Author Archives: MK

Is Gold Really a Good Hedge?

Bloomberg/Cameron Crise/ 10-10-2017

“Again, on this metric, gold looks pretty good as a risk-aversion hedge. By definition, equity market performance was poor, with an average loss of almost 20 percent per episode. Treasuries proved a useful offset, returning an average 3.4 percent and performing positively on seven occasions. Gold, meanwhile, was a star performer, rising almost 7 percent per episode, with gains in 8 of the 10 periods.”

MK note:  Came across this article over the weekend.  It is nearly a month old, but I thought it important enough to get it posted here for future reference. The author seems reluctant to accept the results of his own research, and ends with an interesting take:  “Given the solid performance of a portfolio including gold and the chance that the comfort of owning some might prevent investors from panicking at the height of a crisis, I have to conclude that the notion of gold as a hedge against serious risk aversion is true.”

Imagine that.  Remaining calm because you appropriately hedged your portfolio against a Wall Street disaster ahead of time. [smile]  The article is worth a read. . . . I might add that the crises listed are mild in comparison to some of the more famous breakdowns in history, i.e., times when gold mattered in an ultimate sense.

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Will the Gold Price Hit $1,800 Again?

Interview: Ned Naylor-Leyland/Morningstar

Wall: And looking at U.S. dollar terms although we are situated in London the gold price is around $1,200 and something, it was $1,800 and something in 2011, 2012, 2013. Can you as an investor expect to see those kinds of prices again?

Naylor-Leyland: Well in my view undoubtedly yes. And even more so with silver. In fact, if you look at gold and silver on an inflation adjusted basis over a very long timeframe you are going to find there is nothing else you can buy which is trading at a fraction of where they were 30, 40 years ago on an inflation adjusted basis. Really, these are absolutely counter-cyclical hedge assets. Now you may not have needed to own them for 40 or 50 years. But I’ll tell you that cyclically this is a moment where you do need portfolio insurance, and so you are just getting it at a much cheaper price than you might otherwise have had three or four years ago.

MK note:  Naylor-Leyland expresses a viewpoint similar to one emphasized here at USAGOLD especially with respect to the real rate of return on gold and dollar-based investments.  Take a look at this chart on the real rate of return for gold.****  Note in the chart two periods of escalated returns – in the mid-to-late 1970s, the other more recently in the aftermath of the 2007-2008 financial breakdown.  The first occurred during a highly inflationary period; the second occurred under distinctly disinflationary circumstances.

The most obvious lesson here is that you would have wanted to own gold in either situation. Less obvious is that prior to either period the investors who owned gold could not have known with certainty that a crisis was imminent – not in the sense that they  might have identified a start date.  What they might have understood, and probably did understand, is that financial markets’ repeatedly cycle between dearth and abundance, i.e. good times and bad times.  With respect to the next financial crisis, it is never a question of “if” but “when”. . . . . . .Mike Kosares

****The real rate of return is represented by the extension of the gold bar (%age return on gold year over year) beyond the top of the black bar (%age change in consumer prices year over year).



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Attacks on gold past two days. . .


. . . began at 10:00 pm Mountain Time both days with both the yen and gold dropping significantly, as shown in the first chart, a yen/gold overlay. Keep in mind that the yen is quoted in yen per dollar – a rising trend line coincides with a drop in the yen’s value against the dollar.  This looks like algo-based program trading, or some other planned intervention, designed to bring about an intended result. It is occurring long after the COMEX close and well before its open and during Tokyo trading hours while the TOCOM is open.

The second chart on the Chinese yuan shows a similar predisposition.  Keep in mind that China recently gave tacit permission to offshore traders to short the yuan. (Wall Street Journal article “China Acts to Cool Resurgent Yuan” – 9/11/2017) Once again, the yuan is quoted yuan/dollar so the chart appears inverse. In both instances, yesterday and today, the yuan was appreciating at 22:00 then suddenly turned around.   – MK


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A big piece to the China gold puzzle falls into place. . .

48% of its massive 2016 imports went to financial institutions, according to researchers at Singapore’s Bullion Star


“[U]sing the broadest definition of gold demand, SGE gold withdrawals are a suitable proxy for overall gold demand in China. This gold demand can be labelled as “Chinese Wholesale Gold Demand” and comprises two main categories, namely, consumer gold demand and institutional gold demand. Consumer gold demand generally refers to gold jewellery fabrication demand, retail physical gold bar and coin demand, and in some cases also includes industrial fabrication demand. Institutional demand can be viewed as individual and institutional investor purchases of gold bullion directly on the SGE trading bourse, and withdrawal of this gold from the SGE vaults.”

Chart courtesy of Bullion Star

MK note:  Bullion Star asserts an important finding in the Chinese gold trade question, i.e., the level of China’s huge imports, 2200 tonnes annually, taken up by Chinese institutions including some of their largest banks. Judging from the chart above that number is roughly 1050 tonnes or 48% of total imports.  Further, the Australian bank Maquarie reports a massive 3000 tonnes of inventory parked on financial institution balance sheets.  By contrast, China reports only 1842 tonnes in official reserves.  We must keep in mind the Peoples Bank of China owns the commercial banks and by proxy the gold on their balance sheets.

I suspect that the banks’ gold inventory could be significantly higher than Maquarie’s estimate when you take into account the massive Chinese imports over the past several years. Of course, much of this gold moves down line to their customers including wealthy individuals, other financial institutions and the retail gold business.

