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Past few days a fractal event for the gold market. . . .

OPINION

by Michael J. Kosares

“In the absence of a credible monetary standard, we expect no escape from the treadmill of rising debt, both US and globally, that outpaces economic growth. Income inequality, wage stagnation, overvaluation of financial assets, and speculation instead of productive investment are likely to be prolonged under the current monetary regime. Whether or not policy makers take a proactive approach to address monetary reform, the fact remains that gold is massively underpriced in all paper currencies. It would be preferable if the necessary adjustments could occur without a repeat of a 2008-like financial crisis. We give this possibility a chance, albeit slim. In any event, we expect a significant repricing of gold higher during the current administration, either by design or because of market events. Whenever a repricing happens, we expect broad grassroots support for that outcome.” – John Hathaway, Tocqueville Funds
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The past few days illustrate an important event in the gold market that both beginning and accomplished investors should try to understand thoroughly. I say that because by such an understanding you will become a more educated, patient and successful gold owner.

On April 19th, over $3 billion in paper gold was sold in the London over-the-counter market dropping the gold price by $14 per ounce in a matter of minutes. Just as quickly, the cries of foul play rose among gold punditry across the internet. Just before the “hit,” gold was trading in the $1286 range. It plunged to $1272. Since this morning’s AM London Fix, gold has been in recovery mode and it is now trading again in the $1286 range. Except for those who took the drop as a buying opportunity, these events will be seen essentially as a sound and fury signifying nothing.  At the same time, quietly the notion of gold’s indestructibility has been reinforced – not so much with respect to its physical qualities, but with the place it occupies in the minds of investors across the globe. The recovery today in a certain sense is a fractal event in both amplitude and duration – a hint of a greater manifestation that might be coming down the road in the not too distant future.

More. . . . .

The gold price is determined in the futures markets, but the effects of that determination are in the physical market, i.e., the price for bullion, coins, jewellery, etc. Those who feel that the gold market price is controlled solely by forces within the paper market do not fully understand the constraints on paper imposed by physical supply and demand.

In a nutshell, if the paper market is successful in suppressing the price for too long and at too low a rate, the physical demand globally will eat up the physical supply and threaten the existence of the primary source of the metal – the mines. That is why top-level analysts like John Hathaway (Tocqueville Funds) often talk about the inevitability of one-off repricing events. As long as gold can be freely owned, the market at some point finds the real price of gold, reconciles the books and exposes the power of price manipulators for what it is – a temporary, staying action rather than a successful long-term program. It is the time period before that happens which presents the best buying opportunities – times like the present. The events of April 19th through today illustrate the point in a microcosm.

As it is, annual mine production has leveled out over the past several years and there has not been a major gold find anywhere in the world for decades. Meanwhile global demand for the physical metal has not only sustained itself in recent years, it has grown rapidly, and clearly at a rate that far exceeds the rate of growth in mine production. Just this past week, we have seen reports of renewed strong demand in China and India – two traditional powerhouses when it comes to physical ownership of the precious metals. Generally speaking, the East buys on price while the West buys on momentum, thus one might conclude that anecdotal evidence shows that the price has been “right” in recent months. This time around, as reported here previously, professional money managers have positioned themselves as buyers in concert with the East, something that happens only on occasion. The two together though are currently an imposing presence in the global gold marketplace.


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The only way the gap between mine production and physical demand can be made-up is from above-ground sources, or by trading paper to the extent that it masks the wide gap between physical demand and physical supply. At some point, the paper price will succumb to reality of shortages as it always does. Those short the metal will need to find it and deliver on the price promises made previously, a process that usually excites the price discovery mechanisms in the paper market. If the pressure exerted by the traders of gold paper were powerful enough to overcome these realities in the physical gold market, the price never would have traversed the enormous gap between $250 per ounce in 2000 and $1850 per ounce in 2011, and roughly $1300 per ounce at present.

So no matter how much we lament the impositions of paper traders, i.e., their corruptions of the market and restraints to the upside, gold’s opponents can only win the occasional battle; they will never win the war. As I have said before, the paper traders must equally curse the ever-present power wielded by physical buyers of the metal, and over the years, the true believers in the precious metals, have only viewed episodes of price suppression as buying opportunities.

Ultimately, the end result might be another unprecedented price explosion, as Mr. Hathaway suggests, when the impotence of the controls becomes apparent on a far larger scale than what occurred in the gold market over the past few days. At a time, as has been the case since 1971, when the production of fiat money rules the roost, gold’s natural inclination will always be to rise in price in terms of that currency. In fact, if that were not the case, it would be unnecessary for anyone to attempt controlling the price. That affinity to rise is only compounded in the end by attempts to restrict the natural price level.

USAGOLD –  Celebrating our 43rd year in the gold business and 20th on the world wide web

Posted in all posts, Author, MK |

Grab Your Pitchforks, America, Your 401(K) May Need Defending from Congress

WSJ/Jason Zweig/04-21-17

The lucky participants in one of the best retirement plans around are coming after yours with a meat cleaver.

In the early stages of negotiating tax reform, Congress is already considering whether to reduce the benefits of contributing to a 401(k) and similar retirement plans — even as U.S. representatives and senators bask in the safety of the pension system that taxpayers fully fund for federal employees.

Alongside several million U.S. government workers, members of Congress participate in the Federal Employees Retirement System, which wraps their current savings and future pensions in a cushion of comfort that most American workers can only dream of.

