Commodity Trade Mantra
Quotes by TradingView

Fed & ECB to now Strangle the Extraordinary Stock Bull they Nurtured

Fed & ECB to now Strangle the Extraordinary Stock Bull they Nurtured

Fed & ECB to now Strangle the Extraordinary Stock Bull they Nurtured

This epic central-bank-easing-driven global stock bull is starting to be strangled by the very central banks that fueled it.  This week the European Central Bank made a landmark decision to drastically slash its quantitative easing next year.  That follows the Fed’s new quantitative-tightening campaign just getting underway this month.  With CBs aggressively curtailing easy-money liquidity, this stock bull is in serious trouble.

The US flagship S&P 500 broad-market stock index (SPX) has powered an incredible 280.6% higher over the past 8.6 years, making for the third-largest and second-longest bull market in US history!  The resulting popular euphoria, a strong feeling of happiness and confidence, is extraordinary.  So investors brazenly shrugged off the Fed’s September 20th QT and the ECB’s October 26th QE-tapering announcements.

That’s a grave mistake.  Extreme central-bank easing unlike anything witnessed before in history is why this stock bull grew to such grotesque monstrous proportions.  Without QE, the stock bull would have withered and died years ago.  Central banks conjured literally trillions of new dollars and euros out of thin air, and used that new money to buy assets.  This vast quantitative easing inarguably levitated the world stock markets.

QE greatly boosted stocks in two key ways.  Most of it was bond buying, which forced interest rates to deep artificial lows nearing and even under zero at times.  This bullied traditional bond investors looking for yield income into dividend-paying stocks.  The record-low interest rates fueled by QE were also used to justify extremely-expensive stock prices.  QE aggressively forced legions of investors to buy stocks high.

The super-low borrowing costs driven by QE’s crushing downward pressure on interest rates also unleashed a vast corporate-stock-buyback binge unlike anything ever witnessed.  Corporations borrowed trillions of dollars and euros to use to buy back their own stocks, boosting their stock prices.  QE both enabled and provided the incentives for this anomalous extreme financial engineering, indirectly levitating stock markets.

Stock traders’ apparent belief over this past month that the Fed starting to reverse its QE through QT and the ECB greatly slowing its QE will have no meaningful impact on QE-levitated stock prices is absurd.  The simultaneous reversal and slowing of QE in the States and Europe is a hellstorm relentlessly bearing down on hyper-complacent traders.  It’s the financial equivalent of a Category 5+ super-hurricane, a juggernaut.

This Thursday the ECB announced it is slashing in half its ongoing QE bond monetizations from their current €60b-per-month pace to €30b per month for the first 9 months of 2018.  After that the ECB’s QE will likely cease entirely, since it is running out of available bonds to buy because the ECB’s total QE has been so vast.  That means ECB QE will collapse from €720b this year to €270b next year, a radical 62.5% plunge!

The idea that stock markets won’t miss €450b of ECB bond buying next year is ludicrous.  The ECB has been monetizing bonds continuously with at least a €60b-per-month pace since March 2015.  That will make for colossal total QE from then to December 2017 exceeding €2040b, growing to over €2310b by September 2018.  €60b per month falling to €30b for most of next year and then likely zero will have a huge impact.

At current exchange rates, that €450b drop of ECB QE from 2017 to 2018 translates into $530b.  That is likely enough all alone to tank global stock markets reliant on aggressive central-bank QE like crack cocaine.  But add that on top of the Fed’s first-ever quantitative tightening now getting underway, and 2018 will see the greatest central-bank tightening in history.  How can that not drive an overdue stock bear?

I discussed the Fed’s new QT campaign and likely market impact in great detail a month ago right after it was announced.  While the Fed’s own QE bond buying formally ended in October 2014, it held all those bonds on its balance sheet until this month.  Starting this quarter, the Fed is allowing $10b per month to roll off as they mature.  That effectively destroys the money created to buy those bonds, removing QE capital.

$10b per month isn’t much initially, but the Fed is slowly ramping that to a target of $50b per month by Q4’18.  The math is simple.  Total Fed QT in 2017 will only run $30b, a rounding error relative to the vast size of QE’s trillions of monetized bonds.  But in 2018 that Fed QT will add up to $420b.  Add that to the $530b of ECB QE here in 2017 but not coming in 2018 due to the taper, and markets face $950b of CB tightening!

Can the world’s two most-important central banks collectively withdraw almost a trillion dollars of liquidity in 2018 alone without blowing a gaping hole in these lofty stock markets?  Not a freaking chance!  And 2019 looks even worse.  Total ECB QE will likely run at zero, down from €720b this year.  That translates into $850b.  And the Fed’s QT will run at its terminal full speed of $600b annually.  That adds up to $1450b!

So on top of 2018’s $950b less of ECB QE and new Fed QT compared to this year, 2019 faces another $1450b of collective tightening from the Fed and ECB relative to 2017.  That means $2.4t of central-bank liquidity that exists in this record stock market year will vanish over the next couple years.  I can’t imagine a more-bearish omen for excessively-large QE-inflated stock bulls than such a vast reversal of CB flows.

This first chart ought to shatter the Wall Street myth that today’s monster stock bull was driven by profits instead of extreme central-bank QE.  It superimposes the SPX over the Fed’s balance sheet, which is where those QE-financed bond purchases rest.  This is the most-damning chart in the stock markets, no mean feat at such extremes.  Fed QT and far-less ECB QE is the stuff of nightmares for QE-inflated stock markets!

While the Fed initially birthed QE back in late 2008’s first stock panic in a century, QE’s primary impact on the stock markets started in early 2013.  That was soon after the Fed first launched and then quickly more than doubled its third QE campaign.  QE3 was radically different from QE1 and QE2 in that it was open-ended, with no predetermined size or duration.  That gave it a gargantuan impact on stock psychology.

Whenever the stock markets started to sell off, Fed officials would rush to their soapboxes to reassure traders that QE3 could be expanded anytime if necessary.  Those implicit promises of central-bank intervention quickly truncated all nascent selloffs before they could reach correction territory.  Traders realized that the Fed was effectively backstopping the stock markets!  So greed flourished unchecked by corrections.

This stock bull went from normal between 2009 to 2012 to literally central-bank-conjured from 2013 on.  The Fed’s QE3-expansion promises so enthralled traders that the SPX went an astounding 3.6 years without a correction between late 2011 to mid-2015, one of the longest-such spans ever!  With the Fed jawboning negating healthy sentiment-rebalancing corrections, psychology grew ever more greedy and complacent.

QE3 was finally wound down in October 2014, leading to this Fed-evoked stock bull soon stalling out.  Without central-bank money printing behind it, the stock-market levitation between 2013 to 2015 never would’ve happened!  Without more QE to keep inflating stocks, the SPX ground sideways and started topping.  Corrections resumed in mid-2015 and early 2016 without the promise of more Fed QE to avert them.

2013 was the peak-QE3 year, when the Fed monetized a staggering $1020b in bonds through QE.  Such vast central-bank liquidity injections catapulted the SPX 29.6% higher that year!  The Fed tapered QE3 in 2014, which added up to $450b of additional bond buying that year.  And the SPX only rallied 11.4%.  Fed QE dropped by 56% between 2013 and 2014, and stocks’ rallying shrunk 62%.  That’s certainly no coincidence.

Then in 2015 when Fed QE was zero, the SPX slipped 0.7%.  See the pattern here?  The more QE from central banks, the more the stock markets rise.  Those vast capital injections from the Fed levitated the US stock markets by forcing yield-starved bond investors into stocks and facilitating immense corporate stock buybacks.  This QE-driven stock bull peaked in mid-2015 soon after the Fed ceased its own QE!

The bear market that follows every stock bull should’ve started in late 2012, but the Fed warded it off with its massive open-ended QE3 campaign.  That ultimately totaled $1590b before it ended in late 2014, when the delayed stock bear should’ve begun.  Indeed it looked like it had, as the SPX started rolling over without Fed QE boosting it.  The SPX suffered its first corrections in 3.6 years in mid-2015 and early 2016.

There’s a stellar probability the dominant reason the overdue stock-market bear didn’t arrive in 2015 was the ECB started its own QE campaign in March that year.  The ECB effectively took the QE baton from the Fed, keeping world stock markets levitated through massive liquidity injections.  ECB QE levitated European stock markets through the same mechanisms as the Fed QE had earlier levitated the US ones.

The global stock markets are heavily interconnected.  Both rallies and selloffs in either the United States, Europe, or Asia often create the psychology necessary to drive similar moves in the other markets.  So the ECB’s QE directly buoying European stock markets bled into US stocks, fending off the overdue bear that the end of the Fed’s QE should’ve awoken.  It was hopes for more ECB QE that rekindled this tired bull.

The Fed’s QE3 bond buying was tapered to zero in November 2014.  From that announcement in late October that year, the SPX would rally another 7.3% into May 2015 on sheer momentum and euphoria.  After that it drifted sideways to lower for the next 13.7 months, suffering two corrections.  It wasn’t until July 2016 that a new bull high was finally seen.  That was soon after the UK’s surprise Brexit vote to leave the EU.

That June 2016 referendum stunned European leaders, potentially threatening their entire project to unite Europe.  Thus the ECB’s central bankers rushed to vociferously promise to do anything necessary to maintain market stability through the Brexit process.  So the SPX only broke out of its mounting bear trend thanks to hopes for more ECB QE!  That rally soon fizzled until Trump’s surprise victory unleashed Trumphoria.

This extreme Trumphoria stock rally since early last November was driven by euphoric hopes for big tax cuts soon, not central-bank easing.  But without the ECB’s colossal €720b or the equivalent of $850b in QE over the past year since the election, odds are this Trumphoria rally would’ve either been far more muted or never even existed.  The Fed’s QT and ECB QE tapering are grave threats to QE-inflated stock markets.

The chart above proves how heavily dependent the SPX is on the Fed’s balance sheet, which has never materially shrunk before 2018.  The European stock markets have seen a similar phenomenon as the ECB’s balance sheet ballooned under QE.  Germany’s flagship DAX stock index is Europe’s leading one.  In 2016 the DAX rallied 6.9% on over €720b of ECB QE.  So far this year the DAX is up 12.8% on €600b of QE YTD.

There is absolutely no doubt these global stock markets are greatly reliant on extreme central-bank QE to keep levitating to new record highs.  So the stock markets are in world of hurt in 2018 and 2019, with total central-bank liquidity from the Fed and ECB falling by $950b and $1450b respectively relative to 2017!  There’s probably never been a greater bear-market catalyst than record QE being thrown into reverse.

If the Fed’s QT and the ECB’s QE taper proves so devastating to stocks, won’t these central bankers simply stop doing it?  They certainly don’t want to tank stock markets, as both the US and European economies really need high stocks’ wealth effect to thrive.  If stock markets fall enough to spawn some real fear in Americans and Europeans, they will pull in their horns on spending which hurts the real economies.

Still I suspect the Fed and ECB won’t and can’t stop their new tightening campaigns for several reasons.  Both central banks are doing everything they can to be as gradual and transparent as possible to avoid spooking markets, which is wise.  Such slow rampings of the Fed’s QT and the ECB’s QE taper aren’t likely to spark a sharp stock-market plunge.  They’ll just gradually turn the screws to stocks, slowly forcing them lower.

Major bear markets tend to cut stock prices in half, although worse losses are likely after such extreme fake central-bank-goosed bull-market toppings.  But these bears that inevitably follow bulls generally play out over a couple years.  There are about 250 trading days per year, so a 50% loss spread across two years works out to a trivial average of 0.1% per day!  No one will panic if CB tightening slowly boils the bulls.

And the reason both the Fed and ECB are tightening is to reload easing ammunition for the inevitable next financial crisis.  The more QE the Fed can reverse with QT, and the less the ECB’s balance sheet bloats, the more room they will have to relaunch QE when they get scared again in the future.  Central bankers know it’s critical to slow, stop, and unwind QE so they rebuild room to aggressively ease again later.

Finally both the Fed and ECB spent long months if not years preparing traders psychologically leading into these CBs’ QT and QE tapering.  If either central bank chickens out and pulls back in response to stock markets slowly rolling over, that itself risks igniting intense selling.  The only reason the CBs would slow their crucial normalizations from extreme QE is if they feared another looming massive financial crisis.

Traders would read any course change to less tightening by either central bank as an admission of serious problems in global markets, and rush for the exits.  Not carrying through on these carefully-laid tightening plans would also severely hobble these CBs’ credibility, and thus their future abilities to calm markets in a crisis.  The die is cast on Fed QT and ECB QE tapering, it can’t be changed without creating big problems.

If this radically-unprecedented transition from extreme easing to extreme tightening was happening in normal fairly-valued stock markets, it would still ominously portend a major bear.  But thanks to these goofy central banks artificially enlarging and prolonging this stock bull through their QE, stocks have soared way up to bubble valuations!  The extreme overvaluation rampant in stock markets today greatly magnifies the risks.

This last chart looks at the average trailing-twelve-month price-to-earnings ratio of the 500 SPX stocks, both in simple-average and market-capitalization-weighted-average terms.  The past year’s Trumphoria rally on big-tax-cuts-soon hopes catapulted valuations into nosebleed bubble territory.  Such extremes would herald an imminent bear market even if the most extreme CB easing in all of history wasn’t reversing.

This is a complex chart with dire ramifications for investors, which I last discussed in depth in late June.  For our purposes today on central banks starting to strangle this extreme bull they’ve nurtured, look at the blue SPX-valuation lines.  The average SPX-component P/E ratio in both simple and MCWA terms is now over 28x.  At Zeal we calculate this crucial valuation data each month-end, so September’s is the latest.

Weighted by market capitalization, the SPX stocks’ average P/E in late September was 28.7x earnings!  In simple-average terms, it looked even worse at 29.3x.  These numbers are conservative too, because we cap all trailing-twelve-month P/E ratios at 100x to avoid outliers skewing the overall average.  Amazon alone with its insane 250x P/E would catapult these up to 31.7x and 29.6x respectively.  Valuations are extreme.

The US stock markets’ average trailing P/E over the past century and a quarter is 14x, which is fair value.  Double that at 28x is formally a bubble, where we are today.  Euphoric traders get so excited about stock markets rallying forever that they are willing to pay any price to get in, eagerly buying stocks high instead of prudently waiting to buy low.  The higher the prevailing valuations, the greater the downside risk stocks face.

While valuations aren’t a market-timing tool, bubbles always eventually pop.  There are no exceptions to this rule in history.  When bubbles fail stocks fall sharply, entering major new bear markets.  In order to trade at 14x fair value based on today’s corporate earnings, the SPX would have to literally be more than cut in half to 1225ish!  The white line above shows where the SPX would trade at that historical 14x fair value.

Even more ominous, valuation mean reversions following stock prices getting too high in bulls never just stop at the mean.  Instead momentum carries them through 14x to a proportional overshoot below that to undervalued levels.  So there’s a high probability the inevitable next stock bear won’t bottom until stocks are trading well under 10x earnings, which would make for a bigger-than-50% bear from today’s bubblicious levels.

The key point here is stock markets are exceedingly risky on bubble valuations alone after central banks’ unprecedented extreme easing forced them so high for so long.  Even if the Fed wasn’t embarking on QT to reload for future easing, even if the ECB wasn’t tapering QE because it’s running out of bonds to buy, a new stock bear would be a near-certainty on extreme valuations alone.  Bulls are always followed by bears.

But throw in Fed quantitative tightening and ECB quantitative-easing tapering on top of that, and we are set up for one of the worst stock bears on record after one of the biggest and longest bulls ever.  Truly these central banks that fostered this monstrous bull are now starting to strangle it.  The next couple of years are going to see literally trillions of dollars less CB liquidity than the markets have enjoyed in 2017!