China’s financial institutions, in effect, comprise the greatest single end point to the London-Zurich-Shanghai physical gold pipeline – strong-handed buyers with plenty of capital emanating ultimately from the country’s massive national reserves. The consistent flow of physical gold bullion – mostly in the form of 32.15 troy ounce kilo bars – is part, if not the essence, of China’s national asset diversification program as stated years ago by governor of the Peoples Bank of China, Zhou Xiaochuan:

“At present, up to 12 trillion yuan stays in domestic residents’ saving accounts. The launch of individual gold investment, therefore, will allow residents to change currency assets into gold assets. At the macro level, it will expand channels for changing savings into investment, thus adjusting the money supply; in the micro aspect, allowing citizens to trade and keep gold can improve social welfare, benefiting both the country and the population. Moreover, with the dual attributes of common commodity and currency commodity, gold is a desirable instrument for hedging. Therefore, developing gold trade for individuals is practical.” – Zhou Xiaochuan, Governor, the People’s Bank of China

One more consideration: China is now engaged in policies designed to drive the yuan down against the dollar and potentially ratchet up domestic inflation. The net effect could end up being even more demand for the metal internally and pressure on global supplies externally.  Thus far this year, gold is up 9% in yuan.

More background on China’s pivotal role in the gold market
– the story as it developed over the years

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Prominent establishment economist William White warns “More dangers now than 2007”

White raises major red flag warning

First a quick background check on William White so we know whether or not to grant his opinions more weight and status than the average analyst, this from an older, but still functional, Economist article titled The curious case of Willliam White (September, 2012):

“Most recently, we have William White, a brilliant Canadian economist who used to do research at the Bank of England and the BIS before taking over the Economic Development and Review Committee at the OECD. He is not, in other words, a nut who hides in the woods with gold bricks and canned food. Moreover, he (along with his colleague Claudio Borio), presented one of the earliest and most thoughtful warnings of the financial crisis back in 2003. Anyone with a brain ought to take him seriously, especially when he bucks the conventional wisdom.”

Overlooking the out-of-place “gold bricks and canned food” comment, it pretty much tells us that William White’s opinions should be taken seriously. It is not often that an economist of his stature goes off the reservation.

White, as hinted in the Economist profile, has consistently warned that the global economy stands at a precipice – that essentially the 2007 crisis was not an end but a beginning. If that stance sounds familiar, it should.  It falls in line with the fourth turning analysis covered here in previous posts.  Neil Howe, the author of The Fourth Turning, calls the 2007 crisis the catalyst for the protracted fourth turning now in progress and scheduled to end, by his estimate, sometime in the 2030s. (Please see “Historical inevitability and gold and silver ownership“)

White renews that warning in a Bloomberg interview on Monday (fittingly September 11) under the banner OECD warns “More dangers now than in 2007.” In that six minute interview, White keenly and concisely outlines the bind in which central bank find themselves and the depth of the problem that we need to guard against in our own investment plans. We recommend you take the time to watch it.

He concludes with a warning –

“We have to be cautious. We are in a very tough place . . .Be careful of what you do and be very cautious of the side effects because you might not like it.” 

In Ambrose Evans–Pritchard’s column, World faces wave of epic debt defaults, (January, 2016), he provides more detail on White’s analysis for those who would like to dig a little deeper.


• The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability. .

• “It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something.”

• The European banking system may have to be recapitalized on a scale yet unimagined, and new “bail-in” rules mean that any deposit holder above the guarantee of €100,000 will have to help pay for it.

In retrospect, central banks should have let the benign deflation of this (temporary) phase of globalisation run its course. By stoking debt bubbles, they have instead incubated what may prove to be a more malign variant, a classic 1930s-style ‘Fisherite’ debt-deflation.”

On the whole, I consider White’s argument one of the strongest  I have seen for gold and silver ownership as long-term safe haven hedges. The catalyst for that debt-deflation could be the realization in global financial markets that the central banks, as White describes it, have backed themselves into a corner over the past ten years with nowhere to go.  In other words, the next time around – the next time the black swan lands – we will be on our own, walking the high wire without a central bank safety net.

As displayed in the aftermath of the 2007-2008 go-around (see chart below), gold has proven itself to be an excellent hedge for the kind of disinflationary-deflationary breakdown William White fears. It rose by nearly three times over the period. (Silver’s performance was even better. It rose over three and a half times.)

The foregoing was a summary overview. Please follow the links throughout this post for the full story. . . . .

Goldman Sachs chief commodity analyst, Jeff Currie –

“If buying gold, don’t buy futures or ETFs.  Buy the real thing. . .The lesson learned was that if gold liquidity dries up along with the broader market, so does your hedge, unless it’s physical gold in a vault, the true hedge of last resort.”

Note:  Better yet, gold (and silver) in your hands. . . .


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Historical inevitability and gold and silver ownership

In the end, it’s the times that need to be hedged.

by Michael J. Kosares, USAGOLD

The Wall Street Journal’s editorial writer, Daniel Henninger, registers some very important observations in the wake of the troubling events in Charlottesville. Charlottesville, he attempts to point out, is symptomatic of something much deeper ingrained in the American psyche. “Some may say,” writes Henninger, “the Charlottesville riot was the lunatic fringe of the right and left, with no particular relevance to what falls in between. But I think Charlottesville may be a prototype of a politics that is drifting away from traditional norms of behavior and purpose.”  Aptly, the editorial is titled, “The Politics of Pointlessness.”

Any thoughtful individual who has witnessed the chaos in Washington would say that something has gone fundamentally wrong with our system of governance and it began way before Donald Trump entered the White House.  Through all of this I keep coming back to the seminal book published in 1997 by William Strauss and Neil Howe titled The Fourth Turning.  In that book the authors predicted much of what has happened in America over the past twenty years.

Fourth turnings are a time of crisis that can last 20-23 years

The fourth turning is a time of crisis – an overturning of the existing social and economic order. The start date of the current fourth turning, according to Neil Howe, is 2008.  Since turnings typically last 20-23 years, it will end sometime between 2028 and 2031.  So a lot of water will run under the bridge before it’s all over.

