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Week in Review (Video) – January 20, 2017

Posted in all posts, USAGOLD TV |

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 |

Here’s how David Einhorn is trading the Donald Trump agenda

CNBC/Tae Kim/1-17-2016

“Long gold: ‘Our sense is that Mr. Trump doesn’t hold any core policy beliefs and is apt to change his mind as he sees fit. This will lead to more political and economy uncertainty,’ which is positive for gold, according to Einhorn.”

MK note: The “Long gold” is wedged-in among the ever-present list of stocks and sector plays. Einhorn is a long-time gold advocate owing to discussions he had with his grandfather when he was a youngster – discussions that stuck even after he became a fabled money manager.


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Gold up again sharply in overnight trade

Bloomberg/Thomas Seal and Ranjeetha Pakiam/1-17-2016

“As the inauguration of Trump draws close, I think people are realizing that potentially this could be a very stormy Presidency and gold may well benefit from that,” said David Govett, an analyst at Marex Spectron Group Ltd. in London. “There is new money at the beginning of each year looking for a home and a lot of this seems to find its way into gold.”

USAGOLD note: Trump calls US$ “too strong” in WSJ interview released late last night. Presidential advisor Scaramucci at Davos conference says “we must be careful of a rising dollar.” CNBC cites safe-haven buying on “hard Brexit.”  Gold is up 5.8% in 2017; 7.8% from December cyclical low ($1128).  It was up 8.7% in 2016.  See chart below for annual returns since 2001.

For more detailed information:  The Gold Owner’s Guide to 2017.

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Gold only safe asset against political central bank bashing

Bloomberg/Natasha Doff and Eddie Van Der Walt/1-12-2016

“Baring’s Mahon, who bought his exposure through ETFs, says that while 2017 is a watershed, his conviction on the politicization of central banks is one that will play out over several years, making gold a safe bet for the long term.”

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Gold up sharply overnight on hard Brexit concerns, pound sterling drop

Bloomberg/Svenja O’Donnell and Timothy Ross/1-15-2017

“Government officials expect sterling to take another hit when May sets out her vision for leaving the bloc in a speech on Tuesday, and the Treasury is preparing to speak to major banks in London to try to smooth the reaction, said the people, who declined to be named as the plans aren’t public. While Treasury officials often reach out to banks to explain policy, it’s unusual for the prime minister’s office to anticipate a bad market reaction, they said.”

USAGOLD note:  Gold upside originating in Asian trading as of this writing. China New Year physical demand also a factor.

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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.

Posted in all posts, MK |

Week in Review (Video) – January 13, 2017

Posted in all posts, USAGOLD TV |

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).

Posted in all posts, Author, MK |

Scotia Mocatta: Gold could benefit from asset rotation, value play

Metal Matters/Scotia Mocatta/January, 2017

“Although the prospects for higher interest rates, a stronger dollar and stronger growth (the latter should be good for equities), mean the opportunity costs of holding Gold are increasing, we do think a lot of the potential bullish outlook for growth has already been discounted by the strength of other markets. In addition, higher interest rates, bond yields and a pick – up in inflation run the risk of leading to a longer lasting correction in the  bond market.  As such,there may be some rotation out of bonds. Will investors park the money coming out of bonds in dollar denominated equities? Maybe not, given the already strong dollar and US equities. We would not be surprised if some moved into physical Gold since its prices have now corrected. Given the huge size of the global bond market, it would only take a fraction to rotate into the physical Gold market for it to have a big impact on demand for Gold.”

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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.

Posted in all posts, Author, MK |

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.

Posted in all posts, Author, MK |

National Debt: $19,952,808,638,850.59

Will the national debt hit $20T before Dow hits 20k?

Posted in all posts, Debt |

US Mint bullion coins surge in 2017 sales start

Coin News Net/1-9-2017

“U.S. Mint distributors spent a good deal of money buying just released 2017-dated American Eagle and Buffalo bullion coins. There was some pent-up demand with popular 2016-dated editions selling out in early December.

First-day sales of 2017 America Silver Eagles hit 3,747,500 coins, marking a 36% increase over the opening day total of 2,756,500 coins for last year’s release. The one-day tally is already higher than half of the monthly totals logged in 2016.

A combined 68,000 ounces in American Gold Eagles sold on Monday, up 13.3% from opening day sales in 2016 of 60,000 ounces.

MK note:  More direct evidence of physical demand. The lion’s share of gold and silver American Eagle bullion coin demand originates in the United States and is taken up by U.S.-based investors.

By the way, we should reiterate our warnings about purchasing bullion coins – proof or business strike – issued by grading services as perfect Proof or Mint State 70 and sold for very high mark-ups by various dealers.  Almost all the coins purchased from the Mint and submitted to the grading services would end up in the “69” or “70” categorization.  There is nothing special about this though it is endlessly promoted, particularly this time of year at first issue, as out of this world.. . . . . ..NOT SO!

If someone is trying to sell you on this concept BEWARE.  Read here.