PG View: The war on saving continues . . .

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Credit Suisse sees $1400 gold by year end

KitcoNews/Allen Sykora/4-18-2017

“Credit Suisse said a global glut of debt suggests dovish future monetary policy by central bankers. Central banks collectively hold a greater percentage of sovereign debt than ever before, and sensitivity towards disrupting markets means that they likely will be cautious in pursuing policies that could disrupt the current low rate environment supporting the economic recovery.”

MK note:   The less-than-well-informed translate rising rates, and rising rates alone, as an indication of tight monetary policy, but the mere act of raising interest rates is not enough to accomplish that goal. Tight monetary policy translates to forcing interest rates above the inflation rate (or even the natural market rate on Treasuries), and neither Yellen nor Trump want that.

So it is that the professional investors are reading negative returns and the potential for inflation in our collective futures. They are buying gold and silver in response as reflected in rising ETF holdings.  Judging from volumes at USAGOLD over the past few days, private individual investors, like their professional counterparts,  are finally catching on.  It will not be long until reports begin to surface that the average investor has joined the new gold buyers club.

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Evidence of big ETF inflows in London

ETF Strategy/George Watson/4-11-2017

“Source has reported that its Source Physical Gold ETP (LON: SGLD) has recorded over $500m of net new assets year to date (5 April), as the gold price has risen 9% during the same period. According to the ETF issuer, the figures show investors are returning “aggressively” to gold. . .

ETF Securities also reported strong flows into gold, with its gold ETPs seeing a combined $42m of inflows in the week beginning 3 April. The largest of these is ETFS Physical Gold (LON: PHAU) which has AUM of $5.9bn and fees of 0.39%.”

MK note:  We have reported consistently over the past several weeks that while retail private investors seem to be either enamored with the stock market or in a quandary as to what they should do next, professional investors, for reasons of their own, are anteing-up decisively in this gold market.  My thinking is that professional investors, i.e., hedge funds, institutional investors, money managers, etc.,  know full well what the impact of Fed policy will be on the gold market (as outlined in my previous post and more extensively in the March issue of our News & Views newsletter). They also understand the growing market risks associated with the build-up of potentially implacable geopolitical tensions since the beginning of the year.  As shown in the chart immediately below, gold and silver, in fact, have already amply rewarded professional investors who have been in this market since January (as well as their equally astute counterparts among private investors).  At this writing, gold is up 10.5% on the year and silver is up a cool 15%.

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Posted in all posts, Author, MK |

Quick observation on gold being up sharply this morning

Many who offer up their analysis on the gold market will attribute today’s sharp rise to the geopolitical environment, which is fraught with danger to say the least and certainly a contributor.  But that’s not the whole of what is driving the gold market in recent days.  A second, and not-to-be-underplayed, factor is the prevailing and publicly well-cultivated policy of the Federal Reserve toward interest rates, up to and including Janet Yellen’s most recent comments.* The first provides momentum to the second – license.

* “Looking forward, I think the economy is going to continue to grow at a moderate pace.  Our job is going to be to try to set monetary policy to sustain what we have achieved.”  Janet Yellen as quoted in New York Times/4-10-2017

The markets will read “accommodation” in those words meaning the Fed will do what it can to make sure the interest rate tracks behind the inflation rate and creates a negative real rate of return on yield bearing assets.  That latter, a negative real rate of return, has underscored, driven and sustained  bull markets for gold in the past.

MK

Posted in all posts, Author, MK |

Week in Review (Video) – April 7, 2017

Posted in all posts, USAGOLD TV |

U.S. launches missiles into Syria

Fox News/4-6-2017

The United States launched dozens of cruise missiles at a Syrian airfield early Friday in response to a chemical weapons attack that killed dozens of civilians.

The Tomahawk missile strikes destroyed portions of Syrian President Bashar al-Assad’s military infrastructure. A U.S. official told Fox News has learned that the primary target was an airbase at Shayrat, located outside Homs.

About 60 U.S. Tomahawk missiles, fired from warships in the Mediterranean Sea, targeted an air base in retaliation for a chemical weapons attack that American officials believe Syrian government aircraft launched with a nerve agent, possibly sarin.

USAGOLD note:  Gold bolts higher. . . .$1261.00,  +9. ; DJIA, -80.00 (7:45pm-MT, 4/6/17)

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The Daily Market Report: Gold Consolidates, Awaiting Jobs Data and Trump/Xi Meeting


USAGOLD/Peter A. Grant/04-06-17

Gold continues to consolidate within the recent range, awaiting tomorrow’s jobs report and news of this weekend’s meeting at Mar-a-Lago between President Trump and China’s President Xi. Silver is consolidating at the high end of its range as well, still within striking distance of the high for the year — set in February — at 18.48.

The minutes of the last FOMC meeting, released late yesterday, were rather interesting:

The Fed acknowledged that the stock market was overvalued. According to the Fed, “Some participants viewed equity prices as quite high relative to standard valuation measures.” That’s couched FedSpeak for “bubble”.