I listened to a compelling, recent interview of Neil Howe at the MacroVoices website – a thorough review of the ideas in the book and a lengthy look at what might be next. (The full interview transcript is linked below.)  To elaborate on my short description immediately above, here is Mr. Howe’s own description  of a fourth turning along with a few other important quotes from that interview:

 –– “The fourth turning is the final season of history, if you will, the final generation. And that is the period of crisis. That is the period when we tear down institutions that we’ve built, everything that’s dysfunctional. And we sort of rebuild things from scratch again. And it usually follows a period where—it’s bound up in a period where there’s complete disgust, complete distrust with what we have.”

–– “And I would say these are strong parallels that we see between the decade we’ve been living through and the 1930s. Because it isn’t just what happens to/in the economy. I mean, you consider so many ways in which this last decade has recapitulated the 1930s, starting off with a financial crisis, worries about deflation, worries about declining fertility rates, and currency wars, and beggar thy neighbor policies, and radical attempts by monetary and ultimately fiscal policy to remedy the situation.”

–– “I think we can be too mesmerized by the fact that the last fourth turning we had started with the Great Depression and ended with World War II. I think there are more possibilities. We could be defeated on a fourth turning. We could completely unravel on a fourth turning, giving the amazing popularity of these dystopian or alternative history drama shows on HBO and Netflix today really spelling out those scenarios.”

–– “And then the crisis, when all of these problems begin to coalesce into one huge problem. It’s when the Great Recession met all of these—the rise of fascism both in Asia and in Europe, and everything came together, currency wars, everything became part of a huge problem. Which, by the resolution, you see—and this is what happens at every fourth turning. All the little problems come together into a giant problem. And the giant problem gets completely solved.”

–– “So in politics we see volatility is incredibly high. If there were a political index—there is a political index, there’s a political uncertainty index which actually you can go on FRED and look at it, which is amazingly high levels compared to where it was for the last 20 or 30 years. There is a political index, but it’s very high right now as opposed to the market index which is very low. So, if you’re doing valuation divided by some measure of volatility, which is kind of your basic complacency index, that’s at record high levels now in markets. But you’d have to say complacency is at record low levels in our political and civic life. We’re totally nervous. We even, I think, to some extent, fear that we’ve lost any kind of public square, the ability to even have a public discourse on every issue. I think that that is a real problem.

[End quotes]

Historical inevitability and portfolio preparation: Gold and silver ownership

There is a certain amount of inevitability in Howe’s analysis that a good many will have a hard time accepting, but I am among the group that believes that we are carried on great waves of history whether we like or not.  That is why cycle theory has always appealed to me since my early days in the investment business.  I chose to become a gold and silver broker (back in 1973) because I have always believed that there are good and bad times economically, and when the bad times roll around, that is when you want to be sure that you have made preparation, and most advisedly well ahead of the trouble. Markets cycle.  Politics cycles.  Economies cycle.  Nature, by the way, cycles.  And when you really put on your thinking cap, that tells you why everything else cycles.

Gold and silver, unequivocally, remain the best choice to preserve capital during the secular downslopes – in times like these.  Whenever you watch what’s going on out there and you can’t seem to figure out why people are behaving the way they are, just remember that we are in the grips of a fourth turning and this is the way it is going to go and, as Howe points, it could get considerably worse.

If you have an abiding interest in the kind of analysis you are now reading, you might appreciate our monthly newsletter compiled and written by Michael J. Kosares, the author of the popular investor guideline,  The ABCs of Gold Investing: How to Protect and Build Your Wealth with Gold (Third Edition).  You can sign-up for it here.  Always timely.  Written for gold and silver owners or for those thinking about it.  Your interest is welcome.

My concern is getting across the bridge between the great crisis that may still be ahead of us and the resolution that comes at the end of fourth turning.  That is why I own gold personally and why I think every thinking, well-established individual financially should own it as well.  The name of the game is to protect wealth and not leave your life work on the table when the crisis hits with full force.  A diversification of about 10%-30%, in my view, will get the job done. How high you go within that range depends upon on how strongly you feel about what is going on.

Why I put so much stock in the book, The Fourth Turning

You may wonder why I put so much stock in Strauss and Howe’s The Fourth Turning.  Besides making a great deal of sense as a view of how we as human beings move through history from one generation to the next, the authors presciently predicted the 2008 financial crisis eleven years before it happened.

From The Fourth Turning:

“The next Fourth Turning is due to begin shortly after the new millennium, midway through the Oh-Oh decade. Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation, and empire.”

Talk about hitting the nail on the head.  The last two sentences tell it all as we now live through the experience.  I have always said that the gold and silver owner can afford to sit back and watch the show with a certain amount of detachment and comfort knowing you have done your best to protect your assets.  Gold certainly worked for its owners during the first stage of the fourth turning when gold went from roughly $700 per ounce to nearly $2000 at its peak before working back to current price levels. Silver did equally well going from roughly $16.50 to over $50 at its peak.

They are likely to work in the next stage of the cycle as well.  As we watch the social, economic and political implosion unfolding around us, you begin to wonder whether or not it has come time for the great middle of America to kick back a bit and take a more detached approach to the problems, and that is what Daniel Henninger is driving at in his editorial.

Neil Howe in his interview mentions a “political uncertainty” chart available at FRED in the quote section above.  I think he may have been talking about this chart, but even if it isn’t, it tells the same story.  As you can see, economic uncertainty has been running at a high level since the year 2000 and in direct correlation to gold’s secular bull market. Since 2008, for good reasons, the uncertainty has been running at consistently high levels and on a hair trigger. The current lull might simply be the calm before the next storm which, in my opinion, is already visible on the horizon.

I will end by returning to Daniel Henninger’s thoughtful editorial this morning and recommend that you read it in full along with Neil Howe’s interview.  Howe’s interview transcript and Henninger’s editorial are both linked immediately below.  Unfortunately, Henninger’s full article is not published in the clear, but Fox posted the beginning with a link to the full article.  Here is the thought with which he ends the piece.  It’s a good one.

