The Daily Market Report: Gold Softens Within Range on Firm Dollar, Expectations of ECB Easing

25-Nov (USAGOLD) — Gold slipped modestly in early New York trading, but remains well within the confines of the recent range. The yellow metal was weighed by a firm dollar and some generally upbeat U.S. economic data that bolsters the case for a December rate hike.

U.S. durable goods orders rebounded more than expected in October, after declining in the two previous months. Initial jobless claims fell more than expected as well and personal income matched expectations. On the negative side of the ledger was a miss on spending and a negative revision to University of Michigan sentiment.

Based on Fed funds futures, the market still sees a 70% probability of a rate hike in December. With the dollar index continuing to probe above 100.00, near the highs for the year and levels not seen previously seen since 2003, tighter policy still seems terribly imprudent. That is especially true given mounting global debt, persistent deflationary pressures and rising expectations that the ECB will ease further in December.

In a piece published yesterday entitled What is money?, the ECB attempts to explain the “changing essence of money”; from something with actual value like a gold coin, to a banknote exchangeable for a certain amount of gold or silver, to the present state of “fiat money”.

According to the ECB, fiat money “has no intrinsic value – the paper used for banknotes is in principle worthless – yet is still accepted in exchange for goods and services because people trust the central bank to keep the value of money stable over time.

Stable over time? Earlier this week, Mike posted a great chart that shows just how “stable” the purchasing power of the dollar has been since it was detached from gold in 1971. It has lost 83% of its purchasing power!


I couldn’t find a corresponding chart for the single currency, but I would wager a 1999 euro doesn’t go nearly as far today. It is the nature of fiat currency to be debased over time and that debasement has accelerated in recent years — following the path blazed by the BoJ, BoE and Fed — with the implementation of near-zero interest rate policy and QE.

Again from the ECB piece:

“Money-printing” is the colloquial term for the ECB’s asset purchase programme, a form of “quantitative easing”. . . In this process, the ECB does not actually print banknotes to pay for the assets but creates money electronically, which is credited to the seller or intermediary, e.g. a commercial bank. The seller can then use the additional liquidity to buy other assets or, in case of a commercial bank, extend credit to the real economy. The purchases contribute to improving monetary and financial conditions, making it cheaper for businesses and households to borrow so they can invest and spend more. — European Central Bank

Borrow more to spend more. Swell. And now the ECB is widely expected to debase the euro further come December.

As noted on our site, renowned author and publisher of the Dow Theory Letters Richard Russell passed away last weekend and the age of 91. Russell is a legend and he had some final thoughts on gold that are pertinent in the current world of fiat currency debasement:

“The end of capitalism will be due to the unbelievable amount of debt that is currently being created. This will create monster inflation that will destroy every currency. The only currency that cannot be destroyed is gold. When investors realize this, we’ll have the makings of the greatest bull market in gold ever seen.” — Richard Russell

I’d like to take this opportunity to wish all of our clients and friends a very happy Thanksgiving. Our offices will be closed Thursday, 26-Nov and Friday 27-Nov.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

Richard Russell’s final observations on gold

From his last newsletter, as reported at King World News

“The end of capitalism will be due to the unbelievable amount of debt that is currently being created. This will create monster inflation that will destroy every currency. The only currency that cannot be destroyed is gold. When investors realize this, we’ll have the makings of the greatest bull market in gold ever seen.”

Posted in all posts, Author, MK |

Gold drops on dollar, but political risk tempers losses

25-Nov (Reuters) — The price of gold edged down on Wednesday on a rebounding dollar and expectations of a U.S. rate hike next month, but the downside was capped by retail demand emerging on tension between Turkey and Russia.

Turkey shot down the Russian jet near the Syrian border on Tuesday, saying the plane had violated its air space, in one of the most serious publicly acknowledged clashes between a NATO member country and Russia for half a century.

The tensions initially triggered a sell-off in equities and the dollar, while boosting safe-haven yen, gold and government debt.

Spot gold was down 0.1 percent at $1,074.76 an ounce by 1247 GMT. U.S. gold was unchanged on the day after a near 1 percent gain in the previous session.

“We have seen some profit taking on the highs and some modest buying on concerns of tension between Russia and Turkey,” bullion broker Sharps Pixley’s CEO Ross Norman said.

“A positive tone to the market can be expected with some caution, bearing in mind that we are expecting the rate rise from the Federal Reserve.”


Posted in Gold News, Gold Views |

U.S. initial jobless claims -12k to 260k in the week ended 21-Nov, below expectations of 271k, vs upward revised 272k in previous week.

Posted in Economic Data |

U.S. personal income +0.4% in Oct, in line with expectations, vs +0.2% in Sep. PCE +0.1%, below expectations of +0.3%, vs +0.1% in Sep.

