Oct 10

Central Bank Gold Agreement No.4

Gold Price Comments Off on Central Bank Gold Agreement No.4
“We, the undersigned, aren’t selling gold anyway. But just so you know…”
 

In MAY 2014, the European Central Bank and 20 other European gold holders announced the signing of their fourth Central Bank Gold Agreement, writes Julian D.W.Phillips at GoldForecaster.
 
This agreement, which applies as of 27 September 2014, will last for five years and the signatories have stated that they currently do not have any plans to sell significant amounts of gold.
 
Collectively, at the end of 2013, central banks held around 30,500 tonnes of gold, which is approximately one-fifth of all the gold ever mined. Moreover, these holdings are highly concentrated in the advanced economies of Western Europe and North America, a statement that their gold reserves remained an important reserve asset, a statement made in each of the four agreements since then.
 
After 29 years of implied threats that gold was moving away from being an important reserve asset and the potential sales of central bank gold the gold price had fallen to $275 down from $850 in 1985. But the sales that were seen were so small that with hindsight they were seen as only token gestures. Today the developed world’s central banks continue to hold around 80% or more of the gold they held in 1970.
 
It only became clear subsequently that the real purpose behind these sales (from 1975) were to reinforce the establishment of the US Dollar as ‘real money’ and the removal of gold as such. The US government would brook no competition from gold, but continued to hold gold (as money ‘in extremis’) in ‘back-up’.
 
Then in 1999 the Euro was to be launched. It too needed to ensure that Europeans, who had a long tradition of trusting gold over currencies, would not reject the Euro in favor of gold and turn to gold and its potentially rising price. So it was decided that while gold was to be retained as an important reserve asset, its price had to be restrained for some time, while Europeans were made to accept the Euro as a reliable, functioning money in their daily lives.
 
To that end, major European central banks signed the Central Bank Gold Agreement (CBGA) in 1999, limiting the amount of gold that signatories can collectively sell in any one year. There have since been two further agreements, in 2004 and 2009. Now the fourth Central Bank Gold Agreement is in operation.
 
Together, the European Central Bank, the Nationale Bank van België/Banque Nationale de Belgique, the Deutsche Bundesbank, Eesti Pank, the Central Bank of Ireland, the Bank of Greece, the Banco de España, the Banque de France, the Banca d’Italia, the Central Bank of Cyprus, Latvijas Banka, the Banque centrale du Luxembourg, the Central Bank of Malta, De Nederlandsche Bank, the Oesterreichische Nationalbank, the Banco de Portugal, Banka Slovenije, Národná banka Slovenska, Suomen Pankki – Finlands Bank, Sveriges Riksbank and the Swiss National Bank say that…
“In the interest of clarifying their intentions with respect to their gold holdings, the signatories of the fourth CBGA issue the following statement:
  • Gold remains an important element of global monetary reserves;
  • The signatories will continue to coordinate their gold transactions so as to avoid market disturbances;
  • The signatories note that, currently, they do not have any plans to sell significant amounts of gold.
“This agreement, which applies as of 27 September 2014, following the expiry of the current agreement, will be reviewed after five years.”
The first clause confirms the ongoing role of gold as an important reserve asset. The most important part of the statement is the third part, where the signatories confirm “they do not have any plans to sell significant amounts of gold.”
 
In other words they have completed their sales. We do not expect them to resurrect their sales as they have fulfilled their purpose. Their sales stopped in 2010 in effect, bar some small sales by Germany of gold to be minted into coins. We did not consider these a part of these agreements.
 
The statement clarifies that none of the signatories will act independently of the rest and sell gold. They will coordinate any future transactions with the other signatories should a situation arise where a signatory wishes to sell again. We believe that this will not happen because of the financially strategic and confidence building nature of their gold reserves.
 
This agreement in lasting for five more years reassures the gold market that none of the signatories will sell gold for five years and even then they will likely make a further agreement for five more years.
To us this statement and agreement removes the specter of central bank gold sales in the future. As we have seen since these sales were halted in 2010, emerging market central banks have been buyers of gold steadily and carefully, without chasing prices.
 
We have the impression that the bullion banks go to prospective central bank buyers and ‘make the offer’ of gold available on the market, which the central bank then buys. They do not announce their intentions and act so as not to affect the price barring taking stock from the market.
 
This not only reassures gold-producing countries and companies, who can be reassured that there will be no policy of undermining the price of gold with uncoordinated sales of gold, but tells the rest of the world including emerging central bank buyers that there will be no supplies from them put on sale. Such buyers will have to find what gold they can on the open market or from their own production.
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Oct 10

Soft Money Paradigm Breaking

Gold Price Comments Off on Soft Money Paradigm Breaking
Disaster. Catastrophe. Go on – admit it holds a certain appeal…
 

IT MIGHT seem that today we are deeply devoted to the Mercantilist paradigm in monetary affairs, writes Nathan Lewis at New World Economics.
 
That is the notion of a floating fiat currency managed by a panel of bureaucrats, to address an ever-changing menu of issues including unemployment, exchange rates, financial markets, government funding, and the interests of one group or another.
 
Some people call this the Soft Money paradigm, characterized by the “Rule of Man”.
 
But, I think it is important that quite a few governments have actually abandoned this paradigm. They do not attempt to manage their economies by jiggering their currencies.
 
Rather, they adopt a simple fixed-value system: the value of the currency shall be X. There is no domestic discretionary element. This is the Classical paradigm, the Hard Money paradigm, in which the “Rule of Law” is primary.
 
But what is “X”? In the past, it was gold. A “gold standard system” is a system in which gold is the “standard of value,” ie, “X”.
 
