Category: MK

Trump is waving adios to the longstanding ‘strong dollar policy’

by Michael J. Kosares


Marketwatch/William Watts/1-18-2016

“Douglas Borthwick, managing director of Chapdelaine Foreign Exchange, argued in a note earlier this month that an incoming Trump administration, by throwing out the strong dollar policy, could use the currency as a linchpin in implementing its economic agenda: ‘With a removal of the Strong USD Policy, the US Dollar will weaken against its global counterparts. This will give the FED the ability to normalize US interest rates, as they can use the weaker USD and the resulting inflation as an excuse for raising rates. . .'”

MK note:  We have come to an interesting crossroads for the gold market. Yesterday, vice-president elect Pence told Fox News that we now have a president who understands business and that a strong dollar hurts our exports.  He made the inference that Trump would likely comment on the dollar regularly as president, something past presidents traditionally have shied away from doing.

Markets, as most of us know, move on sentiment as much as they do hard realities. Thus someone the stature of the U.S. president talking down the dollar is very important to market psychology – not just for gold but all markets.  The Trump administration’s position has already had an effect on the gold market.  Though gold has reacted rather modestly to Janet Yellen’s announcement two days ago of more interest rate hikes this year, it is nothing when compared to the waterfall drops following past announcements on the subject of higher rates.

Things have changed. . . . . .

MK note 2:  As for the Fed using weak dollar sentiment as cover to boost rates, such increases are likely to stay behind the inflation curve.  The quickest way to undermine, and in fact eliminate, a weak dollar policy would be to put rates high enough to create a positive real rate of return on dollar-based financial instruments.   Real interest rates is what real money managers watch in terms of positioning their clients’ portfolios.  I think, too, the Fed understands that such a policy would undermine the Trump administration’s economic program.  The fact of the matter is that it would also undermine the Fed’s attempt to “normalize” interest rates.

Below are charts covering the historical real rate of return on gold and the dollar.  With respect to the real of return, gold has done spectacularly well over the past decade and a half and probably a key reason why gold investment demand has continued to grow over the past several years despite the lower price.

Now the question becomes:
Has the Trump administration inadvertently conferred its blessing on the gold market?

Real rate of return on One Year Treasury, 1970 to present

Chart note: The extensions in the financial instruments’ bars above the CPI represent a positive real rate of return. When the CPI extends above the financial instrument, it represents a negative real rate of return.  As you can see, at times gold’s real rate of return has been spectacular, as mentioned in the text above.

Real rate of return on gold. 1970 to present

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Posted in all posts, Author, MK |

Gold in five easy lessons

by Michael J. Kosares

1. Don’t buy it because you need to make money; buy it because you need to protect the money you already have.

2. Don’t look at price as a barrier; look at it as an incentive.

3. Don’t buy its paper pretenders; buy the real thing in the form of coins and bullion.

4. Don’t fall prey to glitzy TV ads; do your due diligence instead.

5. Don’t allow naysayers to divert your interest; allow yourself the right to protect your interests as you see fit.

Mr. Kosares is the author of The ABCs of Gold Investing – How To Protect and Build Your Wealth with Gold, the widely-read introduction to gold ownership.

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Stock are getting crushed by gold in 2017

MarketWatch/Mark DeCambre/1-12-2017

“Perhaps one of the clearest signs that a rally inspired by President-elect Donald Trump is starting to stall is shiny and yellow and is outperforming other assets by a healthy margin.”

MK note:  Much of the gain thus far has been the result, in my opinion, of short covering, thus the direct effect on the price as determined on the COMEX and in the London over-the-counter market.  Meanwhile, demand is building again in both the West and East.  China is trying to contain imports but all that has done is to attach a high premium to the gold that is coming into the country.  Over the past several days, the steadily rising price in the West has carried over to the East during overnight trading hours – a sign that demand has been strong at the Shanghai Fix.  Shanghai demand is actual, physical demand as explained in detail here.  In the United States, as reported here a couple of days ago, demand as reflected in U.S. Mint bullion coin sales (a bellwether for the overall market) is strong.

Gold is up 4.5% thus far this year and 6.6% from the $1128 December bottom (12/15/16).

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The economic risk of ignoring arithmetic

Advisor Perspectives/John Hussman-Hussman Funds/1-9-2017

For now, the stock market is now much like Wile E. Coyote temporarily hovering just past the edge of a cliff. The moment of descent isn’t clear, but I believe it would be a mistake to climb onto his shoulders.