Posted in Economic Data |

U.S. durable goods orders +3.0% in Oct, well above expectations of +1.7%, vs positive revised -0.8% in Sep.

Posted in Economic Data |

Gold easier at 1073.52 (-1.76). Silver 14.14 (-0.054). Dollar higher. Euro lower. Stocks called higher. US 10yr 2.23% (-1 bp).

Posted in Markets |

Richard Russell, RIP

Richard Russell left us over the weekend. Many of us who write about the markets looked up to him – one of the very best in the business. He did it from the heart, and there is no one to replace him – his style, his wit, his insights, his intelligence.  I just mentioned  him this morning at the office as someone who set an example for the rest of us.  Goodbye RR, we in the gold space will miss you. . . .

Posted in all posts, Author, MK |

The Daily Market Report: Gold Firms on Heightened Geopolitical Tensions, Softer Dollar

24-Nov (USAGOLD) — Gold has firmed modestly, buoyed by heightened geopolitical tensions and the resulting safe-haven bid. The yellow metal also found support from an easier dollar.

Turkish F-16s reportedly shot down a Russian warplane earlier today on the Syrian border. Turkey claims the Russian plane entered its airspace and failed to acknowledge repeated warnings. Russia on the other hand maintains that its plane was in Syrian airspace. Amid bellicose recriminations from both sides, there are rising concerns that the Syrian conflict could broaden.

Meanwhile, a Russian search and rescue helicopter sent to the area was shot-down by U.S. backed Free Syrian Army rebels. Even though ISIS is a shared enemy in the region, there is considerable risk with various forces operating in such close proximity.

The dollar index retreated somewhat after reaching an eight-month high of 100.00 yesterday. Mixed U.S. data out today did little to clarify the likelihood of a Fed rate hike in December.

U.S. Q3 GDP was revised higher to +2.1%, in line with expectations. However, the expected correction in inventories has failed to materialize. At some point, inventories are going to have to be liquidated, which may weigh heavily on Q4 GDP.

U.S. consumer confidence plunged to 90.4 in November, well below expectations of 99.3, versus 99.1 in October. This news come just three-days before the Black Friday kickoff to the Christmas shopping season. That should have U.S. retailers quaking in their boots, especially if they too have been building inventory.

Posted in Daily Market Report, Gold News, Gold Views |

Consumer confidence falls to lowest level in 14 months

24-Nov (MarketWatch) — Consumers confidence fell in November to the lowest level in more than a year, a survey shows. The consumer confidence index dropped to 90.4 from a revised 99.1 in October, the Conference Board said Tuesday. That’s the lowest level since September 2014. Economists polled by MarketWatch had expected the index to rise to 100. The present situation index, a measure of current conditions, dropped to 108.1 from 114.6. The future expectations index declined to 78.6 from 88.7, marking the lowest level in two years. “The decline was mainly due to a less favorable view of the job market,” said Lynn Franco, director of economic indicators at board. The number of people who said jobs were hard to find rose while the percentage who said jobs were plentiful declined.


PG View: But jobs is the half of the dual mandate that the Fed thinks it has a handle on!

What ever the reason for the plunge, three-days before the Black Friday kickoff to the Christmas shopping season, U.S. retailers have to be worried.

Posted in Economic Data, Economy |

U.S. consumer confidence plunged to 90.4 in Nov, well below expectations of 99.3, vs upward revised 99.1 in Oct.

Posted in Economic Data |

U.S. Case-Shiller home price index for 20-cities (nsa) +0.2% to 182.91 in Sep, vs 182.5 in Aug.

Posted in Economic Data |

How 4,000 Roman coins found buried in Swiss orchard reinforce gold ownership today

“The coins’ excellent condition indicated that the owner systematically stashed them away shortly after they were made, the archaeologists said. For some reason that person had buried them shortly after 294 and never retrieved them. Some of the coins, made mainly of bronze but with a 5% silver content were buried in small leather pouches. The archaeologists said it was impossible to determine the original value of the money due to rampant inflation at the time, but said they would have been worth at least a year or two of wages.” –  The Guardian/11-19-2015

by Michael J. Kosares

I was initially at a loss to explain why anyone would go to so much trouble to hoard so many coins with such a low silver content – about 5%.  The only rational explanation is that the hoarder had decided that even worse debasement was on its way.  And, a quick review of Roman history tells us that this indeed was the case.

In the next generation of the denarius, issued by  Emperor Diocletian, bronze coins were simply dipped in silver and passed into circulation.  By 294AD, the latest date in the hoard, Diocletian abandoned silver coinage entirely and began issuing bronze coins instead. Prior to that, prices had risen over a roughly twenty year period by 1000%.  Value-conscious barbarian troops hired by the emperors demanded to be paid in gold aureus and for good reason as you will discover below. By the end of the third century, the currency was crumbling and along with it the empire.