A “Dollar” was once worth 23.2 troy grains of gold. Today, lots of countries have the same sort of arrangement, but they use the Euro as “X” instead of gold. This includes the eighteen members of the Eurozone, all of which have given up any avenue of domestic money-jiggering.
 
It is true that the Euro itself is a floating fiat currency, and that the ECB does take into consideration the concerns of Eurozone member states during its funny-money decision-making process. However, we also know that the ECB doesn’t really take orders from any one state, not even Germany, which is a little miffed at the central bank’s latest money-printing scheme.
 
We also know that there are many Mercantilist economists who declare loudly that any state that gets itself into trouble should have its own independent currency, which can supposedly be jiggered by its own independent board of incompetents to make all the boo-boos better, really we promise.
 
Thus, I would argue that the Euro is basically serving as an external monetary benchmark for these states, much as gold did in the past.
 
In addition, there are another ten small states and territories that use the Euro but are not officially part of the Eurozone. Also, there are twenty-eight countries, mostly in Africa, that have some sort of Euro link, mostly via a currency board system.
 
In total, there are fifty-five states and territories that have a Classical fixed-value system based on the Euro. The only difference between these “Euro standard systems” and a “gold standard system” is the choice of the “standard of value.”
 
The Classical ideal in money is very common today. But why use the Euro as a “standard of value” instead of gold?
 
The most basic reason is stability of exchange rates, or what I call the “terms of trade.” The smaller countries of Europe have always had a high degree of trade with each other. This does not only include imports and exports, but also financing and investment. Whatever the potential benefits of using gold as the “standard of value,” the fact is that to do so would introduce a lot of chaos into exchange rates with other Euro-using states, and other countries as well, which would be completely intolerable to businesspeople.
 
One of the primary attractions of a Classical fixed-value arrangement, rather than an independent floating fiat currency, is to gain all the advantages of stable trade relationships. That’s why Europe gave up their independent currencies and created the Euro in the first place.
 
This problem did not exist in the past. Before 1971, the major international currencies, and most minor currencies, were fixed to gold. Thus, a country that adopted gold as a “standard of value,” or “X” in a fixed-value system – the role the Euro plays today – would also have stable exchange rates with most major trading partners. There was no conflict.
 
At some point, the Euro may be so debauched as to render it completely unacceptable as a benchmark of value in a Classical fixed-value system. At that point, a government might either adopt another major international currency as its monetary “standard of value,” or it might use gold.
 
If the Euro reaches such a state – ECB chief Mario Draghi recently said he intends to make another trillion Euros appear out of thin air, I kid you not – then other major currencies would also likely be close behind, except for the Japanese Yen, which would be far ahead.
 
Thus, other major currencies would not likely satisfy those fifty-five former Euro enthusiasts either.
 
Then they might turn to gold – which actually has a rather lovely track record, and which actually was the monetary benchmark for most of those countries for a very long time already.
 
But when might that happen? History suggests that such a changeover does not happen until the former benchmark currency has been abused beyond all hope of renewal.
 
Disaster. Catastrophe. I admit it holds a certain appeal.
 
However, there is an alternative: to introduce gold-based currencies today, but to make them optional instead of mandatory. Thus, the present Euro-based and other fiat currencies would continue, but there would also be a gold-based alternative.
 
At first, this gold-based alternative might not be very popular. It would have a lot of exchange-rate volatility with the fiat Euro, Dollar, Yen and pound. Let’s be a bit Germanic and call it the goldmark, and give it the traditional value of 2790 goldmarks per kilogram of gold.
 
As today’s fiat currencies gradually lost their viability, people might decide, incrementally, that they want to keep at least part of their savings in terms of goldmarks, not Euros or Dollars. Borrowers find that they cannot issue debt or borrow money unless denominated in goldmarks; suppliers want to be paid in goldmarks; workers demand wages in goldmarks; and producers demand goldmarks in payment for their goods and services.
 
As more and more people use goldmarks (and other similar currencies that emerge), for their own personal interests, they find that they can also engage in trade with all the other people that use goldmarks, without the issue of unstable exchange rates. Thus, the issue of chaotic trade relationships gradually melts away.
 
But what if everything is fine? What if there is no disaster? People can still use goldmarks as they see fit – perhaps as an investment product much like the gold ETFs popular worldwide – but perhaps they would continue to use fiat Euros for most commercial situations. It works both ways. There is no downside.
 
The only problem, it seems, is that people are not aware that such a thing is possible, and in fact rather easy to do. Also, they don’t know how to do it. But, these are minor issues, really.
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Oct 01

Gold Prices Killed by Not-So "Super" Dollar

Gold Price Comments Off on Gold Prices Killed by Not-So "Super" Dollar
Gold prices have been hammered by the rising US Dollar. What might October hold…?
 

DOLLAR UP, gold down, writes Adrian Ash at BullionVault.
 
That’s pretty much the lesson for precious metals investors looking at any long-term rise in the US Dollar since exchange rates began floating in 1973.
 
And now in late 2014, says former chief economist at Swiss bank UBS, George Magnus “It looks as though the third US Dollar uptrend of the post-Bretton Woods era may be underway.” Just so long as you also ignore his warning against “extrapolating” short-term noise into long-term forecasts…
Gold price vs. US Dollar Index, 1973 to 2014, daily data
Might Magnus be right? For gold prices, as the chart shows, it’s less the absolute level than the Dollar’s direction of travel that counts. Starting from all-time lows in spring 2011, today’s greenback hardly matches the “Super Dollar” of the early 1980s. Yet the background rhymes…
  • Commodities glut after a long bull market? Check…
  • Disinflation in consumer prices? Check…
  • Weak competitor economies in Europe? Check…
  • Over-borrowed emerging markets? Check…
  • Strong US monetary policy, raising rates on the Dollar? Well, no. Not by a long way.
Even with the Federal Reserve still sticking however to its “considerable” delay for raising rates from zero, the third-quarter of 2014 proved ugly for Dollar investors holding non-US assets.
 