“Amid the torrent, an odd paradox emerges:  People are consuming more content and detail about politics than ever, and more people than ever are saying, ‘I have no idea what is going on.’ Someone is at fault here, and it is not the absorbers of the information.  Charlottesville is being pounded into the national psyche this week as paroxysm of white nationalism.  On current course, the flight from politics is going to look like rational behavior.”

Neil Howe interview (Courtesy of MacroVoices/Audio version can be accessed at the MV link.)
Daniel Henninger editorial (Wall Street Journal, 8/17/17)
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My take on the Fed minutes. . . . .

In this highly political environment, some think of the Fed as an oasis of collegiality, where the best interest of the economy is guarded with praetorian care – an institution that rises above the fray.  Not so.  The Fed is just as political as the rest of Washington D.C. and that is evident in the minutes.  There’s a split at the Fed and it looks to be enough of a split to paralyze monetary policy.  That divide is just as political as the splits in Congress that paralyze the Trump agenda.  Talk about gridlock. We now have gridlock at the Fed and that’s why gold and silver have reacted so convincingly.

Gold up almost $9 at $1282

Silver up 42¢ at $17.10

We might be in the first stages of a breakout rally.


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One man’s opinion. . .

Only about $15 dollars in gold’s run-up over the past roughly month and a half has had to do with North Korea.  There are much more elemental forces at work:

– Increasingly difficult sailing for the Trump administration’s pro-business, pro-growth agenda with multiple parties to blame

– The Fed’s inability to move forward on its desire to raise, or should I say normalize, interest rates

– The over-valuation in the stock market which, in turn, has inspired professional money to diversify with gold being one of the avenues

– The possibility that there is more than enough rancor in Washington to cause a serious problem when extending the debt ceiling comes up for a vote.  Repercussions would follow any delay. . . . . .

This is not to say that the situation with respect to North Korea is anything but dangerous and having an effect on gold prices.  However, it is superimposed over a market that is also reflecting fundamental economic concerns.


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The Fed Has 6,200 Tons of Gold in a Manhattan Basement — Or Does it?

Wall Street Journal/Kathy Burne/8-10-2017

“Eighty feet below the streets of lower Manhattan, a Federal Reserve vault protected by armed guards contains about 6,200 tons of gold.

Or doesn’t.

The Fed tells visitors its basement vault holds the world’s biggest official gold stash and values it at $240 billion to $260 billion. But ‘no one at all can be sure the gold is really there except Fed employees with access,’ said Ronan Manly, a precious-metals analyst at gold dealer BullionStar in Singapore. If it is all there, he said, the central bank has ‘never in its history provided any proof.'”

MK note:  I was very surprised to see this article on the front page of this morning’s Wall Street Journal.  It raises some interesting questions begging answers. . . . . . . .

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Sanctions will destroy the dollar

Real Norman/8-8-2017

“The United States is increasingly using sanctions as a form of warfare. When we can’t attack militarily we use sanctions. In many cases the result is the same as bombing supply lines only without the bombs. It’s a form of soft warfare that targets a country’s economy and its ability to transact business and safeguard its financial wealth in today’s dollar-based economy.

Do you know what the result of these sanctions will be? The dollar will get crushed.”

MK note:  Mike Norman has an interesting take on the impact of sanctions.  He says the dollar eventually will lose its global reserve status because of sanctions.  “There is simply too much risk,” he says, “for the rest of the world to have the global financial system resting on dollars when at any moment, all or a portion of that system can be shut down by a bunch of hotheads in Congress or, a president who tweets.

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Dimon sides with bears, says sovereign bonds are too pricey

Bloomberg/Jennifer Surrane/8-8-2017

“Jamie Dimon is siding with the bond-market bears.  ‘I do think that bond prices are high,’ the chief executive officer of JPMorgan Chase & Co. said Tuesday in an interview on CNBC. “I’m not going to call it a bubble, but I wouldn’t personally be buying 10-year sovereign debt anywhere around the world.’”

MK note:  Dimon echoes comments made by Alan Greenspan last week.  Greenspan was a bit less diplomatic about it.  He called bonds a bubble and added their correction would bring down the DJIA as well.  Note the reference to “10-year sovereign debt anywhere in the world” meant no doubt to include U.S. Treasuries.

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Opinion: Let this be your final warning on U.S. stocks’ overvaluation

Marketwatch/Brett Arends/8-4-2017

“Critics sometimes like to argue that the reading of late has been distorted because it includes the abysmal corporate earnings during the 2008-2009 crash. So I decided to exclude those, and just compare stock prices to the average of the past five years, rather than 10, to see how that affected the measure.

And, yes, it does. But it only cuts the reading from 31 to 25.5.

For reference, it’s only reached a level of about 25 on five previous occasions: 1901, 1928-9, 1966, 1996-2002 and 2003-2007. Each one ended with a crash.”

MK note:  Diversify.  . . . . It wasn’t that long ago that we were receiving inquiries from clients who had established a 10% to 30% portfolio position in the early 2000s between $270 and $600 per ounce. They wanted to know what I would recommend now that gold constituted 50% of their portfolios, and in some notable cases as much as 70% of their portfolios.  Gold was trading then near the $2000 per ounce level.  At the time, when we did not know if things were going to be worse or better, most opted to simply leave things as they were.  The common refrain was ‘I didn’t buy it to speculate. I bought it to protect what I have.’ And, at the time (2009-2013) that is precisely what gold was doing for them.

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London just shook up the ranking of biggest gold stockpiles

Bloomberg/Eddie Van Der Walt/8-4-2017

“The London Bullion Market Association this week lifted the veil on how much gold is stored in vaults in the city, which instantly joined a list of the world’s biggest hoards. The estimated 596,000 bars weigh 7,449 tons — only the U.S. government and Indian households are thought to account for more. Most London gold is stored in the Bank of England, with the rest in private vaults, including those operated by HSBC Holdings Plc and JPMorgan Chase & Co.”

