Author Archives: MK

Sanctions will destroy the dollar

Real Money-theStreet.com/Mike 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.

INSIGHTS

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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 www.gold.org/investment/ 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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The perils of complacency. . . .

. . . in the age of quants and the madness of machines

Daily Reckoning/James Ricards/5-19-2017

“In recent decades, mainstream economists insisted that markets are highly efficient, and do a near perfect job of digesting available information and correctly pricing assets today to take account of future events based on that information. In fact, nothing could be further from the truth. Markets do offer valuable information to analysts, but they are far from efficient. Markets can be rational or irrational. Markets can be volatile, irrationally exuberant, or in a complete state of panic depending upon the emotions of investors, herd behavior, and the specific array of preferences when a new shock emerges.”

MK note:  I might add that the volatility, irrationality, potential panic and the rest when applied to the markets extends beyond humanity itself to machine-driven algos as well – hence the madness of machines, as I have called it past writings.  We should keep in mind that computer driven trading models mimic human behavior by design.  As a result, the bad behviour necessarily comes with the good.  Computer driven trading is an extension of human psychology, not set aside from it.  After all, the goal in the end is get ahead of the competition, a decidedly human endeavor.

This morning’s Wall Street Journal features an article on algo/quant trading platforms.  In it, the authors bemoan the lockstep trading of the various quant funds and their potential to exacerbate a trend.  The lemmings in short can take the market higher; they can also take it over a cliff.

Quants today comprise 29% of stock market trading volume – a percentage large enough to dictate momentum in either direction depending upon if they are buying or selling.  I agree with James Rickards.  There is a peril in being complacent and thinking that all of this will end well, or that because the trading is dominated by algos and quant platforms that somehow the markets have suddenly become immune to the history of panics, mania, crashes and collapses that frequent economic history.  That quant is every bit as human in the way it acts and reacts as the programmers that gave it cyber-life.

The best way to guard against the power of quants moving against you and your portfolio is to own gold and silver.  The lemming with the parachute owns precious metals.

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Dow drops 250 points, S&P and Nasdaq fall 1% as Trump worries send shivers down Wall Street

CNBC/Fred Imbert/5-17-2017

“This is clearly Washington-driven,” said Michael Shaoul, chairman and CEO of Marketfield Asset Management. “It’s a lot like 1998-99, when the market had to deal with the [Monica] Lewinsky scandal.”

MK note:  Unravelling euphoria + deflating bubble = Gold up $15.

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Of inflationists and swamp creatures. . . . .

“This crowd couldn’t sell gold bars to inflationists.”  – Today’s lead Wall Street Journal editorial with reference to the Trump administration’s handling of Comey’s termination

MK note:  Though the Wall Street Journal confuses use of the term “inflationist,” the point is well-taken.  It is not the perpetrator of inflation (the inflationist) who seeks the safety of gold in most cases.  It is the victims, i.e. ordinary citizens. I say “in most cases” because there is one notable instance of an inflationist taking refuge in the metal. He was one of the most infamous perpetrators of them all, John Law, who in 1720 was ultimately caught in escape mode at the French border with a wagon load of gold and silver booty he had accumulated against the currency hyperinflation he had created.

History aside, as a firm that has placed millions in gold coins and bars over the years with investors hedging an assortment of potential disasters, we can say with confidence that USAGOLD can and does sell gold to “inflationists” under the WSJ definition. . . . . and plenty of it.  If anything, the level of confusion, angst and partisan politics on the loose in Washington DC these days only adds another good reason for the rest of us to own gold.  The swamp, in short, requires hedging.  I am not surprised to see gold moving back to the upside under the current circumstances.  As noted yesterday, the euphoria bubble is in the process of being deflated by events.

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Gold vs. Trumponomics

The Alchemist/Dr. Jonathan Butler, Mitsubishi/5-10-2017

“After the dollar and stock market euphoria of late 2016 and early 2017, there are already signs that the Trump reflation trade may be more an expression of hopeful sentiment rather than a new paradigm of actual higher economic growth and inflation. Treasury yields, the dollar, equity valuations and inflation expectations are all reversing their previous gains, to the benefit of gold. Though it remains too early to say with any certainty, bullion may even end up benefiting further from the Trump administration’s changes to the regulatory environment and the promotion of US manufacturing. As Trumponomics, in whatever form it ultimately takes, brings a new set of political, economic and trade uncertainties over the coming four years, gold should have plenty of opportunities to shine as a safe-haven asset and portfolio diversifier.”

MK note:  Somehow this argument seems considerably more credible now than 24-hours ago.  The quote above leaves out another important argument made several times in this Alchemist article.  The Trump administration is likely to have a great deal of difficulty pushing its programs through Congress, a direct blow to the reflation trade.  Slowly, sentiment is beginning to turn from the post-election euphoria that has governed trading in financial markets since the November election.

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Gold’s transcendence in the fiat money era

Whenever I am concerned about gold’s price performance, I return to this chart and it restores my faith in the metal without reservations.  I could write many paragraphs about what I see here, but I think the chart speaks for itself. It explains at a glance why gold in the fiat money era, in which we are still firmly esconced, is a good thing to own.  Simply put, it transcends. . . . . . .During the gold standard era, the chart is a flatline.  The day the United States severed the dollar’s tie to gold, it registered a pulse.