While the Fed still seems to be on track for multiple rate hikes this year, whether there are two more or three more is still subject to some debate. Additionally, there was the first real hint of balance sheet normalization, although they only talked about talking about it:

Participants also generally agreed that the Committee should begin discussions at upcoming meetings about the economic conditions that could warrant changes in the existing policy of reinvesting proceeds from maturing Treasury securities and principal payments from agency debt and mortgage-backed securities, as well as how those changes would be implemented and communicated. — Minutes of January 31-February 1, 2017 FOMC meeting

The media latched on to this point, trumpeting that the Fed wants to start unwinding its massive $4.5 trillion balance sheet. At this point anyway, they haven’t agreed to anything other than future discussions about maybe winding down reinvestments. Balance sheet normalization is likely to be a long drawn-out process.

The NY Fed (they run the balance sheet) projects full reinvestment will continue through mid-2018, after that they will be phased out over the next year. Normalization of the balance sheet is expected to occur in late 2021.

The Federal Reserve’s securities holdings then decline until the portfolio reaches its normalized size in the fourth quarter of 2021. At that time, the domestic securities portfolio is estimated to be about $2.8 trillion, with a slightly higher concentration in Treasury securities than in agency MBS. — NY Fed

So, it looks like the plan is to only take the balance sheet down by about $1.5 trillion over the next four years to 2011/2012 levels and calling things “normalized”. However, we’re already overdue for a recession, which would likely change everything. Ah, the best laid plans . . .

There is also speculation that the Fed would likely slow rate hikes if they shifted focus to the balance sheet. Either way, whether by rate hikes or balance sheet unwinding, the recession risk is amplified as monetary policy is tightened.

Former Fed insider Danielle DiMartino Booth wonders if Trump appointments to the Fed might change things as well:

It’s just a hunch, but a less-threatened Fed could just as easily be expected to back down on shrinking the balance sheet. Given where the economy looks headed, newly empowered doves might even be inclined to grow the balance sheet anew. — Danielle DiMartino Booth.

Mentioning balance sheet unwinding may just be a bone tossed to the hawks. We’ll have to wait and see if there is further and more serious discussion at future meetings. For now though, uncertainty abounds and broaching the subject seems to have further muddied the guidance.

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

Hussman posts pension system tsunami warning

Stalling engines: The outlook for U.S. cconomic growth your long-term investment portfolio

Advisor Perspectives/John Hussman/4-3-2017

“I’ve detailed this dynamic extensively in the financial markets. Given present valuation extremes, the skateboard is so far ahead of the car that we expect S&P 500 annual nominal total returns to average just 0.6% over the coming 12-year period, even if underlying economic growth accelerates to historically normal rates. Combine that with depressed interest rates, where poor 10-12 year total returns are baked-in-the-cake, and our estimate of the prospective total return on a conventional portfolio mix of 60% stocks, 30% bonds, and 10% T-bills has never been lower.

Given that typical pension fund return assumptions are vastly above our current estimates, it follows that we expect a rather severe pension funding crisis in the coming years. If the resolution of the present valuation extremes is anything like what has followed other speculative peaks like 2000 and 2007, investors will likely face a substantially different (and better) menu of investment opportunities within a small number of years. Dry powder has considerable option value.”

MK note:  In this month’s edition of News & Views we talk about pension fund instability as a possible unforeseen negative “left field” event that could deliver the next systemic crisis to financial markets’ doorstep.  Mr. Hussman communicates that same concern along with additional concerns about the economy itself wherein he cites “challenging arithmetic already baked into the cake.”

WARNING!  Do not read the article linked above if you believe that the stock and bond markets are perpetually solid long-term investments without periods of regression, losses and stalled wealth building.  Do not read this article if you do not want your media-oiled assumptions about the markets and your portfolio challenged.

SOMETHING TO CONSIDER?  Given the returns Hussman forecasts, perhaps that portfolio mix cited above would be better-served with a 10%-30% diversification into gold and silver – the level USAGOLD recommends depending upon your level of concern.  If you are locked-into a government or corporate sponsored pension or retirement fund, you might want to consider a diversification on the personal side.

Posted in all posts, Author, MK |

News & Views now available to subscribers

April, 2017 edition

Short & Sweet – Some things you might have missed

Excerpt. . . .

BoA-ML says “long gold” in anticipation of manias, panics, crashes

Bank of America/ Merrill Lynch is warning its clients to prepare for manias, panics and crashes. “Normalization,” says Michael Hartness, the bank’s chief investment strategist, “from a 5,000-year low in rates, 70-year low in G7 fiscal stimulus, 35-year high in the US-German rate differential, an all-time high US stocks vs. [the rest of the world], a 75-year low in bank stocks is unlikely to be peaceful; long gold in anticipation of potential manias, panics, crashes.”

He goes on to say:

“The beneficiaries of rising inflation and rates are many. The long-run price relative of real assets (real estate, commodities, and collectibles) to financial assets (stocks and bonds) is at its lowest level since 1926. Bull markets in real assets have coincided with war and fiscal stimulus programs in 1940s, rise of inflation in 1960s and 1970s, and 9/11 & China accession to WTO in the early years of this century. Higher inflation and interest rates are consistent with real assets outperforming financial assets: since 1970, relative performance of real assets 83% correlated with inflation.”

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Related, in-depth reading:
BlackSwansYellowGold: How gold performs in periods of deflation, chronic disinflation, runaway stagflation and hyperinflation
Black swans: A chronology of panics, manias, crashes and collapses from 400 BC to present
“You say: ‘I did not think it would happen.’ Do you think there is anything that will not happen, when you know that it is possible to happen, when you see that it has already happened?” – Seneca, 62 AD at the time of Emperor Nero’s debasement of Roman coinage

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One of eleven entries.
To read the rest of the newsletter, we invite your subscription at no cost or obligation.