Again between Fed QT ramping and ECB QE tapering, 2018 is on track to see a colossal total $950b less capital injected from the Fed and ECB compared to this year.  And based on the Fed’s and ECB’s current plans which are hard to slow or stop without destroying market confidence, 2019’s CB liquidity will come in at another $1450b lower than 2017’s.  We are talking about $2.4t of effective tightening over the next 2 years!

There is zero chance stock markets will be able to ignore such radically-unprecedented CB tightening.  $1.2t a year is a devastating hit to liquidity.  Remember in 2013 the SPX soared 29.6% on $1020b of Fed QE via QE3.  What’s going to happen to stock markets in 2018 when that reverses to -$420b with Fed QT alone, or 2019 at another -$600b with Fed QT running full speed?  Add ECB tapering on top of that.

The unpopular hard truth euphoric investors don’t want to hear is stock markets ain’t gonna be pretty under Fed QT and ECB QE tapering.  For the love of all things good and holy, take this seriously!  Just like in all past stock-market toppings, greed and complacency are extreme so traders have no fear of this imminent central-bank-tightening threat.  But it’s a Category 5+ hellstorm, unprecedented in stock-market history.

Investors really need to lighten up on their stock-heavy portfolios, or put stop losses in place, to protect themselves from the coming valuation mean reversion in the form of a major new stock bear.  Cash is king in bear markets, as its buying power increases as stock prices fall.  Investors who hold cash during a 50% bear market can double their stock holdings at the bottom by buying back their stocks at half price!

Put options on the leading SPY S&P 500 ETF can be used to hedge downside risks.  They are cheap now with euphoria rampant, but their prices will surge quickly when stocks start selling off materially.  Even better than cash and SPY puts is gold, the anti-stock trade.  Gold is a rare asset that tends to move counter to stock markets, leading to soaring investment demand for portfolio diversification when stocks fall.

Gold surged nearly 30% higher in the first half of 2016 in a new bull run that was initially sparked by the last major correction in stock markets early last year.  If the stock markets indeed roll over into a new bear in 2018, gold’s coming gains should be much greater.  And they will be dwarfed by those of the best gold miners’ stocks, whose profits leverage gold’s gains.  Gold stocks rocketed 182% higher in 2016’s first half!

The bottom line is the Fed and ECB have started strangling this extraordinary stock bull they nurtured.  After being levitated for years by trillions of dollars and euros of quantitative easing, these central banks have started tightening.  The Fed has birthed quantitative tightening, which will increasingly reverse its own extreme QE.  On top of that the ECB will radically slow its own QE next year, for unprecedented tightening.

This is the death knell for QE-inflated stock markets driven to extreme bubble valuations by epic central-bank monetary injections.  The Fed and ECB are finally taking away their easy-money punch bowls, with truly-dire implications for stock markets.  Trillions of dollars and euros of tightening in the next couple years will finally unleash the long-overdue stock bear delayed by QE, which will likely prove proportionally oversized. – Adam Hamilton

 

What’s keeping a lid on Gold Prices? Seems just a Play to Distract Investors

What's keeping a lid on Gold Prices? Seems just a Play to Distract Investors

What’s keeping a lid on Gold Prices?

Jitters over who will lead the Federal Reserve for the next four years continues to ripple through financial markets, keeping a lid on gold prices, but one analyst warns that this is a distraction for investors.

In a recent interview with Kitco News Chantelle Schieven, economist at Murenbeeld & Co., said that her firm is expecting to see higher gold prices next year on the back of low interest rates, no matter who the new Federal Reserve Chair is.

President Donald Trump is expected to release his Fed pick this week. Former Federal Reserve Governor Jerome Powell and Stanford economist John Taylor are the two frontrunners in the race with markets giving a slight lead to Powell, who is seen as the less hawkish of the two.

Schieven said that Taylor’s nomination could create a knee-jerk reaction lower in gold prices; however, it wouldn’t hurt the metal’s long-term potential as the reality sets in that interest rates won’t go aggressively higher.

She noted that there are several factors that will limit the central bank’s monetary policy, including the U.S. tax plan, which some economists have said could add $1.5 trillion to the debt in 10 years.

“If you start raising interest rates now, the cost of servicing that debt is going to be enormous,” she said. “A global debt crisis is building and that will be a long-term factor for gold prices.”

Another factor that will keep a lid on interest rates is the international bond market. The Federal Reserve is the only major central bank in a new tightening cycle; The European Central Bank, despite talks of eventually tapering, and the Bank of Japan are still pumping liquidity into financial markets.

“International bond yields are low enough and not expected to rise anytime soon and that will keep a lid on U.S. bond yields,” she said.

Technically, Schieven said that gold remains in a two-year uptrend as long as prices hold above $1,250 an ounce.

“Gold will get its bid. It’s just a question of when,” she said.

As to what could be the fuse for gold’s new rally, Schieven said that investors should look at equity markets. She noted that sentiment, which has driven equity markets to record highs, could change very quickly and investors will be happy to have gold in their portfolio as an insurance policy.

“If you wait for risk-aversion sentiment to pick up then it’s going to be too late to get into gold,” she said. – Neils Christensen

 

How Online Markets Drive Productivity and Turnover

How Online Markets Drive Productivity and Turnover

How Online Markets Drive Productivity and Turnover

Ever since trading began migrating from the floor of exchanges to the digital sphere, volumes have increased exponentially. There are several reasons for this. Lower barriers to entry encourage competition. Lower costs make higher turnover feasible. And digital or online markets are accessible to more potential clients.

This phenomenon is not limited to trading. Many other industries have seen turnover increase many times over since moving online.

One of the first industries to spot the potential of moving online was the gambling industry, where online gambling is now accessible to people who would otherwise never consider setting foot in a casino. Besides poker and other casino games, people can play online slot games not just for fun but also for real money. It’s not just a matter of attracting a wider audience, it’s also more practical. People can access gambling sites for a quick 10-20 minute gaming session at any time of day or night – that’s simply not possible for physical casinos.

Of the 10 most valuable companies in the world, six operate some form of online marketplace. Apple has the App Store, Google and Facebook operate several markets for advertising and apps, Amazon and Alibaba sell books, electronics and more, while Tencent sells advertising and games in China. Many of these companies are not even two decades old, and yet they have grown to dominate the global economy. Let’s look at why that is.

Global Reach

As soon as a market is online, its market is global rather than local. And it goes beyond highly developed, urban markets too. Mobile connectivity means that even far-flung rural communities are now part of the global market, and are able to buy and sell goods and services.

Lower Barriers to Entry

Online markets have very low barriers to entry. Many of the most successful businesses are built around the idea of taking all the remaining barriers to entry away. To sell goods on eBay all you need is an email address and a PayPal account. Amazon, Airbnb and Uber have removed rent, marketing, HR and other staffing costs from the equation.

Lower barriers to entry mean more competition and lower prices. And lower prices mean more demand and higher turnover. Those who could never afford a taxi might be able to afford an Uber. Those who can’t afford a hotel room may be able to find affordable accommodation on Airbnb.

On Demand

The increased competition in online marketplaces has forced vendors of goods and services to tailor their offering more. The ‘on demand’ or ‘gig’ economy consists of highly skilled freelancers selling their services on an hour by hour basis. Websites like upwork.com and freelancer.com allow companies to hire workers with very specific skillsets for a few hours a month. That means a small business that would never be able to afford a full-time accountant can now afford to hire an accountant with industry experience on an hourly basis, as and when required.

How Online Markets Drive Productivity and Turnover

More Engagement

Mobile devices, tablets, notebook PCs and social media platforms like Facebook and Twitter means companies can be engaged with their audience 24/7. Just 25 years ago, business hours for most businesses were only seven or eight hours a day. But even with those business hours, a company could only engage with a customer when they entered a store or picked up a phone.

The evolution of online markets has proved at least one economics 101 theory to be correct. Lower prices lead to higher demand. Financial markets were the first to prove this, but it’s a phenomenon that’s now affecting almost every industry. And back in the world of Forex, stocks and commodities, as trading costs continue to fall volumes will continue to rise.

 

Silver Looks Set to React Violently – Anytime Now

Silver Looks Set to React Violently - Anytime Now

Silver Looks Set to React Violently – Anytime Now

The prolonged underperformance in Silver is a sure sign of a bottom, says technical analyst Clive Maund.

Like gold, silver now appears to be completing an intermediate Head-and-Shoulders top that we can see on its latest chart below, within a much larger and very bullish Head-and-Shoulders bottom pattern. Both these Head-and-Shoulders tops are related to the Head-and-Shoulders bottom that just completed in the dollar index, that we look at in the parallel Gold Market update. With the dollar index having just made a convincing breakout from its Head-and-Shoulders bottom, and looking set to rally to the 97 area, silver looks set to react back, probably to the $15.50-$16.00 area, before reversing to the upside as the dollar turns lower again.

Unlike gold, silver’s COT structure showed further deterioration last week, and readings are now at levels that are construed as bearish. There is plenty of room for improvement, which will come about if the silver reacts back as expected on a continuation of the dollar rally.

Like gold, silver is marking out a giant Head-and-Shoulders bottom pattern, but in silver’s case it is down-sloping as we can see on its 8-year chart below, which reflects the fact that silver tends to underperform gold at the end of sector bear markets and during the early stages of sector bull markets. Prolonged underperformance by silver is therefore a sign of a bottom. This silver chart really does show how unloved silver is right now, but although the price has drifted slightly lower over the past several years, volume indicators have improved, especially this year, a positive sign. A break above the neckline of the pattern, the black line, will be a positive development, and more so a break above the band of resistance approaching the 2016 highs. Once it gets above this it will have to contend with a quite strong zone of resistance roughly between $26 and $28. Over the short to medium term, however, as discussed above, silver prices are likely to first react back to the $15–$15.50 area on a dollar rally.

Bullion Banks Target the 200-Day Moving Average in Gold a Third Time this Year

Bullion Banks Target the 200-Day Moving Average in Gold a Third Time this Year

Bullion Banks Target the 200-Day Moving Average in Gold

In the hope of inspiring Comex speculator liquidation, The Banks are once again targeting gold’s 200-day moving average.

Twice previously this year, The Banks have managed to maneuver the gold price down and through the 200-day moving average. On these prior occasions, the speculator selling that followed allowed The Banks to buy back and cover large amounts of their perennial short contracts.

On Friday, April 28 of this year, total Comex gold open interest was at 470,787 contracts and price was clinging to support at the 200-day. The next market day of Monday, May 1 saw Comex gold smashed for $15. By the time the selling subsided on Tuesday, May 9, price had fallen nearly $60 and total Comex gold open interest had contracted by over 37,000 contracts.

What had occurred? When price fell and closed below the 200-day on May 1, tremendous amounts of speculator long liquidation ensued. It was this selling that drove price down. Taking the other side of these trades were The Banks, which used the Spec selling to buy back and cover existing short positions.

Evidence of this is seen in the Commitment of Traders report from the survey week that ended on Tuesday, May 9. That report saw the Large Specs in gold decrease their NET long position by 40,200 contracts while the Commercials (Banks) decreased their NET short position by 39,500 contracts.

Price then rallied from $1225 on May 9 to $1305 on June 6 before beginning another pullback.

On Friday, June 23, total Comex gold open interest was at 449,164 contracts and price was once again clinging to support at the 200-day. The next market day of June 26 saw another one of those infamous “flash crashes” that led to a temporary breach of the 200-day but this line wasn’t completely breached on a closing basis until Friday, June 30. Gold price then fell nearly $40 in five days before bottoming at $1215 on Monday, July 10.

From June 23 through July 10, price fell over $50 and the 200-day moving average yet, this time, total interest actually rose by over 30,000 contracts. Again, what had occurred?

This selloff not only saw Spec long liquidation, it also saw a significant amount of new Spec shorting! Evidence of this is again found in the CoT reports of the combined two weeks of June 28 through July 11. Those reports showed the Large Specs in gold decrease their NET long position by 71,000 contracts while the Commercials decreased their NET short position by 76,000 contracts.

All of this is summarized on the chart below:

Bullion Banks Target the 200-Day Moving Average in Gold

So now here we are again. Just as in April and June, price has fallen back and is finding support above the 200-day. Also just as in April and June, the Large Speculators have thus far remained steadfast with their NET position mostly unchanged over the last four CoT reports. With history as your guide, what level do you think The Banks will target next?

Of course it’s the 200-day moving average, currently found near $1266! There can be little doubt that The Banks hope to soon break this level again. In doing so, they hope to inspire enough Spec liquidation that open interest will fall back under 500,000 contracts from the current 529,000. This 30,000+ long contract liquidation by The Specs would allow The Banks to cover 30,000+ shorts…all of this before the next rally sets in.

And how far might gold prices fall if The Banks can pull this off? Well, just as in May and July, not too far really. Note that those two prior riggings only moved price about $35-$45 below the 200-day before it turned and rallied. A similar drop now would target the $1230 area but I don’t think it would make it quite that far. The chart below shows considerable, long-term support in the area near $1240, instead.

Bullion Banks Target the 200-Day Moving Average in Gold

None of this changes, of course, our 2017 forecast made back in January. Back then, we speculated that price would advance through 2017 in a three-steps-forward, two-steps-back sort of pattern with the year’s highest prices coming in the fourth quarter. Let’s just wait now to see if The Banks are able to cover more of their short positions before this final leg of the 2017 gold rally begins. – Craig Hemke

Can Bond & Stock Market Bubbles outlive Reversal of Monetary Stimulus that Created them?

Can Bond & Stock Market Bubbles outlive Reversal of Monetary Stimulus that Created them?

Are central banks about to pop the Bond & Stock Market Bubbles they created?

The bond and stock markets are in a massive bubble, that the bubble will pop, and gold and gold stocks will soar as they have in the aftermath of previous bubbles, say Rudi Fronk and Jim Anthony, cofounders of Seabridge Gold.

Some investors will get the timing right and short the stock market. We think there is the potential for a 60% decline in the broad stock market…in the range of the declines we saw after the bubble collapses of 2002 and 2009. In a collapse, we expect gold stocks will once again rise considerably more than the stock market falls.

The stock market bulls do not agree with us, of course. If they argue valuation at all, they contend that historic low interest rates justify historic high valuations. They do not, in our opinion. In the long run, equity valuations reflect the discounted value of future earnings. Although low interest rates suggest a low discount rate which boosts valuations, they also coincide with periods of poor growth in the economy and lower earnings, facts which the bulls ignore. Can you keep the discount rate advantage while projecting rates of growth and earnings that never revert to the mean? Having your cake and eating it too? We don’t think so.

The stock market gains of 1996-1999 came when quarterly GDP growth averaged 4.6% and the gains of 2003-2007 came when quarterly GDP growth averaged 2.96%. In contrast, between 2010 and 2017, GDP growth has averaged only 2.1%. Central banks have replaced growth as the primary driver for stocks with their creation of $15 trillion in fresh liquidity since 2008. And now, they want to take it back.

Can the bond and stock market bubbles outlive the reversal of the monetary stimulus that created them? We are about to find out.

The Federal Reserve and the European Central Bank have been two of the biggest liquidity creators and both have stated they intend to reverse their policies in the short term, transitioning from “Peak Quantitative Easing” to Quantitative Tightening. Francesco Filia of Fasanara Capital calculates that these policy changes will force a liquidity withdrawal of over $1 trillion in 2018 alone. Deutsche Bank has issued a similar estimate that central bank liquidity injections will collapse from this year’s annual rate of $2 trillion to zero in 12 months.

This is not a distant future scenario. The Fed has already announced that its balance sheet “normalization” will begin next month and reach a level of $50 billion monthly in a year. Until this month, the Fed has been replacing maturing securities with new purchases, thus maintaining a significant bid in the market despite QE ending in late 2014.

Meanwhile, the ECB program begins to take on reality as soon as this Thursday, October 26, when the ECB is expected to announce a significant reduction in its asset buying. Bloomberg has reported that ECB policymakers see room for little more than €200 billion of purchases under the institution’s bond-buying program in 2018, down sharply from €720 billion this year. The calculation is not difficult: the established limit to bond buying is €2.5 trillion under the current rules and purchases are expected to reach €2.28 trillion by the end of 2017. Germany is unlikely to allow for an increase to the limit.

