, silver is used in solar panels to increase efficiency and in wiring, switches and soldering contacts. Silver oxide batteries (probably like the one in your watch) are increasingly used to power larger devices as they store the most power relative to size of any battery.

Silver is also used in iPhones, iPads, cell phones and flat screen televisions, with over 10,000 known industrial applications.

Silver prices are currently relatively low, making recycling largely uneconomic and therefore, much of the silver used in products is lost to landfill. This may change if the price rises substantially, but for now, it’s a bullish factor underpinning the silver market.

Silver as monetary metal

Whilst silver is heavily used in industry, it has an incredible history as a monetary metal. Known as Argentum in Latin, the Ancient Egyptians, Lydians, the Greeks, and the British all valued and used silver as a monetary asset.

There is a reason why British money is referred to as Pound Sterling. Indeed, the term dollar can be traced back to the 1530s, and a legendary Bohemian silver mine near Joachimsthal, which at its peak produced over three million ounces of silver a year.

The coins produced from this mine were called Joachimsthaler, or ‘thaler’ for short, and these silver coins formed the basis of the Dutch ‘daalder’. The ‘daalder’ became the most popular trading currency in the Dutch founded town of New Amsterdam, known today as New York, where they were known as dollars.

Current demand and supply

The chart below shows the breakdown of silver demand over the last 10 years, as well as the move in the US$ silver price over this time. Approximately half of the demand comes from industrial applications, with jewellery and implied net investment, predominantly bars and coins, comprising the majority of the rest. Investment demand has increased markedly over this period, with bar and coins sales tripling between 2007 and 2016.

silver market

Source: GFMS via Thomson Reuters, ABC Bullion

The majority of the current supply comes direct from mine production, with about 20% of total supply across the last 10 years coming from silver scrap. A significant portion is mined as a by-product, meaning that the mine the silver is coming from is predominantly in place to produce other metals, like gold, copper, or zinc and lead, with more than half of the silver coming from Latin America.

The fact that silver is so often a by-product adds a degree of inelasticity to supply, in that a copper miner isn’t going to increase production if the price of copper is falling or stagnant, just because the silver price is rising. The miners are often not overly interested in the silver, as it probably only consists of a small portion of the miners’ overall revenue.

Net government sales were a source of supply to the market until recently, but have effectively stopped, as national silver bullion reserves the world over are all but completely depleted.

The gold to silver ratio and the future of the silver market

Whilst we expect silver to be the more volatile of the two monetary metals, the gold to silver ratio (GSR), which measures how many ounces of silver one needs to buy one ounce of gold highlights why we believe silver prices may rise by more, in percentage terms, than gold in the coming years.

The GSR is currently about 78, with gold at US$1,260 an ounce and silver at about US$16.20 an ounce. This is nearly 20% above the average of the last 30 years, a timeframe in which the GSR has averaged just over 66. Indeed, as per the chart below, the GSR is currently at a level that has only been exceeded once in the past 30 years.

silver market

Going forward, there are a handful of reasons why the GSR should be lower than the current reading of 78.

Firstly, as per the chart above, since the turn of the century, the GSR has approached current readings three times, back in early 2003, again in late 2008, and toward the end of 2015. Each proved good buying points for precious metals, with silver in particular rallying from these levels in the subsequent year, with average gains of nearly 20%.

Geology and mine production are factors too. Gold occurs in the earth at a rate of 4 parts per billion (PPB), whilst silver occurs at 75 PPB. This ratio of about 19:1 indicates that there is roughly 19 times more silver in the ground compared to gold. Given gold production has averaged around 2,800 tonnes per annum over the last decade, one might expect (based on a silver/gold PPB ratio of 19:1), that about 53,000 tonnes of silver would be mined each. In reality, primary mine supply is barely half that, with the latest data from the Silver Institute suggesting annual silver mine production is just 27,500 tonnes.

