For the second week in a row, hedge funds waded slowly back into the gold and silver market, according to the latest trade data from the Commodity Futures Trading Commission.
The disaggregated Commitments of Traders report for the week ending Nov. 14 showed money managers increased their speculative gross long positions in Comex gold futures by 2,875 contracts to 190,657. At the same time, short bets declined by 2,511 contracts to 14,559. Gold’s net length increased to 176,098 contracts.
Commodity analysts at Commerzbank noted that gold’s net length is at a modest six-week high. The trade data included the price action from Nov. 10, as markets and traders were caught by surprise after 4 million ounces in future contracts were sold in a matter of minutes.
In a recent interview with Kitco News, George Milling-Stanley, head of gold investments at State Street Global Advisors, said that gold’s recent resilience is a sign that investors and fund managers are slowly accumulating gold, developing defensive positions as equity markets continue to look overvalued.
Ole Hansen, head of commodity strategy at Saxo Bank, said that gold benefited from safe-haven demand as uncertainty started to build around proposed U.S. tax reform legislation. While the House of Representatives passed a tax-reform bill last week, the Senate has just started to push its own version forward.
The renewed interest in gold last week was not enough to push prices out of its current range. During the survey period, gold prices rose 0.56%. The gold market has been stuck been stuck in a tight range since mid-September.
Many analysts note that gold will only be able to attract significant investor interest when prices push above the October highs at $1,306 an ounce.
Investor interest in silver also grew last week. The disaggregated report showed money-managed speculative gross long positions in Comex silver futures increased by 1,092 contracts to 78,464. At the same time, short positions fell by 1,342 contracts to 10,274. Silver’s net length now stands at 68,190 contracts.
Silver’s net length increased almost 4% from the previous week; however, prices only saw a modest rise of 0.79% during the survey period.
Commerzbank analysts noted that silver’s net length is at a nine-week high. – Neils Christensen
The top priority for the next decade should be how to protect one’s own wealth, according to chief economist at ABC Bullion, who reviewed gold, the US dollar, and bitcoin to see which asset acts as the best hedge against risk.
“If history is to repeat, or even just rhyme, then investors and savers should be on the lookout for a major change to our monetary system in the coming years. More importantly, they should do their best to ensure their portfolios are sufficiently robust to weather that change, and take necessary action if required,” Jordan Eliseo said in a report published Monday.
For Eliseo, the best way to approach this is balance, which is tilted towards the precious metals.
“Precious metals are likely the best and, just as importantly, simplest means of protecting my family’s wealth through the difficult market environment we all face in the years ahead,” Eliseo said. “Physical gold has no peer when it comes to protecting purchasing power over long time periods, and why it has been humankind’s preferred choice of money for millennia.”
But, using all three means in various degrees is not wrong, he added.
“Crucially, this need not mean investors and savers have to choose just one monetary basket, and put all their wealth into precious metals, fiat currency or cryptocurrencies,” Eliseo said.
The chief economist admits that his own approach involves keeping a substantial “portion of [his] own wealth in fiat currency” and “a significant holding in physical gold (and silver).”
He also says that a small investment into bitcoin is understandable, but questionable at current prices, cautioning traders of a possible crash in the short-term.
“Maybe the explosive gains will continue for years to come, but [the] kind of advertising, and the other factors at play suggest BTC [bitcoin] and the CCM [cryptocurrency movement] is a bubble price-wise today, with a significant chance of a major collapse in the coming months.”
The most important thing to ask when choosing is “whether or not Bitcoin, the US Dollar or physical gold will remain money.”
When analyzing each asset, Eliseo lists seven characteristics: durability, portability, divisibility, consistency, instant recognition, acceptability and intrinsic value; as well as three functions: unit of account, medium of exchange, and store of value.
Gold clearly meets the first five characteristics of money as well as the last one: “In that it is “intrinsically valuable – both as an ostentatious display of wealth (think jewelry) and in some industrial applications.”