Gold for US investors marked the end of Q3 by hitting new 2014 lows, losing 5.8% on the London PM Fix for the month of September alone. Silver fell to the lowest Dollar price since May 2010…down more than 12% from the end of August.
 
Yet gold priced in Euros, in contrast, remains near the top of its 12-month range. Even in the British Pound…flattered by Tuesday’s GDP revisions…gold has held 3% higher from New Year.
 
Gold’s recent drop, in other words, is entirely relative. And this split between Dollar and non-Dollar gold prices might widen in October.
 
First there is the European Central Bank’s meeting concluding Thursday. Mario Draghi and his team have long hinted at some kind of QE-style money printing. The latest inflation print of just 0.3% per year across the 18-nation union will loom large.
 
Then, in the last week of October, the US Federal Reserve will face the opposite problem. It is set to taper the last $15 billion of its monthly QE printing. That leaves rising inflation, and strong GDP, begging for an end to the “extended time” promised for zero US interest rates. 
 
Before then, we’ve got US jobs data Friday (with an early look in ADP’s private-sector estimate mid-week). Then, mid-month, the European Court of Justice will hear a legal challenge to the Eurozone central bank’s Outright Monetary Transactions (OMT)…the 2012 plan which finally stemmed the single currency’s debt crisis. 
 
Mario Draghi hasn’t actually fired any OMT money at weak-economy bonds yet. But if the Court decides the plan is illegal (insomniacs will enjoy reading the arguments here. Or better still here) it could spark fresh panic…out of Greek, Spanish and other debt-heavy markets…pulling the Euro lower again. 
 
Analysts are of course aligned with the Euro bears betting against the currency in the forex market. Barclays Bank today cut its 12-month forecast for EUR/USD from $1.25 to $1.10 – a move which, if matched by the Dollar’s other major crosses, would take the trade-weighted index to a decade high of 90 or so. Gold prices in 2004 were trading below $400 per ounce. So a blunt analysis, never mind the momentum in gold futures and options betting, says a fall in the Euro must push bullion prices lower again as the US Dollar surges. After all, it worked like clockwork in the other direction.
 
Gold up, Dollar down” was so solid between 2002 and 2008, it became a no-brainer trade for no-brain hedge funds. The US currency fell 30% against its major trading peers on the forex market. Gold meantime rose 160% in Dollar terms. But this relationship broke down during the financial crisis. Because gold kept rising…and rising…while the Dollar whipped higher.
 
What are the odds today? Playing the averages, and reviewing the last 40 years (daily data, 12-month change), gold has been twice as likely to rise when the US currency is weakening on the forex market than when the Dollar Index is getting stronger. And when gold drops hard…down 10% or more from 12 months before…the Dollar has been rising 91% of the time.
 
No-brain traders are betting this rule-of-thumb will hold firm as 2014 ends, and gold will keep falling in Dollar terms as the US currency gains versus the Euro, Yen, Pound and the rest. 
 
But watch out. Because since 1974, gold and the Dollar have also moved in the same direction some 30% of the time. And when gold rises as the Dollar also goes up (21% of the last 40 years), its gains have been markedly better on average than when the Dollar is falling. 
 
Yes, really. When gold has risen against a background of Dollar strength, gold priced in Dollars has gained 24% year-on-year on average. It’s averaged 18% gains when the Dollar’s been falling. 
 
Of course, investors tend to buy gold and the Dollar together when crisis hits. Not only, but not always either. You could cite any number of crises where gold failed to rise with the Dollar, and pitch them against the gold price surge of Soviet Russia invading Afghanistan in 1979, the 2008 Lehmans crash, or the 2010 Eurozone meltdown.
 
Never mind if those events sound at all familiar here in late 2014. Ignore the fact that a rising Dollar…plus rising gold…adds up to 30% more fun for non-US investors trying to defend their money against crisis. Financial markets have avoided seeing any trouble ahead all year. So far. As an investment banker puts it to the Financial Times today…applauding this year’s surge in global mergers and acquisitions…”I have never seen a market more resilient than it is today, in terms of absorbing geopolitical and financial risk.”
 
Such complacency is the reason gold investing exists, whatever the outlook for the Dollar (and “Everything seems to be Dollar positive,” says another forex strategist…also tempting fate).
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Sep 29

Gold Bullion "Faces Aggressive Shorting" as Hong Kong Protests Grow Ahead of China’s Golden Week Holidays, US Jobs Data Loom

Gold Price Comments Off on Gold Bullion "Faces Aggressive Shorting" as Hong Kong Protests Grow Ahead of China’s Golden Week Holidays, US Jobs Data Loom
GOLD BULLION prices rose to $1223 per ounce in London on Monday, 0.4% higher from last week’s close, before slipping back as world stock markets cut their earlier losses.
 
Hong Kong’s main stock index lost 2.0% as pro-democracy protests spread across the city.
 
The US Dollar dropped from new 4-year highs on the currency market, helping food commodities bounce from multi-year lows.
 
Silver dropped in early Asian trade, before tracking gold bullion’s rally to stand unchanged from Friday’s finish above $17.60 per ounce.
 
“Quiet physical demand in China this week could leave gold lacking crucial support,” writes Jonanthan Butler at Japanese conglomerate Mitsubishi, pointing to the Golden Week holidays starting Tuesday.
 
“Though short covering may offer upside,” Butler adds, noting heavy bearish betting by speculative traders in US futures and options, “quarter-end squaring may leave investors with little appetite for gold in the coming days.”
 