Industrial demand, should global growth accelerate from here could also propel silver prices in the years ahead. Industrial demand is essentially a non-factor in the gold market, but a major factor in the silver market. As such, silver stands to benefit if governments get their wish of higher global demand and a pick-up in inflation, which they almost certainly will should they unleash fresh bouts of fiscal stimulus.

Finally, it’s worth looking at the size of the gold and silver markets from an investor’s perspective. Gold demand in 2016 was just over 4,300 tonnes, worth over US$170 billion at an average price of US$1250/oz. Silver demand on the other hand came to just shy of US$18 billion, meaning gold demand was nearly ten times higher than silver demand.

As such, it takes less dollars to move the silver market, a factor that may prove decisive if more investors seek to hedge their portfolios with a precious metals exposure. There are portfolio benefits of including precious metals in a diversified mix of assets.

Add all these factors together, and silver, a quasi-industrial metal with a rich monetary history, may be about to step out of gold’s shadow, and shine brightest in the years ahead. – Jordan Eliseo

 

Gold Prices have Beaten the Stock Market so far this Century

Gold Prices have Beaten the Stock Market so far this Century

Gold Prices have Beaten the Stock Market so far this Century

Spot gold finished July up more than 2 percent, its best month since February, when it returned 3.7 percent. The yellow metal responded to a struggling US dollar, which has lost more than 10 percent so far this year relative to other currencies and is currently at a 15-month low. The dollar could very well continue to slide on additional political uncertainty surrounding President Donald Trump and his administration. This would mean further upside for gold and gold stocks.

Trade weighted u.s. dollar index continues to plummet

Also contributing to gold’s price appreciation was lackluster economic data that, I believe, lowers the likelihood of another interest rate hike in 2017.

The yellow metal is now trading above its 50-day and 200-day moving averages, ordinarily seen as a bullish sign.

gold price is trading above its 50-day and 200-day moving averages

More impressively, the price of gold has outperformed the S&P 500 Index so far this century, returning 86 percent more than the market if we index both asset classes at 100 on December 31, 1999. Over the past 17 years, the S&P 500 has undergone two major contractions, both of them resulting in a loss of around 40 percent. Gold, meanwhile, has held its value well, boosting its appeal as a portfolio diversifier.

gold price has beaten the market so far this century

Our two gold funds have similarly outperformed the market so far this century, as you can see above. The Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX) are co-managed by myself and precious metals expert Ralph Aldis. Not only do Ralph and I rely on fundamentals to make stock selection and weighting decisions, but we also maintain close, productive relationships with mining company management teams across the globe.

Gold Could Be the Solution for a Vulnerable Stock Market

In a telephone interview with Reuters this week, DoubleLine Capital CEO Jeffrey Gundlach, known on Wall Street as the “bond king,” said that he still has exposure to gold, which he predicts will see continued upward price momentum in the short term.

“Gold looks cheap compared to markets that have rallied a lot, including bitcoin and including Amazon,” said Gundlach, whose firm oversees $110 billion in assets.

Indeed, information technology stocks such as Amazon, Facebook, Apple, Microsoft, Google (Alphabet) and others—the imprecisely named FANG or FAAMG stocks—have been on a tear so far this year, propelling the market higher. This has been a detractor for gold, as many investors have moved out of “safe haven” assets and into risk assets.

I should point out, though, that the stocks I just mentioned disproportionately account for up to a third of the market’s gains in 2017, according to CNBC. As of August 1, the S&P 500 is up around 10.5 percent. But if we remove tech stocks, it’s up only 7.5 percent. The market is moving higher nearly every day, but on the backs of only five or so tech stocks. This makes the market particularly vulnerable, should those stocks see a correction, and adds to gold’s investment case as a potential store of value.

What’s more, we’re only weeks away from India’s two most prolific gold buying sprees, Diwali in October and the wedding season late in the year. Historically, now has been a good time for investors to enter the gold and precious metals market to capture the potential price appreciation that has often occurred during these important festivals. – Frank Holmes

The much awaited Silver Party seems about to begin, Are You Ready?