The yellow metal also meets one of the functions of money since it has an exceptional store of value over the long run. “Today, it is not really used as a medium of exchange or a unit of account, which affects its acceptability in daily commerce.”
When it comes to the US dollar, the first six characteristics of money and the first two functions are easily “satisfied,” wrote the chief economist.
The biggest problem in case of the US dollar for Eliseo is the store of value. “The USD, and indeed all fiat currencies, does a horrible job, with the USD having lost the better part of 95% of its purchasing power in the last 100 years, according to data from the St Louis Federal Reserve.”
Looking at bitcoin, Eliseo said it is durable, portable, divisible, and instantly recognizable. But, “the jury is still out as to its consistency” and acceptability is largely a “no.”
“As for whether or not BTC is intrinsically valuable, one could argue either side of this – but for me, just as I see some intrinsic value in the USD, so too do I see an inherent value in BTC,” he said. “When it comes to the functions of money, BTC is not used as a unit of account, and it is not a widely used medium of exchange.”
On top of that, it is too early to tell whether bitcoin will have a store of value since it has not even been around for ten years. – Anna Golubova
There is a new trend by individuals in the alternative media community who are now selling out of precious metals and buying into Bitcoin and cryptocurrencies. While this may seem like a good idea, especially when Bitcoin and the cryptocurrencies reach new all-time highs, it is likely a big mistake. Now, I am not saying that individuals shouldn’t invest in cryptocurrencies. Rather, it’s a lousy idea to sell all of one’s precious metals holdings and put it all into Bitcoin and cryptocurrencies.
Recently, Sean at SGTReport published a short video in which part of the headlined was titled as “SILVER BULL CAPITULATES.” In the video, Sean explains how past frequent guest and precious metal analyst, Andy Hoffman, has sold out of all his silver and is now only in Bitcoin and gold. Andy explains in his interview on Crush The Street that he sold all of his silver this summer as he really has no interest in it. He goes on to say, “Because, in a digital age, I just don’t believe people are going to store thousands of pounds of silver hoping that the gold-silver ratio is going to come down.”
I have to tell you, not only do I find this sort of thinking, utterly preposterous, I also find it quite troubling that analysts who have been promoting precious metals for the past decade are now implying that gold and silver are no longer high-quality stores of value. I disagree entirely with this faulty and superficial analysis.
There are several reasons why I believe it is essential to hold most of one’s wealth in precious metals than in Bitcoin and cryptocurrencies. However, the most important factor has to do with the fragile nature of a highly technical complex system that allows Bitcoin and cryptocurrencies to function. It takes a tremendous amount of energy to maintain and power the internet, servers and computer systems that give life to Bitcoin and cryptocurrencies.
Unfortunately, the majority of the alternative and mainstream media analysts believe in the ENERGY TOOTH FAIRY ( a term coined by Louis Arnoux). What do I mean by the ENERGY TOOTH FAIRY? It is the belief by a significant portion of the public and analyst community that the advanced world economies and markets will continue to prosper and grow forever. Moreover, some analysts, such as Harry Dent, believe that if we got rid of the corrupt bankers and politicians and allow people to have a lot more babies, then economic growth will continue indefinitely.
For some odd reason, Harry Dent totally omits the impact of energy in his demographic analysis of the markets. Does ole Harry not realize that the exponential increase in global oil production has coincided with the exponential growth in human population??? Of course not. If he did, he would stop focusing on demographics and place his attention on what is happening in the global energy industry.
Regardless, selling out of one’s precious metals holdings might be unwise if we consider that the price of gold and silver are closer to their lows, and Bitcoin and the cryptos are reaching new highs.