For a fascinating short course on the connection between the fall of the Empire and inflation, I would recommend this lecture by professor Joseph Peden in 2009, titled “Inflation and the Fall of the Roman Empire” and published at the Mises Institute. Peden quotes a 5th century account of the Roman inflation by a Christian priest named Salvian. Says Peden,

“Salvian tells us, and I don’t think he’s exaggerating, that one of the reasons why the Roman state collapsed in the 5th century was that the Roman people, the mass of the population, had but one wish after being captured by the barbarians: to never again fall under the rule of the Roman bureaucracy. In other words, the Roman state was the enemy; the barbarians were the liberators. And this undoubtedly was due to the inflation of the 3rd century.”

It is instructive to note that for Rome, as has been the case in a myriad of episodes through history, inflation was not an event but a process. The ancient Roman version unfolded over a more than a 200 year period. “By the time of Trajan in 117 AD,” says Peden, “the denarius was only about 85 percent silver, down from Augustus’s 95 percent. By the age of Marcus Aurelius, in 180, it was down to about 75 percent silver. In Septimius’ time it had dropped to 60 percent, and Caracalla evened it off at 50/50.”


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By the end of the third century, as demonstrated by the Swiss find, the denarius had gone to 5% silver, then, as mentioned above, a thin coating of silver, then no silver at all, only bronze.  In short, a chart could have been constructed at the time showing an ounce of silver in a steady upward progression in terms of denarii from 117 AD through 300 AD.  One wonders if the pundits at the time would have deemed it to have been in a bubble.

About 1200 years later, Thomas Gresham would draft “Gresham’s Law” stated simply as ‘bad money drives out good.’ Had Gresham the opportunity to visit the British Museum and study ancient Roman coinage, he would have found a ready example of his law in action.  One expert told The Guardian newspaper that the original owners hoarded the  Roman coins found in Switzerland because “the silver contained in them guaranteed a certain value retention in a time of economic uncertainty.”

In ‘The Story of Money for Understanding Economics” researcher Vincent Lannoye tells us that during the Roman inflation, “The less debased gold coins had been stashed under the mattress for decades, maybe centuries.  These precious and valuable coins hardly circulated, as it can be deduced from their high concentrations in hoards discovered by archaeologists.” Peden puts a finer point on the role of gold during the Roman inflationary period:

“Now one interesting thing with all this inflation should be a great comfort to us: historians of prices in the Roman Empire have come to the conclusion that despite all of this inflation — or perhaps we should say, because of all of this inflation — the price of gold, in terms of its purchasing power, remained stable from the first through the fourth century. In other words, gold remained, in terms of its purchasing power, a stable value whereas all this other coinage just became increasingly worthless.”

In 1700 years, as you can see in the chart above, not much has changed.  Since 1971, when the United States detached the dollar from gold and ushered in the era of fiat money, the dollar has lost 83% of its purchasing power.  The 1971 dollar is now worth 17¢.   Gold in the meanwhile has risen from $35/oz. then to roughly the $1100 level today (with a stop at $1900/oz in 2011.) Over the long run, gold in the modern era has maintained its purchasing power as it did in Roman times, while the dollar, like the denarius, has been steadily debased. So it is by the circuitous route just taken, you now know why 4000 Roman coins recently found buried in a Swiss orchard reinforce gold ownership today.

Final Note 1: We should not become desensitized to the prospects of future inflation  as a result of the lull we have encountered in recent years. Even though price inflation is relatively subdued of late, monetary inflation continues unabated with consequences yet to be determined.  In the inflationary process, it should be remembered that the line between cause and effect is not always a straight one. History teaches us that when inflation does arrive, it comes suddenly without notice and with a vengeance.

Final note 2:   I should add that at any point along the way in the Roman inflationary period, the hoarder who had stashed away earlier silver coinage would have effectively hedged the event, as this article illustrates.  In the modern era, though more volatile than gold, silver has functioned effectively as a safe-haven asset in the portfolio. A chart like the one above could be drawn with silver as the overlay instead of gold.


Posted in all posts, Author, MK |

Gold Rises On Turkish Jet Fears, Weaker Dollar

24-Nov (WSJ) — —Gold prices were higher on the London spot market Tuesday, as geopolitical tensions in Turkey and a slightly softer dollar prompted some demand for the precious metal.

Spot gold was up 0.5% at $1,073.76 a troy ounce in morning European trade.

The downing of what is believed to be a Russian jet by Turkish military forces near the Syrian border on Tuesday encouraged some buying of the metal, which is traditionally considered a safe-haven asset as it maintains a stable value in times of heightened risk.

The Turkish military said two of its F-16s shot down the jet fighter after it crossed into Turkish airspace and ignored 10 warnings in five minutes to return to Syrian airspace. However, Russia said the downed jet had flown exclusively in Syrian airspace and that the plane had likely been brought down by shelling from the ground.