News & Views
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Michael J. Kosares, editor

 

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The Daily Market Report: Gold Retreats Into Range After Holding Resistance at 1263.87


USAGOLD/Peter A. Grant/04-05-17

Gold retreated into the range in early trading on Wednesday, weighed by a better than expected ADP jobs survey for March. Focus now shifts to this afternoon’s release of the minutes from the March FOMC meeting and Friday’s jobs report.

The perception is that, much like last month, the ADP beat presents some upside risk for nonfarm payrolls. It is worth noting however that the February ADP number was revised down to +245k, from +298k previously. Median NFP expectations are presently +205k.

The Fed minutes will give analysts another opportunity to speculate on the number of future rate hikes. Every word will be parsed as usual, but in reality a scant 25 bps is all that really hangs in the balance.

The resignation of Richmond Fed President Jeffrey Lacker is important because that post becomes another Fed position to be filled by appointment of President Trump. It is also worth noting that Lacker is only admitting to confirming information that Medley Global Advisors already had. “I crossed the line to confirming information that should have remained confidential,” Lacker said in a statement.

Fed Chair Yellen met with Medley in 2011 and 2012 and was evasive when asked about their internal investigation into the Medley leaks in 2015. “That is an allegation that I don’t believe has any basis in fact,” replied Yellen to a reporter’s question on the topic. That reporter, Pedro da Costa (now with BusinessInsider) still wants to know why met with Medley and what was said.

I find myself a tad curious as well. And this matter ties directly to alleged central bank transparency and credibility.

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The Daily Market Report: Gold Edges to 5-Week Highs


USAGOLD/Peter A. Grant/04-04-17

Gold extended to the upside in early trading, eking out a new 5-week high of 1261.25. This leaves the high for the year set in February at 1263.87 intact for now. The 200-day moving average is at 1257.70 today. A definitive breach and close above this whole area would be a rather bullish technical event.

Silver has already penetrated, and has been trading above its 200-day MA since last week. The February high at 18.48 must be cleared to trigger the next leg higher. With silver leading the charge so far this year, such a move has the potential to drag gold through its key resistance area.

As noted in a blog post earlier this morning, Egon von Greyerz of Matterhorn Asset Management went so far as to say, “$1,250 gold and $18 silver are absolute bargains and unlikely to ever be seen again.” I agree that the metals are a bargain, but I think we’d need to see gold above $1300 and silver above $19 before we really can consider $1250 and $18 in the rear-view-mirror.

The linked Barron’s article led me to another article from last week entitled, Gold: 46 Trillion Reasons to Buy, where Trey Reik of Sprott Asset Management notes that household net worth is really overextended — by about 40% — relative to underlying GDP growth.

We maintain high confidence that the eroding quality of U.S. economic growth guarantees that U.S. financial asset prices will eventually reflect their true eroding intrinsic value, to gold’s significant benefit. Along the way, such as during the S&P 500 Index declines of 2000-2002 (50%) and 2007-2009 (57%), gold has provided unparalleled portfolio protection as over-exuberant faith in U.S. financial assets has been punished. — Trey Reik, Senior Portfolio Manager at Sprott Asset Management

The implication is that this situation has to be corrected; so he is anticipating that over-valued stocks, bonds and real estate markets will be “punished”. Gold would likely surge in such an environment on safe-haven buying. “[G]old’s role as productive portfolio diversifier is about to reassume center stage,” says Reik.

The second article points out that gold has historically proven to be excellent portfolio insurance. The first article tells us that insurance is cheap right now. Trying to buy flood insurance when the water is already rising is typically not a good idea.

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

Trump Steers into Global Economy Collision Course

Der Spiegel/Christian Reiermann/03-29-17

U.S. President Donald Trump is currently steering his country into economic isolation. Bodies like the IMF, the G-7 and the G-20 fear for the future of the global financial system. They want Germany to take on a stronger role in standing up to the Americans.

..The world has become an unsettled place since the new American president took office — not just for Lipton, but for the entire IMF. No, he told his hosts, rising prices for commodities aren’t the greatest risk for the global economy, and neither are financial or currency crises. The true threat is that of a “geopolitical recession,” the American told them. The reference is to political developments like Brexit, but even more to populist economic policies from the new U.S. government that call for the erection of trade barriers and could throw the global economy off track.

PG View: It is primarily the globalists that are “unsettled,” but the threats that are emerging to the systems that they have created over recent decades are very real.

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Should I buy a gold ETF?

Why gold coins and bullion are the better option for most investors.

by Olivier Garret/Gold Seek

Editor’s Note:  You decide that the time has come to include gold in your investment portfolio. You contact your investment advisor and he or she puts you into a gold ETF. Did you do the right thing? In this article, which originally appeared at Forbes magazine, Olivier Garret tells why gold coins and bullion owned outright are the better option.

Gold ETFs are rising in popularity due to their convenience. They’re easy to trade, there’s no need to store anything, and no one is going to break into your house to steal your GLD shares.

But there are a lot of hidden dangers inherent in the structure and operation of gold ETFs that few investors are aware of — and these risks are more pronounced than ever, as the threat of another financial crisis is always around the corner.