For example, the current gold price at $1,280 is only 10% above its annual average low of $1,160 set in 2015, while silver at $17 is only 8% higher than its average yearly low of $15.68 during the same year. However, if we look at Bitcoin, the price is near its current high of $8,200:
Here we can see that Bitcoin has increased more than ten times from $800 at the beginning of 2017 to over $8,000 currently. While Bitcoin traders and speculators with Dollar signs in their eyes are betting on much higher prices, let me show you another chart. This is the first Bitcoin price spike that skyrocketed to over $1,000 in 2013:
As we can see in the chart, Bitcoin’s price surged ten times from $115 in October 2013 to $1,150 at the end of December. If we went back to this exact time, it looked like Bitcoin’s price was going to continue higher. However, if we see what happened after Bitcoin spiked to $1,000, there was a huge consolidation period:
One year after Bitcoin hit $1,150, it was trading at $250. It took nearly three more years before Bitcoin surpassed its previous high. Will this happen to Bitcoin again? Who knows? It is almost impossible to gauge the value of Bitcoin and the cryptocurrencies. Yes, we could see Bitcoin continue towards $10,000. However, we must realize that most people are not getting into Bitcoin because they understand the potential benefits of blockchain technology, but rather because the price is surging higher and higher. There’s nothing like a skyrocketing price to bring in the speculators in huge numbers.
Recently, Mike Maloney of GoldSilver.com stated in a video that he took some Bitcoin profits and purchased silver. He believed that it was smart to take profits from Bitcoin as it looked like it was potentially overvalued and buy silver as it was undervalued. I agree.
As I stated at the beginning of the article, individuals who believe in a new high-tech world with Bitcoin and cryptocurrencies running the monetary system must have forgotten about our dire energy predicament we are facing. This baffles me. The U.S. infrastructure is falling apart while North American suffers from over 250,000 water main breaks a year, and we are going to transition into a new high-tech world of robots and cyborgs? Who are we fricken kidding?
Has anyone taken a good look at what happened to the Great Egyptian, Mayan and Roman Empires??? They PEAKED and DECLINED… LOL. And it was all based on their Falling EROI – Energy Returned On Investment. The more advanced and complex a society becomes, the more energy it takes to run and maintain it. Folks, we have run out of our CHEAP, ABUNDANT ENERGY.
I have provided many clues in previous articles, but I believe it’s a good idea to present a few charts once again. The Global Oil Industry is cannibalizing itself just to stay alive. We know this is happening by looking at the massive increase in long-term debt:
The global major oil companies long-term debt had quadrupled from $84 billion in 2007 to nearly $380 billion last year. Why did their long-term debt increase when they were enjoying $100 a barrel of oil from 2011-2014?? The problem is that Falling EROI is now pushing costs higher as the net energy in a barrel of oil declines. Thus, we have a double-edged sword.
For example, these top seven major global oil companies enjoyed a combined net income profit of $100 billion in 2004 when the price of oil was $38 a barrel. However, even though the price was higher at $44 last year, their combined net income fell nearly 90% to $10.5 billion:
So, the BIG PROBLEM now is that the world market can’t really afford high oil prices and the oil companies can’t produce oil at a lower cost. If we take at this last chart, we can see just how bad the situation has become for the world’s major oil companies:
In 2004, these top seven global oil companies enjoyed a Return On Capital Employed (ROCE) between 20-40%. We must remember, that year the price of oil was $38. However, when the oil price was higher at $44 last year, these companies ROCE fell to the low single digits. Thus, they return on capital employed collapsed.
These three charts paint a very grim future for the global oil industry. Without the burning of oil, our economy grinds to a halt. I would like to remind those who believe WIND, SOLAR, and ELECTRIC VEHICLES are going to save us… they are nothing more than fossil fuel derivatives. The world needs to burn a lot of oil, natural gas and coal to produce the so-called renewable green technologies.
So, when oil and natural gas supply declines, so will the delusion of renewable energy. Now, I am not saying it isn’t wise to own solar panels on one’s home or to have an electric car. Instead, it’s unwise to believe solar, wind, electric vehicles, and a new high-tech world is our future.