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China has now become the biggest fear for markets

CNBC/Patti Domm/5-9-2017

“Stocks are at record highs, the VIX is at a 10-year low, and while investors are relieved the French presidency did not go to an anti-euro candidate, new risks are filling the void. Topping the list of market worries is China, which has been on the back burner for months now. Some weaker-than-expected data, however, has put a spotlight on the country’s economy.”

MK note:  Those wondering why gold didn’t stage one of its quick rebounds following the Fed meeting might want to throw the slowdown in China into the analysis. News of problems in the Chinese economy took on renewed concern almost immediately following the meeting.  Commodities took a hit, particularly copper and some of the other industrial metals, but that bled into the gold and silver markets as well. Simultaneously, however, reports surfaced of strong demand for gold from China.  So maybe the post-Fed-piling-on in the gold and silver markets lacks justification, and more importantly, depth given the fact that gold demand in China went in the opposite direction.

_____________

I’ve written extensively of the madness of machines and the large segment of trading governed by them, i.e., the primary influences in today’s financial markets.  You can either attempt to ascertain the madness and join the fun (while your luck holds out), or you can bet against it with a solid core portfolio position in gold and silver.  Diversification into something real and detached from the paper-based madness makes a great deal of sense.

All of which reminds me of an Ed Stein cartoon. . . . . . .Sometimes the algos simply do not get the reality quite right.

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Credit Suisse goes positive on gold

With the steady drizzle on gold’s parade, it’s nice to see something positive come out of one of the big international banks.  Credit Suisse is calling for gold to hit $1400 an ounce by the end of the year citing ––

a) “surprise” low real rates of return (something we’ve emphasized in past posts + articles),

b) “waning strength in the U.S. dollar” (which we have yet to see),

c) dovish monetary policy (which is commonly misinterpreted as hawkish) and

d) the “probability of a disruptive geopolitical event”

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Druckenmiller, Warsh – Interesting segues at the Sohn conference

Every year the hedge fund and money management elite gather at New York’s Lincoln Center for the Sohn Conference where they elaborate on their view of the markets and the economy.  They also provide insights as to what they are touting these days – a chance to talk their book to a room full of fellow traders.

This year, amidst the otherwise boring touts, a couple interesting tidbits surfaced that I thought worth passing along:

  1.  I did not know that Kevin Warsh, the youngest to ever take a seat at the Federal Reserve’s governors table, was the front runner to take over for Janet Yellen, but according to Forexlive’s Adam Button that is apparently the case.  Warsh is currently an advisor to the Trump administration.  Forexlive reports that Warsh took centerstage last Friday “with a savage assessment of the Fed.”  He believes the Fed should “engage in a fundamental rethink of strategy and how it thinks about the world.”  He says the so-called dot plot that nearly everyone on Wall Street uses to diagnose future Fed direction on rates has been wrong for nine years.  He also says the Fed can fix itself without the help of Congress and that there is considerable waste in its $2.5 billion budget.  All of that might fit in nicely with the mindset at the White House these days.
  2. Warsh also said that “he believes the market is dangerous when measures of risk appear to be so low,” as reported at Bloomberg. He is probably referring to the VIX, i.e. the Volatility Index which is just as subject to speculative pressure as anything else listed and traded on the commodity exchange.  One wonders if it can be viewed as a reliable indicator given those speculative pressures, but that might be precisely why so many believe it to be reliable.  The Wall Street Journal published a front page article on the VIX this morning citing the measure at the lowest level since just before the 2007-2008 financial crisis.  Some see that new low as a major positive while others see it as a contrary indicator.
  3. Stanley Druckenmiller in introducing Warsh at the conference said he sold his gold on election night then bought a bunch of it back after it corrected.

MK

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Today’s gold and silver sell-off

The FOMC meets Tuesday and Wednesday this week.  Today’s downside, in my view, is the standard sell-off that generally accompanies Fed meetings these days – irrespective of the expected meeting results.  From what I’ve read, this particular meeting will focus on the manner and method of reducing the Fed’s balance sheet and skirt the interest rate issue, though one never knows.

On the balance sheet issues, I’m still lingering on first base asking the basic question:  Why does the Fed need to reduce its balance sheet?  Why not simply leave things as is given the potential harm that reduction might have on the bond and stock markets, not to speak of the overall economy?  To me, it appears the Fed, for whatever reason, chooses to drive the streets in a truck full of nitro-glycerine.   It is the Fed’s choice to so so, but one wonders why.

Gold’s appeal will likely be enhanced by the market instability such considerations are likely to generate on a global basis.  Already we are seeing reports of major bond liquidations in Japan.  In doing so, it joins China in the on-going liquidations, and just as importantly, a reluctance to buy bonds at the weekly auctions.  Oddly enough, an absence of buyers of U.S. sovereign debt, should it occur, could ultimately lead to another round of quantitative easing, a process we called printing money in times past, and led to the huge balance sheet position the Fed now says it wants to liquidate.

And if all of that doesn’t confuse you, I don’t know what will.

MK

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