Tuesday also marks the new Martyrs’ Day in China, aimed “to commemorate those who sacrificed for their country,” according to the New York Times.
 
Tens of thousands of protesters continued to block Hong Kong’s main business district Monday, extending the weekend’s march against Beijing’s refusal to allow a free choice of candidates in the city’s 2017 leadership elections.
 
Beijing’s censorship of social media site Weibo hit new record levels during this weekend’s protests, says the South China Morning Post.
 
“Usually a lot of Chinese tourists come to Hong Kong for the holiday,” Reuters quotes German bullion refining group Heraeus’ general manager in the city, Dick Poon.
 
“[Typically] they end up buying jewellery, but this time they might be turned off by the protests.”
 
This week’s absence of China’s wholesale dealers, says Swiss refiner MKS’s Asian desk, “could heap added pressure on gold,” especially if “combined with another strong US payrolls figure expected this Friday.
 
“This is a very similar scenario to last year where gold was aggressively sold by speculators during the absence of the Chinese.”
 
Consensus forecasts for Friday’s US employment data say 203,000 net jobs were added to non-farm payrolls this month, reversing August’s shock reading of just 142,000.
 
Thursday’s European Central Bank decision “could weaken the Euro and strengthen the Dollar,” adds Butler at Mitsubishi. “[But] the impact of this on bullion prices could be offset by safe-haven buying of physical gold.”
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Sep 18

Bad News for Gold from the Strong Dollar

Gold Price Comments Off on Bad News for Gold from the Strong Dollar
Expect a drop to $1200 near-term, says a man who called the bull market in 2001…
 

ERIC COFFIN is the editor of the HRA (Hard Rock Analyst) family of publications.
 
With a degree in corporate and investment finance, plus extensive experience in merger and acquisitions and small-company financing and promotion, Coffin has for many years tracked the financial performance and funding of all exchange-listed Canadian mining companies, and has helped with the formation of several successful exploration ventures.
 
One of the first analysts to point out the disastrous effects of gold hedging and gold loan-capital financing in 1997, he also predicted the start of the current secular bull market in commodities based on the movement of the US Dollar in 2001 and the acceleration of growth in Asia and India. 
 
Now Coffin tells The Gold Report how the continuing strength of the US Dollar is bad news for the price of gold, and believes that in the short term a price of $1200 per ounce is possible, though there is room now for an oversold bounce…
 
The Gold Report: You told us last year you were “neutral” on the state of the US economy. Since then, the headline unemployment number has improved. Even so, as David Stockman, former director of the Office of Management and Budget, says, there have been no net new jobs created since July 2000, and jobs paying over $50,000 per year have disappeared by 18,000 per month since 2000. What is your view of the health of the US economy?
 
Eric Coffin: I’m more positive than neutral these days, but I do agree somewhat with Stockman. As unemployment falls toward 6%, we would expect an increase in wage gains. But we’re just not seeing that. And five years into the latest expansion, we’re not seeing the economic growth spurts that tend to occur coming out of a really bad recession. I don’t see how the US economy keeps reproducing the 4% growth of Q2 2014 if we don’t see higher wage gains and higher paying jobs created.
 
TGR: You’ve used the term “smack down” with regard to the recent falls in the gold price. What do you mean by this?
 
Eric Coffin: It’s a wrestling term and means being thrown to the mat. This is what has happened to gold time after time, after every uptrend. The current smack down is due more to strength in the US Dollar than anything else. Gold does trade as a currency sometimes and for the past few weeks it has held a strong inverse correlation to the US Dollar. I think physical demand will ultimately determine the price level, but ultimately it can be a long time when you’re trading.
 
TGR: Why isn’t physical demand determining the price now?
 
Eric Coffin: It’s because of trading in the futures market. When somebody dumps 500 tons there, gold has to drop $200 per ounce. The futures market can overwhelm the physical market in terms of volume and often does. Most traders in the futures market (NYMEX or COMEX) are not buying gold and taking delivery. They are trading as a hedge, or just trading. The physical market, the place where people actually buy bullion, coins and bars, is not predominantly in London or New York but rather in China and India. And because of the smuggling that has arisen in India to circumvent increased tariffs, and imports moving to cities that do not release import statistics in China, it is difficult to know how much bullion Asia is buying right now.
 
TGR: Large short-term trades in paper gold could be used to manipulate the market, and an increasing number of people believe gold is being manipulated downward in this manner. Do you agree?
 
Eric Coffin: I’m not really a conspiracy guy. That said, when we see things like the sale in August of 400 tons in about 10 minutes, we have to wonder what’s going on. Again, when Germany requests its gold from the US and is told delivery will take seven years, it makes you wonder how much of that gold has been hedged or lent already.
 
TGR: Where do you see gold going for the rest of the year?
 
Eric Coffin: I think we are going to be trapped in this currency trade cycle for a little while. The European Central Bank (ECB) cut its rates. One of its deposit rates is now negative. Mario Draghi, the president of the ECB, is talking about starting up quantitative easing. If that happens, or if traders believe it will, the Euro, which has already fallen from $1.40 to about $1.28 to the Dollar, could fall to $1.20 or $1.10. And this strengthening of the Dollar is not good for gold.
 
The other factor of gold being traded on a currency basis is the possibility of Scottish independence, fear of which has already resulted in a significant decline in the British Pound.
 
TGR: Will $1250 per ounce gold lead to gold miners suspending production?
 
Eric Coffin: If gold stays at $1200-1250 per ounce for an extended period, there will be mine closures. Obviously, not all mines have the same costs, but the average all-in cost per ounce for gold miners is about $1200 per ounce. Already, some mines are high-grading to keep profit margins up.
 