The ECB bond-buying program has immensely distorted world debt markets. Since it began in March 2015 (and later expanded to include corporate debt in June 2016), the ECB has created enough money out of thin air to purchase €1.89 trillion in bonds with no consideration for price.

ECB Holdings of Euro-denominated bonds
ECB holdings of Euro-denominated bonds with monthly change

Meanwhile, over the entire QE period, net European bond new issuance amounted to only €394 billion…one-fifth of what the ECB bought. In fact, through much of 2016 there was hardly any net issuance at all according to Citi data.

Net issuance of Euro-denominated bondsNet issuance of Euro-denominated bonds

Any private investor who sold to the ECB and wanted to continue to hold debt would have to bid into a declining supply against a dominant price-insensitive buyer or move money out of Europe. How could this unprecedented crowding out of private investors not create a bubble? Here is the proof. Bond purchases by the ECB have forced the yield on EU junk bonds down to the same level as 10-year U.S. Treasuries.

10-yr Treasury yield vs Euro high yield index
10-yr Treasury yield vs Euro high yield index

Is it any surprise that EU investors have markedly increased their purchases of equities this year?

In short: the ECB purchased €1.5 trillion in bonds in excess of new issuance with no regard for prices, thereby virtually assuring booked profits for the sellers who then turned around and purchased overpriced domestic debt and equities and foreign investments.

And so, with the ECB set to taper its purchases, what will happen to yields? And where will the liquidity come from to hold bond and equity prices aloft? Are central banks about to pop the bubbles they have created?

Believe It Or Not! The The Stock Markets Have Peaked – Brace for the Worst Crash Ever

Believe It Or Not! The The Stock Markets Have Peaked - Brace for the Worst Crash Ever

Stock Markets Have Peaked – Brace for the Worst Crash Ever

U.S. stock markets fell the most in seven weeks, while the dollar slumped with Treasuries as an uneven batch of corporate earnings reports thwarted a risk-on rally and renewed turmoil in Washington threatened to imperil the tax overhaul. Investors are looking hard at earnings and economic data for indications of broadening growth that may sustain the rallies even as the Federal Reserve and other central banks start to pull back on stimulus. The S&P 500 Index fell from near a record high, with weak results hammering shares. Ten-year Treasury yields breached 2.47 percent, their highest since March.

I have advised & also initiated sell in the Dow Dec Futures at 23,428 yesterday. Seemed like the only sane option at these dizzy levels. Dow Dec Futures are already down to 23,203 (down 233 points from the life-time high of 23,436 hit yesterday) at the time of posting this article. Let’s wait and watch how it plays out.

3 Reasons the Next Crash in Stock Markets Could Be Worse than Black Monday

Peter Schiff: Thirty years ago, the US stock markets had their worst single day in history.

On Oct. 19, 1987, now known simply as “Black Monday,” the Dow Jones Industrial Average lost 508 points. That represented 22.6% of its value.

Over the last couple of years, stock markets have enjoyed a meteoric rise. The Dow closed above 23,000 for the first time this week. But in recent months, bankers and investors around the world have started expressing concern about the rapidly inflating stock market bubble and its future impact on the world economy. Just last month, Tiger Management co-founder Julian Robertson unequivocally called the US stock markets a bubble and blamed it on the Fed’s interventionist monetary policy.

At some point, the soaring stock markets will fall back to earth, and MarketWatch columnist Howard Gold says the next crash may prove worse than Black Monday.

As Gold points out, in the aftermath of the 1987 crash, the recession didn’t officially kick off until 1990. That was nearly three years after Black Monday. As a result, a lot of people dismiss the 1987 crash as a mere blip on the radar. But Gold cites a book by Diana B. Henriques to make the case that Black Monday was more than just one bad day. Henriques argues it was a  painful bear market that lasted three months and included a nearly 35% drop in the Dow Jones.

In A First-Class Catastrophe: The Road to Black Monday, the Worst Day in Wall Street History, Henriques calls Black Monday a near-systemic crisis that was a precursor for much that came later.

Black Monday was the contagious crisis that the system nearly didn’t survive. All the key fault lines that trembled in 2008 … were first exposed as hazards in 1987.”

Henriques maps out several basic causes behind black Monday, including “breakneck automation, poorly understood financial products fueled by vast amounts of borrowed money, fragmented regulation, [and] gigantic herdlike investors.”

Gold recently interviewed Henriques. She told him that not much has fundamentally changed since 1987. Based on the interview Gold offers three key reasons why the next crash in stock markets could be even worse than Black Monday.

The market is much more fragmented.

In 1987, the only two major players were the New York Stock Exchange and the Chicago Mercantile Exchange. As Gold put it, the two chairmen could institute the first “circuit breakers” giving traders “timeouts” in the midst of a sell-off with a mere handshake. Today, the stock markets are much more fragmented with multiple players. The NYSE only handles about 30% of all trades today. That compares to 90% in 1987. As Henriques points out, “we’ve got 12 regulated stock exchanges, we’ve got 30 [alternative trading systems] where stocks can trade and [who knows] how many dark pools — members-only trading venues.” She said coordinating everybody in the midst of a meltdown today would be like herding cats.

Regulators live in their own little worlds

Henriques said Dodd-Frank created rigid rules where flexibility was needed. She told Gold, “We’ve moved so far from any realistic approach to market regulation, I don’t know where you would start.” Gold wrote, “The SEC and CFTC are like tugboats passing in the fog, even as financial innovation continues apace. Efforts to rationalize the structure after the financial crisis were killed by Congress’ competing fiefdoms.”

Nearly instantaneous computerized trading is more pervasive than ever

JP Morgan estimates passive and quantitative investing accounts for 60% of stock trading, double its share a decade ago. “You have trading strategies that are algorithm-driven by giant investors using not billions but trillions of dollars,” Henriques said. Henriques told gold that the 24/7 news cycle and social media could spread panic further and faster than in 1987.

I think we’re on a knife’s edge.”

Debt & Brain-Dead Retail Investors Prop Up Stock Markets

SRSroccoreport: As the Dow Jones Index hits another all-time high today, smart money is rushing to the exits.  You see, smart money knows when something is too good to be true.  Unfortunately for the retail investor who is suffering from acute BRAIN DAMAGE, they are doing quite the opposite.  As institutions sellout on each new market price rise, retail investors are happily buying… hand over fist.

And why shouldn’t they?  These are good times.  Well, maybe not for Americans living in Houston, parts of Florida, California or in Puerto Rico.  Whatever happened to the news on the massive flooding and hurricane damage in Houston, Florida and Puerto Rico?  I remember seeing videos of Miami Beach High-Rise Condos with seawater 5-8 feet surrounding the entire area.  Does anyone have an idea of what happens to electrical systems when salt water floods buildings?  It’s not good.

Regardless… the amount of destruction major U.S. cities have experienced in the past three months is like nothing we have witnessed before.  Regrettably, a lot of these homes and businesses will never be rebuilt.  Not only don’t we have the money to do it, more importantly, we also don’t have the available energy.  While the massive destruction by hurricanes, flooding and fire have not impacted the stock market currently, they will.

As I mentioned at the beginning of the article, retail investors are propping up the stock markets.  However, they aren’t the only ones, or should I say, the only factor in keeping the stock markets from falling off a cliff.  Thanks to Uncle Sam, total U.S. debt has increased by $590 billion in just the past month and a half.  Here is a table of U.S. debt  from the data published by the fine folks at TreasuryDirect.gov:

The U.S. debt ceiling was finally breached on Sept 8th as the Treasury added another $318 billion of debt in one day.  Since that day, the U.S. debt has increased by another $271 billion.  The addition of debt to the U.S. Government balance sheet had a wonderful impact on the stock markets:

You will notice that the Dow Jones Index was running along the 50 Month Moving Average (BLUEline).   Any breach below a crucial technical support line could force selling by traders.  But, when the U.S. Treasury added another $318 billion of debt on Sept 8th, this propelled the markets higher.  While I don’t pay much attention to technical analysis, many professional traders most certainly do.

And… as the U.S. Treasury added another $271 billion in debt, the markets continued even higher.  So, what we have propping up the stock markets are DEBT and BRAIN-DEAD RETAIL investors.  This is not a good sign.  While the stock markets will likely continue higher, it will only give institutional investors more opportunity to sell out:

The ORANGE line represents SMART MONEY, the institutional investors.  Here we can see what a proper investment strategy should be during a rising bubble market when one doesn’t suffer from the same illness as the retail investor.  Furthermore, the savvy institutional investor is also able to understand the ramifications of the following chart:

The two lines in the graph have diverged considerably since the beginning of 2016.  The Economic Policy Uncertainty line represents the amount of negative news in the MainStream Media on the stock markets, governments, etc,… while the Equity Uncertainty line shows the volatility in the stock markets.  Typically, these two lines parallel each other.  But, as we can see, they have gone in opposite directions.

Thus, an investor not suffering from BRAIN DAMAGE, (institutional investor), would take this chart as BIG WARNING, whereas the retail investor just wants to know is how quickly he can liquidate his life insurance policy to place an even larger bet in the STOCK MARKET CASINO.  

There is no telling how long the stock markets will continue to rise as underlying fundamentals deteriorate.  However, all markets held up by debt and stupid money, must crash at some point.  Frustrated precious metals investors need to keep their distance from BRAIN DAMAGED investors as the disease is highly contagious.

My advice…. buy the GOLD and SILVER CHIPS and leave the CASINO while you can.

 

Smart Money to soon Buy Gold out of a Combination of Greed & Fear

Smart Money to soon Buy Gold out of a Combination of Greed & Fear

Smart Money to soon Buy Gold out of a Combination of Greed & Fear

As “fear trade” is dwindling down and the old-guard investors are stepping back, the new generation is buying gold to “make money” rather than to hedge against risk, said one precious metals expert.

“We advise investors to buy gold and silver out of a combination of greed and fear,” the managing director of CPM Group Jeff Christian told the Korelin Economics Report on Monday. “But, the fear factor is relatively low in our view. And the real thing is — let’s make money here.”

Christian doesn’t deny the existence of “fear trade,” stating that people still purchase gold and silver as an insurance policy.

But, the new trend that CPM Group described is investors “coming in and saying that they want to figure out how to make money [by buying gold],” Christian noted. “We are seeing a combination of factors driving these guys that we haven’t necessarily seen with investors in the past.”

This is a good change for gold, according to him, since the older type of investors are exiting the playing field.

“[There is] a lot of long-term gold bulls, who have either given up or died, and their heirs are going back to their brokers and saying: ‘Give me the money [back]’.”

The disappearance of the old guard is reflected in lower U.S. Mint’s coin sales of gold and silver American Eagles, said Christian. But, this is countered with increasing investments into ETFs, futures and options.

The new investors are “more opportunistic,” described Christian, adding that “a new gold renaissance” is on a way. “Our view has been that a secular upward shift in investment interest in gold is going to continue for many years to come,” Christian said.

One of the main drivers behind this positive shift for gold is the rallying stock market, which has been controlled by the bulls since 2010, according to the precious metals expert. “Smart money sees that and says that the stock market rally has to end and it will probably end badly,” he said. – Anna Golubova

Gold Shows Resilience In The Face of Stronger Dollar, Higher Yields

Although gold has fallen below key resistance, one market analyst said that he sees some underlying strength in the marketplace as the metal holds above important support levels.

“I am surprised that gold is not lower. In the current environment gold prices are holding up well,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Hansen noted that there is a long list of factors weighing on gold: the U.S. Dollar Index holding near a two-week high, 10-year real bond yields trading at a three-month high and stocks remain near record levels on strong corporate earnings.

Despite these bearish factors, gold has managed to hold above the October lows at $1,262.80 an ounce. “Something is going on in gold and it’s more than just what the headlines say,” he added.

December gold futures last traded at $1,277.20 an ounce, down 0.29% on the day.

Hansen said that geopolitical uncertainty, especially in the White House could be a reason why investors are reluctant to let go of their gold. While the Senate has passed important budget legislation, paving the way for Donald Trump’s much touted tax reform and tax cuts, the bill still has to be reconciled by the House.

“We really aren’t any closer to tax cuts but the market is gearing up for that. We could some disappointment if it doesn’t happen and that would be good for gold,” he said.

At the same time, The White House is also preparing to release its nomination for a new Chair of the Federal Reserve. One of the front runners is believed to be Stanford economist John Taylor, who markets are expecting to take a more hawkish stance on monetary policy. This is helping to support the U.S. dollar.

However, Hansen said there is uncertainty surrounding Taylor’s potential nomination. He also noted that any new leader at the Fed will have a difficult time altering the current path of interest rates.

“I think the Fed is starting to realize that inflation is not going to happen anytime soon and that will restrict the Fed’s decision,” he said. “The natural level of interest rates is lower than in previous cycles.”

As to how to play the gold market, Hansen said that current levels could be a good buying opportunity but warned investors to keep tight stops on their trades.

“If you are long gold then you should probably look at a stop around the $1,250 level. If gold falls to the $1,260 level then there is a good chance prices break below $1,250.” – Neils Christensen

Gold Trading Volumes Build-Up Massively

It was one of the coolest scenes in the Adventures of Superman show: Clark Kent ripping back his business suit to reveal the Superman outfit underneath while he sprints to save the day. Probably millions of people have seen that transformation.

Well, a similar transformation may be underway with gold, one that shows this market may be ready to fly…

I noticed a curious development in a gold chart from my regular readings, one the author only made a passing mention of. I hadn’t seen it highlighted elsewhere either, so I decided to do a little digging.

And sure enough, what I found is that unbeknownst to most investors, gold trading volumes on the COMEX just hit a record high.

Gold Trading Volumes Build-Up Massively

While virtually no one was looking, the amount of annual gold contracts traded on the COMEX reached a new historical high on October 20. With over two months to go.

You see that volumes both this year and last year are higher than 2011, when the gold price soared to an intraday high of $1,921. It was higher when traders dumped their holdings in 2013. And it’s already triple the levels of 2006. In other words, interest in trading gold has never been higher than right now.

To be clear, this data measures “trading” activity, so it includes both buys and sells. But the jump in volume both last year and this year is a bullish sign because prices have been rising. Gold was up 8.1% last year, and is up 11% so far this year. In other words, despite all the fretting about the drop in bullion sales, traders at the world’s biggest futures market are buying more gold contracts than they’re selling, a staunchly bullish indicator.

This dovetails with other bullish signs we’ve recently witnessed in the gold market, namely the spike in worldwide ETF holdings, which continue to hit record highs. The growth in the amount of holdings simply hasn’t let up…

  • Global gold ETF holdings have increased 7.7% so far this year.
  • Even when the gold price fell 2.9% in September, ETF holdings rose 2.4%, completing the third straight quarter of increases.
  • German-listed gold funds have skyrocketed since the beginning of 2016; holdings have more than doubled, now at 250 tonnes (8.03 million ounces).
  • And the Russian central bank has purchased 4.2 million ounces since January, worth over $5 billion and 15% more than in the same period last year. It’s been adding roughly 100 tonnes to its reserves every six months, more than any other central bank in the world, and now has roughly $73.6 billion in gold reserves.

Coin purchases may be down year-to-date, but this data clearly shows a growing buildup in interest for gold, particularly for professional traders and institutional investors since it is they who use these products.

Is the gold market about to shed its Clark Kent suit and turn into Superman? We’ll see, but it sure looks like he’s pulling back that first layer.

Either way, a major shift into the gold market is coming, folks. Don’t worry about the price, because sooner or later financial realities will set in around the globe and remind investors everywhere that gold is the one true monetary asset that can be trusted in times of turmoil.