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Gold Rallies On Renewed Investor Demand, Weaker U.S. Dollar

Kitco News, via Forbes/Jim Wyckoff/01-09-17

Gold prices ended the U.S. day session with good gains Monday, with Comex futures closing at a four-week high close. A weaker U.S. dollar index on this day helped out the precious metals markets bulls. Also, reports said investor monies are again starting to flow into gold exchange traded funds (ETFs) as the year 2017 is just under way. February Comex gold was last up $10.30 an ounce at $1,183.70. March Comex silver was last up $0.171 at $16.69 an ounce.

Posted in all posts, Gold News, Gold Views |

The Daily Market Report: Gold Rebounds to Set 4-Week Highs

09-Jan (USAGOLD) — Gold has eked out new 5-week highs above 1185.04, buoyed by a softer dollar and a stock market that refuses to validate all those Dow 20,000 hats. There is also apparently some heightened doubts about the Fed’s call for three more rate hikes this year.

The 10-year yield is down 5 bps point today, which is checking the dollar’s recent rise. FedSpeak today has been generally towing the dot-plot line, but with some caveats. Boston Fed President Rosengren said the timing will depend on incoming data, global conditions and fiscal policy. Atlanta Fed President Lockhart says it’s too early to estimate the likely impact of any fiscal policy on GDP, but he only sees 2% growth.

That to me suggests that growth risks remain, and tighter policy is not going to help alleviate those risks. As we’ve noted repeatedly in recent years, we’re long past due for a recession. Since the Great Depression, the U.S. has suffered thirteen recessions. The periods of economic growth between recessions have been as long as 120-months, and as short as 12-months. The average is just over 59-months. The current recovery has just entered its 91st month.

It remains to be seen what impact President-elect Trumps fiscal policy might have on the economy and that uncertainty was reflected in Lockhart’s speech today. However, an important follow-on question about fiscal spending is where the revenue to pay for it is going to come from.

The likely answer to that is debt. With the national debt fast approaching $20 trillion and interest rates on the rise, there will likely be some repercussions. Will the positives outweigh the negatives. Time will tell.

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

No Free Ride for Bitcoin in China

Bloomberg/Christopher Langner/01-08-17
Anyone wondering how serious China is about stemming the outflows that brought its currency reserves to their lowest since February 2011 need only to look at bitcoin.

The cryptocurrency has plunged more than 18 percent since Jan. 4, as news began to leak that it had attracted the attention of regulators in China.

…What is clear is that, for all the claims of bitcoin being free from the shackles of any central authority, Beijing holds a lot of influence over it.

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China’s leaders are about to test the promise that holds their country together

BusinessInsider/Linette Lopez/01-09-17

“In a closed-door meeting in December, Bloomberg reports, Chinese leaders came to the conclusion that piling on debt for short-term growth has become too dangerous. Now they will prioritize stability over growth and reform, and become more flexible about their target of 6.5% growth until 2020.

It seems they had little choice. Capital is leaving the country at a breathtaking rate. Last month, $82 billion left China despite tighter capital controls on individuals and corporations. That, combined with a strong dollar, is pushing the value of the yuan down to levels that are worrying leadership.”

PG View: If China’s growth rate continues to slow, as Xi Jinping continues to consolidate political power, a backlash of some sort becomes increasingly likely. One might also wonder what steps President Xi might take to avoid any such backlash.

Posted in all posts, Geopolitical Risks |

Rocker Prince a closet gold bug

New York Daily New-AP/1-7-2016

“Carver County District Court records show that an asset inventory lists a dozen properties with an estimated value of $25.4 million, as well as about $110,000 in four bank accounts and 67 10-ounce gold bars with a total value of nearly $840,000.”

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How The West Has Been Selling Gold Into A Black Hole

GoldSeek/Koos Jansen/01-06-17

“My hypothesis is that this 5,000 tonnes decline in above ground gold reserves outside of the Chinese domestic market will make gold rally stronger in a future bull market than it did in previous bull markets. To the extent many investors are uninformed about the shrinking volume of troy ounces available outside of China, their ignorance will boost any price rally coming.”

PG View: Another thorough examination of the supply/demand data and flows, which has led Koos to conclude: “China has enormously diminished above ground reserves outside of the Chinese domestic market without all investors around the world being fully aware. In my humble opinion this will make the price of gold go up turbo charged next time the West shows interest in the metal.” The West may already be taking an interest . . .

Posted in all posts, Gold News, Gold Views |

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.

Posted in all posts, Author, MK |

Safe haven gold sentiment reaches five year high

FT Adviser/Ruth Gillbe/01-05-17

“Gold investing sentiment among Western private investors came into 2017 with the strongest end of year reading for five years, according to research by BullionVault.

Demand for the precious metal – which is generally seen as a safe haven investment in times of economic and market uncertainty – also set a four year record by weight in 2016, which confirmed the upturn in sentiment as prices rose across the year.”

Posted in all posts, Gold News, Gold Views |

The Daily Market Report: Gold Continues To Push Higher on Haven Demand

05-Jan (USAGOLD) — Gold extended to the upside, setting new 5-week highs as safe-haven demand rises. That safe-haven demand is spilling over into the bond market and the resulting drop in yields is weighing on the dollar, providing an additional tailwind to the yellow metal.