Carsten Fritsch, a precious metals analyst at Commerzbank AG, said Turkey’s action triggered some demand for gold.


Posted in Gold News, Gold Views |

U.S. Q3 GDP (second report) revised up to 2.1%, in line with expectations, vs 1.5% prelim and 3.9% in Q2.

Posted in Economic Data |

Gold higher at 1077.58 (+7.58). Silver 14.17 (+0.04). Dollar lower. Euro higher. Stocks called lower. US 10yr 2.22% (-2 bps).

Posted in Markets |

November Special is Now SOLD OUT

sardinia asOur November special offer on the Italian 20 Lira is now sold out. Thank you to all who participated. After the last payments are in (we anticipate by the middle of the week), we will do the drawing for the rare Sardinian coin up for grabs and announce the winner here. Stay tuned…

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Gold view – Larry Jeddeloh, The Insitutional Strategist

“[W]e are very interested in gold; nothing is more unloved right now. But China will continue to cut rates and spend. If I’m a Chinese investor and I see another devaluation, I’m going to look for assets that preserve my capital. It will be much easier for Chinese investors by the end of the year. The Shanghai Gold Exchange is the world’s largest physical exchange and will have a contract priced in yuan. We are very interested in bullion, and not just the miners, because Chinese investors will primarily take bullion next year. And in Europe, one of the things that will increase interest in gold is negative rates. . . We think gold goes to $2,700 in the next four or five years, or up about 150%.”

From a Barron’s interview of Larry Jeddeloh, founder and editor, The Institutional Strategist, advisor to big institutional investors helping them understand the intersection of geopolitics and the markets.


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The hidden side of John Maynard Keynes


What Keynes would think of ‘Neo-Keynesians’
Unlike his acolytes, he understood the value of gold and the dangers of currency debasement

Wall Street Journal/Richard Hurowitz/9-20-2015

“[John Maynard] Keynes understood that sound money and stable exchange rates were necessary conditions for world prosperity and peace. Contrary to popular belief, he believed that in most cases currency devaluations were counterproductive, their benefits often outweighed by increased domestic costs and the undermining of sovereign credit. ‘There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency,’ Keynes observed in 1919. He consistently argued that a sound currency was critical to a functioning free economy. He understood that such a currency would ultimately create much greater wealth than the endless and vicious cycle of improvisational debasement we see playing out globally today.

KeynesWere Keynes alive today, he would likely be arguing along with German Chancellor Angela Merkel for more monetary discipline and a return to a more balanced international system. No doubt, however, his neo-Keynesian acolytes would be dismissing his concerns as hopelessly outdated and reactionary.

Keynes was an economic theorist, but he was also a clear-eyed market analyst, and a passionate and committed speculator for his own account and for Cambridge University. If he took in today’s economic vista of near-zero interest rates and quantitative easing, it is clear that he would be buying gold hand over fist—regardless of what his disciples might think.”

MK note:  Nobody has taken more heat for the debasement of the dollar and advancement of the fiat monetary system than John Maynard Keynes.  As you just read though, there was a great deal more to Keynes than what we have been led to believe (by both his disciples and detractors).  This article, though a bit dated, provides some interesting background on what Keynes really thought and how he might have reacted to the statist economic systems in which we find ourselves currently immersed.  This is the hidden, more rigorous side of the post-World War II monetary architect that his contemporary acolytes would probably like to keep under wraps.

Chart note:  The chart depicts the dollar’s debasement from 1971 to present.  The 1971 dollar is now worth 17¢ having lost 83% of its purchasing power.  Put another way, what the consumer could purchase for $1 in 1971 now costs almost $6.  In 1971, Richard Nixon severed the link between the dollar and gold and launched the paper money era.  Though price inflation is relatively subdued at present, monetary inflation, as Hurowitz points out, continues unabated with consequences yet to be determined.

Posted in all posts, Author, MK |

The Ryan revolution

New York Sun/Editorial/11-19-2015

“No one has any illusions about how difficult the next steps are going to be. Fiat money has a lot of friends in high places. This has become ever more evident in the years since President Nixon closed the gold window under which foreign governments could redeem their dollars in gold in the post-World War II era. Nixon himself declared for Keynesianism. Congress gave us a dollar with no definition in law and redeemable but with another dollar. The Left quickly discovered that this opened the way for the federal government to borrow heretofore unimaginable amounts of dollars.”

MK note:  This editorial covers what the Sun calls the most important monetary reform since Humphrey Hawkins.  Fed chair Janet Yellen has responded with a letter to Congress registering her objection to the legislation calling it a “grave mistake.”  President Obama has threatened to veto it.  Mostly what the battle centers around is governance of the Fed itself.  Meanwhile, speaking about “unimaginable amounts of dollars,” Treasury added another $60 billion to the national debt today.  Over the first three weeks since the federal government lifted its embargo on additions to the national debt, it has tacked on $566 billion in new red ink.  The national debt now stands at $18.718 trillion.