MK note: Hussman says the markets are fully confined within another episode of speculative madness similar to past episodes of the same.  It will likely produce the same destructive results.  “As we enter 2017, the great risk for investors,” he says, “is not in missing out in an exhausted run that already rivals the 1929 and 2000 extremes, but in failing to contemplate a 50-60% market retreat over the completion of the current cycle.” I thought the metaphor he employs above particularly apt.

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Black magic fraud to be exposed in 2017 – Gold up 300x

Matterhorn Asset Management/Egon von Greyerz/1-9-2017

“So stocks and bonds have been a terrific investment. But what about the barbarous relic called gold. This is the investment that most people don’t understand and that banks and investment advisors avoid at any cost. Well this most hated investment has gone up 30 X in value between 1971 and today. And remember as opposed to the stock market, gold is far from the high which was $1,920 in 2011. At that point gold had multiplied 55 X. Since 1999, the Dow is down 62% against gold. Very few investors and no investment advisors know this. Nor do they realise that stock markets are in a long term secular downtrend against gold. This trend will not stop until stocks fall by another 90% against gold in the next few years. That will take the Dow/Gold ratio down to 1 to 1 where it was in 1980.

But more importantly, before the next gold bull market is over, gold will be up over 300 times since 1971, in today’s money. That will give a gold price of $10,000+ and a lot more in hyperinflationary money.”

MK note:  Some will blanch at the prospect of $10,000 gold, even think it farfetched, but it is that word “hyperinflationary” that drives the big number von Greyerz attaches to a troy ounce of gold.  One wonders how many in post-World War I Germany would have believed that a precious metal selling for about 87 marks per ounce in 1918, would sell five years later for over 118 billion marks per ounce.  But it did.  The investor who thought that he beat the system sufficiently and cashed-out of gold at 10,000 marks per ounce would have seen that money evaporate overnight under the harsh effects of the hyperinflation.  Greyerz’ number might seem far-fetched, but not in a pricing framework when you are paying $50 for a coffee at Starbucks and $10,000 for a new suit at Jos. A Banks.

Here’s a graph we put together for our Gold Chartography 101 page on the gold’s performance during the Weimar Inflation in Germany.  The numbers in left axis are not a misprint.

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Some initial thoughts on the new ghosts of inflation past

In order to fully understand the origins of the ghostly inflation apparition now haunting the financial markets, we need to go back to Alan Greenspan’s chairmanship of the Fed and the effects of globalization on prices.  Let me post a quote from the economist James Galbraith from his book The Predator State chosen because it makes the point quickly and clearly and without a lot of unnecessary verbiage.

“After eighteen years at the helm of the Federal Reserve, during which time Greenspan was amply praised for keeping inflation under control, in retirement he writes that his accomplishment was not his doing.  Rather he benefited from the collapse of the Soviet Union and the rise of China.  And Greenspan is right.  The collapse of the Soviet Union dumped huge supplies of industrial materials and of fuel – oil and natural gas – onto world markets, which depressed commodity prices.  The rise of China, for its part, created a labor reserve at low dollar wages, against which no other low-skilled labor pool could effectively compete.  With global commodity prices held down by one phenomenon and global labor costs by the other, global inflation was doomed.”

Greenspan himself mentioned his good fortune in this respect in Congressional testimony and various writings after his tenure at the Federal Reserve.

Now with the president-elect promising to introduce measures to essentially de-globalize the U.S. economy through various import restrictions, we could get an equal and opposite reaction. To what degree, remains to be determined though Ford’s decision to locate a manufacturing plant originally planned for Mexico in Michigan instead is an early and important example of what could become a wider trend.  Keep in mind, too, that we do not know how this situation will affect the huge pool of money (quantitative easing) created during the post-crisis bailout of the banking industry.  In short, Mr. Trump, knowingly or not, is in the early stages of standing a 20-year economic paradigm on its head.  What forces it might unleash will be a huge X-factor in the weeks and months ahead.

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Gold zig-zag trading pattern UPDATED

With the New Year upside in gold looking pretty solid, we hearken back to a post made here December 10 featuring the following chart (with comments):

observationgoldtrading2016Click to enlarge

Here is what that chart looks like now with the December low in place at $1121/oz and the January turnaround – kicked off, I would guess, by aggressive short-covering, but likely now also driven by currency and longer-term inflation concerns. . . . .With gold currently trading in the vicinity of $1183, it is already up 5.5% from the December low.

We caution that just because gold has displayed a pattern in the past, it does not mean that same pattern or tendency will repeat itself in the future, so exercise due caution with this information.


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After all is said and done. . .