In the meantime, I can tell you that we all at GoldSilver continue to prepare for the inevitable. Here’s what I just purchased. – Jeff Clark

 

The Only Hurdles that Gold Prices need to Overcome to Enter the Real Bull Market

The Only Hurdles that Gold Prices need to Overcome to Enter the Real Bull Market

The Only Hurdles that Gold Prices need to Overcome

Gold prices will only go up, rising as high as $1,400 next year, but the “real” bull market won’t get going until it sees an actual pickup in inflation, said mining magnate Pierre Lassonde.

“For gold to get into the next real bull market we need signs of inflation. So far we haven’t seen them,” the chairman of Franco-Nevada told German newspaper Finanz and Wirtschaft.

“The Federal Reserve and other central banks have piled up huge reserves. But there is no inflation because the money is sitting within the banks and they are not lending it. Therefore, you don’t get a multiplier effect.”

But, inflation could accelerate soon enough, with both reconstruction following the damage caused by hurricanes Irma and Harvey in the U.S. as well as a recovery in Europe moving the needle in the right direction, he said.

This year, Lassonde sees gold prices remaining between the $1,250-1,350 range and then rising up to $1,400 an ounce next year.

The only direction gold prices are likely to go is up, Lassonde noted in the interview, warning that production continues to decline, putting upward pressure on the yellow metal.

“If you look at the last 15 years, we found only very few 15 million ounce deposits. So where are those great big deposits we found in the past? How are they going to be replaced? We don’t know. We do not have those ore bodies in sight,” he said.

One of the reasons for that was that not enough money is being dedicated to exploration, Lassonde highlighted.

“The thing with this industry is that you have to have an incredible amount of patience and you have to have money. And right now, it’s hard to get money. The risk appetite of investors has been gone for many, many years,” he stated.

As of Monday afternoon, December Comex gold was last seen trading at $1,283.30 an ounce, up 0.22% on the day. – Anna Golubova

Gold Prices Under The Thumb Of The Banks

The price of Comex Digital Gold continues to be held hostage by the major Bullion Banks which operate on the Comex in New York. Though some “improvement” in their collective position was noted in the latest bank Participation Report, it is very important to note that The Banks are still as heavily net short as they were at the price peak in the summer of 2016.

We wrote about this recent surge in Bank shorting last month. In the article, we wrote that the 24 Bank short position in Comex gold had nearly doubled in just two months from 104,788 contracts net short to 213,746 contracts net short. The significance and speed of this rise rivaled what was observed in the first half of 2016 and we all know what followed in the second half of 2016. Namely, a smash in price that flushed the Spec longs back out of the Comex paper gold market and allowed these Banks to buy back and cover many of their short positions.

Specifically, the 24 Bank position, as divulged through the CFTC-generated Bank Participation Report, rose from just 45,259 contracts net short on 1/5/16 to a high of 195,262 contracts net short on 5/3/16. After falling back in June of 2016, this position again hit 191,834 contracts net short on 7/5/16.

From there, as gold prices fell from $1375 to $1175, the 24 Bank position contracted back to just 73,722 contracts net short on 1/3/17.

As gold prices rose again in 2017, The Banks resumed their profitable game of initiating Comex contracts on the sell side and taking the opposite position of hedge and trading fund speculators on the buy side. As gold prices rose once more from $1175 to the early September peak near $1360, the 24 Bank position rose again to the aforementioned 213,746 net short.

Our concern in September was that all of this Bank shorting would soon lead to another fall in price and, unfortunately, we were proven correct as price fell to $1275 by the time the latest survey was taken on October 3. However, even though gold prices fell by nearly $75 between report surveys, the latest Bank Participation Report showed that the total Bank position had only declined by about 30,000 with a new net short position of 182,197 contracts.

Therefore, there are several important items to note at this point:

1. As of October 3, the 24 Bank net position was nearly as heavily net short was it was at the price peak in July of 2016.

2. While doubling the size of their net short position on the $150 price rally of July and August, The Banks were only able to trim their position by 15% on the $75 pullback in September.

3. The Speculators have obviously held firm despite the recent pullback in gold prices. They have not been quick to turn tail and run from Comex gold, choosing instead to remain steadfastly long.

So now the battle begins for the fourth quarter. Will gold prices rise as emboldened Specs demand even greater long positions from the market-making Banks, forcing The Banks to retreat? Or will The Banks once again seize control of gold prices and send them plunging down through the 100-day and 200-day moving averages, which in turn would finally lead to the Spec liquidation The Banks seek?

Since January, we have forecasted at TF Metals Report to expect the highest prices for calendar year 2017 to be seen during this fourth quarter. The only “fly in the ointment” of this forecast is this current historically large, Bank position. Can price move higher again even though The Banks are already net short 182,917 contracts for about 570 metric tonnes of paper gold?

We’re likely not going to have to wait long to find out. – Craig Hemke

Is the Massive Debt Growth Holding Back Economic Growth?

Is the Massive Debt Growth Holding Back Economic Growth?

Is the Massive Debt Growth Holding Back Economic Growth?

Earlier this year,  the Institute of International Finance warned that global debt growth has  reached an “eye-watering” pace over the past decade and hit an all-time high of $215 trillion last year.

The IIF said total debt levels, including household, government and corporate debt, climbed by more than $70 trillion over the last ten years to a record high of $215 trillion in 2016 – or the equivalent of 325%of global gross domestic product.

Most of the debt growth, the report warned, was driven by a “spectacular rise” in emerging markets, where total debt stood at $55 trillion at the end of 2016.

Ten years on from the great financial crisis, and it looks as if the world has not learned anything from this life-changing event. The global economy is finally starting to show signs of life after nearly a decade of sluggish performance but despite this backdrop, debt growth keeps rising.

The IMF estimates that the world economy will expand 3.6% in 2017, up from 3.2% recorded last year, and it is likely to grow 3.7% in 2018 — the fastest rate of growth this year, and back to the 30-year average.

Debt Growth Is Holding Back GDP

Even though growth is picking up, credit rating agency Moody’s argues that this growth will not make it any easier for policymakers to raise interest rates.

In a research report published at the end of last week, Moody’s analysts point out that the “downshifting of US real GDP’s 10-year average annual growth rate has coincided with a climb by the ratio of nonfinancial-sector debt to GDP.” In other words, slowing economic growth has resulted in more leverage:

“When the average ratio of nonfinancial-sector debt to GDP rose from the 135% of 1960-1984 to the 175% of 1985-2001, the average annualized rate of real GDP growth slowed from 3.6% to 3.3%, respectively. In conjunction with the 229% average ratio of debt to GDP since 2001, real GDP growth has slowed to 1.9% annualized, on average.”

However, what’s interesting is that over the long term, benchmark Treasury Bond yields have tended to move in the direction ” taken by the underlying rate of growth for the US’s total nonfinancial-sector debt.” Specifically, the report notes that the annualized growth rate of nonfinancial-sector debt peaked at the scintillating 12.4% of the span-ended Q4-1986. Not long after, the 10-year yield peaked at 10.68%. Then during the second quarter of 2017, leverage debt growth hit 4.1%, joined ” by an easing of the benchmark Treasury yield’s moving 10-year average to the 2.64% of the span ended September 2017.”

Debt Growth

Considering the above trends, Moody’s analysts speculate that unless credit creation increases markedly from current levels, the 10-year yields moving average should be no greater than 2.5% by the end of 2018. If credit growth fails to materialize, the case for another interest rate rise becomes weaker. High levels of leverage are holding back economic growth. – Rupert Hargreaves

Debt Growth

 

Americans have more debt than ever – and it’s creating an economic trap

 

  • An IMF report finds that high household debt levels deepen and prolong recessions.
  • US household debt is now at pre-Great Recession levels.
  • Household debt jumped by over $500 billion in the second quarter to $12.84 trillion.

There’s a scary little statistic buried beneath the US economy’s apparent stability: Consumer debt levels are now well above those seen before the Great Recession.

As of June, US households were more than half a trillion dollars deeper in debt than they were a year earlier, according to the latest figures from the Federal Reserve. Total household debt now totals $12.84 trillion – also, incidentally, around two-thirds of gross domestic product (GDP).

The proportion of overall debt that was delinquent in the second quarter was steady at 4.8%, but the New York Fed warned over transitions of credit card balances into delinquency, which “ticked up notably.”

Here’s the thing: Unlike government debt, which can be rolled over continuously, consumer loans actually need to be paid back. And despite low official interest rates from the Federal Reserve, those often do not trickle down to many financial products like credit cards and small business loans.

Michael Lebowitz, co-founder of market analysis firm 720 Global, says the US economy is already dangerously close to the edge.

“Most consumers, especially those in the bottom 80%, are tapped out,” he told Business Insider. “They have borrowed about as much as they can. Servicing this debt will act like a wet towel on economic growth for years to come. Until wages can grow faster than our true costs of inflation, this problem will only worsen.”

The International Monetary Fund devotes two chapters of its latest Global Financial Stability Report to the issue of household debt growth. It finds that, rather intuitively, high debt levels tend to make economic downturns deeper and more prolonged.

“Increases in household debt consistently [signal] higher risks when initial debt levels are already high,” the IMF says.

Nonetheless, the results indicate that the threshold levels for household debt increases being associated with negative macro outcomes start relatively low, at about 30% of GDP.

Clearly, America’s already well past that point. As households become more indebted, the Fund says, future GDP growth and consumption decline and unemployment rises relative to their average values.

“Changes in household debt have a positive contemporaneous relationship to real GDP growth and a negative association with future real GDP growth,” the report says.

Specifically, the Fund says a 5% increase in household debt to GDP over a three-year period leads to a 1.25% fall in real GDP growth three years into the future.

The following chart helps visualize the process by which this takes place:

Household Debt IMFInternational Monetary Fund

“Housing busts and recessions preceded by larger run-ups in household debt tend to be more severe and protracted,” the IMF said.

Is there a solution? If things reach a tipping point, yes, says the IMF – there’s always debt forgiveness. Even creditors stand to benefit.

“We find that government policies can help prevent prolonged contractions in economic activity by addressing the problem of excessive household debt,” the report said.

The Fund cites “bold household debt restructuring programs such as those implemented in the United States in the 1930s and in Iceland today” as historical precedents.

“Such policies can, therefore, help avert self-reinforcing cycles of household defaults, further house price declines, and additional contractions in output.”

It’s no coincidence that household debt growth soared across many countries right before the last global slump. The figures are rather startling: In the five years to 2007, the ratio of household debt to income rose by an average of 39 percentage points, to 138%, in advanced economies. In Denmark, Iceland, Ireland, the Netherlands, and Norway, debt peaked at more than 200% of household income, the Fund said.

In other words: We’ve seen this movie before. – Pedro Nicolaci da Costa

 

Gold Plated Yuan & Cryptocurrencies will soon attack the US Dollar

Gold Plated Yuan & Cryptocurrencies will soon attack the US Dollar

Gold Plated Yuan & Cryptocurrencies will soon attack the US Dollar

Amongst all the crypto news this, and crypto news that, was a tiny item appearing in the Nikkei Asian Review on September 1st. Reporting from Denpasar, Indonesia, Damon Evans wrote, “China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game-changer for the industry.”

Not bitcoin backed, not ethereum backed, g-o-l-d backed. How low tech of the Chinese. For the moment, oil is priced in dollars, whether it’s Brent or West Texas Intermediate.

Evans explained,

China’s move will allow exporters such as Russia and Iran to circumvent U.S. sanctions by trading in yuan. To further entice trade, China (the world’s largest oil importer) says the yuan will be fully convertible into gold on exchanges in Shanghai and Hong Kong.

This will be China’s first commodities futures contract open to foreign companies such as investment funds, trading houses and petroleum companies.

China has wanted to unshackle itself from the dollar for a long time and now they’re giving yuan-denominated gold contracts a third try.

“It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either,” Alasdair Macleod, head of research at Goldmoney, said.

“It’s a transfer of holding their assets in black liquid to yellow metal. It’s a strategic move swapping oil for gold, rather than for U.S. Treasuries, which can be printed out of thin air,” Grant Williams explained.

If Saudi Arabia accepts yuan settlement for oil, Louis-Vincent Gave said, “this would go down like a lead balloon in Washington, where the U.S. Treasury would see this as a threat to the dollar’s hegemony… and it is unlikely the U.S. would continue to approve modern weapon sales to Saudi and the embedded protection of the House of Saud [the kingdom’s ruling family] that comes with them.”

Say China buys into Saudi Aramco, the pricing of Saudi oil could shift from US dollars to yuan, said Macleod. Crucially, “if China can tie in Aramco, with Russia, Iran et al, she will have a degree of influence over nearly 40% of global production, and will be able to progress her desire to exclude dollars for yuan,” he said.

In other currency news, Goldman Sachs “is weighing a new trading operation dedicated to bitcoin and other digital currencies, the first blue-chip Wall Street firm preparing to deal directly in this burgeoning yet controversial market, according to people familiar with the matter,” reports the Wall Street Journal.

It turns out Gov’t Sachs is just responding to customers wanting to play in the crypto space. Paul Vigna, Telos Demos and Liz Hoffman write,

Goldman’s seeks to serve a growing cadre of institutional investors wagering on bitcoin. Its effort could eventually entail a team of traders and salespeople making markets in bitcoins much as they do Japanese yen or shares of Apple Inc.

Some 70 hedge funds have bought bitcoin.  The crypto currency’s price volatility provide something traditional markets are lacking…action. “Goldman, once known as the nimblest trader on Wall Street, has struggled more than peers. Revenue in its fixed-income division fell 21% from last year through June, dragged down by poor performance in commodities and currencies.”

The dollar will soon be under attack: both from a gold-plated yuan and the cryptos. One wonders if this will all fit nicely with Janet Yellen’s plan to raise US dollar interest rates and shrink her employer’s balance sheet. I bet not.   – Doug French

 

Catalyst to Shock Silver Stocks from their Zombified Stupor Close-by

Catalyst to Shock Silver Stocks from their Zombified Stupor Close-by

Catalyst to Shock Silver Stocks from their Zombified Stupor Close-by

The silver miners’ stocks have mostly drifted sideways this year, looking vexingly comatose.  Such dull price action repels speculators and investors, so they’ve largely abandoned this lackluster sector.  That weak trader participation has led to silver stocks’ responsiveness to silver price moves decaying.  What can shock silver stocks out of their zombified stupor?  And how soon is such an awakening catalyst likely?

Silver stocks’ flatlined behavior so far in 2017 is surprising and odd.  Silver-stock prices are ultimately driven by silver-mining profits, which are overwhelmingly driven by prevailing silver price levels.  Silver in turn is slaved to gold’s fortunes, the yellow metal is the white metal’s dominant primary driver.  With gold faring quite well this year despite the euphoric record stock markets, silver and its miners’ stocks should be shining.

Since silver is a tiny market compared to gold, silver’s moves tend to leverage gold’s.  The best global silver and gold supply-and-demand fundamental data available comes from the Silver Institute and World Gold Council respectively.  According to them, worldwide silver and gold demand last year ran 1027.8m ounces and 4337.4 metric tons.  Along with average prices, these can be used to approximate market sizes.

Silver and gold averaged $17.12 and $1250 last year.  Run these numbers, and 2016’s total global silver and gold markets were worth about $17.6b and $174.3b.  This latest-available data shows silver’s market is literally an order of magnitude smaller than gold’s!  With silver only enjoying 1/10th the capital flows of gold, silver tends to be far more responsive.  Any dollar of buying or selling is 10x more impactful for silver.

The silver market’s small size is one of this metal’s greatest strengths.  Compared to the vastly-larger broader markets, it doesn’t take much new buying to catapult silver dramatically higher.  Speculators and investors alike usually get interested in shifting capital into silver when gold is already rallying.  Silver then tends to rally much more than gold, leveraging its upside, because silver inflows are relatively larger.

Given gold’s good performance this year, silver and the stocks of its miners should’ve surged.  Year-to-date gold is up 11.3%, well ahead of full-year 2016’s 8.5% gain.  But instead of amplifying gold’s 2017 advance by 2x to 3x like usual, silver is only up 6.7% YTD as of this week.  This makes for really poor leverage to gold of 0.6x.  Last year silver rallied 15.1%, yielding still-weak-but-more-normal 1.8x upside leverage.