Posted in all posts, Author, MK |

End-of-week top gold stories

Friday, 20-Nov-2015

Michael J. Kosares (USAGOLD) Gold a bargain in real terms For those you who like to break things down to the fundamentals, this chart should serve as an eye-opener. Why? Because it tells us gold’s value in real terms when adjusted to depreciation in the purchasing power of the dollar. Secondly, it tells us where gold stands today with respect to past peaks in the price – once again in real terms – thus providing an indicator whether or not it is a good buy at current prices.

MK Note: I will remind our readers that we at USAGOLD come at gold from the defensive side of the football – as a means to long-term asset preservation. None of this is posted to lure you into a sense that runaway profits are just around the corner. In the end, we view gold simply as portfolio insurance and an alternative savings vehicle rather than an investment for speculative capital gain.

Andrew Mayeda (Bloomberg) IMF greenlights yuan for international reserves currency basket IMF staff have recommended the yuan be included in the fund’s Special Drawing Rights reserve-currency basket, alongside the U.S. dollar, euro, pound and yen, IMF Managing Director Christine Lagarde said Friday. The staff nod makes approval by the fund’s board this month all but certain, as major IMF shareholders including the U.S. have said they will support inclusion if the yuan meets IMF criteria. It would be the first change in the SDR’s currency composition since 2001, when the euro replaced the German deutsche mark and French franc.

MK Note: The China/IMF linkage translates to a long-term positive for gold. Back in the late 1990s, the European Union advertised its gold reserves as part of the push to build confidence in the new euro currency, even though it was not directly backed by the metal.

Leika Kihara and Tetsushi Kajimoto (Reuters) Japan relapses into recession in July-September, a blow to ‘Abenomics’ Japan slipped into its fourth technical recession in five years between July and September – spotlighting how the government’s “Abenomics” policies have struggled to drag the economy out of chronic stagnation.

Official data on Monday showed the world’s third-largest economy shrank an annual 0.8 percent in July-September after a 0.7 percent contraction in the prior quarter, putting it firmly into recession – two consecutive quarters of declines.

PG Note: Abenomics has been an epic fail. Our Treasury Secretary thinks Japan should now focus on fiscal stimulus, which means more debt for a country already deeply in the red. Wonder what he thinks his own country should do . . .

John Ficenic (Telegraph) Gold remains the best insurance for a crisis [Fifteenth century Scholar-historian]Al-Maqrizi observed the effect of a liquidity crisis on the Mamluk dynasty in the early 15th century that caused money circulation to dry up. The solution was mass enforced currency devaluation through replacing the gold-and-silver-based Dinar, with copper coinage, or Fulus, and for a period the Mamluk economy recovered rapidly as trade once again flowed freely. However, inflation soon crept in and prices ran out of control as the currency was repeatedly debased. All the while gold hoarding was taking place behind the scenes.

MK Note: Some things never change. . . . . .”As central banks race to devalue currency,” says Ficenec, “private individuals are hoarding record amounts of gold.”

(Xinhua) Gold coins, hoofs found in 2,000-yr-old Chinese tomb Chinese archaeologists on Tuesday discovered 75 gold coins and hoof-shaped ingots in an aristocrat’s tomb that dates back to the Western Han Dynasty (206 BC – 24 AD). The gold objects — 25 gold hoofs and 50 very large gold coins — are the largest single batch of gold items ever found in a Han Dynasty tomb. They were unearthed from the tomb of the first ‘Haihunhou’ (Marquis of Haihun) in east China’s Jiangxi Province. The coins weigh about 250 grams each, while the hoofs’ weights vary from 40 to 250 grams, said Yang Jun, who leads the excavation team.

MK Note: These gold artifacts were found along with a portrait of Confucius, perhaps the oldest known. Wisdom and gold make easy company. Confucius once said something that has current applicability: “In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of.” Or at the very least, well-hedged . . . . . . . .

(Dubai-Mubasher) Gold prices rose on Wednesday as Paulson & Co. expected the precious metal to stage a strong comeback next year.

John Paulson, the hedge fund’s president, said prices will rise strongly in 2016, noting that gold will be a safe haven for investors especially after the occurrence of several economic challenges.

PG Note: There do indeed appear to be a number of “economic challenges” congregating on the horizon. Some may in fact be self-inflicted if the Fed decides to proceed with a rate hike in December.

(Bloomberg) Chinese savers turn to gold as the rest of the world exits holdings “Stung by a $5 trillion stock-market collapse, an overbuilt property market and a devaluation of the yuan, Chinese investors are adding to bullion holdings that have already made them the world’s largest consumers of the metal. A third straight annual decline in prices has failed to deter purchases, partly because there are few attractive alternatives for preserving assets.