Most of the large miners have already cut exploration budgets pretty significantly. We can assume that the pipeline is going to get smaller and smaller when it comes to new projects, even high-quality projects.
 
TGR: How badly will this gold price decline hurt the junior explorers?
 
Eric Coffin: It’s hurt a lot of them already. It’s much more difficult to raise money than it was two or three years ago, although it’s probably slightly better now than early this year. That could change on a dime, of course, if the gold price falls to $1200 per ounce or rises back through $1300 per ounce. Already, quite a few companies are keeping the lights on but not much else. We desperately need a few good discoveries – companies going from $0.20 to $5/share and getting taken out. 
 
TGR: You’ve been visiting mine sites in the Yukon. What do you like about this jurisdiction?
 
Eric Coffin: It’s a great area geologically, but it has some challenges. It can be an expensive place to work, so being close to infrastructure or designing an operation that doesn’t require a huge amount of nearby infrastructure is critical. Power costs are a big item. There’s no end of places in the Yukon where hydropower could be generated fairly cheaply, but that is not going to happen on a large scale unless the federal government steps up, and that would be nice to see.
 
TGR: How does Alaska compare to the Yukon as a mining jurisdiction?
 
Eric Coffin: They’re similar in many ways. Alaska, like the Yukon, is not low-cost, but it is mining friendly and even farther down the road when it comes to settling aboriginal issues. The key to success in Alaska is being close to the coast or major population centers or infrastructure.
 
TGR: How do you rate copper’s prospects?
 
Eric Coffin: There are several large producers that have either recently come onstream or will come onstream in the next few months. So copper is probably going to be in at least a small surplus for the next year or two. The price could fall back to $2.50-2.75/pound ($2.50-2.75/lb). I’m not terribly concerned about that. Copper should be fine in the long term and a good copper operation can make plenty of money at those prices.
 
TGR: The bear market in the juniors is now 3.5 years old. Should investors expect a general upturn any time soon?
 
Eric Coffin: I doubt it if you mean a broad market rise that lifts all boats. My expectation at the start of this year, which is looking fairly dodgy right now admittedly, was for a 30% TSX Venture Exchange gain for 2014. That is possible with only a small subset of companies doing very well, which is my expectation. Investors always want to look for the tenbaggers. It doesn’t matter what the market is like and, obviously, potential tenbaggers often turn into actual one and a half or two baggers, which is just fine. You want to find the projects with the highest potential for resource growth or new discovery and management teams that know how to explore them and finance them on the best possible terms. That is the combination that gives you the potential biggest wins.
 
TGR: Eric, thank you for your time and your insights.
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Sep 18

"Gradual" Gold Bull Market to Start 2015, "Next Floor at $1200" Says GFMS

Gold Price Comments Off on "Gradual" Gold Bull Market to Start 2015, "Next Floor at $1200" Says GFMS
Further gold price falls seen before flatter mine output meets new inflation concerns…
 

GOLD’s decade-long bull market is set to resume in 2015, albeit “gradually” from a new bottom according to a new forecast from the market’s leading data analysts, Thomson Reuters GFMS.
 
Thanks to gold’s rally over the first half of 2014 from $1200 to $1400, the consultancy says today in the first Update to its Gold Survey 2014, “Price sensitive [consumer] markets have seen sales slow.
 
“We believe it will take prices in a $1200-1250 range in order for physical buying from Middle Eastern, East and South East Asian markets to begin to increase.”
 
Low volatility and gold’s tightening price range form “the other defining feature” of the 2014 market to date, GFMS adds, noting that volatility on a 100-day basis has fallen to its second-lowest level since 2005, “undermin[ing] trade volumes.”
 
Launching the Update on Thursday, “The lack of a clear price direction,” said Rhona O’Connell, the London-based consultancy’s head of metals research and forecasts, “[plus] the expectation of lower prices have been key drivers in deterring purchases among private buyers and a similar mentality has prevailed in the professional sector.”
 
A recovery in European economic growth is “pivotal” to GFMS’s longer-term gold price forecast, because only then will investor attention focus on the “inflationary pressures” built up by what it calls “the massive injections of liquidity into the financial system” from central banks worldwide over the last 7 years of financial crisis.
 
China’s central bank reportedly injected $81 billion of cash into the country 5 largest banks this week. The European Central Bank is scheduled to begin a new round of cheap, open-ended bank lending today.
 
“There has been a whiff of professional investor interest [in gold] this year,” Thomson Reuters GFMS says, “but this is still very tentative” thanks to US tapering of the Federal Reserve’s quantitative easing program, plus the perceived risk of rising interest rates once tapering ends.
 
Noting the problems facing Middle Eastern gold demand thanks to political and military strife, “Any price fall towards $1200 is expected to see a strong resurgence in physical interest” from price-sensitive consumer markets, says O’Connell.
 
Demand from China in particular has been stifled so far in 2014 by consumers’ bargain-hunting on last year’s price crash, plus huge stockpiling by wholesalers.
 
Year on year, the first half of 2014 saw gold bar investment demand fall 50% globally, with a greater drop in both China and India – the world’s top 2 consumer nations.
 
Gold prices at $1200 now mark “the next big level to watch on the downside,” says GFMS – a level likely to be seen “in the coming months”.
 
But with central banks in emerging economies “continu[ing] a sustained strong buying policy,” GFMS also forecasts global gold mining output will peak and then plateau from 2014. Coupled with a likely return of inflation concerns, this should see “the fundamental position” of the gold market’s supply and demand balance “start to tighten during 2015 as underlying demand strengthens, taking the market into a deficit.
 