Considering the public’s waning trust in the banking system, many investors find themselves wondering how GLD stacks up to owning the real thing. When you look at both assets more closely, it’s clear that gold ETFs and gold bullion are very different investments.

Why GLD is not the same as gold

SPDR Gold Trust (GLD), the largest, most popular gold ETF, is an investment fund that holds physical gold to back its shares. The share price tracks the price of gold, and it trades like a stock, but the vast majority of investors don’t have a claim on the underlying gold.

The reason for this is that you can only request physical delivery of metal if you own a minimum of 100,000 GLD shares (most investors don’t: at $1,000 gold, 100,000 shares is more than a million dollars). Even if you do own enough shares, the GLD ETF reserves the right to settle your delivery request in cash.

So why is GLD appealing to investors if you never actually own any gold?

For one, the fund is both convenient and low cost. If you’re looking for an inexpensive way to invest in the direction of the gold price, GLD is ideal.

The other advantage is you can employ leverage with options, which can be risky, but it’s something you can’t do with gold bullion. If you’re an investor who doesn’t plan to take delivery and you’re comfortable with a higher degree of risk, GLD can be a good way to gain exposure to the price of gold.

Counterparty risk on all levels

While gold ETFs can be a fine investment, they come with a lot of counterparty risk inherent in their chain of custody. And this risk will only grow commensurately with systemic uncertainties.

Think about it: If you own GLD, you must rely on a counterparty to make good on your investment. If the fund’s management, structure, chain of custody, operational integrity, regulatory oversight, or delivery protocols break down, your investment is at risk.

It all raises too many questions. Can you be sure the bank doesn’t front-run its customers? How safe are the fund’s holdings? Is the fund protected by adequate insurance? Is the custodian bank trustworthy enough to safeguard the gold?

The best reason to own gold is as a hedge against risk. It can be your last line of defense in an economic crisis—a form of wealth insurance, if you will. But since gold ETFs are part of the very banking system you need protection from, you must ask yourself if they serve one of the primary purposes for owning gold.

In a period of financial crisis, the risks inherent in holding GLD would only rise. In fact, the frequency and severity of counterparty risks with gold ETFs are already rising.

When you consider how these ETFs function, the problem of counterparties quickly becomes apparent:

The custodian

When you invest in GLD, you buy shares through an Authorized Participant, which is usually a large financial institution responsible for obtaining the underlying assets necessary to create ETF shares.

When it does so, it is buying shares in the fund’s trustee, the SPDR Gold Trust. The trustee then uses a custodian (HSBC) to source and store the gold for it.

Trust in the custodian is paramount: If you’re buying gold as a hedge against a failure in the financial system, you must be confident that the custodian would not be impaired if a crisis were to happen.

As HSBC is one of the world’s largest banks, you simply don’t have that assurance. If there’s a systemic disruption, your GLD shares would likely be negatively affected.

The sub-custodian

Custodians like HSBC can use sub-custodians, such as another bank, to source and store gold. So in addition to the risk you assume with the fund’s primary custodian, you’re now exposed to even more risk because it has added another counterparty.

The trustee

There are no written contractual agreements between sub-custodians and the trustees or the custodians, which means if a sub-custodian drops the ball, the ability of the trustee or the custodian to take legal action is limited.

This leaves the trustee on the hook for any negligence. But trustees don’t insure the gold for gross negligence; they leave that to the custodian, who secures limited general insurance coverage for the contents of the vaults. The value of the gold in the vaults is likely to be much greater than this limited policy would cover.

What this all boils down to is that if anything happens to any of the counterparties, you’re the one who loses. And you have zero recourse.

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This article originally appeared at GoldSeek and is reprinted at USAGOLD with permission.

Posted in all posts, USAGOLD |

Pension Crisis Too Big for Markets to Ignore

Bloomberg/Danielle DiMartino Booth/03-24-17

Unfunded pension obligations have risen to $1.9 trillion from $292 billion since 2007.

Credit rating firms have begun downgrading states and municipalities whose pensions risk overwhelming their budgets. New Jersey and the cities of Chicago, Houston and Dallas are some of the issuers in the crosshairs. Morgan Stanley says municipal bond issuance is down this year in part because of borrowers are wary of running up new debts to effectively service pensions.

…It’s no coincidence that pensions’ flight from safety has coincided with the drop in interest rates. That said, unlike their private peers, public pensions discount their liabilities using the rate of returns they assume their overall portfolio will generate. In fiscal 2016, which ended June 30th, the average return for public pensions was somewhere in the neighborhood of 1.5 percent.

…So why not just flip the switch and require truth and honesty in public pension math? Too many cities and potentially states would buckle under the weight of more realistic assumed rates of return. By some estimates, unfunded liabilities would triple to upwards of $6 trillion if the prevailing yields on Treasuries were used. That would translate into much steeper funding requirements at a time when budgets are already severely constrained. Pockets of the country would face essential public service budgets being slashed to dangerous levels.

PG View: A 550% rise in unfunded pension obligations over the course of a decade is bad enough, but even that grossly understates the problem because of the pensions’ own pie-in-the-sky performance projections. They almost have to keep piling into stocks hoping against hope that they can do better than 1.5% returns. Thanks Fed! This is a train wreck just waiting to happen.