. . .and after everything’s been stacked and counted, here is the final tally for 2016 on the primary investment markets:

1. Crude Oil –– +31%
2. Silver –– +15.2%
3. Commodities –– +11.6%
4. Dow Jones Industrial Average –– +11.5%
5. Gold –– +8.7%
6. Home Values –– +6.5%
7. U.S. Dollar –– +3.6%

After a solid year of the financial media pumping up stocks and the dollar and talking down gold and silver, stocks did only marginally better than gold and worse than silver, and the dollar didn’t even come close.

(Data sources: Bloomberg Commodities Index, Zillow Home Value Index, U.S. Dollar Index, Brent Crude Oil, Dow Jones Industrial Average, Gold Spot Forex, Silver Spot Forex)


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Short & Sweet

Golden notable quotables for 12/29/2016. . .

“First, ‘record levels’ of anything are records for a reason. It is where the point where previous limits were reached. Therefore, when a ‘record level’ is reached, it is NOT THE BEGINNING, but rather an indication of the MATURITY of a cycle. While the media has focused on employment, record stock market levels, etc. as a sign of an ongoing economic recovery, history suggests caution.” – Lance Roberts, Real Investment Advice (Article: Records are records for a reason)

“During November, the UK (London) re-emerged as the main provider of gold to Switzerland, with the Swiss importing 48 tonnes of gold from London. This is the highest monthly gold import flow from the UK to Switzerland since last January. The second largest source of gold flowing into Switzerland during November was Hong Kong which provided 35 tonnes, with the UAE (Dubai) a distant third providing 16 tonnes, and the US sending  just under 12 tonnes to the Swiss.” – Bullion Star

MK note:  An old story. The ETFs are selling.  The Chinese are buying.  The gold is flowing East through the London–Switzerland–HongKong-Shanghai pipeline.  The Chinese buy gold when the dollar price is falling.

“President-elect Donald Trump’s pick for budget chief, Mick Mulvaney, has been an active investor in gold and gold-mining stocks, often seen as a hedge against collapsing currency.The South Carolina Republican congressman has accused the Federal Reserve of debasing the value of the greenback and has praised bitcoin, an alternative currency. He held between $50,000 and $100,000 in precious metals as of the end of 2015, filings show.” – Noah Buhayer/Bloomberg

“Since the rate hike, gold prices have already risen a bit. This trend is on track to continue in the coming year, for a variety of reasons. For one thing, many experts believe as Donald Trump takes office it will strengthen the gold market.His proposed policies are likely to raise the national debt and increase inflation, which historically leads to a rise in precious metal values. There has also been an influx of commodities investments from China, which have driven copper and zinc up in the last few months, and stand poised to do the same for gold.” – Trevor Gerszt, NewsMax Finance

“[G]old has been a better investment than equities in recent times. Since the turn of the millennium, gold has returned over 300%, while the S&P 500 has returned 55.09%. In addition, the MSCI EAFE index, which represents the performance of large-cap and mid-cap stocks across 21 countries consisting of countries in Europe, the Pacific and the Middle East, has lost 5.21% since the turn of the millennium. If anything, the potential slump in gold should be seen an opportunity to add more gold to your portfolio for the long-term.” – Sam Alcock, The London Economic (Article: Why the potential gold slump will be temporary, hence presenting a buying opportunity)

MK note:  The one thing about “potential slumps” is you don’t know when they are going to suddenly end – particularly in the gold market.

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Silver could be new gold; prices may rise 20% in 2017

Economic Times/12-27-2016

“Commodity experts and bullion traders feel that silver can trump gold in coming months as demand for the metal is increasing for solar panels and electronics sector. Demand for silver is increasing in the home décor and fashionable jewellery categories in the country which may push the price of the metal by almost 15-20% in 2017, feel the traders and analysts.”

MK note:  Silver is up 14.5% in 2016 even after the sharp year-end correction.  It has clearly outperformed gold which gained 7% this year as reported further down the page.  Silver investors, we know from direct experience working with our clientele, view silver as a safe-haven alternative to gold with the added bonus of stronger upside potential (Experience also tells us it also has stronger downside potential.) I should add that silver also outperformed the stock market in 2016.

Silver sales at USAGOLD have steadily and markedly climbed year over year the past few years and we suspect that sales will be strong at the start of 2017 due to the currently low price level at around $16 per ounce.  Last summer we experienced a strong increase in investor interest at the $16 to $18 price level.  Then prices jumped to near $21 before correcting into the end of the year.