“The price is therefore expected to bottom out during 2015 before embarking on a gradual bull market.”
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Sep 17

Unwinding the Hyper-Inflationist "Dollar Collapse"

Gold Price Comments Off on Unwinding the Hyper-Inflationist "Dollar Collapse"
The US Dollar keeps getting stronger, not weaker as so many have predicted…
 

IT IS time now for a closer look at Uncle Buck, writes Gary Tanashian in his Notes from the Rabbit Hole, since this reserve currency is key to so many asset markets the world over.
 
We’ll use the standard weekly currency chart NFTRH followed along for months as the Euro found resistance at the long-term downtrend line as expected. The commodity currencies long ago lost major support and non-confirmed the commodity complex, and the US Dollar moved from a hold of critical support, to a trend line breakout, to its current impulsive and over bought status. 
 
But as the charts below show, USD is over bought on both daily and weekly time frames. The monthly chart in contrast shows a big picture view of a basing/bottoming pattern, and it is bullish.
 
That is a long-term director, so regardless of what happens in the short-term, a process of unwinding the hyper-inflationist ‘Dollar Collapse’ cult is ongoing. Signs point to disinflation toward deflation.
 
We’ll start with a daily chart and then ascend right through the weekly and then the monthly to take the pulse of USD.
 
As noted, the daily chart below is very over bought. It is currently consolidating the big jerk upward that has come against Euro-negative policy from the ECB and an increasing drum beat about an eventual rise in the Fed Funds rate in the US. People are finally catching on to the fact that the US economy has been strengthening since early 2013 and that the Fed is looking out of touch holding ZIRP despite this strength.
 
So the Dollar is getting bid up. The question the chart asks is whether the current consolidation will work-off of another over bought situation, or is a prelude to a reversal? The answer is going to be key to the bounce potential in many asset markets, but especially commodities, which are generally tanking and precious metals, with gold eventually due to firm after it finishes its bear market and its fundamentals come in line.
 
 
You will recognize the weekly chart as it is the top panel of our long-running multi-currency chart. RSI has been added to this view to show the over bought level. Note that the weekly has joined the daily in over bought status on this most recent drive, whereas it was merely healthy – and not over bought – the last time the daily registered an over bought reading in July.
 
 
The monthly chart directs the big picture. An eventual upside target of 98 is indicated by measuring the pattern’s depth. Adding credence to the idea that today’s over bought status is different from the one in July (ref. daily chart above) and that USD can take a routine correction is that this time there is significant upside resistance at around 85. The previous daily over bought had no such monthly resistance.
 
 
The macro plan has not changed. It is not complete by any means, but components of it seem to be in progress. That plan includes an eventual economic deceleration and conveniently enough, while a strong USD can pull global capital into the US like a well tuned Dyson (Hoover for old school domestic engineers), it may start to erode US business activity.
 
Specifically, future ISM reports for example, will be very interesting. Manufacturing likes a weaker Dollar. They may have repealed many laws of economics (or maybe just delayed them), but I have a feeling this one will endure.
 
In the financial sphere things are more complicated. As global funds seek to get themselves denominated and/or invested in USD, large (too big to fail) financial entities – the US’ greatest industry after all – can benefit longer than some factory selling widgets to European customers.
 
For 19 months now we have been noting first the potential for economic strength (with the Semiconductor equipment ramp up) and then the realization and persistence of that strength. The strength in Uncle Buck is at least in large part a reflection of that.
 
If just one traditional market signal holds to its historical modus operandi, that strength would eventually wear at the economy as an angry Uncle Buck, so reviled for so long as an anti-market to ongoing asset market parties reclaims his territory. (Recall how impressive the rolling commodity speculations featuring USD as a counter-party were uranium and China in 2007, crude oil and copper in 2008, silver and in my opinion to a lesser extent, gold in 2011 – although that event was driven largely by the Euro too.)
 
Meanwhile, USD is at risk of a correction if it cannot work off the daily and weekly over bought status in a calm manner as it did in August. In that event, assets could bounce with the implication of commodities and precious metals getting counter trend rallies and stocks continuing upward.
 
If on the other hand USD works off the over bought with another consolidation, the trend is up in all time frames and some pretty big upside could follow. The daily chart will instruct so while we will continue to monitor the major currency group from weekly and monthly perspectives, consider Uncle Buck on radar for more intensive short-term management going forward.
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Sep 17

Time to Buy Gold Stocks Cheap?

Gold Price Comments Off on Time to Buy Gold Stocks Cheap?
Mining equities just keep getting cheaper as gold prices struggle…
 

WITH a career spanning three decades in the investment markets, Brien Lundin serves as president and CEO of Jefferson Financial, a highly regarded publisher of market analyses and producer of investment-oriented events.
 
Under the Jefferson Financial umbrella, Lundin publishes and edits Gold Newsletter, a cornerstone of precious metals advisories since 1971. He also hosts the New Orleans Investment Conference, the oldest and most respected investment event of its kind.
 
As Lundin here tells The Gold Report, he now believes at least a small amount of the massive liquidity produced by loose monetary policy in Western economies will find its way into mining equities following the summer pullback – but don’t wait long…
 
The Gold Report: On July 30, you sent out a Gold Newsletter alert that forecast a pullback in the midsummer bull market. The next day the Dow dropped 317 points, while the Nasdaq fell about 93 points. Since then the Dow has climbed back above 17,000, the Nasdaq above 4,600. Should investors dismiss that drop or do you believe it was akin to a tremor preceding an earthquake?
 
Brien Lundin: That particular call made me look like a genius at the time, but right after that drop the stock market took off and reached new highs. The stock sell-off in late July was a sign that investors were nervous because we haven’t had a meaningful correction during this bull market. However, there are potential pitfalls ahead for the economy – we still have to navigate the US Federal Reserve’s ending of quantitative easing and its first interest rate hikes. There’s nothing directly ahead that indicates a major correction will occur, yet these things happen when you’re least expecting them.
 