MK Note: The writer of this article fails to understand the prevailing mindset of Chinese investors. They see a decline in prices as an incentive not a deterrent. The headline to this article is misleading as well. The World Gold Council recently reported record U.S. physical demand led by sales of American Eagle gold bullion coins. Demand, and this is well documented, is also very strong in India, the Middle East and Europe, so it is difficult to justify the contention that “the rest of the world” is exiting its holdings. That is simply not the case.

Posted in all posts, Gold News, Gold Views |

A brief review of the current gold/silver ratio levels (supplement to post directly below)

by Jonathan Kosares

Silver is a highly correlated, yet more volatile metal when compared to gold. In a very simple sense, this means that when both metals are rising, silver will often rise faster and when both metals are falling, silver will also typically fall faster. The net result of this is that after a protracted decline in both metals, silver will often find itself more ‘undervalued’ than gold (as is the case right now). This value comparison is conveyed by the gold/silver ratio (image below) – which equates to the number of ounces of silver it takes to buy a single ounce of gold.

The current ratio of roughly 76:1 (as derived by dividing the gold price by the silver price – $1080/$14.15 = 76.30) is suggestive of an ‘undervalued’ condition in the silver market. Put another way, if purchased today, and held for situations where silver is either ‘fairly valued to gold’ (a ratio of roughly 60:1 – as represented by the 10 year average) or ‘overvalued to gold’ (a ratio of roughly 55:1 or better – as seen from 2011-2013) – a position in silver would yield greater percentage returns than a position in gold over the same period.

silvergoldratiofinalChart courtesy of

A few hypotheticals will give a sense of just what kind of ‘outperformance’ could be reasonably achieved. Using a gold price of $1500 (a logical price example, as it was at this price point that silver last enjoyed ‘fair’ and ‘over’ valuations compared to gold):

Scenario #1 ‘Fair-Valuation’ – Gold $1500, Silver/Gold ratio 60:1:
Equates to a silver spot price of $25.00. From current silver spot of $14.15, this would represent an appreciation of roughly 75%. By comparison, gold would have appreciated a more modest 39%.

Scenario #2 ‘Over-Valuation’- Gold $1500, Silver/Gold ratio 50:1:
Equates to a silver spot price of $30.00. From current silver spot of $14.15, this would represent an appreciation of roughly 112%, against a 39% increase in gold prices.

Please note that past performance is not a certain indicator of future performance. While the past 10 years have seen several cycles where silver strengthened against gold, unforeseen factors could serve to undermine a strengthening of the ratio moving forward and may eventually alter expected ratios for both ‘fair’ and ‘over’ valuations between gold and silver. As such, we continue to recommend ownership of both metals, and do not recommend one as a replacement to the other. That said, we do feel that any client looking to initiate or increase silver positions would be wise to consider doing so in the current undervalued market landscape. Premiums on most physical silver products have also softened of late, further supplementing the present opportunity.

Posted in JK |

North American silver bullion coin sales up 103% over last year

The Silver Institute & Thomson Reuters/11-17-2015

MK note:  GFMS’ Thomson Reuters Erica Rannestad reported on silver supply-demand fundamentals at the annual Silver Institute dinner.

Here’s a thumbnail sketch of that presentation. . . .

  1. Silver supply is forecast to fall to 1,014.4 million ounces – down 3% from last year.  Flat mine production, a drop in scrap turnover, and dehedging featured aspects – the weakest supply side performance since 2002.
  2. Silver bullion coin sales reached fresh record high in third quarter 2015 triggered by lower prices, particularly strong North American demand (a 103% increase over last year).  “This largely unexpected surge,” says Thomson Reuters, “resulted in an unprecedented shortage of current year silver bullion coins among the world’s largest sovereign mints. Silver coin demand is forecast to increase 21% in 2015.”
  3. Industrial uses are expected to fall by 4% in 2015. Comprise 54% of total physical demand.  Weaker China economy blamed for drop.
  4. Overall, the silver market is forecast to be in annual physical deficit for the third consecutive year.  “While such deficits, ” says TR, “do not necessarily influence prices in the near term, multiple years of annual deficits can begin to apply upward pressure to prices in subsequent periods.”  ETF net outlows have lessened the impact of the deficit.
  5. Silver averaged $15.91 per ounce thus far this year.

Thomson Reuters might want to plug into its analysis, perhaps even emphasize, the growing interest among investors globally in silver as a vehicle for long-term asset preservation.  Many treat it as a complement to gold ownership.  Though there has always been a hint of silver’s evolution to safe-haven status in the fundamentals, it was never the factor in investor thinking that it has become today.

Retirement investors take particular interest in silver because their holdings are stored by a third party depository anyway, thus an ideal fit for those who see silver as a bargain at current prices and concerned about the storage problems.