MK note:  Bloomberg, for some reason, overlooks China’s citizenry and private sector in this analysis, another very large reservoir of physical gold.  If you are going to include India’s households, you might as well include China’s as well – a holding that would surpass the U.S. government’s and make a run at India’s prodigious holdings.  Koos Jansen, the China gold specialist, recently put that figure at 16,000 metric tonnes.  Bloomberg puts Indian household at between 20,000 and 25,000 metric tonnes.

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Be prepared for historic gold and silver run

LawrieOnGold/David Smith/8-5-2017

“The Bigger the Base, the Greater the Upside Case. This saying among technical analysts/chartists helps define where we are today in the precious metals – and where we’ll soon be headed.

It means that when prices ‘base’ in a relatively narrow sideways range for an extended period, they will at some point break out. Before the action gets underway, bears and bulls alike will get ‘sandpapered’ as they take positions, trying to guess whether or not the price is getting ready to decline further or move upward into a new bull phase.”

MK note:  In an argument that looks similar to Clive Maund’s as highlighted in the August edition of News & Views, tech-analyst Smith believes an upside breakout is in the offing for both gold and silver.

News & Views free subscription sign-up.

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Gold could see substantial upside in this run. . . . .

‘The price of gold could see substantial upside as the U.S. dollar index continues sliding in value, some strategists are forecasting. The greenback has declined nearly 9 percent against a basket of foreign currencies year to date as the likelihood of parts of President Donald Trump’s economic agenda getting underway has been called into question, and the prospect of further interest rate hikes from the Federal Reserve has pulled back.”

MK  note:  Nothing new here if you keep up with this page. This forecast says gold could revisit the $1300 level.


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90% of Swiss refined gold moved East. . . .

Lawrie Williams/SharpsPixley/7-27-2017

“The latest figures for gold exports from Switzerland just further emphasise that physical gold is continuing to move eastwards in a big way.  The country’s gold refineries sent 74% of their gold exports to Greater China (the Chinese mainland and Hong Kong) and India alone, while if we add in other south and east Asian nations – Malaysia, Singapore, Taiwan, Thailand and South Korea – and the Middle East – Turkey, the UAE, Lebanon and Jordan – fully 90% of Swiss gold exports that month moved to this region.”

MK note:  Real wealth – and the kind that extends beyond the transient value of currencies – continues to move West to East through the London-Zurich-Hong-Kong-Shanghai pipeline, amounting to 74% of Swiss exports.  Further, Singapore’s Bullion Star reports that the Peoples’ Bank of China is buying gold in the open market, not through the Shanghai Gold Exchange as many previously thought. Of the 2200 tonnes that the SGE reported as sold in 2013, for example, none went to the central bank, according to the SGE.  In other words, all that gold went to the Chinese people and the financial sector.   China. . .a different animal. . .the dragon in the room, and it likes low prices.

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Investors are pouring money into silver ETFs

Bloomberg/Eddie Van Der Walt/7-18-2017

“There’s plenty of speculation that silver is due for a recovery. In a Bloomberg survey of 13 traders and analysts, the majority were bullish.

  • 11 people said prices would rise and two predicted declines.
  • Among the seven respondents that provided estimates, the median 12-month forecast was $20 — indicating a 24 percent rally from current levels.

Assets in exchange-trade funds backed by silver have risen 6.6 percent since April 24 to 21,211 tons, according to data compiled by Bloomberg.”

MK note:  Evidently, there are a good many who know a good thing when they see it:  Silver at current price levels.  The 21,211 tonnes in ETFs is a record high – something to file under “Major developments most people don’t know about. . .”  By the way, financial institutions and funds dominate the silver and gold ETF volumes.  Private investor demand, thus far, has been strangely quiet on the silver front since prices have dropped. Mesmerized by rising stocks and the Trump effect, it would seem. . . . . .Or perhaps they’ve been waiting for a bottom.  According to silver experts referenced above, we may already be there.

For those with an interest, here is an interesting USAGOLD silver offer worth considering.  It combines a direct investment in silver with the collector in all of us.   Bulk buyers might want to take advantage of the low premiums on silver American Eagles.  As many of you already know, once the market starts rolling supply bottlenecks can develop overnight and premiums can jump considerably.   The mints have a spotty record on keeping up with public demand once the wheel turns. . . .

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Massive additional short liquidation by banks foretell a big rise in all precious metals prices

Avery Goodman/7-17-2017

“Look at what they do, not what they say. They are fleeing from long-standing downside bets they’ve rolled over, year after year, for many years. Some clueless hedge funds (the so-called ‘managed money’) are taking them over. They will pay an enormous price for doing that. Come mid to late August, for example, some of them are going to be forced to deliver real gold they don’t have. By October, some will be scrambling to source gold bars for delivery. Others will get out sooner than that, but they will pay a very heavy paper money price to do it.”

MK note:  At the link above Goodman posts the evidence of bullion bank withdrawal from the short side of the precious metals markets.  I’ve alluded to this potentiality in previous postings including one made here yesterday.  The banks are ahead of the game.  Hedge funds and the like will follow suit once it registers with them that the game has changed.  Then the fun begins. . . . .We could be in the early stages of a quantum shift in the way gold and silver (and by the way, the USD) are viewed among big money players.

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Precious metals sector update – the biggest opportunity since late 2015, and the last chance at these prices

Clive P. Maund/7-15-17

“We’ve had to wait 18 months for an opportunity as big as the one we saw late in 2015 to appear again in the Precious Metals sector. ‘Wait a minute’, I hear you say, ‘prices were generally lower back then at that low than they are now, so how can it be as big an opportunity, as leverage is reduced?’.