TGR: You’ve been warning investors in Gold Newsletter about the erosion of the foundation of the US equity market. Please give our readers a few points to underpin your thesis.
 
Brien Lundin: When I put forth that thesis, Q1 ’14 gross domestic product (GDP) had missed consensus estimates by 3.3%. The consensus going into that report was for 1.2% growth but it turned out to be just 0.1% – only to be subsequently revised further down to -2.1%. The miss for the consensus estimate was remarkable.
 
I posited that these reports had possibly captured some underlying weakness in the economy. I expected a rebound in Q2 ’14 because a lot of economic activity was put off due to the unusually cold winter weather. But Q2 ’14 GDP was over 4%. I certainly wasn’t expecting anything like that, and neither was anyone else.
 
So, the idea of a major stock market decline stemming from a weakening US economy has become more remote, at least for the time being.
 
TGR: What are you seeing now?
 
Brien Lundin: The massive amount of money created in developed economies since the 2008 credit crisis really has not resulted in significant retail price inflation. If anything, there has been disinflation in major economies, such as in Europe where the European Central Bank is now turning to quantitative easing. The real result of quantitative easing in the US and loose money policy throughout the Western economies is a virtual flood of liquidity looking for places to land. It’s why we have US Treasuries being bid down to their lowest rates ever, while the US stock market is hitting record highs. Those two asset classes should be at opposite sides of the seesaw, but there’s so much money looking for a home that both are soaring simultaneously.
 
TGR: The Market Vectors Junior Gold Miners ETF (NYSEArca:GDXJ) has been trading lower since mid-July. In fact, the Dow Jones Industrial Average has outperformed that ETF over the last month or so. Is that a buying opportunity?
 
Brien Lundin: I think so. The timing is critical, though. While I don’t see a near-term, fundamental driver to push the market higher in the very near future, there are some factors that I think will push the junior resource stocks and the metals higher this fall. So your real buying opportunity is probably over the next couple of weeks.
 
All of the liquidity that I referred to earlier has to go somewhere. There’s a broad consensus that gold is going lower and a lot of money is shorting gold. At some point over the next month or so – at the first sign that gold is not going lower – we’re going to see some short positions get covered, and that ocean of money is going to start sloshing into gold and silver. At that point we should also see stronger seasonal demand for gold and that also will help power the gold equities market forward.
 
TGR: Every year your company, Jefferson Financial, puts on the New Orleans Investment Conference. This year the show celebrates its 40th anniversary from October 22-25. The headline event is a panel discussion with former Fed Chairman Alan Greenspan, legendary investor Porter Stansberry and Marc Faber, publisher of the Gloom, Boom & Doom newsletter. What can investors learn from this?
 
Brien Lundin: On the Greenspan panel we’re going to pointedly ask him about the Fed and the Treasury’s role in manipulating the gold price and how that occurs, if it occurs. He no longer has any reason to obscure the truth. There will also be a moderated Q&A with Greenspan where he’ll take questions from the audience. Those two panels with Greenspan are going to make headlines, if not history. He has a fascinating story. Greenspan was one of the most ardent and eloquent goldbugs in the 1960s. He was a close follower of Ayn Rand and some of his writings on gold still stand today as among the best ever produced on the role of gold in protecting citizens from currency depreciation.
 
The rest of our lineup includes Dr. Charles Krauthammer, Peter Schiff, Rick Rule and Doug Casey. People come back year after year because they get to meet these experts and talk with them. They get stock recommendations and strategies that they’ll never get anywhere else. It’s always a dynamic event.
 
TGR: Thank you for talking with us, Brien.
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Sep 16

Switzerland’s Gold Vote

Gold Price Comments Off on Switzerland’s Gold Vote
What’s at stake in Switzerland’s referendum on SNB gold policy…
 

On NOVEMBER 30th, writes former US Congressman Ron Paul, voters in Switzerland will head to the polls to vote in a referendum on gold.
 
On the ballot is a measure to prohibit the Swiss National Bank (SNB) from further gold sales, to repatriate Swiss-owned gold to Switzerland, and to mandate that gold make up at least 20% of the SNB’s assets.
 
Arising from popular sentiment similar to movements in the United States, Germany, and the Netherlands, this referendum is an attempt to bring more oversight and accountability to the SNB, Switzerland’s central bank.
 
The Swiss referendum is driven by an undercurrent of dissatisfaction with the conduct not only of Swiss monetary policy, but also of Swiss banking policy. Switzerland may be a small nation, but it is a nation proud of its independence and its history of standing up to tyranny. The famous legend of William Tell embodies the essence of the Swiss national character. But no tyrannical regime in history has bullied Switzerland as much as the United States government has in recent years. 
 
The Swiss tradition of bank secrecy is legendary. The reality, however, is that Swiss bank secrecy is dead. Countries such as the United States have been unwilling to keep government spending in check, but they are running out of ways to fund that spending. Further taxation of their populations is politically difficult, massive issuance of government debt has saturated bond markets, and so the easy target is smaller countries such as Switzerland which have gained the reputation of being “tax havens”.
 
Remember that tax haven is just a term for a country that allows people to keep more of their own money than the US or EU does, and doesn’t attempt to plunder either its citizens or its foreign account-holders. But the past several years have seen a concerted attempt by the US and EU to crack down on these smaller countries, using their enormous financial clout to compel them to hand over account details so that they can extract more tax revenue. 
 