We know of this change of attitude toward silver first-hand from our direct dealings with investors. A good portion of that jump in bullion coin demand has come from IRA investors. U.S. depositories are bulging with the metal for this reason.  At USAGOLD, we see silver’s graduation to ‘asset of last resort’ status as something likely to remain present in the “investment coins and bars” category of the fundamentals’ tables for a long time to come.


Posted in all posts, MK |

The Daily Market Report: Will Mounting Debt Ultimately Underpin Gold

20-Nov (USAGOLD) — In the three short weeks since the debt ceiling was suspended once again, the U.S. national debt has risen dramatically to more than $18.6 trillion. That’s an additional half-a-trillion dollars in debt since early-November. Much of it — $339.1 billion — came on a single day; a new record one-day rise.

The budget deal that allowed the debt ceiling to rise was yet another Washington compromise, where a higher level of spending is allowed with some promise of slowed or reduced spending down the road. If past budget deals — including the most recent one in 2013 — are any indication, those promises of future fiscal restraint aren’t worth a hill of beans.

When the debt ceiling is reinstated in March of 2017, conveniently well after the 2016 elections, the national debt is likely to be around $21 trillion. That will leave us with a debt/GDP ratio around 120%.

But that doesn’t tell the whole story. In fact it only tells about a third of the story, according to David Walker, the former U.S. comptroller general and former head of the Government Accountability Office (GAO):

“If you end up adding to that $18.5 trillion the unfunded civilian and military pensions and retiree healthcare, the additional under-funding for Social Security, the additional under-funding for Medicare, various commitments and contingencies that the federal government has, the real number is about $65 trillion rather than $18 trillion, and it’s growing automatically absent reforms.” — David Walker

Walker, who served under both President Bill Clinton and President George W. Bush, went on to say that Americans have “lost touch with reality” when it comes to government spending. Certainly American politicians have.

When the debt ceiling is ultimately raised again after March 2017 — and it most assuredly will be — the United States will be on its way to a $25 trillion national debt. American politicians have never met a debt ceiling they couldn’t exceed!

The ever-worsening debt load presses down on the shoulders of our economy, preventing it from reaching escape velocity. When one looks for a reason as to why the recovery from the great recession has been so tepid, one really need look no further than our debt. We have borrowed what limited prosperity we’ve been able to from an ever-dimming future. The Japanese can tell you how that ultimately plays out . . .

The strangle-hold is further tightened by the recent rise in the dollar to near 12-year highs, which is simultaneously crushing U.S. exporters and making it more expensive to service the debt. Why in the world would the Fed be looking to raise rates at this juncture?

The correction in gold over the last 4-years has been driven largely by gains in the dollar. And while that inverse correlation is important, the correlation between the yellow metal and the debt may be even more so.

Now that the national debt is off to the races again, we really can’t afford to allow the dollar to gain further. This is why I continue to believe the Fed wan’t raise rates in December. If they do, it may prove to be a one-and-done situation, in which case the greenback may come under renewed pressure. That in turn would buoy the gold market.

Additionally, part of the allure of the budget deal was that it avoided a government shutdown. However, House and Senate appropriators now have to pass an omnibus spending bill to divvy up the moneys approved in the budget compromise. Paul Ryan, the new Republican Speaker of the House, said this week that he will not rule out attaching riders to the omnibus bill. Such riders are deemed a non-starter by the Obama administration.

The government will reportedly run out of money on December 11, so Congress and the President have 3-weeks to sort out their differences, or we may see a government shutdown after all. That potential black swan hanging over the market may provide support for gold as well.

Any critical thinker must know that sustaining a massive debt burden can not go on indefinitely. We’ve seen debt crises in the past and they are not pretty. The prudent investor lays in some gold as a hedge before the storm hits. That investor hopes for the best, but is prepared for the worst.

Posted in Daily Market Report, Gold News, Gold Views |

India gold lending scheme strikes out

Bullion Bulletin/11-19-2015

“A gold deposit scheme launched amid fanfare by Prime Minister Narendra Modi two weeks ago has so far attracted only 400 grammes, an industry official said on Thursday, out of a national hoard estimated at 20,000 tons.”

MK note:  Perhaps the Indian people understand that once you lend your gold to someone, it’s put at risk.  That’s why the depositor is paid a percentage return.  This article talks of the challenge “to wean people off the metal and put the vast store of wealth to work in the undersized financial system. . .”  The thought comes to mind that it has become a vast store of wealth precisely because savers have resisted government and bank sponsored schemes to put their gold at risk.  By the way, 400 grams of gold amounts to about 12.5 ounces.

Posted in all posts, MK |

Gold extends gains on rebound from near six-year lows

20-Nov (Reuters) — Gold gained on Friday, extending the previous day’s rally, as expectations that the Federal Reserve will take its time over raising interest rates prompted a wave of short covering after prices hit near six-year lows.