Here are the reasons, one technical, the other fundamental. When prices rose out of the late 2015 low, which was the Head of the Head-and-Shoulders bottom shown to advantage on the 10-year chart for GDX below, they were destined to retrace to mark out the Right Shoulder of the pattern, which is what now has most investors very negative towards the sector again. This time they don’t have to – they can now rise out of this trough and proceed to break out upside from the entire pattern to embark on a mighty bull market. The fundamental reason is this – most investors have been taken in by the specious Central Bank talk about “normalizing interest rates” and scaling back their bloated balance sheets – but they haven’t got a cat in hell’s chance of doing this – why? – because debt (and associated derivatives) has expanded to such gargantuan levels, that any attempt to bring it under control will send interest rates skyrocketing. Because of this stark reality, they are left with only one option – to inflate the debt away by monetizing it, which means inflation.

Once investors grasp the inevitability of this – and that this process will soon get underway with a vengeance, gold and silver will soar. That is what the charts that we are going to look at today are telling us, and it means that we may never see the bargains in the Precious Metals sector that are now available ever again – or at least not for a very long time.”

MK note:  Clive Maund is not a perennial bull when it comes to gold and silver so when I saw this analysis, it got my attention.  A visit to the link above will take you to the charts he references in this snippet.

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Dollar index and gold. . .When momentum shifts, the flow of hot money will determine prices

We’ve published versions of this chart in the past. It shows the inverse correlation between gold and the dollar index, but given the changing psychology in the forex markets we thought it a good time to repost it.  The future for gold in this context depends entirely upon how the central banks, and in turn the markets, perceive the future of the dollar.  Much of the strength of the dollar since November has been based upon a perception that the Trump administration would be good for business.  With the problems in Congress and the growing frustration on Wall Street (as manifested by Jamie Dimon’s remarks* late last week), that perception seems to be fading into the distance.

Once momentum shifts away from the dollar, all the huge bullish dollar algo trades and derivatives’ plays could be subject to reversal.  Thus, the references we see of late to the potential for explosive changes in financial markets including stocks, bonds, gold and silver.  The flow of hot money will determine those changes.


* “It’s almost an embarrassment be an American citizen traveling around the world and listening to the stupid shit we have to deal with in this country and at one point we have to get our act together. We won’t do what were supposed to for the average American.” –– Jamie Dimon


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Short and Sweet

“You and I can’t control whether banks are ready, but we can control whether we are ready. I am working on a number of fronts to help you. My brief time away convinced me beyond any doubt that a crisis of historic proportions is once again bearing down on us. We may have little time to prepare. We definitely have no time to waste. –– John Mauldin

Note:  Mauldin says a major financial crisis will ensue if not by “later this year, then by the end of 2018 at the latest.”  He counsels to prepare for turbulence.

We think gold may edge higher, but with little fanfare and expect the market to face headwinds.”  –– HSBC

Note:  HSBC predicts gold will average $1282 in 2017 and that the USD well decline in 2nd half.  Historically, gold rallies often begin and gain momentum quietly.

“The debt ceiling will start to dominate headlines as we move through the northern hemisphere summer.” –– Standard Bank

“During the first half of 2017, gold bullion rose 7.75% while the XAU (Philadelphia Index of Gold and Silver Stocks) rose 2.79% (including dividends). Among the notable developments of the first half were the pronounced weakness of the trade-weighted US Dollar (down 6.44%) and the continuing sluggishness of the US economy, both of which call into question the wisdom,feasibility, and credibility of the Fed’s push to tighten credit.” –– Tocqueville Gold Strategy Investor Letter

Note:  Nice synopsis. . . .

The physical precious metals bid will go infinite — that is, big players holding useless cash will buy up all the gold and silver that’s available, at pretty much any price that’s demanded.”  –– John Rubino

“The West will strive until its last breath to keep the price down, while the East will strive with its every ounce of energy to produce an honest price. The gold price will make movements to the $2500 level, then $5000 level, then $8000 level, then $12,000 level. It is inevitable, like the dawn after a long stormy night, like the rising tide.”  –– Jim Wille

Note: Not sure we agree with those price levels, but the sentiment is worth passing along.

“Silver prices have risen erratically but inevitably, along with debt and most consumer prices, for decades. As of July 2017 silver prices, compared to the national debt, are too low and will rise. The next rally in silver should be huge based on the prospects for expanded war, financial chaos, and central bank ‘printing’ that will devalue all currencies.” ––  Gary Christiansen

“Stated another way, and in far less erudite terms, the Fed owns the stock market. The institution’s credibility has in our opinion become inseparable and indistinguishable from financial-market stability. This less-than-‘candid’ institution cannot afford a major downdraft in financial-asset values. It is caught in the lie that the institution’s supposedly superior and privileged knowledge hold the key to future prosperity, economic growth, and policy normalization. The price of an honest reassessment would risk calling into question the extreme policy measures undertaken since 2008.” –– Tocqueville Gold Strategy Investor Letter

Note:  Toto, it seems, is tugging at the curtain. . . .

“It’s almost an embarrassment be an American citizen traveling around the world and listening to the stupid shit we have to deal with in this country and at one point we have to get our act together. We won’t do what were supposed to for the average American.” –– Jamie Dimon

“Our global investment strategists believe that central banks will act to pop the bubble later this year.” –– Bank of America Merrill Lynch

“More recently we’ve seen Fed Chair Janet Yellen note in June that she does not expect another crisis in our lifetime. The reality is that completely ignores how fundamentally distorted money and markets actually are.” –– Nomi Prins


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Why gold shot higher on Friday. . . .

The MacroTourist Daily Letter/Kevin Muir/7-14-2017

“It was only a month ago Fed President Dudley was lecturing us about the dangers of overly easy financial conditions and how inflation’s sanguine performance was ‘transitory.’ And it wasn’t like he was alone. The Fed’s generally accepted second in command, Stanley Fischer, echoed similar comments.