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The Daily Market Report: Gold Well Bid Heading Into Weekend


USAGOLD/Peter A. Grant/03-24-17

Gold is heading into the weekend trading slightly higher on the day and just off the three week high set yesterday at 1253.31. The yellow metal is presently up 1.8% on the week and appears poised for a second consecutive winning week.

Focus remains on Capitol Hill, where passage of the GOP’s healthcare bill remains very much in doubt. President Trump has reportedly asked for a vote today regardless, but I suspect Republican leadership is loath to risk such a defeat this early in the Trump administration.

However, even if they go back to the drawing-board to attempt more palatable legislation, it would suggest to markets — especially stocks — that the Trump agenda is probably way overbought. If stocks roll-over, gold will likely benefit from continued safe-haven flows.

“We should see some safe haven flows into gold if [Trump] can’t get it passed because it means all his other programs have a low probability of succeeding.” Societe Generale’s Robin Bhar

If the reflation trade is suspended, one has to wonder how the Fed will react. FedSpeak today continues to be rather optimistic, but I suspect they were actually hoping for a little fiscal help this year. If those hopes are diminished on the healthcare reform flop, the central bank may have to take a more dovish stance to ward off a stock market collapse and possibly even recession.

The Atlanta Fed’s GDPNow model now projects 1.0% growth in Q1. While that’s slightly better than the 0.9% forecast from March 16, it is hardly reflective of the “good clip” referenced by NY Fed President Dudley today.

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

UK parliament in lockdown after terror incident

FT/Jim Pickard, Helen Warrell & Caroline Binham/-3-22-17

Britain’s House of Commons was suspended on Wednesday afternoon after a shooting incident at the entrance to Parliament, soon after a car mowed down a number of pedestrians on adjoining Westminster Bridge.

The UK police said they were treating it as a terrorist incident until they know otherwise.

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China prepares to counter any U.S. trade penalties: sources

Reuters/Kevin Yao/03-20-17

China’s government has been seeking advice from its think-tanks and policy advisers on how to counter potential trade penalties from U.S. President Donald Trump, getting ready for the worst, even as they hope for business-like negotiations.

The policy advisers believe the Trump administration is most likely to impose higher tariffs on targeted sectors where China has a big surplus with the United States, such as steel and furniture, or on state-owned firms.film Patriots Day streaming

China could respond with actions such as finding alternative suppliers of agriculture products or machinery and manufactured goods, while cutting its exports of consumer staples such as mobile phones or laptops, they said.

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G-20 meeting was ‘disappointing’ and ‘disturbing’: Yale’s Stephen Roach

CNBC/Eunice Yoon & Aza Wee Sile/03-20-17

Former Morgan Stanley Asia Chairman Stephen Roach said Monday that the G-20 financial leaders’ dropping their traditionally strong support of free trade was “disturbing” and reflected rising protectionism in the U.S.Watch movie online The Transporter Refueled (2015)

“It’s pretty disappointing when you get finance ministers from leading countries in the world who, out of the blue, are unable to validate the commitment to anti-protectionism which is the underpinning globalization,” Roach, a senior fellow at Yale University’s Jackson Institute of Global Affairs, told CNBC from the China Development Forum in Beijing.

“That’s an obvious reflection of the shifts in the political winds in the United States and indicative of a U.S. economy that is backing away from multilateralism,” Roach said. “It was a disturbing meeting.”

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UK will trigger Article 50 Brexit process on March 29

FT/George Parker/03-20-17

Theresa May will trigger the two-year Article 50 EU exit process on March 29.

Tim Barrow, Britain’s EU ambassador, informed the office of Donald Tusk, EU Council president, on Monday morning that the formal letter would be submitted to Brussels next Wednesday.

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The Daily Market Report: Gold Poised for Solid Weekly Gain


USAGOLD/Peter A. Grant/03-17-17

Gold remains firm, poised for its first positive weekly close in three-weeks. The yellow metal rebounded smartly on Wednesday after the Fed announced policy and economic projections, extended higher yesterday and is maintaining the bulk of those gains today.

Minneapolis Fed dove Kashkari reiterated why he dissented on this week’s rate hike, noting that inflation remains below the Fed’s target and that slack in the labor market remains. He also said the Fed should come up with a plan to start reducing the balance sheet before raising rates further.

“I dissented because the key data I look at to assess how close we are to meeting our dual mandate goals haven’t changed much at all since our prior meeting,” said Kashkari. However, the FOMC statement specifically cited “realized and expected” inflation as a reason for the rate hike.

While the University of Michigan sentiment index (prelim) rebounded to 97.6 in February, the inflation expectations component tumbled to a record low! “[R]eal people’s expectations of inflation in the medium-term has collapsed to its lowest on record,” noted ZeroHedge.

In the latest massive setback for the Federal Reserve, which is desperate to break the recent “deflationary mindset” to have gripped the US population (see Japan for the results), long term inflation expectations declined to the lowest level since 1980: an annual rate of 2.2% was expected in the next five years, down from 2.5% last month and 2.3% in December. Just 6% expected long term deflation. These lows were supported by the fewest complaints of rising prices eroding their living standards—just 6%, the lowest since 2002 and barely above the all-time low of 4%. — ZeroHedge

That all seems a little incongruous to me. If the UM inflation data are to be believed, the risk of inflation is probably a lot smaller than the Fed would have you believe. So why is the Fed raising rates on alleged inflation concerns?film Hush 2016

Read the FT article I posted earlier this morning entitled A blind spot masks the danger signs in finance. The gist is that in keeping rates so low, policymakers were perpetuating economic gloom and a “deflationary mindset.” In raising rates, they are perhaps trying to inspire some optimism and inflation. Think of it as some monetary policy jujitsu . . .