One of the more interesting points made toward the end of the linked article is that silver demand in India is likely to increase due to investor concerns that the government there will continue its war against gold ownership, and could attempt to curtail or stop imports. That war, we feel, is doomed to failure.  India’s government is fighting thousands of years of  culturally ingrained, deep attachment to gold.  In the interim, however, practicality may carry the day and silver at some level would become, as the headline at the top suggests, the new gold in India.

If even a small amount of India’s massive gold interest were to migrate to silver, it could cause supply disruptions and premium increases here in the United States.  We have seen before the hair trigger relationship between ramped up physical demand and premium increases. The physical silver market globally in terms of availability is not nearly as deep and liquid as gold, and a heavy source of new demand could become problematic.   At the moment, premiums are higher toward the end of the year, but modestly so.

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Gold’s year in a nutshell

MK note:  If 2016 was such a bad year for gold (which is what the financial press has been telling us for three months now), how is it that through the third quarter, physical gold investment demand posted its fourth best year in the past decade? (Top chart)  How is it, too, that demand at the gold ETFs and mutual funds, a favorite measuring stick for the mainstream media, was up a solid 11 million ounces, or 15%+ on the year even after the strong third and fourth quarter draw downs?  (Bottom chart)

As of this posting, gold is up 7% on the year despite the late year sell-off.  The Dow Jones Industrial Average, amidst a media frenzy, is up 12.5%.

The 7% gain, assuming the market holds at this level,  along with the investment demand increase represents the rest of the story on gold’s year.  It wasn’t the best year on record, but, after all is said and done, it wasn’t all that bad either.  With yield instruments paying precious little, that 7% return looks pretty good from a wealth management point of view.

One final point:   Over the decade since the financial crisis began in 2007, the Dow is up 60%, and gold is up 78%.  As you can see from the chart, demand went to a whole new level post-crisis and stayed there. This year’s resurgence under comparatively benign economic circumstances is worth noting.


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In the end, trees don’t grow to the sky, and few things go to zero

“In the end, trees don’t grow to the sky, and few things go to zero. Rather, most phenomena turn out to be cyclical.”  ― Howard Marks, Oaktree Capital

These charts are dedicated to those who understand the wisdom imparted above. Marks’ observation resides at the philosophical core of the enlightened gold owner.  Why?  Because he or she understands the cyclical certainty (or is it uncertainty?) of markets and the economy, indeed the cyclical certainty in the grand scheme of things of which the investment markets are only a small part.

“A true cycle,” says historian Arthur Schlesinger, “is self-generating. It cannot be determined, short of catastrophe, by external events. Wars, depressions, inflations may heighten or complicate moods, but the cycle itself rolls on, self-contained, self-sufficient and autonomous. . .The roots of cyclical self sufficiency lies deep in the natural life of humanity. There is a cyclical pattern in organic nature — in the tides, in the seasons, in night and day, in the systole and diastole of the human heart.”

At no point along the historical continuum are we ever at an end, nor are we ever at a beginning, and all along the way the twists and turns of the cycle will be sudden and unpredictable. That, in a nutshell, is why people own gold.

So it is that we can see the systole and diastole of the gold and dollar markets in the top chart showing the first (OBVERSE) and second (REVERSE) halves of 2016, as well as in the longer term relationship shown in the second chart.

In the end, the enlightened gold owner might buy into the latest investment fad and run with the crowd, if he or she so chooses.  It is fundamentally better though to engage the madness of crowds with one’s safety net solidly in place.

I will leave you with a final observation from the famed investor, Bernard Baruch, one of the original Wall Street contrarians who made a fortune betting against the crowd.  In the late 1920s, he became a gold owner because he was “commencing to have doubts about the currency.”

“Have you ever seen in some wood,” he asks, “on a sunny quiet day, a cloud of flying midges — thousands of them — hovering, apparently motionless, in a sunbeam? …Yes? …Well, did you ever see the whole flight — each mite apparently preserving its distance from all others — suddenly move, say three feet, to one side or the other? Well, what made them do that? A breeze? I said a quiet day. But try to recall — did you ever see them move directly back again in the same unison? Well, what made them do that? Great human mass movements are slower of inception but much more effective.”

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Italy’s rebel economist hones plan to ditch the euro and restore the Medici florin

The Telegraph/Ambrose Pritchard-Evans/12-6-2016

“Europe has brought us a depression worse than 1929. It has led to entire peoples being broken and humiliated, like the Greeks, all for the sake of preserving the infernal instrument of the euro. This whole disaster has been adorned by a chain of lies, shouted ever louder because they are afraid that the colossal damage they have done will be discovered.”