With resistance at 1181.43 negated, attention has shifted to the $1200 level ahead of tomorrow’s all-important jobs report. Expectations are that nonfarm payrolls rose 175k in December and the unemployment rate will tick higher to 4.7%. Today’s ADP employment survey miss suggests there may be some downside risk for payrolls.

The U.S. stock market seems to be struggling to maintain upside momentum as investors experience diminished risk appetite. A number of notable analysts are warning of a significant stock market correction in 2017. See the post that Mike put up earlier today.

Hayman Capital’s Kyle Bass is warning that “global markets are at the beginning of a tectonic shift from deflationary expectations to reflationary expectations.” In a year-end letter to investors, he went on to say, “the enormity of the apparent disequilibrium is breathtaking.”

There are certainly opportunities in such an environment, but there are risks as well, and the latter can be considerable. Bass asks, “What happens to economies at maximum leverage when interest rates begin to rise?” Nothing good. That’s for sure.

Mr. Bass might pose the same question regarding highly leveraged corporations. Here too, the implications of higher rates in a reflationary environment may well prove devastating. The smart money seems to be taking this opportunity to bolster their hedges and the safe-haven components of their portfolios.

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80% stock market crash to strike in 2017, economist warns

The Sovereign Investor/JL Yastine/1-4-2016

MK note:  With the DJIA down about 120 this morning, this is probably a good time to get this link on the board.  London-based Mr. Smithers is a highly respected commentator on global financial markets, and this forecast from him on the U.S. stock market quite frankly took me by surprise.  He is a regular contributor to Financial Times.

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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.


Posted in all posts, Author, MK |

Bitcoin’s schizo day

Bitcoin hits a record high, but can it rival gold as a safe haven?

Bitcoin plummets over 23 percent after nearing all-time high as ‘volatile little bubble’ bursts

MK note:  These two headlines were posted less than 24-hours apart on CNBC. [sigh]

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The Daily Market Report: Gold Extends to the Upside on Heightened Physical Demand

04-Jan (USAGOLD) — Gold has extended to the upside, setting a new 4-week high at 1167.90. The yellow metal is getting a boost from the resurgent physical demand from both China and India, as well as a slowing of outflows from gold-backed ETFs.

“Physical demand from China and India is quite strong at the moment,” NAB analyst Vyanne Lai told Reuters. China and India are the two largest consumers of gold in the world.

Gold tends to get a seasonal boost this time of year from Asian buyers ahead of the Lunar New Year. Pressure on the yuan may further amplify this demand.

In addition, the recent efforts in India to crack down on the underground economy has resulted in a serious cash shortage and may be contributing to reinvigorated interest in gold. Going back to late-2015, the Modi government had also been attempting to exact greater control over the gold market, by imposing an excise tax and encouraging utilization of the Gold Monetisation Scheme and government issued gold bonds. There were rumors late in the year that the government would also seek to limit household gold holdings.

However, the cash shortage and perhaps the unspoken longer-term goals of all this government intervention may be overriding any concerns about holding the world’s most recognized safe-haven asset. Keep in mind, the “war on cash” is not only occurring in India; and I fear it is a war that is just getting started.

I think this is also driving demand for the crypto-currency bitcoin, which is up dramatically over the past several months; trading at a 3-year high above $1,000. But make no mistake, bitcoin is not an effective safe-have.

Dan McCrum, writing for the FT yesterday, likened bitcoin to a pyramid scheme:

As a phenomenon bitcoin has all the attributes of a pyramid scheme, requiring a constant influx of converts to push up the price, based on the promise of its use by future converts. So the ultimate value for bitcoin will be the same as all pyramid schemes: zero. — Financial Times

A bitcoin, existing as a series of ones and zeros on your computer is no substitute for actual physical gold that you can hold in your hand. The same can be said for real gold versus the dollars that exist in your bank or brokerage account.

That is also very much true for the gold that is alleged to back any ETF holdings you might have. There is no substitute for the real thing.

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

The Gold Owner’s Guide to 2017

Reversal, resurgence and renewal on the road to the new year

by Michael J. Kosares

A review of and outlook for the gold and silver markets in 2017 . . . . .

“There’s an old saying in the business realm that if you watch the pennies the dollars will take care of themselves. Likewise, if you build your portfolio on solid principles for the long-run, you will be well-positioned should the short run provide benefits. The best analysis, it follows, concerns itself not with what is likely to occur in the coming 365-day period (although it can be somewhat helpful), but with societal issues that will have a lasting impact on the political economy. “

FREE SUBSCRIPTION – If you are not already a subscriber to our monthly newsletter, this year’s Gold Owner’s Guide is well worth a visit to our registration page.  Besides the current issue, you will receive no-obligation access to future issues and an e-mail alert when they are released.  We invite you to join us for in-depth, cutting-edge coverage of the gold and silver markets.

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Wishing you a happy, healthy and golden 2017 from all of us at USAGOLD!

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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)


Posted in all posts, Author, MK |