Either that, or there is a legitimate concern that inflation is brewing and may explode onto the scene at any moment. One explanation for how that might happen was proffered by our own Mike Kosares in the March newsletter. If you haven’t read his piece yet, I encourage you to do so:

Will banks’ excess reserves fuel a new monetary crisis? Don’t look now but inflation and a new gold rush might be in our future

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

King Ibn Saud’s 35,000 British sovereigns

Reading that story about the sovereigns in the piano this morning reminded me of the story of Saudi Arabia’s King Ibn Saud reproduced below as originally posted in 2015:

When Saudi Arabia’s King Ibn Saud sold oil concessions to the major oil companies in 1933, he demanded a payment of 35,000 British sovereigns — a coin many of you hold in your own sovereign wealth funds. The good king understood the difference between the value of gold and the value of a paper promise.

At the time, British sovereigns were valued at $8.24 each, or $288,365 for the 35,000 coin lot. The price of oil in 1933 was about 85¢ a barrel. A British sovereign, as a result, could buy about ten barrels of oil. Today those same sovereigns would bring a little less than $9 million at melt value ($256.50 each/$1090 per ounce gold price) and a barrel of oil is selling for about $44. Thus, a British sovereign can buy almost six barrels of oil — a statistic that gives you an inkling of gold’s current under-valuation. For gold to buy the same amount of oil now that it did in 1933, the price would have to go to $1880 per ounce.

MK 2017 note: Prices have changed but the point remains.  Gold is undervalued at current prices when weighed against the price of oil – even at the current reduced price ranges.


History buffs will appreciate this additional quote and comment from the September 2000 edition of News & Views:

“The only remaining problem was how to obtain that much gold. Because America had just gone off the gold standard, Socal’s efforts to dispatch the gold directly from the United States were turned down by Assistant Secretary of the Treasury Dean Acheson. But finally, the Guaranty Trust’s London office, acting on behalf of Socal, obtained thirty-five thousand sovereigns from the Royal Mint, and they were transported on a ship belonging to the P&O line. Care had been taken that all the coins bore the likeness of a male English monarch, and not Queen Victoria, which it was feared, would have devalued them in the male-dominated society of Saudi Arabia.” – Daniel Yergin, “The Prize”, on the signing of the first oil exploration concession with Saudi Arabia in 1933

The good King Ibn Saud, back in 1933, demanded 35,000 gold British Sovereigns in payment for oil exploration rights in his country. Had he known that he was sitting on a massive pool of oil that would make Saudi Arabia the most important piece of real estate in the world, he might have asked for more. Ibn Saud did however understand the ultimate value of a paper promise, hence the payment in hard, yellow metal. To this day, the Gulf (as it’s come to be known) becomes squeamish whenever it appears the Fed is printing too much paper currency.


Old British sovereigns, like the ones in the photo below, are a preferred acquisition among safe-haven gold IRA rollover investors. We now have a quality selection of George V sovereigns available at attractive bullion-related prices. We invite you to call the Trading Desk at 1-800-869-5115, extension #100 to learn more. British sovereigns were a guardian of wealth in 1933 and remain a guardian of wealth today.

Value+history+gold money = portfolio safety for the long run

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Authorities seek owner of gold stashed in piano

AP/3-16-2017

“British officials are trying to trace the owner of a trove of gold coins worth a ‘life-changing’ amount of money found stashed inside a piano. A coroner investigating the find on Thursday urged anyone with information to come forward. . . Anyone wanting to make a claim has until April 20, when coroner John Ellery will conclude his inquest.”

MK note:  This post is made in the public interest.

Ahem. . .

By the way, British sovereigns happen to be one of the most sought-after, accumulated and stored pre-1933 gold coins in the world.  We sell many thousands of this item annually.  Some go into safe deposit boxes.  Some get buried out on the property.  Some get stashed in the piano.  All are kept in the event of a social, political or financial breakdown, or some other unexpected catastrophe against all of which the gold British sovereign has been a direct hedge for centuries.

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“Accommodative”

Though not a new word to describe Fed policy intentions, using it in today’s statement in the context of obviously rising inflation and inflationary expectations is a new policy stance – one very favorable for gold and likely the Trump administration as well. It seems that the Fed is willing to chase the inflation rate rather than trump it (forgive the allusion), and as long as that’s the case, the markets will read inflation into the economic script for the future.

I think some were expecting “accommodative” to disappear from the Fed-speak particularly after Yellen’s speech earlier this month when she said the central bank is likely to pursue “a neutral” rates policy.  “A ‘neutral’ policy stance,” said Yellen pre-meeting,” is one where monetary policy neither has its foot on the brake nor is pressing down on the accelerator.”  Post-meeting, the word “accommodative” was still there though – like a bright and shiny gold coin sitting on the sidewalk waiting to be pocketed.  It was.  Gold and silver shot higher and so did stocks and even bonds.

All of this blends nicely with themes raised in our March newsletter:Watch movie online The Transporter Refueled (2015)

Will banks’ excess reserves fuel a new monetary crisis?
Don’t look now but inflation and a new gold rush might be in our future.
 

