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News & Views
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 42nd year in the gold business

May, 2016
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USAGOLD's NEWS & VIEWS newsletter
mk Michael J. Kosares
Editor

"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose." - John Maynard Keynes


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WHY GOLD, WHY NOW

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The China Syndrome
The groundbreaking series on China's pivotal role in the gold market

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BlackSwans YellowGold
The standard reference on how gold performs during periods of deflation, chronic disinflation, runaway stagflation and hyperinflation

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Gold Chartography 101
The case for gold ownership in ten charts you will never see on CNBC

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Gold at the zero bound
Something happened on the way to negative interest rates. Something unexpected. Gold and silver demand went through the roof.

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Big banks, hedge funds key factors
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A tale of two gold markets – the one ending December, 2015 and the one beginning January, 2016

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How would you invest money you didn't need for ten years?
"Perhaps we spend too much energy trying to foretell the future, and too little trying to be resilient whatever happens."

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Keynes on the menace
of printing money

How the celebrated economist might have structured his investment portfolio today.

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mkMichael J. Kosares, the author of these articles, has more than 40 years experience in the gold business. He is the founder and executive director of USAGOLD (both the website and gold brokerage service), the author of three books on the gold market, and the editor of "News & Views, Forecasts, Commentary & Analysis on the Economy and Precious Metals," the firm's client letter. He has written numerous magazine and internet essays and is well-known for his ongoing commentary on the gold market and its economic, political and financial underpinnings.

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(They taught me all I knew);
Their names are What and Why and When
And How and Where and Who."

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USAGOLD's News & Views newsletter has provided cutting-edge coverage of the gold and silver markets for over 25 years. Its content is widely quoted, re-circulated and sourced at websites all over the world.

Its principal objectives have always been the same – to keep our clients informed on important developments in the gold market, condense the available gold-based news and opinion into a brief, readable digest, and, most importantly, to counter the traditional anti-gold bias in the mainstream media. That formula has won it a loyal five-figure subscription base.

If you would like to become a subscriber, we invite you to sign-up at our registration page. There is no charge for the service and your participation is welcome.

Buy in May and go away
Spring-summer traditionally the best time to buy gold and silver

Most are familiar with the old investment adage, "Sell in May and go away." That piece of advice might apply to the stock and bond markets, particularly these days given the prevailing speculative mind-set that dominates those markets, but it falls short when it comes to gold and silver. In fact, the best time to buy gold and silver in any given year is either at the very start in January or in the months of the annual summer doldrums – May through July.

Even then, as you can see from the accompanying 20-year seasonal charts, the precious metals' markets have risen even in the summer months on the average, albeit more slowly. That said, investors who bought gold and silver during those lazy, hazy, crazy days of summer, reaped the rewards during the perennial autumn through winter ascents.

Those thinking of buying metals for the first time or moving more assets out of the very-low-to-negative interest rate environment, might want to consider turning the old adage on its head – from "Sell in May and go away" to "Buy in May and go away." If you miss that opportunity, don't despair: A review of the charts tells us that historically June, July and August historically are also good months to buy gold and silver.

seasonalgold

silverseasonal

The super rich were the first to bail during the financial crisis

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“When the going gets rough, the 1 percent start selling. That’s the finding of a new paper that says people with the highest income bailed from stocks disproportionately on the worst days of the financial crisis. The share of selling by the biggest earners rose ‘sharply’ in days following spikes in volatility, according to data on millions of sales reported to the government in 2008 and 2009.” Joseph Cioli, Bloomberg


Bloomberg's Cioli goes on to point out that in the process the S&P lost 57% of its value. Volatility, when fully understood, is the well-spring of diversification.  When not, it leads to significant losses.  Apparently, the super rich did [do] not heed the typical appeals by stock brokers and financial advisors in such situations to ride it out – something to remember the next time the financial press headlines the loyalty/patience card.  The better part of valor, as the bard tells us, is discretion.

$200B in gold sits beneath the streets of London

“One historical nugget of note," says Luke Rodney at Newser, "During WWII, the vaults served as bomb shelters. By that time, though, the gold they held had been secretly shipped to Canada, in case the Nazis overran London. ‘It’s all very James Bond,’ says the Sun of the relatively old-school security still in effect—access involves 3-foot-long keys. ‘You can’t visit the gold, of course,’ observes a post at Atlas Obscura.”

The Canada shipments seem to be much rigmarole over a barbarous relic, one would think. Here’s a photo of Queen Elizabeth amidst all that gold in December, 2012 – a relic no more, but a very present and important component of reserves in nearly all the primary developed economies.  Britain once owned one of the largest gold hoards on Earth, but most of the gold in this room belongs to other countries who deposited it with the Bank of England.

Queen Elizabeth II And The Duke Of Edinburgh Visit The Bank Of England

Managed money goes all-in on gold and silver

"[Gold's] doing fine. It's preserving capital in the US, it's been making money over the last couple of years for European investors. That's why I own gold. Because in a negative return environment anything that holds its value or makes a little is good." – Jeff Gundlach, DoubleLine Funds

As this is written, gold and silver are up 22% and 28.5% respectively on the year. Gold is up almost 4.5% since our last issue and silver, a hefty 16%. In the April issue we emphasized the huge influx of capital from institutional investors as playing a big role in those strong performances. We thought it might be useful to follow-up that report with these charts on managed money's involvement at New York's COMEX as well. Managed money's long gold position is now at levels not seen since 2011. Its long silver position is at its highest level in history. These strong numbers result from two complimentary trends – first, the highly publicized public rush to physical precious metals' ownership globally which influences the paper price indirectly, and second, managed money's speculation on that rush continuing into the future.