The US has used its court system to extort money from Switzerland, fining the US subsidiaries of Swiss banks for allegedly sheltering US taxpayers and allowing them to keep their accounts and earnings hidden from US tax authorities. EU countries such as Germany have even gone so far as to purchase account information stolen from Swiss banks by unscrupulous bank employees. And with the recent implementation of the Foreign Account Tax Compliance Act (FATCA), Swiss banks will now be forced to divulge to the IRS all the information they have about customers liable to pay US taxes. 
 
On the monetary policy front, the SNB sold about 60% of Switzerland’s gold reserves during the 2000s. The SNB has also in recent years established a currency peg, with 1.2 Swiss francs equal to one Euro. The peg’s effects have already manifested themselves in the form of a growing real estate bubble, as housing prices have risen dangerously. Given the action by the European Central Bank (ECB) to engage in further quantitative easing, the SNB’s continuance of this dangerous and foolhardy policy means that it will continue tying its monetary policy to that of the EU and be forced to import more inflation into Switzerland. 
 
Just like the US and the EU, Switzerland at the federal level is ruled by a group of elites who are more concerned with their own status, well-being, and international reputation than with the good of the country. The gold referendum, if it is successful, will be a slap in the face to those elites.
 
The Swiss people appreciate the work their forefathers put into building up large gold reserves, a respected currency, and a strong, independent banking system. They do not want to see centuries of struggle squandered by a central bank. The results of the November referendum may be a bellwether, indicating just how strong popular movements can be in establishing central bank accountability and returning gold to a monetary role.
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Sep 05

What I Told Alan Titchmarsh About $1920 Gold Prices

Gold Price Comments Off on What I Told Alan Titchmarsh About $1920 Gold Prices
Three years to the day since gold prices peaked. Did you call it wrong…?
 

IT’S SAFE to say gold hasn’t been much fun since prices peaked three years ago this weekend, writes Adrian Ash at BullionVault.
 
Maybe I should have guessed at the time. Because the same day that spot prices hit $1920 per ounce…Tuesday 6 September, 2011…I got to talk gold as a guest on UK television’s biggest afternoon chatshow.
 
Gold on national daytime TV…? What more warning could gold bugs want? Hindsight screams sell.
 
Sadly for irony (and for all-knowing traders), my slot on The Alan Titchmarsh Show didn’t air until the Thursday, two days later.
 
But the die was cast. Or so hindsight says. The drop which began the very next day was obvious.
 
Emerging-market central banks should have stopped buying. Gold miners should have sold forward their future production to lock in record prices. And gold investors should have taken profits…quick! 
 
Gold sank 20% between September and the last day of 2011. It then rallied only to plunge 25% in spring 2013. Since then it has now traded dead-flat for 12 months, some 35% below its peak of three years ago.
 
Should we all have seen it coming? I think not. 
 
“Business is certainly strong,” as Paul Tustain, founder and CEO, noted to me here at BullionVault that same, hectic week in 2011. “But it’s still a tiny proportion of the investing public.
 
“The huge majority of people and portfolios still have no gold at all. What we’re seeing across the market is the prices being marked up by the dealers in search of supply, but no-one is being flushed out. 
 
“Gold owners simply don’t want to sell, not while the economic situation threatens the wholesale destruction of value in currency assets.” 
 
Re-read that last sentence again. Then cast your mind back to late-summer 2011…
  • US government debt was downgraded by the credit agencies; 
  • English cities and towns descended into rioting, looting and arson; 
  • Europe’s single currency experiment looked set to explode in general strikes and violence. 
Put another way, unemployment in rich Western countries was surging to Third World levels. The state was losing control. And nothing was “risk-free” anymore.
 
Clearly, some smart traders chose to quit getting long of gold. Because prices fall when bids refuse to meet offers, and fall they did. But to the best of my knowledge, no pundits or analysts called the top in gold prices. Not with any more confidence than the perma-bears who repeatedly called the top from 2009.
 
How could they? The economic, financial and social situation across the West hadn’t been this bad since perhaps 1939. 
 
Oh sure – Warren Buffett, the world’s most famous money manager (and one of its most successful) once advised investors to “Be fearful when others are greedy and greedy when others are fearful.” But you’d need some damned cold logic to overcome the fear sweeping the rich West in late-summer 2011. 
 
Indeed, you would have needed to get your head examined. 
 
Just what were the odds of a Eurozone break-up back then – better than evens? And the consequences of that? They could scarcely be imagined. Not when the only paper “safe haven”…US Treasury bonds…faced a genuine threat of default thanks to Washington politicians scoring points against the White House via the debt ceiling farce
 
In short, the gold market was NOT mis-pricing risk in September 2011. Nor were new buyers. That summer’s surge to record levels simply reflected the very strong chance that the crash of 2008 was only a warm-up. Investors, households and media all agreed. This time, the financial crisis really had landed. 
 
So forget hindsight. Buying gold at 2011’s record prices was not a “mistake”. Even if it has proven costly to date. 
 
There’s nothing today which makes those losses less painful. But if you view every decision you make as an all-in bet, then insurance will always look like “dead money”…unless disaster strikes. 
 
What if the crisis of September 2011 hadn’t eased off? Which outcome would you really prefer?
 
As I told Alan Titchmarsh three years ago:
“If you think the financial crisis is all over and everything’s going to be sorted out, then gold [at $1920…£1194…or €1375] probably looks pretty expensive as insurance for your other investments right now.” 
Gold is a lot cheaper today. Yet I’m far from sure the financial crisis has truly passed over just yet. 
 
I guess the European Central Bank agrees, now printing money to try and stoke the economy. Odds are that every other monetary power holding the cost of money at zero for the fifth year running thinks the same.
 
Maybe someone should tell the stockmarket. But then, no one rings a bell at the top. Not one you can hear at the time.
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