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“The West has been selling gold into a black hole. . . .”

Solving the secret behind the Chinese gold market

Epoch Times/Valentin Scmid/3-13-2017

“Here, Jansen points out a peculiarity regarding Asian buying: ‘Asian demand is strong when the price goes down. Western demand is strong when the price goes up. In April 2013, the gold price collapsed and a lot of gold was exported from the West to China, mostly from the U.K.’”

MK note:  The quote in the headline is from Koos Jansen, the Dutch researcher/expert on Chinese gold demand. It sums up the end result of the London-Zurich-Hong Kong-Shanghai gold pipeline which has been in operation for a number of years.  Most of the experts believe the black hole is likely to remain functional as long as the West can unearth or pry loose hard metal to feed it.  For those who are just now learning the dynamics of the gold market, this article deals with a key piece to the puzzle – China’s enduring interest in the yellow metal.  China, Jansen points out, doesn’t allow even one ounce of gold and silver to leave its shores once it enters.

Watch movie online The Transporter Refueled (2015)

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Morning Snapshot: Gold consolidates, awaiting Fed policy decision

USAGOLD/Peter A. Grant/03-15-17

Gold is consolidating around $1200 ahead of this afternoon’s Fed decision. A 25 bps rate hike is baked in the cake. Focus will be on the policy statement verbiage, the economic projections, forward guidance and what Chair Yellen has to say.

CPI accelerated in February to a 2.7% annualized pace, versus 2.5% in January. Again, given persistently tepid growth, inflation is likely the primary motivator for tighter policy.Watch movie online The Transporter Refueled (2015)

If hotter inflation is in the offing, gold should do well. However, if the Fed is going to keep hiking to keep inflation in check, they will sacrifice growth in the process.

Retail sales rose just 0.1% in Feb, which was in line with expectations. The strength seen in January was not perpetuated. The Empire State index and the NAHB Housing Market Index both beat expectations.

The Fed policy statement is out at 2:00ET. The economic projections and Yellen’s presser follow.

Posted in all posts, Gold News, Gold Views, Snapshot |

This is the most overvalued stock market on record – even worse than 1929

Marketwatch – Mar 13, 2017 – by Bret Arends

“Presently, we observe the broadest market valuation extreme in history,” writes the chairman of the cautious Hussman Funds investment group, “with the steepest median valuations on record, and the most reliable capitalization-weighted measures within a few percent of their 2000 peaks.”

On top of such warning signs as “extreme valuations, bullish sentiment, and consumer confidence,” he adds, “market action has deteriorated in interest-sensitive sectors… As of Friday, more than one-third of stocks are already below their 200-day moving averages.”

Don’t be fooled by the booming headline indexes. More NYSE stocks hit new 52-week lows last week than new 52-week highs, he notes.

In a nutshell: Run.

According to the World Bank, the total U.S. stock market is now valued at more than 150% of annual gross domestic product. That is way above historic norms, and about the same as it was at the market extreme of 2000.

According to Yale finance professor Robert Shiller, the S&P 500 SPX, +0.04% now trades on a cyclically adjusted price-to-earnings ratio of 30, compared to a historic fair value for this measure of about 16.

[Link]

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Crash guru warns the Dow could plunge to 14,800 – and today’s a date to watch

Marketwatch – March 13, 2017 – by Barbara Kollmeyer

And he’s extremely concerned about what this year could bring for investors. “The timeline is rapidly approaching” for the next potential Dow meltdown, said Jadeja, who shares his techniques via workshops and seminars. Timelines are at the heart of his predictions, which he bases on repeating cycles in the market that are connected to specific times.

And here’s the crux of Jadeja’s concerns: If the rally inspired by last year’s presidential election continues, the Dow industrials could hit that 22,000 level — but if it fails, the pullback could be steep, or even steeper, based on history.

One level down would take the DJIA to 18,600, while moving two full levels lower would bring it to the aforementioned 14,800 level.

“If the Dow Jones reaches 22,000, then there’s a strong opportunity for it to fall back,” Jadeja said. “It’s nothing to do with trend lines or channels. These green lines are based on units of time and move forward step by step.”

There’s just one more reason why Jadeja is so uneasy about this year, and into 2018. Stocks are in the midst of a seven-year cycle that only comes around every 84 years, according to the chartist. (Check out that 84-year chart here on Business Insider) . The current cycle stretches back to 2011 and ends in 2018 — and that’s why he’s more convinced than ever that stocks could be in for a bumpy ride.

“The first concern is that every time the market has gone into a blue time window it has gone down. Now we’re in even bigger time windows, the 84-year cycle …,” he said.

“My concern is that because we’re in that big time window and the Dow is reaching for the upper green line, those two things together are like fireworks about to go off,” he said.

[Source]

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SEC rejects bitcoin ETF in blow to digital currency

FT/Adam Samson/03-10-17

US securities regulators late on Friday rejected an application that would have let the Winklevoss twins list an exchange-traded fund that tracks bitcoin, marking a blow to the digital currency.

Bitcoin tumbled by 12.3 per cent to $1,069 following the news from the SEC. It had hit an all-time high of $1,277.7 on Monday.

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Week in Review (Video) – March 11, 2017

Headlines we just have to talk about: Gold Executives Say Good Assets Are ‘Hard to Come By’ – Bloomberg

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