Well, this morning about the most awkward economic news possible was released. CPI undershot, coming in at 1.6% instead of the expected 1.7%. Retail sales were abysmal, registering -0.2% instead of the forecasted 0.1% gain. And the University of Michigan sentiment numbers reflected a public who is becoming increasingly skeptical of the Fed’s rosy outlook. The actual index was 93.1 instead of the surveyed 95.0, but more importantly, expectations plummeted to 80.2 instead of 84.4.”

MK note:  More and more it is looking like the Fed is not getting the results it intended.  The dollar fell and gold rose.  More confirmation of what Pete Grant has been talking about on this page for months now.  The much discussed year-end rate hike is looking less likely this weekend, could open the door to further gold upside next week.

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Texas returns to the gold standard

Wealth Management/Olenka Hamilton/7-10-2017

“The Lone Star state isn’t exactly known for taking the conventional route: so when Texas announces plans to ‘repatriate’ $861 million worth of gold from a bank vault in Manhattan, it’s easy to wonder if they’re up to something.

Your suspicions will no doubt then be confirmed when you hear that this will all be housed in the first-state administered bullion depository to be opened in Austin in December 2018. Once up and running, the depository will serve as an alternative stash for gold and other precious metals in place of federally regulated banks or smaller unregulated storage facilities. The hope is for it to then expand into a larger commodities exchange, which would aim to challenge the existing commodities markets places in Chicago and New York, according to reports.

. . .

So the Texans’ gold move is part of a rising global trend – not just a US one, and is surely being driven by uncertainties and a subsequent lack of faith in the global financial system. Quantitative easing and increased money supply have also raised the prospect of higher levels of inflation across the globe.

. . .

And in the US, a least six other US states are already at it. Tennessee, Idaho, Utah, Arizona and Virginia are all making noises about bringing their gold reserves back from the US Federal Reserve and holding it locally.”

MK note:  I was not aware that Tennessee, Idaho, Utah, Arizona and Virginia owned gold deposited at the NY Fed.  The Lone Star gold is owned by the University of Texas the purchase and repatriation of which was suggested by Kyle Bass who serves as advisor to the UT Investment Management Company. Few Texans, at least the ones we know, would be opposed to the course of action being taken.  He who owns the gold makes the rules.

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Should gold be viewed as a tactical or strategic asset?

World Gold Council/7-12-2017/Gold investor risk management and capital preservation

“There is nothing to prevent an investor from using gold as a tactical or short-term investment purely driven by price performance. However, research has consistently shown that the true value of gold is linked to a modest, strategic allocation that serves as a core part of a portfolio – a foundation. This has not been demonstrated by the World Gold Council alone (see research). Examples abound of other well respected organisations that have arrived at the same conclusion. These include New Frontier Advisors, Oxford Economics, J.P. Morgan, Mercer, and The University of Virginia Darden School of Business, among others.

Indeed, gold’s benefits should not be solely linked to its price. The key lies in gold’s ability to diversify and, thus, lower volatility; reduce losses in periods of financial turmoil, in part due to its role as a high-quality, liquid asset; and preserve purchasing power. Even under the assumption that gold’s average annual return is a modest 2%-4% over the long run – lower than its historical return and akin to the global rate of inflation (see Table 2 in the previous section) – gold’s benefits mean that holding 2%-10% in gold can greatly benefit investors seeking a well balanced, diversified portfolio. Interestingly, this range also applies to international investors’ portfolios.”

MK note:  The point made in the sentence italicized above is something we have always advised at USAGOLD.  Gold’s primary role is the preservation of assets in uncertain times, in particular uncertain times fueled by governments’ rampant issuance of unbacked paper money and official sector debt – times like the present.

It wasn’t that long ago that we were receiving inquiries from clients who had established a 10% to 30% portfolio position (our recommended acquisition levels) in the early 2000s between $270 and $600 per ounce. They wanted to know what I would recommend now that gold constituted 50% of their portfolios, and in some notable cases as much as 70% of their portfolios.  Gold was trading then near the $2000 per ounce level.  At the time, when we did not know if things were going to be worse or better, most opted to simply leave things as they were.  The common refrain, in keeping with the point made by the World Gold Council above, was “I didn’t buy it to speculate.  I bought it to protect what I have.”

As to the percentage of the portfolio gold and silver should occupy, 2% is way too low in my opinion.  Something between 10% and 30% makes the most sense for the average investor looking to truly diversify the well-documented risks in investment markets today.  How high you go within that range depends upon how you personally feel about the current state of the economy, financial markets, geopolitical risks, etc.  The price of gold should also play a role in that assessment.  Naturally, lower prices encourage increasing the weight within the portfolio . . . . . . . .

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Precious Metals Are “Best Defence” Against Bail-ins In Economic Crisis

John Adams/Daily Telegraph AustraliaGold Seek/7-6-2017

“Globally, household, corporate and sovereign debt are at unprecedented levels. They are also linked through a fully integrated global ­financial system and an array of complex financial derivatives.

Given the scale of the system, the probability of a global stock, bond and real estate crash, coupled with a wave of corporate, bank and sovereign ­defaults via rising interest rates, ­increases dramatically.

Worryingly, the monetisation of government and corporate debt, nominal or real negative interest rates, “helicopter money” (issuing freshly created money directly to citizens), bank bail-ins, capital controls and the eradication of cash through financial digitisation are all being contemplated by American and other international central bank officials.

Such measures seek to, in effect, trap citizens to keep their money in the financial system and to allocate their money into particular asset categories, thus preventing bank runs or hoarding which can occur when confidence in political, economic and ­financial systems collapse. . . .

Thus it is up to individuals to think about what they can do to mitigate their own risks. Eliminating all forms of debt, ­improving personal cash flow and maintaining cash reserves to guard against bouts of unemployment or to purchase cheap assets is best under a deflationary scenario.