–– Claudio Borghi, Catholic University of Milan

MK note:  With home-grown events over the past few months dominating Americans’ thinking, most of us have forgotten the developing problems in Europe.  These center mostly around the euro and the demanding economic matrix that goes with it.  Borghi reminds us of what is at stake in Europe.  Elements in Italy are pushing for a quick election as early as February, which no doubt will become a referendum on the euro.  Germany will also conduct an election in February and its role in a larger Europe will certainly be an issue, and Brussels just put the clamps on Greece’s bailout program to what end no one knows.  All of these events will engage nationalist sympathies and inclinations.  Europe is about to be tested.

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Why gold could bottom on or close to rate hike

Yahoo Finance/Matt Winkler/12-14-2016

“Oil has been on a tear, and gold may be next, especially once this week’s anticipated Federal Reserve rate hike is behind us.”

MK note:  Quietly, oil is up 27% since mid-November.

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Economist Harry Dent predicts ‘once in a lifetime’ market crash, says Dow could plunge 17,000 points

CNBC/Stephanie Landsman/12-10-16

“I think this is going to be a stock market peak of a lifetime followed by a crash very similar to the early 1930s. This happens once in a lifetime,” Dent Research Founder Harry Dent recently told CNBC’s “Futures Now.”

MK note:  “Impossible,” you say?  Think again.

In the period 1929 through 1932 the DJIA went from 380.33 at its height (Sept, 1929) to 42.84 at its low (July, 1932).  That calculates to a nearly 90% loss of value in stocks based on the average.  Never say “never.”

The chart below, courtesy of our friends at, illustrates both the depth of the loss and the length of time stocks remained mired in negative territory.  It took 25 years for the DJIA to return to the 1929 high (in late 1954).

With respect to gold ownership as a means to wealth preservation, the investor need consider first not just what one might gain from it, but what one might lose by remaining “all-in” the stock market (or bond market for that matter).  Second, one should consider that the need for gold rarely surfaces, until. . . .well, until it’s needed.  Attempting to become diversified after the fact is not nearly as effective as taking the proper steps before.  The period 2007-2011 is a good example of that tenet.  Last, note that the DJIA was in a rocket ship trajectory in 1929 – euphoria was running unchecked – then without warning the hammer fell.

Diversify. . .and let the financial winds carry us where they may.


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Gold trading pattern last four years

observationgoldtrading2016Click to enlarge

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Credit Suisse sees gold averaging $1,338/oz in 2017

SMM News/12-8-2016

“Looking ahead, Credit Suisse argues against the view of many pundits that U.S. President-elect Donald Trump’s fiscal policies are likely to hurt gold. The market has factored in an expectation that a mix of U.S. tax cuts, deregulation and infrastructure spending will boost the economy, pushing up real interest rates and strengthening the U.S. dollar. ‘We counter that trade protectionism and anti-immigration policies are negative for growth and positive for inflation,’ Credit Suisse said.”

MK note:   Since election day, the markets have reacted as if the Trump administration were likely to be a re-run of the Reagan years. “Stocks and the dollar,” reported Bloomberg recently, “have risen since the Nov. 8 presidential election on hopes that Trump’s advocacy of big tax cuts, increased defense spending and deregulation will usher in another period of prosperity. The coming change will be a ‘profound president-led ideological shift’ akin to Reagan’s, according to Bridgewater Associates founder Ray Dalio. Trump’s advisers and the billionaire himself have embraced the comparison.”

Though there are profound similarities between the two philosophically in terms of tax, defense and deregulation policy, the economic conditions Trump will face are the polar opposite of what Ronald Reagan faced in 1981. Investors, as a result, could be basing investment decisions on a false assumption.

When Reagan took office the United States was just coming off a disastrous encounter with runaway inflation.  If inflation was going to be tamed, the interest rate would have to be pushed to a level higher than the inflation rate, something then-Fed Chairman Paul Volcker in fact accomplished. It killed inflation, restored dollar strength and touched off a long-term stock market rally.

This time around, the United States is coming off a brush with a disinflationary crisis that still threatens to tumble into full-scale deflation.  Different medicine is required.  In fact, there have already been rumblings that the Fed will be very careful to keep the interest rate under the inflation rate for the foreseeable future. The goal is to ignite inflation – an outcome that by definition would undermine the purchasing power of the dollar.  How the markets will perform under such circumstances remains to be seen, but already some analysts are predicting a return to a 1970s-style stagflation – an environment that produced a bear market in stocks and bonds and a bull market in precious metals, quite the opposite of what markets are signaling at this point in time. (The bond market, thus far, stands alone among primary investment markets as reacting according to the historical script.)