Silver seems ready for Take-Off - Do have Enough Stacked-Up?

The much awaited Silver Party seems about to begin, Are You Ready?

Silver has dual usages which makes it more attractive than gold. Other industrial metals have been rising sharply in recent times, including iron ore and copper. Today saw aluminium prices trade above $2,000 a tonne for first time in nearly three years. As well as reduced concerns about excessive supply, demand appears to be on the rise again for industrial metals from China.

Taking everything into account, silver may be about to stage a meaningful rally as it potentially joins other base metals in finding significant support. A weaker US inflation report on Friday could help accelerate the potential rally. If silver has any chance of going higher, it will need to clear resistance around $16.45/50 area first then break market structure of lower lows and lower highs next. The last high was around $16.80-16.95 area. Therefore If and when we move above here, then the path for a much bigger rally may potentially clear.

Five Reasons Why You Should Buy Silver Now

Solar, Bubble, Banks, War, and Legal Tender

Unlike its big brother, gold, physical silver is coveted for both investment purposes and industrial usage. Right now, silver prices are in a bit of a slump—in other words, it’s the perfect time to load up on this precious metal while it’s down. Here are some good reasons why silver should be on every investor’s radar.

Reason #1: Silver Is Being Used Up in China’s Solar Boom.

By far the largest application of industrial silver today is in solar panels—and Chinese demand for solar energy is skyrocketing. In its 13th Five-Year Plan, Beijing aims to triple its solar capacity by 2020 in order to combat air pollution and to comply with the Paris Climate Accord.

Amazingly, China is already investing more in clean-energy developments than the European Union:

Source: e3g.org

Last month, China revealed a newly built 250-acre solar farm shaped like a panda—the first of 100 such solar plants planned for the Asian region in the coming years. Displaying typical Chinese efficiency, the solar farm in Datong was proposed in May 2016 and became operational only 14 months later. Over the next 25 years, it will provide the same power as burning one million tons of coal.

No wonder last year was the strongest so far for solar-related silver demand. Leading analysts believe that this trend will continue a while longer—even though Tesla’s SolarCity is getting ready to replace silver with the much cheaper copper in its PV panels.

Specialist consultancy Metals Focus said it expected 2017 silver demand from the solar sector to ease only slightly compared to last year, remaining the second highest on record.

And the supply is finite. The chart below shows official global silver reserves, that is, the amount of silver that is considered to be recoverable from mines—which is only 571,000 tonnes.

Source: Statista

Reason #2: The US Stock Bubble Is Getting Ready to Burst.

How many screaming superlatives can a market take before it collapses? We will probably find out soon.

It seems that US equities are hitting new record highs every day, but the writing is most certainly on the wall. By mid-July, the Case-Shiller P/E Ratio hovered above 30 (the 100-year median is around 16). That is reminiscent of the height of the dot-com bubble and the weeks leading up to the 1929 stock market crash.

One yardstick of the growing insanity is the money-burning tech companies whose shares keep going up no matter what.

Take Netflix (NFLX), for example, which casually announced in an April letter to shareholders that it expects a negative free cash flow (FCF) of $2 billion this year, up from “only” $1.7 billion in 2016.

Last October, the company said it would have to raise another $800 million in debt (adding to the over $2.2 billion it already had), all in the name of adding quality content, aka movies and TV shows, to the site.

It’s no secret in investment circles that Netflix doesn’t really make money, a negligible fact that hasn’t kept the stock from skyrocketing.

In its mid-July Q2 earnings report, the company proudly reported that it had added 5.2 million new subscribers in the last quarter, crushing Wall Street estimates and propelling the stock upward by more than 10%.

Never mind that Q2 free cash flow was minus $608 million, a year-over-year increase in losses of $354 million. Investors gobbled up the “good news” and sent shares soaring to new heights of over $188 in July.

We see a similar picture with social-media giants like Twitter and Snapchat, which are virtual money pits.

Of course, there is no way that this can go on. And as stocks are being caught out in the rain, gold and silver will get their day in the sun, as has historically been the case.