Silver’s serious underperformance relative to gold this year has greatly retarded traders’ interest in the silver miners’ stocks.  The leading silver miners’ trading vehicle and sector-index proxy is the SIL Global X Silver Miners ETF.  Because of the great profits leverage to silver inherent in the silver miners, their stocks usually amplify silver’s upside.  But YTD SIL is only up 4.0%, for extremely-poor 0.6x leverage!

Gold stocks aren’t having a great year either, with their leading GDX ETF only up 11.5% YTD compared to gold’s 11.3% gains.  Like silver stocks, their gains tend to multiply their underlying metal’s gains by 2x to 3x.  But the gold stocks’ weak in-line performance so far in 2017 highlights just how bad silver stocks’ lagging performance is.  They have been largely drifting comatose this year, hardly even responding to silver.

Silver stocks have serious problems, and they certainly aren’t fundamental.  Every quarter I analyze the latest operating and financial results from the top silver miners of SIL.  They will soon start reporting their new Q3’17 results, but the prior quarter’s are the latest now available.  In Q2’17 SIL’s elite top silver miners reported average all-in sustaining costs of $11.66 per ounce, well below average silver prices of $17.18.

That implies hefty industrywide silver-mining profits of $5.52 per ounce.  While the average silver price did slump 2.0% sequentially in Q3 to $16.84, that’s certainly no fundamental threat.  Assuming flat mining costs, the silver miners still should’ve been able to earn $5.18 per ounce last quarter.  That’s down 6.2% quarter-on-quarter, but is still very profitable.  Fundamentals can’t explain silver stocks’ vexing malaise this year.

That narrows down the suspect list to technicals and sentiment.  This first chart looks at the price action in SIL and silver over the past couple years or so.  Silver miners’ responsiveness to silver moves was excellent last year, but is decaying dramatically this year.  With speculators and investors abandoning this sector, it’s barely budging.  That has spawned a vicious circle convincing other traders to avoid silver stocks.

Catalyst to Shock Silver Stocks from their Zombified Stupor Close-by

Silver stocks’ troubling lethargy is new this year.  Back in December 2015 two days before the Fed’s first rate hikeof this cycle, silver slumped to a major 6.4-year secular low in concert with gold.  Silver stocks bottomed just over a month later in January 2016 paralleling the gold stocks.  SIL fell to an all-time low in split-adjusted terms that day.  A couple months earlier, Global X had executed a 1-for-3 reverse split in SIL.

Silver stocks were so deeply out of favor in late 2015 that this leading ETF’s managers feared SIL’s price would collapse low enough to risk delisting!  Out of that very despair, strong new bull markets in silver and its miners’ stocks were born.  In just 6.9 months from mid-January to mid-August 2016, SIL rocketed 247.8% higher on a 40.6% silver rally!  That made for outstanding 6.1x upside leverage to silver prices.

Naturally silver and its miners’ stocks were soon sucked into gold’s correction following its own new bull’s initial upleg.  Those silver and SIL corrections ballooned to monstrous proportions, thanks to gold-futures stops being run then Trump’s surprise election victory unleashing stock-market euphoria.  So over the next 4.2 months, silver and SIL plunged 20.1% and 42.5%.  SIL’s downside leverage to silver of 2.1x was modest.

2016’s behavior is the way silver stocks normally react to silver-price moves.  The blue SIL and red silver lines above were closely intertwined last year.  Silver stocks generally rallied and fell sharply in lockstep with silver itself.  This normal behavior carried over into the first couple months of 2017, when SIL surged 33.6% between late December 2016 and early February 2017 on a mere 12.5% parallel rally in silver itself.

Silver stocks were leveraging silver’s upside by 2.7x, near the high end of their usual 2x to 3x range.  So back in late January the silver stocks’ 2017 prospects looked really bullish.  Things started going awry in February and March.  The silver stocks corrected hard, plunging 21.1% in a month on a relatively-small 4.5% silver pullback.  That made for big 4.7x downside leverage that was quite excessive, scaring traders.

So they started to flee silver miners’ stocks, a trend that’s continued ever since.  With each subsequent silver rally since March, silver stocks have become less and less responsive to silver upside.  This year’s blue SIL line above is no longer mirroring and amplifying the underlying volatility in the red silver line.  It’s as if silver stocks are flatlining relative to silver, which is very strange.  I can’t recall seeing anything like this.

Thus silver stocks have been stuck in a descending-triangle consolidation pattern for much of this year.  They finally enjoyed breakouts from this triangle’s upper resistance and SIL’s 200-day moving average in August, mirroring similar major breakouts in gold stocks.  But silver stocks’ responsiveness to silver continued decaying.  In a month leading into early September, SIL only climbed 11.3% on an 11.5% silver rally.

Technically it looks like silver stocks have largely disconnected from silver.  They’ve lapsed into this super-weird zombified comatose state.  Speculators and investors alike aren’t the least bit interested in silver miners today, because they’re performing so poorly.  And the resulting lack of participation in this sector scares away other traders, exacerbating the problem.  Silver stocks have effectively been left for dead.

After decades studying and actively trading silver stocks, I’ve pondered this strange anomaly quite a bit in recent months.  It’s certainly not fundamentally-driven, as silver miners’ earnings are looking good.  It’s likely not technical either.  While silver stocks are really underperforming, they haven’t suffered a serious selloff.  SIL’s triangle support around $33 has held rock solid all year long, so this is a consolidation not a correction.

That leaves sentiment as the culprit behind silver stocks’ vexing stupor this year.  Traders’ psychology is important in all markets, but disproportionately so in silver.  Silver is a tiny highly-speculative market, exceptionally sensitive to shifting winds of sentiment.  While weak technicals breed bearish sentiment and that becomes self-reinforcing, there had to be some root causes poisoning silver psychology earlier this year.

I suspect multiple factors are to blame.  Once again silver sentiment is heavily dependent on gold.  In the wake of Trump’s election win almost a year ago, stock markets soared in Trumphoria on hopes for big tax cuts soon.  That hammered gold, which is hostage to stock-market fortunes.  Gold is an anti-stock trade that usually moves counter to stock markets, so gold investment demand collapsed after the election.

Gold’s own psychology was utterly miserable late last year, exceedingly bearish.  When gold fell to $1128 right after the Fed’s second rate hike of this cycle last December, Wall Street forecasts calling for a plunge under $1000 exploded.  Traders don’t get interested in silver until gold is already rallying, so the extreme gold gloom and doom late last year certainly tainted silver sentiment.  It has yet to recover from that.

Though gold bounced sharply and has enjoyed a good 2017, silver oddly didn’t join in.  Gold itself likely played a major role.  Despite gold’s gains this year, gold sentiment has remained pretty bearish.  With the stock markets magically levitating in Trumphoria on those fervent big-tax-cuts-soon hopes, gold was flying under traders’ radars.  With virtually no enthusiasm for gold, silver psychology had nothing to feed on.

The speculative traders who flock to silver for its sharp rallies and big gains were finding greener pastures elsewhere.  Throughout the year various mainstream stock-market sectors have surged, so traders could find strong gains outside the precious metals.  I’m certain this year’s extraordinary bitcoin bubble diverted interest away from silver too.  The stratospheric skyrocketing of bitcoin prices has captivated traders.

Bitcoin’s value is hyper-speculative, as bitcoins are a synthetic virtual construct given perceived worth by software creating artificial scarcity.  Having been in the financial-newsletter business for almost a couple decades now, I hear and read endless market anecdotes.  This year I’m seeing the same types of traders who are usually interested in speculative silver raving about bitcoin instead.  Bitcoin is a speculative mania!

Both in my own private feedback from countless traders around the world, and on the Internet’s popular gold and silver forums, the usual gold and silver conversations have shifted to gold and bitcoin this year.  There’s no doubt bitcoin has stolen some limelight from silver, and almost certainly sucked away some of the capital that would’ve flowed into silver in 2017 too.  Bitcoin is this year’s alternative speculation of choice.

But bitcoin’s meteoric rise won’t eclipse silver forever.  Silver investment has been around for millennia, but bitcoin was just introduced in January 2009.  As of this week bitcoin is up an astounding 485% YTD in 2017 alone!  Such extreme vertical gains are never sustainable, as history has abundantly proven.  So bitcoin’s epic competition this year for mindshare and capital from traditional silver speculators won’t last.

While bitcoin is definitely a factor in the lack of interest in silver and silver stocks this year, these record-high Trumphoria-goosed stock markets are far more important.  As long as gold psychology is bearish as stocks seemingly do nothing but rally forever, silver’s speculative appeal will languish.  Once these lofty stock markets inevitably roll over, gold and therefore silver investment will return to favor just like in early 2016.

Gold and silver slumped to brutal 6.1-year and 6.4-year secular lows in December 2015, everyone hated the precious metals.  But the US stock markets finally succumbed to their first corrections in 3.6 years, an extreme near-record span.  As the S&P 500 fell 12.4% in 3.2 months in mid-2015 followed by another 13.3% in 3.3 months into early 2016, long-neglected gold and silver demand returned with a vengeance.

Gold and silver surged 29.9% and 50.2% higher over the next half-year or so, igniting their first new bull markets in years!  The next correction-grade stock-market selloff, over 10% on the S&P 500, will spark another renaissance in gold and silver investment demand.  After being miraculously delayed for so long, that next major stock-market selloff is overdue and imminent.  The risk factors stacking against stocks are legion.

The US stock markets are literally trading in bubble territory, over 28x earnings on the traditional trailing-twelve-month basis.  They’ve rallied so long and so high that euphoria is extreme, with all measures of sentiment showing dangerous bull-slaying levels.  And the Fed just birthed quantitative tightening for the first time in history, which is exceedingly bearish for these quantitative-easing-inflated artificial stock markets.

The stock markets finally decisively rolling over is the most-likely catalyst to shock silver and the stocks of its miners out of their comatose malaise.  The silver stocks are perfectly poised for a first-half-of-2016-like scenario, where SIL rocketed 247.8% higher in just 6.9 months.  The driver will be silver’s next major bull-market upleg.  Silver remains radically undervalued relative to gold, thus enjoying colossal upside potential.

This next chart looks at the Silver Gold Ratio, which simply divides the daily silver close by the daily gold close.  Technically that results in little decimals that are hard to parse mentally, so I prefer using a scale-inverted gold silver ratio which is the same thing.  It yields more-meaningful whole numbers like 75.5 where the SGR stands today.  This is way too low based on historical precedent, an unsustainable anomaly.

Catalyst to Shock Silver Stocks from their Zombified Stupor Close-by

This week it took over 75 ounces of silver to equal the value of one ounce of gold.  That’s a really-high SGR historically, meaning silver prices are really low relative to gold.  Silver’s extreme undervaluation is a key reason speculators and investors aren’t interested in silver stocks today.  That will change dramatically as silver inevitably resumes mean reverting higher relative to gold.  Silver will outperform for a long time.

Before 2008’s stock panic, the SGR averaged 54.9.  After the stock panic between 2009 to 2012, the SGR averaged 56.9.  So outside of the extreme SGR anomalies driven by the stock panic and later the Fed’s QE3-conjured stock-market levitation from 2013 on, a mid-50s SGR is normal.  This has proved true all throughout modern history due to geological and relative silver-and-gold supply-and-demand reasons.

During late 2008’s stock panic, the SGR briefly averaged an extremely-low 75.8.  That soon gave way to a sharp mean reversion higher to reestablish silver’s usual relationship with gold.  That mean reversion overshot dramatically, as is often the case with silver after an SGR extreme.  In April 2011 when silver was enjoying mania-like popularity the SGR briefly peaked at 31.7!  Silver’s upside is extreme after low SGRs.

Incredibly since Q4’15, when silver and gold hit their major 6-year secular lows, the SGR has averaged just 73.6.  That’s not much better than late 2008’s stock-panic levels!  So silver is long overdue to mean revert relative to gold, rallying much faster than gold for months on end until this relationship is restored.  We don’t need to assume a likely overshoot, as a simple mean reversion alone would drive huge silver gains.

Assuming a 56 normal SGR, at this week’s $1280 gold price silver should be trading over $22.75.  That’s 35% above prevailing price levels.  But with gold itself readying to rally, silver’s mean-reversion targets climb much higher with gold prices.  Another 30% gold upleg like in early 2016, which is modest by gold’s historical standards, would take it to $1665.  At a 56 SGR, silver would have to soar 75% to around $29.75!

Since silver prices remain so depressed relative to their primary driver gold’s, the silver upside potential from here is enormous.  This overdue silver mean reversion higher is what will shock silver stocks back to life.  Once speculators and investors see silver starting to run, they are going to flood back into beaten-down silver stocks with reckless abandon.  That will catapult this small sector radically higher like in early 2016.

The trigger reigniting silver will be gold powering higher, and again that will likely result from these crazy stock markets rolling over.  Once these bubble-valued stock markets start decisively weakening, traders will rush to return to gold, silver, and their miners’ stocks to prudently diversify their stock-heavy portfolios.  The Fed’s QT juggernaut ramping up over the next year will likely set this chain of events in motion.

Recent months’ comatose silver stocks are largely the product of general-stock euphoria leaving silver radically undervalued relative to gold.  Silver psychology is very bearish, so traders aren’t the least bit interested in owning its miners.  Sprinkle in the extreme allure of the bitcoin mania for the speculative traders who crave silver’s normal volatility, and that explains 2017’s serious anomaly in silver and silver stocks.

When this all changes, silver will move fast.  This restless and volatile metal has a long history of drifting sideways and doing little.  But occasionally the winds of sentiment shift enough to ignite enormous bull markets and uplegs generating fortunes.  Traders who have the discipline to wait out silver’s sometimes-vexing consolidations are greatly rewarded when capital really flows into silver again, catapulting it far higher.

The greatest gains in this next major silver upleg won’t be won in silver-stock ETFs like SIL.  They are burdened with too many companies that aren’t primary silver miners, the majority of their revenues come from other metals.  So they aren’t very responsive to silver’s upside.  But the purer individual silver miners with superior fundamentals will enjoy massive gains trouncing the ETFs.  They are the best way to play silver.

The bottom line is silver stocks have largely drifted comatose this year, with decaying responsiveness to silver moves.  The extreme stock-market euphoria has left gold psychology bearish, bleeding into silver sentiment.  And the spectacular bitcoin bubble has diverted speculative traders’ interest and capital away from silver as well.  All this has led traders to largely abandon silver miners, condemning their stocks to consolidate.

But the likely catalyst to shock silver stocks from their zombified stupor is nearing with each passing day.  Once these QE-inflated stock markets inevitably succumb to QT, gold and silver investment demand will return.  The tiny silver market will rapidly surge on major capital inflows, with lots of room to mean revert far higher relative to gold.  Then speculators and investors alike will rush to buy the cheap silver miners’ stocks. – Adam Hamilton

 

The Long-Term Demand Picture Remains Supportive of Gold Prices

The Long-Term Demand Picture Remains Supportive of Gold Prices

The Long-Term Demand Picture Remains Supportive of Gold Prices

Rupert Hargreaves: “We believe that precious metals remain a relevant asset class in modern portfolios, despite their lack of yield,” said Goldman Sachs in a recent report on the dilemma of what investors should do about falling gold price . “They are neither a historic accident or a relic,” the report, titled “Fear And Wealth” continued.

Following the financial crisis, demand for gold skyrocketed as investors looked to protect themselves from the much-feared rampant inflation following QE that was about the grip the world. This inflation never materialized, and now that the Federal Reserve is beginning to wind down its asset buying, demand for gold is evaporating.