I believe we are going to experience one hell of a market crash and deflation. Not only will the oil price drop like a rock, but so will the value of most STOCKS, BONDS, and REAL ESTATE. If you have sold your precious metals for cryptos at this time, you may find out that was a big mistake. – SRSroccoreport
Sound money advocates who love the concept of cryptocurrencies but don’t want to abandon precious metals have been trying to clarify their thoughts of late. Risk Hedge just helped, with a comprehensive statement of the pro-gold position. The following is an excerpt. Read the full article here.
All the Reasons Cryptocurrencies Will Never Replace Gold as Your Financial Hedge
Despite what the crypto-evangelists will tell you, digital tokens will never and can never replace gold as your financial hedge. Here are six reasons why.
#1: Cryptocurrencies Are More Similar to a Fiat Money System Than You Think.
The definition of “fiat money” is a currency that is legal tender but not backed by a physical commodity.
It’s clear that cryptocurrencies partially fit the definition of fiat money. They may not be legal tender yet, but they’re also not backed by any sort of physical commodity. And while total supply is artificially constrained, that constraint is just… well, artificial.
You can’t compare that to the physical constraint on gold’s supply.
Some countries are also exploring the idea of introducing government-backed cryptocurrencies, which would take them one step closer toward fiat-currency status.
As Russia, India, and Estonia are considering their own digital money, Dubai has already taken it one step further. In September, the kingdom announced that it has signed a deal to launch its own blockchain-based currency known as emCash.
So ask yourself, how can you effectively hedge against a fiat money system with another type of fiat money?
#2: Gold Has Always Had and Will Always Have an Accessible Liquid Market.
An asset is only valuable if other people are willing to trade it in return for goods, services, or other assets.
Gold is one of the most liquid assets in existence. You can convert it into cash on the spot, and its value is not bound by national borders. Gold is gold—anywhere you travel in the world, you can exchange gold for whatever the local currency is.
The same cannot be said about cryptocurrencies. While they’re being accepted in more and more places, broad, mainstream acceptance is still a long way off.
What makes gold so liquid is the immense size of its market. The larger the market for an asset, the more liquid it is. According to the World Gold Council, the total value of all gold ever mined is about $7.8 trillion.
By comparison, the total size of the cryptocurrency market stands at about $161 billion as of this writing—and that market cap is split among 1,170 different cryptocurrencies.
That’s a long shot from becoming as liquid and widely accepted as gold.
#3: The Majority of Cryptocurrencies Will Be Wiped Out.
Many Wall Street veterans compare the current rise of cryptocurrencies to the Internet in the early 1990s.
Most stocks that had risen in the first wave of the Internet craze were wiped out after the burst of the dot-com bubble in 2000. The crash, in turn, gave rise to more sustainable Internet companies like Google and Amazon, which thrive to this day.
The same will probably happen with cryptocurrencies. Most of them will get wiped out in the first serious correction. Only a few will become the standard, and nobody knows which ones at this point.
And if major countries like the US jump in and create their own digital currency, they will likely make competing “private” currencies illegal. This is no different from how privately issued banknotes are illegal (although they were legal during the Free Banking Era of 1837–1863).
So while it’s likely that cryptocurrencies will still be around years from now, the question is, which ones? There is no need for such guesswork when it comes to gold.
#4: Lack of Security Undermines Cryptocurrencies’ Effectiveness.
Security is a major drawback facing the cryptocurrency community. It seems that every other month, there is some news of a major hack involving a Bitcoin exchange.
In the past few months, the relatively new cryptocurrency Ether has been a target for hackers. The combined total amount stolen has almost reached $82 million.
Bitcoin, of course, has been the largest target. Based on current prices, just one robbery that took place in 2011 resulted in the hackers taking hold of over $3.7 billion worth of bitcoin—a staggering figure. With security issues surrounding cryptocurrencies still not fully rectified, their capability as an effective hedge is compromised.
When was the last time you heard of a gold depository being robbed? Not to mention the fact that most depositories have full insurance coverage.
The gold vs bitcoin debate has a long way to run. But if the outcome is a world in which money is what the market — rather than the government — says it is, then hopefully there will be room for both. – John Rubino
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