Reason #3: European Banks Are Still in Big Trouble.

The ongoing debt crisis in the EU has recently been dwarfed by the global outcry revolving around the much-despised Trump administration and its draconic trade policies. However, while Europe’s woes may be forgotten for the moment, they have been anything but resolved.

In June, the UK Telegraph commented that “Italy’s long-simmering banking crisis has erupted again. The emergency plan to wind down two Venetian lenders at a cost of up to €17bn is a fiasco of the first order.” This, the article continues, could push Italian debt to 133% of GDP.

Research by Italian investment bank Mediobanca found that 114 of Italy’s 500 banks have “Texas Ratios” of over 100% (non-performing loans divided by tangible book value plus reserves; a TR of over 100% is considered critical).

24 of the endangered banks reportedly have ratios of over 200%, among them some of Italy’s biggest banks, like Monte dei Paschi di Siena with a TR of 269%, and Veneto Banca with a TR of 239%.

But the problem extends to the entire European Union. According to a Reuters article, “the total stock of non-performing loans (NPL) in the EU is estimated at over €1 trillion, or 5.4% of total loans, a ratio three times higher than in other major regions of the world.”

Clearly, this is a level that is unsustainable in the long run. And if you don’t believe that Italy’s problems could have a major impact on US investors, remember how the US subprime mortgage crash and subsequent financial crisis affected the entire world.

In today’s interconnected global economy, any severe financial crisis in one part of the world can cause tidal waves in another. And when that happens, gold and silver are the ultimate safe-haven assets.

Reason #4: The Risk of Military Conflict Continues to Escalate.

Tensions between the US and North Korea continue to escalate as Kim Jong-Un has now threatened a nuclear strike against the United States.

This direct threat came after CIA Director Mike Pompeo said that the US needs to find a way to separate North Korea from the system: “The North Korean people I’m sure are lovely people and would love to see [Kim Jong-Un] go.”

In response, the North Korean Foreign Ministry stated, “Should the US dare to show us even the slightest sign of attempt to remove our supreme leadership, we will strike a merciless blow at the heart of the US with our powerful nuclear hammer, honed and hardened over time.”

By some estimates, Pyongyang could have a nuclear-capable ICBM as early as next year.

And North Korea is not the US government’s only worry. President Trump vehemently opposes the Joint Comprehensive Plan of Action (JCPOA), a treaty signed by the US, Iran, and five other countries in 2015. However, to renege on that agreement and to stop Iran from pursuing nuclear weapons, says retired Army General Paul Eaton, “would require regime change, which requires full-scale invasion, which is not tenable.”

Iran, Eaton warns, would be a much more dangerous enemy than Saddam Hussein’s Iraq. A large-scale attack on Iran would likely involve the US’s NATO allies as well as Israel… and if Russia were to come to Iran’s aid, we might have World War III on our hands.

It doesn’t have to come to war, though, for precious metals prices to rise. The threats and growing tensions are enough to drive more investors to the safety of gold and silver—yet another reason to get some bullion now.

Reason #5: Silver Is Again Becoming Real Money.

Gold and silver are making a return as sound money.

Article 1, Section 10, of the US Constitution demands that “No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts.” And more and more states are putting precious metals back on the books.

Six US states have put precious metals back onto their radar, and the seventh just followed suit: as of August 9, Arizona will acknowledge gold and silver as legal tender. Four other states are on the road to accepting bullion as currency—also, Utah and Texas plan to set up bullion depositories to help private investors keep their gold investments secure.

Here’s a map of US states with current or pending legislation to accept precious metals as legal tender:

Source: Capital Gold Group

As a consequence of this legal change, if you live in one of the participating states and your gold and silver appreciates in price, there will be no state capital gains taxes since currency isn’t subject to taxation. – Shannara Johnson

 

follow us

markets snapshot


Market Quotes are powered by Investing.com

live commodity prices


Commodities are powered by Investing.com India

our latest tweets

follow us on facebook