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Discussion Topics -- October 21, 2014

Swiss Gold Referendum
German Slowdown
ECB Bond Buying

(October 21, 2014 discussion) Gold has rebounded nicely from its lows in the $1180s, and is now trading just shy of $1250 - +6% on the year. Meanwhile, stocks saw a significant pullback last week that leaves the market, despite the numerous all-time highs reached thus far, struggling to break even for 2014. This performance disparity is worth emphasizing as stocks have been championed all year as being in a bull market, whereas gold has been relegated to ridiculous downside prognostications and general disgust from the investing community, yet gold is the asset class of the two that is actually in positive territory for the year.

Meanwhile, all is set for the people of Switzerland to vote on their referendum on November 30th to repatriate their gold, as well as mandate a 20% backing of their currency in gold. A positive vote would require the Swiss government/national bank to acquire some 1500 tonnes of gold, a physical demand situation that is sure to shake up an already tight physical market. One has to wonder, with China as the #1 producer, yet not a single ounce of exports, and Russia, India, Brazil, and a host of other developing nations all acquiring gold, just where this gold would come from. Physical shortages like those that gripped the market in 2008-09 seem an all-too-realistic possibility.

Germany has reported a considerable slow-down in its economy and fears are growing that Europe is going to be again thrown into recession. Meanwhile, the ECB has begun a bond purchasing program. While it is not QE by traditional definition, speculation is that once the door is open, the ECB will stealthily move into the market of sovereign debt. It is somewhat astonishing that Central Banks around the world continue to implement QE policies when the jury is still out on whether or not they're even effective. It will be a sad day when everyone wakes up to realize that a fortune has been spent with little or no positive impact.

To say the least, there is an interesting confluence of events brewing. This country has seen some sort of crisis every seven years. It has been seven years since the 2008 crisis. Meanwhile, gold is displaying a bottoming pattern and seems poised to reassert its role both in the international monetary system, as well as in the individual investment portfolio. 24:04 Minutes, with Jonathan Kosares, Peter Grant and George Cooper.

Figure 1

Gold graph 10.2014

Figure 2

DJ2014

Figure 3

Gold price 2010 to 2014

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