However, according to Goldman, investors shouldn’t give up on the asset completely. Sentiment towards gold tends to move quickly, as uncertainty grows/falls. That’s why the asset should continue to hold a place in investors’ portfolios:

“Stated more simply, we are talking about the drivers of ‘risk-on, risk-off’ behavior in markets…This factor matters so much to gold precisely because it is a safe-haven asset. Accordingly, as uncertainty increases, preferences shift towards having more gold in the portfolio, driving prices higher. Fear can spike or fall quickly, and since DM economies tend to have more wealth to reallocate as the world gets riskier, this is both a medium- to short-run driver and more one exposed to the DM growth outlook.”

There’s also the long-run demand picture to consider:

“As more EM economies — including China — are set to grow to these income levels over the next few decades, the underlying long-term demand picture remains supportive of gold prices…While fear can spike or fall relatively quickly, wealth tends to accumulate slowly. This makes wealth an important, but easy to overlook in short-term forecasting, driver of gold.”

Falling Gold Price Reversal

Gold prices have been on the backfoot since reaching records in 2012. For 2012 the price of gold averaged $1,669 an ounce, compared to $1,249/oz year to date.

Analysts at Incrementum AG note blame the recent price weakness on rising global equity markets. In the firm’s 11th annual “In Gold we Trust” report, the analysts point out that today, with the falling gold price and rising equity markets, relative valuation of commodities to equities seems extremely low compared to history. Specifically, in relation to the S&P500, the GSCI commodity index is currently trading at the lowest level in 50 years. Also, the ratio sits significantly below the long-term median of 4.1.

Falling Gold PriceWith gold prices looking cheap on a technical basis, the analysts at Incrementum also like the look of gold from a fundamental perspective. As mentioned above, the post-crisis thesis for gold prices was that central bank money printing would lead to rampant inflation. For the past decade, inflation has remained subdued, but now it looks as if it is picking up again — a positive sign for gold and other commodities investors.

Falling Gold Price

Falling Gold Price

Finally, the case for 5,000 gold prices below, caveat emptor.

Is Higher Inflation Really Bad for Gold Prices?

Peter Schiff News of hotter than expected inflation numbers caused gold to sell off Tuesday. The markets seem to think rising inflation is bullish for the dollar and bearish for gold prices.

But is it really? Is higher inflation really bad for gold prices?

As Peter Schiff points out in his latest podcast, this whole notion is rather absurd.

The news of the day Tuesday revolved around import/export prices.

Import prices were expected to rise 0.5 and were up 0.7. Export prices also came in stronger than expected, rising 0.8 compared to an expected increase of 0.4. Year-over-year, import prices are up 2.7%. This is well above the 2% level the Federal Reserve is looking for.

Of course, the Fed fixates on the consumer price index, but obviously, import/export prices have a major impact on overall consumer prices. In fact, Peter says he thinks the import/export price number represents a better gauge of inflation than the CPI because the methodology is more objective.

The immediate market reaction to the import/export numbers was to buy the dollar and sell gold. But Peter raises an important question: Why is higher inflation bad for gold?

After all, the main reason to buy gold is an inflation hedge. If you think there’s going to be more inflation, you buy gold. But perversely, the way the markets work now, you sell gold if you think there’s going to be more inflation. In fact, you buy the currency of the country that is experiencing more inflation, which is kind of counter-intuitive because inflation by definition is the currency losing value. So, if the currency is losing its purchasing power, why would you want to buy more of it?”

As Peter pointed out, speculation about what the Federal Reserve may or may not do now drives the market more than this fundamental truth. Everybody thinks higher inflation increases the likelihood the central bank will raise interest rates and embark on tighter monetary policy.

It is the expectation that these higher numbers will produce a tighter Fed – that is what rallies the dollar. That is what hurts gold prices. It’s the anticipation of higher rates to fight off the inflation.”

This also explains why we’ve seen some headwinds in the gold market and a strengthening dollar as speculation swirls around who Trump will tap to serve as Fed chair when Yellen’s term ends next year. Many analysts think the president will pick a “hawkish” policymaker” who will hold interest rates higher.

Peter says fixating on the Fed and inflation is a mistake.

Reality is the Fed will ignore the higher inflation numbers and do nothing. Whatever it’s going to do with rates, it’s going to do it regardless of these numbers. And ultimately, if the Fed has to make a choice between fighting inflation and unemployment –  because the Fed believes in this Phillps Curve tradeoff between inflation and employment – the Fed will always choose to fight unemployment or to prop up the labor market and sacrifice its inflation goal. It doesn’t care if inflation goes up. It’s more concerned about employment, or the economy, or maintaining asset bubbles, or propping up the US government and making it so it doesn’t have to default on its debts. The reality is higher inflation is not going to produce a tighter monetary policy.”

Peter compared inflation to a fire. The Fed is going to have to ignore the fire. That means it will get worse. The fire will get bigger because the central bank thinks putting it out will do more harm than letting it burn.

If traders understood this – that higher inflation just means that it’s going to get even worse – then they would be dumping the dollar. They would be buying gold.”

The real interest rate equals inflation minus the nominal interest rate. So, even if the Fed pushes up nominal rates, the real rate can continue to fall in a high inflation environment. Peter said even if the Federal Reserve does push interest rates higher, it probably won’t be able to keep ahead of the inflation curve.

So, the markets have got it completely wrong when it comes to how to react to inflation. Inflation is good for gold prices and bad for the dollar. So, when you see these kind of selloffs like we saw today – these are buying opportunities. This is an opportunity to buy from people who don’t know what they’re doing because they’re just focusing on this short-term relationship that is wrong.”

Gold is Very Much Relevant Says Goldman Sachs

Goldman Sachs says precious metals remain a “relevant asset class” sought as a safe haven in response to “fear” in developed-market economies, while purchases tend to be tied to growing wealth in emerging-market economies.

The bank released a report Tuesday, titled “Fear And Wealth,” that was not a traditional investment-bank gold forecast but assessed the factors that tend to influence demand in both developed and emerging economies. This combination of fear and wealth accounted for a greater-than-400% rise in gold prices over the two decades since the metal bottomed in the late 1990s, Goldman said.

“We believe that precious metals remain a relevant asset class in modern portfolios, despite their lack of yield,” the bank said. “They are neither a historic accident or a relic.”

The physical properties of an ideal long-term store of value — durability, portability, divisibility and intrinsic value – explain why precious metals were initially adopted and why they remain relevant today, Goldman said.

The so-called fear factor tends to be more important in the short to medium term in developed nations, Goldman said. While real interest rates and economic expectations play a role in gold demand, so do debasement, sovereign balance-sheet, geopolitical and other market risks.

“Stated more simply, we are talking about the drivers of ‘risk-on, risk-off’ behavior in markets,” Goldman said. “This factor matters so much to gold precisely because it is a safe-haven asset. Accordingly, as uncertainty increases, preferences shift towards having more gold in the portfolio, driving prices higher. Fear can spike or fall quickly, and since DM economies tend to have more wealth to reallocate as the world gets riskier, this is both a medium- to short-run driver and more one exposed to the DM growth outlook.”

The global financial crisis highlighted the purchasing that occurs based on fear, Goldman said.

“The re-emergence of structural tail risks in developed markets led to a significant rotation towards more defensive portfolios and a reassessment of central bank’s gold-selling policies. This has been manifested in higher retail and ETF [exchange-traded-fund] purchases — still more than twice as high in 2016 as in 2006 — and DM central banks halting all sales of gold stocks since 2009.”

Nevertheless, the bank said, with the global economy strengthening and more rate hikes expected from the U.S. Federal Reserve in 2018 and 2019, “we expect that the fear factor will moderate over the next 12 months, likely driving a moderate rotation out of gold for DM investors.”

Meanwhile, gold demand in emerging economies tends to rise when wealth does likewise. Rapid accumulation of gold tends to occur when per-capita gross domestic product reaches roughly $20,000 to $30,000, Goldman said.

“As more EM economies — including China — are set to grow to these income levels over the next few decades, the underlying long-term demand picture remains supportive of gold prices,” Goldman said. “While fear can spike or fall relatively quickly, wealth tends to accumulate slowly. This makes wealth an important, but easy to overlook in short-term forecasting, driver of gold.”

A boom in income and savings in emerging-market economies since 2000 created new consumers for gold demand, Goldman said. In fact, the bank pointed out, China’s and India’s combined share of the gold jewelry market increased from 25% to over 60%.

China’s jewelry and investment demand is around 0.5 gram per person per year, Goldman said. “Our modeling, based on the historical experiences of 29 countries at various stages of development since the early 1990s, suggests that this is still very far from peak annual demand,” the bank said.

As for other precious metals, Goldman said silver primarily moves in response to gold prices and industrial demand.

“In the medium term, divergence between the two prices is primarily driven by changes in industrial demand for silver and to a lesser degree, silver supply. This means that silver tends to outperform gold during the expansion phase of the business cycle when industrial demand growth is strong,” the bank said.

“It should be noted however that since 2011, silver industrial demand diverged from the global business cycle due to the substitution for base metals (initiated by the 2011 silver price spike), but we expect this disconnect to be temporary.”

Meanwhile, due to less safe-haven investment demand and the potential for physically tight markets, platinum group metals tend to be priced like other industrial commodities.

“The price of a basket of PGMs must reflect the price of the incentive mine project necessary to balance the market,” Goldman said. “The ratio of individual PGM prices then has to be determined as a function of relative on-ground stocks and market balances.” – Allen Sykora

Gold Prices To Hit Records Highs Within Two Years

As gold prices retreated below its key psychological level of $1,300 in after-hours trading Monday, one precious metals expert remained optimistic, saying that the metal could hit new all-time highs by 2020.

“By 2020–2022 we would see record high gold prices in terms of nominal annual average prices,” the managing director of CPM Group Jeff Christian said in an interview with Macro Voices. “For the annual average price to be $1,650 or $1,700, that means that you’re going to have gold prices knocking on the door of $2,000.”

In the short-term, Christian said good things are in store for the yellow metal, with prices going as high as $1,360 an ounce.

“Over the next few months the price is probably going to move back up toward $1,340 to $1,360 – into late November and December,” Christian said. “Then getting into 2018, depending on what happens in the global financial markets, we think that the gold price will probably continue to rise at perhaps a slightly faster rate than it has risen in the last couple of years.”

As Asian markets opened, spot gold on Kitco.com was last seen trading at $1,293.50, down 0.08% on the day.

Christian is not as excited about silver, adding that his outlook for the white metal has a “firm ceiling” at around $19 over the next several months.

“We’re looking for silver to move sideways,” he said. “Silver is a financial asset, to some extent, like gold. But it’s much more of an industrial metal and an industrial commodity . . . One of the things that you see is that investment demand really drives prices higher or lower, and investors are much more focused on gold right now, it seems, than they are on silver.”

In terms of future drivers for the metals, the search for a new Federal Reserve Chair should not have much of an impact, according to the expert.

“Concerns over who comes in at the Fed will ruffle the markets, and you’ll see the usual little volatilities as people jockey, but that’s largely meaningless to the bigger issue, which is that the Fed probably will continue to suffer from a diminution of respect on a global basis,” Christian said.

This distrust of what the Fed is doing to the U.S. economy could translate into higher gold prices, he explained. “Part of our view of gold prices rising over the next five years is predicated on the view that there’s going to be concerns about the future of monetary management in the United States and on a global basis.” – Anna Golubova

 

Electric Vehicles Electrifying Copper – The Metal of the Future

Electric Vehicles Electrifying Copper - The Metal of the Future

Electric Vehicles Electrifying Copper – The Metal of the Future

As many of you know, copper is often seen as an indicator of economic health, historically falling when overall manufacturing and construction is in contraction mode, rising in times of expansion.

That appears to be the case today. Currently trading above $3 a pound, “Doctor Copper” is up close to 28 percent year-to-date and far outperforming its five-year average from 2012 to 2016.

Copper is far outperforming the five year average

Several factors are driving the price of the red metal right now. Manufacturing activity, as measured by the purchasing manager’s index (PMI), is expanding at a pace we haven’t seen in years in the U.S., eurozone and China. The U.S. expanded for the 100th straight month in September, climbing to a 13-year high of 60.8.

Speculators are also buying in response to word of copper shortages in China, despite September imports of the metal rising to its highest level since March. The world’s second-largest economy took in 1.47 million metric tons of copper ore and concentrates last month, an amount that’s 6 percent higher than the same month in 2016.

Why Copper Is the “Metal of the Future”

Why are we seeing so much copper entering China? One reason could be battery electric vehicles (BEVs), which require three to four times as much copper as traditional fossil fuel-powered vehicles.

China is already the world’s largest and most profitable market for BEVs, and Beijing is now reportedly working on plans to curb and eventually ban the sale of fossil fuel-powered vehicles, according to the Financial Times. This would place the Asian giant in league with a number of other powerful countries similarly crafting bans on internal combustion engines within the next 25 years, including Germany, France, Norway, the United Kingdom and India.

Because of the sheer size of the Chinese market, this move is sure to delight copper bulls and investors in any metal that’s set to benefit from higher BEV production. That includes cobalt, lithium and nickel.

According to Bloomberg New Energy Finance, BEVs will account for 54 percent of all new car sales by 2040. That year, China, Europe and the U.S. are expected to make up 60 percent of the global BEV fleet.

This could have a huge effect on copper prices over the next 10 years and more. With fewer and fewer large deposits being discovered, demand should accelerate from 185,000 metric tons today to an estimated 1.74 million tonnes in 2027, according to the International Copper Association.

Electric vehicles expected to drive copper demand

These are among the reasons why Arnoud Balhuizen, chief commercial officer of Australian mining giant BHP Billiton, called copper “the metal of the future” in an interview with Reuters last month.

“2017 is the revolution year [for electric vehicles], and copper is the metal of the future,” Balhuizen said, adding that the market is grossly underestimating the red metal’s potential as BEV adoption surges around the world.

Cobalt Gets Its Day in the Sun

And let’s not forget cobalt. The brittle, silver-gray metal, used to extend the life expectancy of rechargeable batteries, is up more than 81 percent so far in 2017 and 109 percent for the 12-month period. Performance is being driven not only by growing BEV demand but also supply disruptions in the Republic of the Congo, where more than 60 percent of the world’s cobalt is mined.

“It’s a really bright future for cobalt,” Vivienne Lloyd, analyst at Macquarie Research, told the Financial Times. “There doesn’t seem to be enough of it.”

Before now, there was very little mainstream interest in cobalt as an investment, but that’s changing as rapidly as world governments are joining the chorus to move away from fossil fuels. One sign of that change is the London Metal Exchange’s (LME) upcoming cobalt contracts, one for the physical metal and another for the chemical compound cobalt sulphate. This will allow investors to trade the underlying metal and participate in the electric vehicle “revolution,” as Balhuizen calls it.

In the meantime, investors can participate by investing in a producer with exposure to cobalt—among our favorites are Glencore, Freeport-McMoRan and Norilsk Nickel—or a natural resources fund.

Gold Closes Above $1,300 an Ounce

Gold also looks constructive as we head into the fourth quarter and beyond, according to a number of new reports and analysis last week.

UBS strategist Joni Teves finds it “encouraging” that gold has managed to recover this year off its 2016 lows. Although a likely December rate hike could be a headwind, Teves points out that the metal performed well in the months that followed the previous three rate hikes. What’s more, gold has rallied in each January since 2014. We could see a similar bump in price this coming January.

Not only is gold trading above its 50-day moving average again, but for all of 2017, it’s been following a nice upward trend as the U.S. dollar dips further.

Gold following a nice upward trend as US dollar weakens further

A weaker greenback, of course, is bullish for all commodities, including copper. According to Bloomberg strategist Mike McGlone, unless the dollar unexpectedly recovers in the near term, commodities, as measured by the Bloomberg Commodities Index, could gain as much as 20 percent between now and year’s end.

Meanwhile, BCA writes that major risks in 2018—inflationary expectations stemming from President Donald Trump’s protectionism, tensions between the U.S. and China, and continued strife in the Middle East among them—could keep the shine on gold.