Two different worlds – Reagan’s and Trump’s – and the incongruity of market expectations when measured against the historical record is telling. Eventually the financial markets will come down from the present euphoria and begin to consider what the odds-on economic reality will look like for 2017 and thereafter.  Credit Suisse may be on to something.

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China’s liquidity flood stirs memories of the Mongols and Mao

Financial Times/James Kynge/12-1-2016

“[Officials] fear that Chinese corporations and citizens will decide en masse that they would be better off taking their money abroad to buy companies or invest in gold, stocks or real estate. Such capital flight could sap the liquidity that is required to keep China’s bubble from popping.”

MK note:  China has “sent its printing presses into overdrive,” says Financial Times columnist James Kynge.  So what’s next?  Some interesting history and conjecture in this op-ed.

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Michael Lewis on socialism for Wall Street

CNBC/Michelle Fox/12-6-2016

MK note:  This is an interesting video clip – CNBC interviewing “The Big Short” author, the highly-respected Michael Lewis.   Lewis makes reference to the very same problem that Steven Hawking raised in his op-ed in The Guardian over the weekend, i.e., privatizing profits and socializing losses. Socialism for “elite Wall Street guys,” as Lewis calls it.  I am not sure that the Trump administration intends to roll back the Volcker Rule, a worry Lewis expresses in this interview.  In fact, Trump has talked about going the whole nine yards and re-introducing a modern version of Glass-Steagall which, until it was repealed in 1999, kept commercial banks from indulging in the kind of speculative activities that almost brought the house down in 2007-2009. Unless something has drastically changed, Glass-Steagall is the exact opposite of where Lewis thinks Trump stands.  Worth watching. Three minutes and you become a bit more well-informed.


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Investors push November Gold Eagle sales to strongest month of 2016 and second best over past three years


MK note:  We talk a lot about the disconnect between the paper pricing of gold and silver on the commodities exchanges and the demand for physical metal.  We just had another example of that in November.  As the price dropped, investors loaded up and they continue to load up – 2016’s best month and the second best over the last three years.  Premiums on gold and silver American Eagles are rising as we go into year end.  We just had another premium increase  on gold Eagles yesterday.

In addition, to the day-to-day problem of bullion coin pricing, there is an additional, even deeper, problem and that is the long-term viability of the mining industry with respect to production.  In a recent Financial Times article, Mark Bristow of the globally important Randgold mine operator, says that supply shortages are “inevitable unless some major discoveries of large, high grade ore bodies are suddenly made which frankly seems a remote possibility.”  He says, “for the first time in history, gold supply into the future is under enormous pressure.”  On top of the general decline in global production, there is another important factor with long term implications for new mine supply. Two of the largest producers, China (#1) and Russia (#3), nationalize their production in a purposeful attempt, like all gold owners, to diversify from paper currencies.

This is something for the long-term gold investor to seriously contemplate. It is not a small thing and is not something that is going to miraculously resolve itself at some turn down the road.  When you blend into the analysis, that the gaps between production and consumption need to somehow be made-up from above-ground sources, it adds even more question marks for bullion investors.  Central banks, an historical source of supply for decades, switched over to net buyers in 2010 and never looked back.

Someday the disconnect is going to resolve itself and when it does the old saying “he who owns the gold makes the rules” is going to ring truer than ever.

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Trump sold all of his stock holdings in June

CNBC/Jacob Pramuk/12-6-2016

“Donald Trump sold all of his stock holdings in June, a transition spokesman said Tuesday, potentially helping the president-elect avoid some conflicts of interest when he takes office in January.”

MK note:  Either that or he might have been worried about the bubble bursting. . . . . Can a president say that?

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All that is bearish is bullish! (Really.)

Barron’s/Ben Levisohn/12-5-2016

“[Apparently] the pattern of fading a potential crisis and then scrambling to cover and get long when everyone takes a breath and realizes that this time is not the apocalypse either still holds more than ever. I can’t justify any of this. The lesson investors and traders are getting is that everything is a buying opportunity and you need to not miss the boat. Brexit? Bullish. Trump winning the election? Bullish. Italy saying no to the referendum and the Prime Minister handing in his resignation? Bullish. Heck, all we need is a coup d’etat in India and the entire Belgian banking system to go kablooey and the S&P 500 will be at 3,000 by Christmas Eve.”

–– Michael Block, Rhino Trading

MK note:  Well, a coup d’etat in India might be a bit much, though the millions who have had their cash holdings unceremoniously and without warning demonetized by government mandate might think otherwise. . . . . . . The quote above came in too late to make our “Reflections on the Election”  newsletter yesterday.   It definitely would have made it and probably near the top of the page had I seen it before publication.  To express the same sentiment about gold, wherever in the above you see the word “Bullish” simply substitute the word “Bearish.”  And add to the conclusion “. . .and gold would be at $150 by Christmas Eve.” . . . . . . . We live in odd times getting odder by the day.