Editor's note: For a more-detailed discussion on the current involvement of institutional money in the gold and silver markets, we invite you to read the April issue of this newsletter.

StarReader note: If you appreciate the kind of gold-based analysis you are now reading, we invite you to sign-up for e-mail alerts on future releases. News & Views is a free service that now has 20,000+ subscribers – one of the best and most widely read newsletters in the field.

Telling gold bull markets comparison

bullmarketcomp

This interesting chart constructed by our long-time friend, Nick Laird, at the Sharelynx site – a place where you will find a wealth of charts on everything gold and silver. The chart is expressed in percentage terms so that you can see how the progress in the  present bull market compares with the 1970s market.  Thus far, as you can see, the historical repetition is uncanny.  Too, the economic conditions underlying both data sets is similar – right down to the concurrent deflation scares of the periods 1975-1976 and 2015-2016.  On both charts you can see a small departure from the downtrend.  The one in 1976 signaled a change in course.  We are about to find out if the similar uptick in 2016 is a harbinger of things to come.

I can remember vividly the negative psychology that dominated the gold market (and all markets) in the mid-1970s.  The most referenced and discussed financial book at the time was Vern Myers’ The Coming Deflation wherein he predicted a repeat of the 1930s deflationary crash.  That deflation, as you already know, never arrived in full force.  Instead, runaway inflation kicked-in and took a good many investors and market analysts by surprise.

One of the more compelling arguments for gold is that it protects your portfolio against inflation, deflation and all the circumstances in between.  Gold and silver will get you through whatever is coming – the ultimate portfolio insurance.

For a detailed examination of gold’s performance under various worst case scenarios, we invite you to read the in-depth study, Black Swans, Yellow Gold – year-in, year-out, one of the most consistently visited pages at the USAGOLD website.

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Swiss 20 Franc Helvetia

 

Did Shanghai just blow a hole in the old gold paradigm?

Two milestone reversals of New York pricing at the Shanghai benchmark fix on April 22th and April 28th sent a message loud and clear to traders around the world: China was going to be a presence in the gold market and a formidable one. Most importantly, what was revealed on those two occasions is that Shanghai is willing to bid up the price in order to secure physical metal. Up until those events, many analysts and traders believed China would be content to follow along with London and New York’s lead and continue acquiring gold as it had in the past – slowly but surely and at prices determined by trading in those western markets. That paradigm, the old gold market paradigm, had a hole blown over that seven day period. Welcome to the new gold paradigm.

I would be hard-pressed, at this juncture, to label China’s buying as an intervention, but in terms of how the market interpreted the COMEX reversals, it had the same impact as if it were, both psychologically and materially.  The follow-on trading in London and New York had the look of short-covering – a direct reaction to a significant change in gold market sentiment, and at the epicenter of that change sits the new Shanghai gold fix.

Shangha-Comextradingwk425

Though it is too early to characterize those two instances as systematic support for higher prices, they are likely to be viewed by market players as examples of how China can go about achieving its goal to become a major player in gold’s pricing dynamics. More and more, Shanghai's aggressive acquisition strategy, implemented through its benchmark, hints at a new era for the gold and silver markets.  In the past, strong physical demand in China and elsewhere often failed to translate to prices. With Shanghai beginning to flex its muscle, we may have come to a place where the gap between cause and effect will be breached.

Too, we should keep things in perspective. There likely will be instances along the way, where traders in both the East and West believe prices are too high and due for a correction. Asian physical buyers, under those circumstances, likely will go to the sidelines and Western traders might once again exploit the weaker demand. In short, the trading in Asia, like the trading in the West, is unlikely to become a one-way street. Nevertheless, it is a much different gold and silver market now than we had before the introduction of the Shanghai fix.

Editor's note: To underscore China's long-term commitment to its gold policies, we direct you to comments made by Peoples Bank of China governor, Zhou Xiaochuan (2004, The Alchemist): “At present, up to 12 trillion yuan stays in domestic residents’ saving accounts. The launch of individual gold investment, therefore, will allow residents to change currency assets into gold assets. At the macro level, it will expand channels for changing savings into investment, thus adjusting the money supply; in the micro aspect, allowing citizens to trade and keep gold can improve social welfare, benefiting both the country and the population. Moreover, with the dual attributes of common commodity and currency commodity, gold is a desirable instrument for hedging. Therefore, developing gold trade for individuals is practical.” In short, China's commitment to the gold market began long before the introduction of the Shanghai benchmark this past month. Since then China has become the largest gold producer in the world and the largest consumer. It is unlikely to abandon that commitment anytime soon.

** Special thanks to Nick Laird at the Sharelynx website for use of his charts in this issue. (The Sharelynx charts bear the www.goldcartsrus.com URL.

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Coins & bullion since 1973

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Michael J. Kosares is the founder of USAGOLD and the author of "The ABCs of Gold Investing - How To Protect and Build Your Wealth With Gold." He has over forty years experience in the physical gold business. He is also the editor of News & Views, the firm's newsletter which is offered free of charge and specializes in issues and opinion of importance to owners of gold coins and bullion. If you would like to register for an e-mail alert when the next issue is published, please visit this link.

Disclaimer
- Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the the accuracy, timeliness or completeness of the information found here.