The research firm reminds investors that gold has historically done well in times of economic and geopolitical crisis, outperforming the S&P 500 Index, U.S. dollar and 10-year Treasury by wide margins. Because the metal is negatively correlated to other assets, it could potentially serve as a good store of value if equities entered a bear market.

Such a bear market, triggered by tighter U.S. monetary policy, could take place as early as 2019, BCA analysts estimate. Gold would then stand out as a favorable asset to hold, especially if inflationary pressures pushed real Treasury yields into negative territory.

A Fear Trade Lesson from Germany

This is the lesson Germany has learned over the past 10 years, as I shared with you last week. Before 2008, Germans’ investment in physical gold barely registered on anyone’s radar, with average annual demand at 17 metrics tons. The country’s first gold-backed exchange-trade commodities (ETCs) didn’t even appear on the market until 2007.

But then the financial crisis struck, followed by monetary easing and low to negative interest rates. These events ultimately pushed many Germans into seeking a more reliable store of value.

Now, a new report from the World Gold Council (WGC) shows that German investors became the world’s top gold buyers in 2016, ploughing as much as $8 billion into gold coins, bars and ETCs. Amazingly, they outspent Indian, Chinese and U.S. investors.

Gold investment in Germany hit a new high in 2016

Analysts with the WGC believe there is room for further growth, citing a recent survey that shows latent demand in Germany holding strong. Impressively, 59 percent of German investors agreed that “gold will never lose its value in the long-term.” That’s a huge number, suggesting the investment case for gold remains attractive. – Frank Holmes

Where the Next Major Banking Crisis Will Begin

Where the Next Major Banking Crisis Will Begin

Where the Next Major Banking Crisis Will Begin

Ray Dalio just bet $1.1 billion against Italy.

Specifically, he shorted (bet against) five Italian banks and one insurance company last quarter. And he did so to the tune of $770 million.

Dalio also bet $311 million against Italy’s largest utility company.

This is a big deal.

You see, Dalio is one of the world’s most respected investors. He manages $160 billion at Bridgewater Associates, the world’s biggest hedge fund.

• But Dalio didn’t reach the top of Wall Street by accident…

He got there because he can spot massive threats and opportunities long before other people do.

For example, Dalio predicted the U.S. housing bubble would burst in 2007. Not only that, he said the crash would spread to the banking sector.

At the time, many people thought this was a crazy idea. But Dalio was right.

That year, the U.S. banking sector imploded. This triggered the worst financial crisis since the Great Depression. The average U.S. stock plummeted 57% over the next two years.

• In short, it pays to watch what Dalio’s doing…

So in a minute, I’ll tell you why Dalio made this giant bet. I’ll also show how you, too, can profit from Italy’s problems.

But you first need to understand what those problems are…

Italy’s banking system is a ticking time bomb.

Its banks are sitting on $356 billion worth of non-performing loans (NPLs).

These are loans borrowers have stopped paying. They’re considered “sour loans” because banks often don’t end up collecting them. They take huge losses instead.

To give you a sense of how serious this is, consider this: NPLs make up 18% of all loans issued by Italian banks. For perspective, NPLs accounted for 5.3% of all loans issued by U.S. banks at the height of the Great Recession.

As if that weren’t enough, these sour loans are valued at around 20% of Italy’s annual economic output.

It’s an incredibly fragile situation, to say the least.

• European regulators are now scrambling to prevent a banking crisis…

The Italian government, for one, has pledged to bail out the banking system if necessary.

This is when the government gives banks money to keep them from crashing. Taxpayers end up footing the bill.

The European Central Bank (ECB) is also trying to help. On October 3, it announced plans to impose strict capital requirements for European banks.

In short, it wants Italian banks to set aside billions of euros to cover losses from NPLs.

• These regulations are intended to shore up Italy’s fragile banking system…

They were supposed to make people feel safer. But that’s not what happened.

Instead, the ECB rattled investors’ nerves. In fact, Italian bank stocks plummeted on the news.

? Since the start of October, the FTSE Italia All-Share Banks Index is down 5%.

? UniCredit, Italy’s largest bank, has fallen 6%.

? UBI Banca, another major Italian bank, has plunged 11%.

? And BPER Banca is down 15%.

These are staggering declines for such a short period. Still, you might not be worried about this.

And that’s because most U.S. investors don’t own any Italian banking stocks. But you must realize something…

• Italy’s not the only European country drowning in bad debt…

German and French banks together have around $272 billion worth of bad loans on their books.

And Europe as a whole has about $1 trillion worth of NPLs.

In other words, a banking crisis in Italy could spread across Europe like the black plague.

If that happens, European bank stocks won’t just tumble. They’ll go down in flames.

So, lighten up on European bank stocks if you own any. You should also buy gold if you haven’t already.

• That’s because gold is the ultimate safe-haven asset…

It’s preserved wealth for centuries, through history’s most violent financial crises.

And that’s why Dalio thinks every investor should keep between 5% and 10% of their money in gold.

And those who don’t own gold? Well, Dalio thinks they’re clueless. He said in 2015:

If you don’t own gold, you know neither history nor economics.

But Dalio doesn’t just encourage investors to own gold. He buys it with his own fund’s money.

In fact, Bridgewater bought more than $100 million worth of SPDR Gold Shares (GLD) and the iShares Gold Trust (IAU) during the second quarter.

These are the world’s largest gold funds. They’re easy ways to gain exposure to gold. But that doesn’t make them the best.

• If you really want to protect your wealth, I recommend that you own physical gold…

This is gold that you can hold in your hand. It’s a much more secure way to own gold than GLD, IAU, or any other “paper gold” fund. – Justin Spittler and Joe Withrow

 

Here’s why I believe Gold Prices won’t just get Slammed Big-Time Again

Here's why I believe Gold Prices won’t just get Slammed Big-Time Again

Gold Prices won’t just get Slammed Big-Time Again

Gold could be in a long-term trend right now that spells dramatically higher prices in the years ahead.

To understand why, let’s first look at the long decline in gold prices from 2011 to 2015.

The best explanation I’ve heard came from legendary commodities investor Jim Rogers. He personally believes that gold prices will end up in the $10,000 per ounce range, which I have also predicted.

But Rogers makes the point that no commodity ever goes from a secular bottom to top without a 50% retracement along the way.

Gold prices bottomed at $255 per ounce in August 1999. From there, it turned decisively higher and rose 650% until it peaked near $1,900 in September 2011.

So gold prices rose $1,643 per ounce from August 1999 to September 2011.

A 50% retracement of that rally would take $821 per ounce off the price, putting gold at $1,077 when the retracement finished. That’s almost exactly where gold prices ended up on Nov. 27, 2015 ($1,058 per ounce).

This means the 50% retracement is behind us and gold is set for new all-time highs in the years ahead.

Why should investors believe gold prices won’t just get slammed again?

The answer is that there’s an important distinction between the 2011–15 price action and what’s going on now.

The four-year decline exhibited a pattern called “lower highs and lower lows.” While gold prices rallied and fell back, each peak was lower than the one before and each valley was lower than the one before also.

Since December 2016, it appears that this bear market pattern has reversed. We now see “higher highs and higher lows” as part of an overall uptrend.

The Feb. 24, 2017, high of $1,256 per ounce was higher than the prior Jan. 23, 2017, high of $1,217 per ounce.

The May 10 low of $1,218 per ounce was higher than the prior March 14 low of $1,198 per ounce.

The Sept. 7 high of $1,353 was higher than the June 6 high of $1,296. And the Oct. 5 low of $1,271 was higher than the July 7 low of $1,212.

Of course, this new trend is less than a year old and is not deterministic. Still, it is an encouraging sign when considered alongside other bullish factors for gold.

Where does the gold market go from here?

We’re seeing a persistent excess of demand over new supply. China and Russia alone are buying more than 100% of annual output each year.

Private holders are keeping their gold as well. On a recent visit to Switzerland, I was informed that secure logistics operators could not build new vaults fast enough and were taking over nuclear-bomb-proof mountain bunkers from the Swiss Army to handle the demand for private storage.

With gold sellers disappearing and large demand continuing, the price will have to go up to clear markets.

Geopolitics is another powerful factor. The crisis in North Korea is not getting any better; it’s actually getting worse. Syria, Iran and the South China Sea are additional flashpoints. The headlines may fade in any given week, but geopolitical shocks will return when least expected and send gold prices soaring in a flight to safety.

Finally, the Fed will not raise rates in December, contrary to market expectations.

Eventually, the markets will figure this out. Right now, markets are giving about an 86% chance of a rate hike in December based on CME Fed funds futures. That rate will drop significantly by Dec.13 when the FOMC meets again with a press conference.

As market probabilities catch up with reality, the dollar will sink and gold will rally.

In short, all signs point to higher gold prices in the months ahead. I look for a powerful surge toward $1,400 by the end of this year based on Fed ease, geopolitical tensions and a weaker dollar.

The gold rally that began on Dec. 15, 2016, looks like one that will finally break the bear pattern of lower highs and lower lows and turn it into the bullish pattern of higher highs and higher lows. – Jim Rickards

There is Nothing Stopping a Rally in Oil Prices Now

There is Nothing Stopping a Rally in Oil Prices Now

There is Nothing Stopping a Rally in Oil Prices Now

Oil supply disruptions, high OPEC oil cut deal compliance rates, an extra-violent hurricane season, and the threat of new U.S. sanctions against Iran have fed optimism in oil markets over the past couple of months. Yet there’s bad news for bulls: a growing number of experts and industry insiders warn that the lower-for-longer scenario is nowhere near its end.

Earlier this week, Deloitte Services released a survey of 250 U.S. oil industry executives that revealed two-thirds of them expected oil benchmarks to remain below $60 through 2018. In fact, the majority of executives polled said they didn’t expect crude oil prices to rise above $70 before the end of the decade. Also, 60 percent said they expected the number of drilling rigs in the country to decline next year, and half said that capital spending will likely fall in 2018.

The president of Facts Global Energy consultancy shared a similar message Wednesday. Speaking at the Reuters Global Commodities Summit, Jeff Brown said that global inventories were still quite high, and there was no meaningful reason for them to decline by any significant amount over the next year or two. This means there is no big upward driver for oil prices.

In its latest Oil Market Report, the International Energy Agency also displays cautious optimism. OECD crude oil inventories are still 170 million barrels above the five-year average, which OPEC took as its target in the production cut deal. Although it’s a substantial reduction from the 318-million-barrel overhang at the start of 2017, there’s still excess oil in the world—and it will weigh on any possible price increase in the short term.

Of course, forecasts of growing U.S. production apply their own pressure on oil prices, and for the time being, forecasters seem to be in agreement that U.S. oil production will indeed continue to grow even if industry executives expect to see fewer rigs. The technology-enabled efficiency improvement drive in the shale patch is still gaining momentum, after all, and it’s only reasonable to expect more news in this area, particularly about further cost-cutting and lower breakeven oil prices.

Separately, efficiency, in a wider sense, also undermines the prospects of a rosy future for oil prices. Efficiency and technology are the twin factors that consistently push down oil demand, but oil bulls seem to ignore them, the chief economist of asset management firm Tressis Gestion told CNBC recently.

“The bulls of the oil market are missing the elephant in the room, which is efficiency and technology. It takes away every year—no matter what they say—it takes away estimates of growth of demand in the region of around 500,000 to 600,000 barrels per day,” Chief Economist for Tressis Gestion Danielle Lacalle said.

To top it all, last month OPEC exceeded its own stated production target, pumping 32.75 million bpd—25,000 bpd above its quota—mostly because of production increases in exempt Libya and Nigeria, but also because Iraq pumped more as well.

So, we have growing U.S. production, regardless of where oil prices are going. We have OPEC struggling to maintain compliance, and possibly doomed to make the production cut deal indefinite since every higher figure reported pushes benchmark oil prices down immediately. And we have general tech-enabled efficiency driving down demand, despite relatively optimistic global oil demand forecasts from various authorities.

There really isn’t much to support the argument for oil prices climbing significantly higher for the time being, except perhaps new U.S. sanctions against Iran. That event would tip the scales in a more favorable direction for oil prices, and this fact could just make the sanctions more likely. – Irina Slav

 

Can India, a Growing Auto Market, Overtake China In The Electric Vehicles Revolution?

Can India, a Growing Auto Market, Overtake China In The Electric Vehicles Revolution?

Can India Overtake China In The Electric Vehicles Revolution?

India faces a wide chasm between Prime Minister Narendra Modi’s campaign to make sure all new vehicles sold in India are electric by 2030 and actual sales numbers.

While India has followed China’s lead to reduce air pollution and oil import dependency in its booming cities, it’s still far away from sales figures that carry any weight. According to International Energy Agency, China registered 336,000 plug-in vehicles last year while India only saw 450 of these new vehicles hit its roads.

One major Indian automaker, Mahindra & Mahindra, wants to change course by committing to invest $600 million in the technology. Electric versions of its current crossover SUVs will be scheduled in the near future. The company plans to eventually boost its EV production to 5,000 units a month.

Mahindra had just lost a bid for a 10,000 EV contract with the government’s Energy Efficiency Services Limited agency to its main Indian competitor, Tata Motors. Mahindra was awarded part of the contract after lowering prices to match Tata’s lowest bid; the company admitted it won’t make any profits off the sales of its eVerito electric sedan to the Indian agency.

Tata was able to win the majority of the contract even though it has yet to manufacture any EVs.

Mahindra has been in the segment for a few years with its e20 and e20 Plus small electric hatchback models, the eVerito electric sedan, the eSupro electric van, and the e-Alfa Mini three-wheeler. Sales have been slight, as reflected in the 450-unit sales total for 2016.

Maruti Suzuki has offered electric models to the Indian market. Same goes for BMW with its i8 plug-in hybrid high-performance car. And Volvo has the XC90 plug-in hybrid. For now, China remains a much more important market for BMW, Volvo, and other global automakers.

General Motors, which plays a significant role in the China market through a joint venture with a local automaker, will pull out of India by the end of this year.  The company will also cancel most of a previously planned $1 billion investment to build a new line of low-cost vehicles in India

It would take GM a $500 million change in the second quarter to restructure operations in India, Africa, and Singapore.

Mahindra supports the government’s push for eliminating fossil fuel powered vehicles and EV development for the national market. The company’s subsidiary, Mahindra Electric, will operate as a separate entity supplying components to the Mahindra & Mahindra company, which will manufacture the EVs. The company currently operates a battery manufacturing plant and hopes to set up another larger facility soon.

India has seen a growing new vehicle market, with about 2.5 million petroleum-powered vehicles being sold annually in recent years. The serious challenge lies in making the monetary investments and attracting the engineering and design talent needed to build and market Electric Vehicles.

Finding uninterrupted electricity supplies to charge the EVs presents another challenge to selling these vehicles to skeptical consumers. The country still sees power outages in fast-growing cities where residents crank air conditioners at full blast.

India’s national government and electric utilities—along with automakers building EVs—face a high hurdle for EV charging stations. The country has a nearly non-existent charging infrastructure and must invest heavily in chargers to sell the technology to consumers, and to stakeholders in key industries.

India is expected to be a growing auto market, where the ratio remains low—only 18 cars per 1,000 citizens compared to nearly 69 in China and 786 for the U.S. That data comes from a study by India policy think-tank NITI Aayog and the Colorado-based Rocky Mountain Institute.

Mahindra and Tata are betting on EVs taking off as consumers begin buying their first vehicles and convert over from two-wheelers to four-wheelers. Higher demand and production will lead to component costs going down and profits up for these automakers.

Tata has participated in trial runs of its electric buses, and is preparing to meet its obligation to the Energy Efficiency Services Limited agency. Tata sees vast opportunities selling electric cars to the government and electric trucks and buses for mass transportation.

Mahindra committed to ramping up EV production nearly tenfold to 5,000 units manufactured per month within the next two to three years. – Jon LeSage

 

Is U.S. Demand for Physical Gold and Silver a Barometer for the Entire Industry?

Is U.S. Demand for Physical Gold and Silver a Barometer for the Entire Industry?