The market had become overextended on the downside after falling to its lowest since February 2010 at $1,064.95 an ounce on Thursday, analysts said. A suggestion in the minutes of the Federal Reserve’s last meeting that the bank would move cautiously on rates prompted the short covering.

Spot gold was up 0.1 percent at $1,083.48 an ounce at 1235 GMT, while U.S. gold futures for December delivery were up $5.00 an ounce at $1,082.90. The metal is set to end the week little changed after prices jumped 1.1 percent on Thursday.

“We are still unclear how much of a rate hike there will be by the Fed, but given all the comments which we had from the FOMC minutes, one element is clear — it is not going to be very aggressive,” Ava Trade market analyst Naeem Aslam said.

“Hence we have seen the massive selling pressure getting squeezed out.”


PG View: In more recent trading, gold has dipped back to unchanged on the day. However, keep in mind that the “massive selling pressure” occurred in the paper market. All the while, physical buyers were taking advantage. Now the paper shorts are feeling the squeeze.

Posted in Gold News, Gold Views |

German PPI -0.4% in Oct, -2.3% y/y. Biggest annualized drop in 5-years.

Posted in Economic Data |

Gold better at 1083.60 (+1.50). Silver 14.30 (+0.023). Dollar higher. Euro lower. Stocks called higher. US 10yr 2.24% (unch).

Posted in Markets |

Chinese savers turn to gold as the rest of the world exits holdings


“Stung by a $5 trillion stock-market collapse, an overbuilt property market and a devaluation of the yuan, Chinese investors are adding to bullion holdings that have already made them the world’s largest consumers of the metal. A third straight annual decline in prices has failed to deter purchases, partly because there are few attractive alternatives for preserving assets.”

MK note:  The writer of this article fails to understand the prevailing mindset of Chinese investors.  They see a decline in prices as an incentive not a deterrent. The headline to this article is misleading as well. The World Gold Council recently reported record U.S. physical demand led by sales of American Eagle gold bullion coins. Demand, and this is well documented, is also very strong in India, the Middle East and Europe, so it is difficult to justify the contention that “the rest of the world” is exiting its holdings. That is simply not the case.

Back in the July, when the Shanghai stock market hit the skids, we proposed the notion that gold demand would accelerate in China as a result of investor concern about their stock market investments and the economy in general.  This Bloomberg article confirms that these are precisely the concerns driving the boom in China gold demand. A Beijing clothing store manager sums it up nicely: “It’s been a very tough year for investment because shares are so volatile and bank deposits are threatened by a weakening yuan. I don’t think gold is going to drop any more and I can sell it back to them if the price goes up.”

Posted in all posts, MK |

The Daily Market Report: Gold Pops Higher as Yields and Dollar Retreat

19-Nov (USAGOLD) — Gold rebounded smartly in early New York trading on Thursday, underpinned by a pullback in both U.S. yields and the dollar. The yellow metal has traded as high as $1087.46 intraday, which put it nearly $16 higher on the day, and more than $20 off of yesterday’s low.

Yesterday’s release of the minutes from the October FOMC meeting didn’t reveal any real additional clues as to the likelihood of a December rate hike. Lift-off clearly remains data dependent, but the October statement and subsequent FedSpeak certainly has the market leaning in that direction. Fed funds futures continue to show the probability of a December hike around 70%.

Data out today were generally favorable. Leading indicators for October beat expectations, as did the Philly Fed Index. While initial jobless claims for last week were a modest miss, on the labor front, Fed hawks are still riding high on that October NFP beat.

“The precious [metals] complex is up across the board, mainly due to short covering,” said David Lovett of Marex Spectron in a Dow Jones article. Traders were indeed shorting gold on the rise in rate hike expectations since the last FOMC meeting, but the inability of the market to prosecute the breach of the July low may be weighing on their conviction.

As we discussed yesterday, physical gold buyers were aggressive buyers on the price drop over the summer and they are once again viewing the retreat to this area as a gift. Additionally, the FOMC minutes reenforced the expectation that the pace of rate hikes after initial lift-off will be slow and shallow. In reality, a Fed funds target of 0.25% doesn’t really change much in the grand scheme of things.

On the other side of the Atlantic, the minutes from the October ECB policy meeting suggest that more stimulus is likely when they next meet on December 3. Policymakers expressed rising concern about deflation risks and viewed uncertainty about the Chinese economy as still “particularly high.” There is talk of a 20 bps cut to the deposit rate to -0.40% and the likely extension of the QE program.

While the BoJ has shown restraint in the wake of its latest drop into recession, there is a growing expectation that they too will ease further in December or January. The Abe/Kuroda tandem are too far along the path to turn back now, particularly given that their country is now in its fifth recession in seven years.

If the ECB and BoJ both ease in December, will the Fed tighten? It really seems that steady policy on the part of the Fed would be plenty hawkish with everyone easing around us.

Posted in Daily Market Report, Gold News, Gold Views |