(FREE SUBSCRIPTION to News & Views.  We welcome your interest.)

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Bloomberg’s “Pessimist’s Guide to 2017”

Bloomberg/John Fraher, Flavia Krause-Jackson and Mira Rojanasakul/12-6-2016

“Donald Trump and Brexit shocked most of the world in 2016. But not readers of last year’s Bloomberg Pessimist’s Guide, which warned that the unthinkable could happen in both cases. Now the authors are turning their attention to 2017.”

blackswanMK note: The “Guide” offers a long list of reasons why you might want to make sure you at least have a respectable portion of your portfolio in precious metals.  I would have to go through it again, but I do not recall even a mention of the potential disintegration of Italy’s banking system.  All of which raises a point:  With everything the authors mentioned, there are any number of black swans circling the global economy any one of which could land unexpectedly.  At any rate, if you can plow your way through it, this presentation is bound to unnerve even the most hardened gold owner/veteran.  If that happens, give us a call.  We have the proper medicine and, at the moment, the price is right.

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China tightens gold import quotas to curb dollar flow

Financial Times/Henry Sanderson & Lucy Hornby/11-30-2016

“China has curbed gold imports in the wake of government attempts to clamp down on capital leaving the country, according to traders and bankers. Some banks with licences have recently had difficulty obtaining approval to import gold, they said — a move tied to China’s attempts to stop a weakening renminbi by tightening outflows of dollars, the banks added.”

MK note:

(1) Until we get hard numbers on what this means in terms of imports, these curbs are so much whistling in the wind with respect to overall demand.  We should not forget that China’s stated aim is to build its official sector reserves and the stock of gold among the Chinese people. The curbs might end up putting a temporary lid on the already high levels of demand, but, then again, it might also have no effect at all – a ham-handed attempt to stop a gold buying panic within China’s borders.

(2) The bigger story here is China’s attempt to keep capital from leaving the country – something it shares with a good many emerging countries at this juncture – and the direct effect it is having on the U.S. Treasuries market.  China is selling Treasuries to offset capital flight and a rapidly weakening yuan. Bloomberg is reporting today that global bonds are suffering their worst monthly meltdown ever with $1.7 trillion in capital evaporating from the international asset pool. [LINK]  That’s a major number and a major concern for the incoming Trump administration even as Wall Street parties-on like nothing unusual is going on.

(3) The scary part of this is that the Fed may have already lost control of interest rates.  China, Japan and Saudi Arabia, three of the largest holders of U.S. Treasury paper, are now net sellers of U.S. government paper.

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There will be a proper rally in the gold and silver markets . . .

Market Slant/SorenK/11-15-2016

Gold and Silver are as they were; a diversification of monetary risk. There will be a proper rally. It will be slow and orderly. We personally do not want volatility to the upside. Let it sleep and slowly climb without funds piling in it prematurely.

“Precious metals will enjoy the rally they are owed. Inflation is already here in all but name.”

MK note:  Every once in awhile you run into a piece of analysis that, well, just makes good common sense.  The linked above is one of them.  If you crave a post-election analysis that digs below the surface (and I haven’t seen much in the way of that so far), this is it.  It is billed as “a collaborative piece between several Traders and Bankers.”

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Why Donald Trump’s tenure will be good for gold

Economic Times/Chirag Mehta/11-26-2016

“Until we go past the rate hike in December, gold prices are likely to remain under pressure. Post the Fed rate hike, gold prices may come under bid as markets try to ascertain the extent of further rate hikes and realize that the Fed may stay behind the curve to keep real rates negative for a much longer time.”

MK note:  It’s the part about the Fed keeping real rates negative that resonates – politically and economically.  I think the Fed would be hard-pressed to get in the way of anything that produces even a whiff of real economic recovery.  Especially after all the discussion about the central banks having run out of ammunition over the past couple of years.

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Raising an eyebrow. . .

The most famous quote uttered in advance of the 2008 financial crash came from Citigroup’s CEO, Chuck Prince, and was reported in the July 9, 2007 edition of the Financial Times:

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

So, it is that I raised an eyebrow when I read the following quote in this morning’s Financial Times  from Blue Marble’s Vinny Catalano (under an opinion piece headlined Trump’s Bull Run):

“On a technical basis, the music is playing, there are no negative signals and people are dancing.  It’s career suicide if you are not in the market.