Is U.S. Demand for Physical Gold and Silver a Barometer for the Entire Industry?

Recently, the western banking cartel media has been out in full force to mislead everyone regarding a narrative of falling and “soft” demand for physical gold and silver, as they typically frame the market in the US as representative of the global market when this is patently false. Furthermore, the usual suspects, like Goldman Sachs bankers, have piled on to this misinformation by calling for a plunge in gold prices, but more on that later. First let’s discuss the misleading statistics being disseminated by the mainstream financial media regarding physical gold and physical silver demand. Last month Reuters reported plummeting silver Eagle coin sales for Q3 at 3.7 million ounces, and attempted to frame weak US physical silver demand as weak overall silver demand by calling the silver coins data “the lowest in 10 years”. Furthermore, they attempted to frame physical gold demand as weak by referring to the Q3 2017 American gold eagle coins sales of 38,500 ounces as a 80% plunge from the same quarter, prior year. If you were to read just this one article to gauge physical gold and physical silver demand worldwide, you would likely believe that demand was dead and that no one was interested in buying physical gold or silver anymore, as the Reuters journalist literally provided zero context to these numbers. As I’ve repeatedly stated for the past 10 years, anyone can use statistics to present a biased and false picture of reality by stripping presented data of any context. This is precisely what the Reuters journalist did.

Furthermore, Bloomberg hopped on the “no one wants to buy physical gold and silver” Reuters bandwagon as well with a similar narrative of gloomy gold demand by reporting last week that “sales of gold coins [in the United States] in the first nine months of the year shrank to the lowest in a decade.” As well, various mainstream US financial websites prominently reported that demand for US Mint produced gold bullion has fallen off a cliff this year, with the first 5-months of 2017 only generating 185,500 ounces of gold sales, yielding a projected 2017 annual figure of only 445,200 AuOzs sold.

And while all of the above figures are factual and true, they are entirely misleading when it comes to global physical gold and silver demand as all the data are provided out of context, and within a very narrow lens that presents US gold bullion and silver bullion sales as the most important data in the entire world. In fact, American physical gold and silver consumption is irrelevant to global physical gold and silver demand as these figures pale in comparison to aggregate physical gold and silver consumption in China, India, and Japan. Though aggregate gold demand in all three of these countries far outweighs aggregate gold demand in the United States, and gold demand on the Asian continent is far more representative of total global demand, I can use one country, China, without even discussing the details of the enormous physical gold demand in India and Japan this year, to prove my point. Before I continue with a discussion of Chinese physical gold demand this year, let me just briefly note that for the first seven months of this year, India’s gold imports more than doubled over the prior year to 550 tonnes. With another 150 to 200 tonnes of gold estimated to be illegally smuggled into India, a conservative figure for India gold demand this year amounts to about 637.5 tonnes, or more than 20.5M AuOzs, for the first 7 months of this year. Recall that annual sales of gold bullion in the United States from the US Mint for the entire year are projected to be 2.4% of the 7-month Indian demand, yet Reuters and Bloomberg journalists discuss US Mint bullion sales in American media, providing zero context of global demand, as if they are the barometer for the entire global industry.

In China, gold and silver panda coin sales only make up a small portion of the overall demand for physical gold and silver as in 2016, only 1M China gold panda coins and 8M China silver panda coins were minted. For this reason, let’s compare physical bullion bar consumption in China to US Mint gold bullion sales, though I want to stress that we are not comparing apples to apples when doing so. Of course, the US mint figure does not include coin and bar sales of independent US bullion dealers, as there is no reliable source that aggregates these numbers in the United States every year. Still, since most “gold” sales in the United States occur in the form of paper gold and the GLD ETF, I’m going to assume that independent dealer sales of physical gold are not going to inflate the US mint number that significantly. In China, the best source of aggregated individual retail purchases of gold bullion bars is provided by the Shanghai Gold Exchange (SGE), as various Chinese banking sources have confirmed that the PBOC, the Chinese Central Bank, does not buy any of its gold on the SGE, and that all withdrawals represent private demand in China.

In the first 8 months of this year, according to data provided by the SGE, the Chinese withdrew an aggregate of 1.29 M kgs of physical gold. Annualized, this figure amounts to approximately 62,230,302 ounces of physical gold. Because recycled gold has to flow through the SGE, this figure is actually slightly higher than real demand, but even if we consider 5% of all withdrawn SGE gold to be recycled gold, and subtract an estimated 5% from this number, then annualized wholesale demand for physical gold in China would still be an estimated more than 59M AuOzs. Note that this figure only represents the official amount of physical gold being withdrawn from the SGE and does not represent wholesale and retail gold bullion purchases from banks, independent dealers and from neighboring countries like Hong Kong, as many Chinese often buy gold when in Hong Kong and then import it back into China. Thus, even if we add a 20% premium to the US annualized physical gold purchase number above to represent all physical gold purchased outside of the US mint, we are speaking about a minimum of 59M AuOzs purchased in China this year versus 445,200 * 1.2 = 534.2k AuOzs purchased in the United States.

In other words, US demand for physical gold is likely less than 1% of Chinese demand and less than 2.5% of Indian demand, yet US financial media has repeatedly framed physical gold and silver demand as cratering for the duration of this year thus far, by deceptively only reporting cratering numbers for physical gold demand in the United States. Even taking into account the 1.4 billion people that live in China versus the 325M people that live in the United States, we are talking a giant discrepancy in physical gold demand as there are only 4.3 times more Chinese than Americans, yet physical gold demand is not 4.3 times more, but 110 times more. In addition, the Economic Times, the Financial Express, and the World Gold Council all have pegged private physical gold ownership in India at more than 643M AuOzs, and Koos Jansens of BullionStar has produced similar estimates for private physical gold ownership in China. While I have read articles regarding how estimates are calculated for private gold ownership in India and China and found them to be credible, I have not yet discovered any estimates about private gold ownership in the United States to be credible, so it’s difficult to know how private US gold ownership stacks up to India and China other than to estimate that it is a fraction of the ownership in these two countries.

Finally, the same shenanigans that happen with US financial media reporting regarding physical gold sales happen with their reporting of physical silver sales as well. YTD, up until August, the SGE reports that retail withdrawals of silver have amounted to 990,105 kg, or about 31.8M AgOzs. Annualized this amounts to roughly 48M AgOzs and again if we estimate 5% of this figure to be recycled silver, then Chinese wholesale demand for silver for 2017 will still amount to more than 45M AgOzs. The US Mint reported that silver bullion sales for the first 5-months of the year were 11.2 M AgOzs, or less than 27M AgOzs annualized. In the case of silver, since the Chinese population is 4.3 times larger than the American population, the per capita sales of silver is weaker in China than in the US. However, it is still extremely misleading for Reuters to try to paint a collapsing demand of physical silver by reporting, as they did last month, that “third-quarter sales of American Eagle silver coins fell to the lowest in 10 years.”

In China, the retail demand for physical silver will likely not be the driving force for silver usage for the next 5 to 10 years, but it will be industrial demand that drives overall physical silver consumption patterns. China currently plans to clean up one of its most persistent problems, heavily polluted air in its major cities, by aggressively pursuing a plan of solar energy to replace less green energy sources. Just last month, Xin Guobin, the Vice-Minister of Industry and Information Technology, stated that China had begun“relevant research” to establish a timeline to phase out petrol and diesel vehicles in the Chinese market and a desire to add 20 gigawatts of solar power annually nationwide. In order to achieve this, China would need to utilize about 56M AgOzs a year to produce 20 gigawatts of solar power. Furthermore, other countries outside of China have also stated a desire to rely on solar energy much more heavily over the next 5 years, also increasing global demand for silver. With the declining silver prices in the past few years, one would be mistakenly led to believe, based upon what every student learns in Economics 101 class in business school, that supply has been exceeding demand by a healthy margin every year for the past 5 years. However, this is not the case. For the last several years, according to the Silver Institute, global silver supply, every year, has been insufficient to meet global silver demand. In addition, global silver mine production decreased in 2016 for the first time since 2002 from a base of about 1 billion AgOzs of production per year in years past to just 885.8M AgOzs. This year, global silver mine production is once again expected to fall again for the second time in the last 15 years. With many of the world’s largest silver mines suffering depleting reserves at a rapid pace and many of the world’s largest silver mines suffering shorter LOMs, I suspect that global silver mine production may have peaked last year at a time when global demand will be significantly increasing.

But don’t let the above facts get in the way of incessant price suppression schemes executed against spot prices of gold and silver via the paper gold and paper silver markets by the Rothschild Central Banks and the large Wall Street commercial banks. In fact, just on schedule, as I was looking for the latest Goldman Sachs banker propaganda to prop up digital currencies and to take down gold prices, the bankers certainly did not disappoint. Yesterday, Goldman Sachs bankers Sheba Jafari and Jack Abramovitz stated they now expect gold to retreat back to $1,100 an ounce from its current price of around $1288, a very transparent effort to help out the still very large commercial banking short gold positions still held that are firmly in the red at the current time. By the way, Sheba Jafari is the Goldman Sachs analyst that has also continually projected significantly higher prices for BTC every time the BTC price has significantly corrected at any point this year. In other words, Jafari seems to always state gold negative, and BTC positive positions, as one would expect a banker to do. There is little doubt that all the Western financial media attention given to BTC has diminished the luster of physical gold this year. Given that commercial banks still have large short gold and short silver positions outstanding at the current time, and given that their analysts are trying to manufacture another retreat in prices, price behavior in gold and silver may be volatile from now until the end of the year. However, even if they are successful in manufacturing another volatile drop in spot prices so they can profitably exit their current gold and silver shorts, I do not expect such a drop to have a long life span, as such a drop, if it happens, will have been entirely artificially manufactured and be viewed as just another opportunity by the Chinese, Russians, Indians, and Japanese to scoop up more physical gold/silver at bargain prices.

As an interesting final note, the Russian Central Bank has now followed the PBOC in banning all exchanges that allow trading of cryptocurrencies that have no intrinsic value. It seems to me that lines in the sand are being drawn between the Western Central Banks that clearly desire to take the world to a 100% digital cryptocurrency platform to replace their currently failing 98% digital fiat currency system and the BRICS nations that clearly desire physical gold to be an integral component of their currency system moving forward, with perhaps a slight speed bump in India, as Indian PM Narendra Modi seems to temporarily have been captured by Western banking interests in pushing a digital currency agenda. In my humble opinion, the best way to prepare for the coming massive global asset bubble collapse is still to purchase physical gold and silver at these insanely low prices at the current time. – JS Kim

Is Dr. Copper Getting Started on Another Decade-Long Bull Run?

Is Dr. Copper Getting Started on Another Decade-Long Bull Run?

Is Dr. Copper Getting Started on Another Decade-Long Bull Run?

Copper prices surged above $7,000 a metric ton for the first time since 2014 as metals rallied on stronger Chinese factory data and Federal Reserve Chair Janet Yellen warned that U.S. inflation may accelerate. The red metal jumped as much as 4.3 percent on the London Metal Exchange, while nickel climbed for a seventh session, the longest run since August.

Industrial metals have gained amid sustained optimism about the strength of Chinese consumption and signs that inflation is picking up in other major economies as global growth rebounds. Copper for three-month delivery climbed 3.7 percent to settle at $7,134.50 a ton at 5:51 p.m. in London. Lead, nickel and aluminum also closed higher while tin was unchanged. Zinc declined.

No one knows where the next move will be, but I see more supportive factors than downsides for base metals.

Why Copper is the Best Metals Trade Right Now

Gold is waking up.

After cratering from more than $1,350 to a low of $1,270 in just four weeks, gold futures finally bounced this month. The fourth quarter has been kind to the metal so far as it briefly pushed back above $1,300 to start the trading week. The Midas metal is giving back some of those gains early this morning. It’s down about $12 so far today…

But gold’s not the metal that’s catching my eye this week.

Right now, I’m all about industrial metals.

A global economic recovery is starting to lift metals from their lows. Steel, nickel, aluminum and iron ore have all perked up recently. Palladium— an important component in catalytic converters— is streaking above $1,000 this week for the first time in 16 years.

One of the big catalysts behind the rally we’re seeing in industrial metals is strong data out of resource-hungry China.

China brought in more than 100 million tons of iron ore last month, Investor’s Business Daily notes. That’s 16% more than the country imported in August. Demand is much stronger than analysts anticipated. Copper imports also continue to surge.

Trumponomics are also helping metals catch a bid. The White House is now “requiring the use of North American-made steel, aluminum, copper and plastic resins in cars and trucks sold under North American Free Trade Agreement rules, as it seeks to give U.S. industry a boost,” Reuters reports.

The results speak for themselves. It’s been a bumpy ride, but the metals and mining sector is finding new life during the second half of 2017. Since the beginning of the third quarter, these stocks are outperforming the S&P 500 by a significant margin.

Why Copper is the Best Metals Trade Right Now

The SPDR S&P Metals and Mining ETF is up more than 9% since July 1st. Meanwhile, the S&P 500 is up just shy of 5.5%.

Then there’s copper. The metal posted new 2017 highs yesterday, extending its breakout. It’s now sitting on year-to-date gains of almost 30%.

Back over the summer, we told you copper’s bounce off its summer lows was legit. Now it’s extending its comeback move.

You’ll recall that copper died a slow death after topping out in 2011. A nasty six-year bear market sliced its spot price in half. But as we revealed earlier this year, Copper’s prospects have changed dramatically. The post-election rally back in November was the spark that helped copper snap its nasty downtrend. After seven months of choppy consolidation, copper jumped back near its March highs by the summer, signaling to us that it was ready to make a play at a huge breakout.

Now Dr. Copper is back on the move – and we’ve already reserved our seats on the bandwagon. I don’t know if copper is just getting started on another decade-long bull run or if it’s just enjoying a short-term rally. Either way, we’re willing to ride the new trend to gains.

You had a shot to grab onto shares of Freeport-McMoRan Inc. (NYSE: FCX) back in July just before copper rocketed higher. You’re already up nearly 15% on FCX since we first mentioned the trade.

As we mentioned back in the summer, buying FCX is like buying a call option on copper without the high commission. When copper jumps, the miner tends to magnify the move.

That’s exactly what’s happening right now. FCX is leaping back toward the top of its range:

A break above $15.75 could give FCX the momentum it needs to tackle its January highs. Hang on tight! More gains are on the way…- Greg Guenthner

This Major Political Shift Could Rock Copper Markets

Indonesian officials said this past week they are close to an agreement on the major Grasberg mine. Which would see a price set for the government’s legislated purchase of a 51 percent interest in this world-leading operation.

And elsewhere, more major developments emerged for the global copper market. With a leading presidential candidate in the world’s top producing nation saying he wants to overhaul the local mining sector.

That’s Chile, which is gearing up for a presidential election in November. And this week, center-left candidate Alejandro Guillier laid out a 10-point plan for mining reforms — which could mean major changes coming for the Chilean copper sector.

Most of Guillier’s proposed changes are positive. With the candidate pledging to make royalties and environmental impact procedures more amenable for the mining sector.

Guillier also said he would move to streamline the permitting process for major mining projects — by creating a new office dedicated to the review of proposed large-scale operations.

But the biggest change proposed by Guillier would shake Chile’s copper sector to its foundation. By repealing a secret and controversial piece of legislation that has dogged the local mining sector for decades: the Copper Reserve Law.

Under that rule, Chilean state copper miner Codelco is required to transfer a portion of profits each year to fund Chile’s armed forces. With the law having been criticized for a lack of transparency, being outside of the control of Chile’s parliament.

Guillier said he would push for a complete repeal of the law. Which could open the door to Codelco keeping a larger portion of its profits — and thus having increased funds for expansions and new project developments.

That in turn could lead to increased production from Chile as a whole. Guillier also said he wants to do the same with lithium, by creating special state agencies to support development of new projects. Watch for results of the presidential election in November and December.

Here’s to change coming. – Dave Forest

 

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