Alternatively, acquiring real (or physical) goods or assets such as precious metals is the best defence to offset any loss of currency purchasing power, noting that the Governor-General has the legal power to confiscate personal gold holdings via Part IV of the Banking Act 1959.

Nevertheless, Australians must ­remain vigilant in the coming months and years ahead, conduct their own independent research and prepare themselves for a volatile unstable economy.”

MK note:  This article is directed at Australians but the message applies to Europeans and Americans as well.  No one is immune.  Extreme measures, like those mentioned above, are now acceptable courses of action among economic officials globally.  If one were to improve the strategy offered by The Daily Telepraph’s John Adams (quoted above), it would come via the ownership of historical bullion items like old British sovereigns (pictured below), Swiss Helvetias, Dutch 10 guilders and the like.  These are a worthy diversification for those with concerns about capital controls, and you do not have to pay extremely high premiums to include them in your portfolio.  In fact at the present, these items generally speaking are trading at historically low premiums.

Governments traditionally are loathe to confiscate, quarantine or slap trading restrictions on items of historical value (though obviously there are no guarantees).  Such was the case in the United States when the federal government confiscated gold bullion in 1933 but exempted gold coinage dated prior to 1933.  Along with whatever protections age and collectibility might confer, owners of this type of item will benefit from any increase in the price of the gold and open the door to potential premium appreciation as collector items, since their availability is limited.  Buy the right items and they are also very liquid globally.

Talk with one of our representatives about the possibilities if you have an interest [1-800-879-5115 Ext #100].

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A tale of two gold markets

James Rickards/Daily Reckoning/7-7-2017

“Finally, investors can take comfort from the fact that all manipulations fail in the long run. Whether it’s the “gold corner” of 1869, the “gold pool” of 1968, Kissinger’s secret “gold dump” of the late 1970s, or “Brown’s bottom” (when the U.K. sold most of its gold at 30-year low prices) of 1999, or the more recent gold games on the Comex, all manipulations fail. Gold prices always find their way higher, because paper currencies always lose value over time.

The key response functions to manipulation are patience, confidence in the long-run path of gold and nimbleness in stepping up to buy gold at interim lows when manipulation gets out of hand, as it just did.

The gold rally that began on Dec. 15, 2016, is poised to continue despite the trauma of the flash crash. The crash represents a gift to investors. We now have a better entry point for what will still be much higher gold prices later this year.”

MK note:  I might add that the turnarounds from medium to longer term manipulations can be in the form of a price eruption that usually surprises the critics, and gold owners as well.  The best way to weather these paper-imposed downtrends is to buy the physical metal itself when it looks cheap and bide your time, a strategy we have employed successfully at USAGOLD for decades.  Now is one of those times.  As Rickards points out, the downsides represent “a gift to investors.”  Just ask those who bought in the early 2000s. . . . . . .a time very comparable to what we are experiencing now.

Most of  newly-refined physical gold in bullion form, particularly 32.15 troy ounce kilo bars, is earmarked for delivery to waiting physical clientele – particularly at current prices. Here’s another quote from that article worth filing for future reference:

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Amazon-Whole Foods deal deflationary?

Mish Talk/6-16-2017

“Amazon bought Whole Foods today. Widespread carnage in the grocery stock prices followed. Jim Cramer called it a major deflationary disruption saying stores cannot compete.”

MK note:  Interesting buzz on Amazon’s Whole Foods prospective acquisition.  Whenever the subject of deflation comes up, I think of gold’s stellar performance in the wake of the last crisis which, in fact, was disinflationary.  Disinflation, in turn, is a close cousin to deflation as discussed in some detail HERE and HERE, along with  gold’s historic relevance in protecting against either or both.

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ECB buys renminbi for reserves

The Financial Times reports this morning that the European Central Bank gave a “seal of approval” to the Chinese renminbi with a purchase of 500 million euros worth  of the currrency for its reserves – a small transaction but with “huge symbolic significance.”  It is also important symbolically that the ECB sold dollars to purchase the renminbi. This ECB purchase may be the most important development to date with respect to China’s establishing the yuan as a global reserve currency, and a possibly a direct response to the cool relations  between the U.S. and Europe on display at the recent G-7 meeting. – MK

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What the markets are telling us five months into the year . . . . .

Wall Street, the financial media and a good many investment analysts are down on gold and silver.  It is difficult to understand why.

As of Friday’s closes,

– the Dow Jones Industrial Average is up 7.30% thus far in 2017

Gold is up 11.12%

Silver is up 10.37%

– the Dollar is down 3.52% (based on the Dollar Index –  Major currencies)

Commodities are down 5.9% (based on the Bloomberg Commodity Index)

All of which tells us that, as of June 2, 2017, gold and silver are still being purchased as hedges against disinflation and overall financial system risks as has been the case since the turn of 21st century.  At the moment, we can also throw in dollar weakness as a factor, though it is difficult to know whether or not that weakness is temporary or something with staying power.

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Why gold is up today . . .

Up $10 as this is posted.

A Wall Street Journal article published this morning might have inspired new  fund/institutional buying.  The WSJ is often used by the Fed to channel messages to the market and this looks like one of those articles. It suggests that a rate hike might be on hold for September although the June hike is still a likelihood.  The article cited political wrangling in Congress and a possible government shutdown as primary reasons for putting September on hold.  Another aspect of the Fed’s agenda – unwinding the balance sheet – was also covered. It seems the board is leaning toward retiring its holdings gradually as debt instruments mature rather than any sort of wholesale dumping. The go-slow approach is meant, according to the WSJ, as an attempt to ward off a future “taper tantrum” in the bond market.  Gold apparently likes the new agenda, or at the very least, likes the fact that the Fed has decided to be cautious on both rates and the balance sheet.  MK

Here’s a Barron’s take on the Wall Street Journal article: Will Political Wrangling Alter The Fed’s Rate Hike And Taper Timeline – Uncertainty in Washington may shake up the central bank’s plans beyond June.

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