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A little perspective on the post-election gold market

by Michael J. Kosares


Most of gold’s downside is geared not to the financial decisions of millions of investors around the globe, as the mainstream media would have you believe, but rather to linear computer algorithms geared to the dollar index.  The trading part of the software has been told to automatically place trades at certain correlated price levels and that is why we get these waterfall drops.  The rocket launch trajectories to the upside come when the trading function is told to buy and cover the previous shorts.

In the chart above, we are showing the percentage change in the price of gold over the past year against the percentage change in the dollar index.  Our purpose is to provide a little perspective as to what is really going on in the gold market and to belay the interpretation that something has gone fundamentally wrong with gold.

Algos cannot peer around the corner.  There is no rationale for their function other than what its programmers have fed into the governing equation.  Thus, if the algo says sell gold when the dollar rises, it sells gold when the dollar rises.  It doesn’t stop to think that the dollar is rising in a milieu of crashing currencies globally and the potential consequences.  It doesn’t stop to consider that it will take months for the Trump administration to get a tangible, workable economic program through the Congress, and then months more for the program to have an effect on the overall economy.  Such critical thinking is left to the rest of us who are not tethered to computer trading programs.

(Along those lines, we are reminded that the computerized polling prior to the election was also algo-based, and you see where that got those who believed the polls to be reliable.  Surprise!  We missed something!)

So it is that buying opportunities are created in the gold market (and betting opportunities for those who like to gamble on elections). Some consider such opportunities a gift.  As you can see by the top chart, there is a cadence to the market action – upsides are followed by downsides, downsides followed by upsides.  When you zoom out and look at the dollar index chart from afar, here is what it looks like:


As you can see, even in a world of generally declining fiat money across the spectrum of currencies, the dollar is in a long-term downtrend and gold is in a long-term uptrend. The dollar appears to be enjoying a secular bear market rally and gold appears to be suffering a bull market correction. What that tells the longer-term gold owner about the today’s pricing in a nutshell is that gold might be a good buy at current prices. It’s all a matter of perspective. . . .that and the courage to act on one’s convictions even in the prototypical euphoric period just following a presidential election.

One further point, and once again a matter of perspective, we should all remember that gold is still up over 12% on the year and silver is still up over 18%.  That should not get lost in the shuffle.  Meanwhile, the Dow Jones Industrial Average, after all the hoopla of the last several days, is up by comparison only 9%.

Some comforting perspective for our fellow gold owners as we go into the Thanksgiving holiday weekend. . . .  Wishing all a warm and comfortable Thanksgiving.


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The markets are trading schizophrenically

MK Intro: I don’t know about you, but last week went by in a blur.  Here’s some perspective on it from an analyst who ranks as a favorite among institutional investors.  It makes for some well-grounded, weekend reading . . . .

James Bianco interview

Key quote:  “The Fed has lost control of rate hikes. The market is in control. If the market prices a rate hike in, it will happen. If the market prices it out, it won’t happen. The Fed follows the market.

Another key quote:  “The elite opinion does not count anymore. And because of that the pollsters had their models wrong. They had their models wrong with Brexit, they had their models wrong with this election and they had their models wrong with other elections as well.

MK comment:  Were the models also wrong for the algos that drove trading in all the markets last week?



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Ignoring the debt problem

New York Times/Paul A. Volcker and Peter G. Peterson/10-21-2016

“Take some advice from two observers who have been around for awhile:  The long term gets here before you know it.”

“Instead, we’d be dependent on foreign investors’ acquiring most of our debt — making the government dependent on the ‘kindness of strangers’ who may not be so kind as the I.O.U.s mount up. We can’t let that happen — not if we want an America that is able to provide growth and stability at home while maintaining global leadership. We would risk returning with a vengeance to stagflation — the ugly combination of inflation and economic stagnation that we tasted in the 1970s.”

MK note:  Volcker and Peterson highlight the same problem we noted last week, i.e., the U.S. relying upon the good graces of overseas investors for financing its national debt.  The graph accompanying that post is worth posting again.  The ‘kindness of strangers’ is already drying up.

The other major stress with the national debt is interest payments.  At current rates, that bill runs in the neighborhood of $450 billion per year. Military expenditures by comparison run about $600 billion per year.  Even if a growing economy allowed for interest rate increases, the Fed would need to be careful. A return to the historical norm of 6.63%, as we pointed out this past June, would put interest payments at $1.277 trillion – nearly 40% of revenue and double what the United States spends on the military.  The average now runs roughly 2.3%, according to the Treasury Department.


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