Quantcast
Channel: Gold – The Daily Reckoning – UK Edition

The merits of Gold priced in Sterling

0
0

Editor’s note: Over the last few days our editors have offered you their views on gold, and seeing as the yellow metal can always be relied upon to divide opinion, we’d like to hear if you’ve agreed with them.

Are you bullish about gold? Or do you think the days of major price hikes are long gone? Please send us your views, or any questions you might have at feedback@agora.co.uk and we’ll be happy to address them in one of our articles.

In the meantime, here’s currency expert Tom Tragett with his take…


Since peaking around $1,350 back in early September this year, gold has been under a degree of pressure with any rallies turning out to be fairly stunted affairs.

That has kept the price inside a $1,260-$1,310 range for the past 2 months and whilst it has been showing signs of bouncing lately, as priced in dollars the metal has been quite dull.  More recently however, with global equity markets shaking down somewhat in early November, the metal has looked a little more interesting.

However, from my perspective the interest is more from a long term view and certainly not one onto which I would venture a leveraged bet or one that I would price in the dollar necessarily either.

I think gold priced in sterling is far more interesting just now.

In fact, I have had enquiries from friends who have expressed an interest in buying gold coins. As all of them are UK based, I think its safe to say that from their perspective it would make such interest a XAU/GBP(sterling gold) trade even if by the physical coin route.

Frankly it makes no difference to me how they want to play it in terms of what kind of gold they want to buy, but it did make me return to looking at gold as priced in pounds which I haven’t done for quite a few months. In addition, I would personally favour physical gold or perhaps even gold shares priced the same way.

So since peaking close to £1,200 an ounce back in 2011-12, the price subsequently fell back to around £700 before we voted to leave the EU in 2016. Of course, since then the price rose sharply, back above £1,000, largely as result of the fall in the pound versus the dollar.

Now, at the beginning of the year that price was above £1,050 an ounce, but for the past few months, after falling back from there, it has been trading a sideways range – largely in between £950 and £1,025 an ounce- as I write, it’s close to £970 an ounce.

Do I see merits for the UK investor to hold a portion of their wealth in gold right now? Yes, I do, as it’s a hedge against a number of possible unforeseen outcomes, not least another lurch lower in the pound if there’s a clumsy EU departure, but against a downturn in the housing market and or the UK equity markets, all of which could hit at once.

More than that though, I think it’s is not just a bet on the pound or the UK markets in general, it’s also a trade in gold itself, which has taken a back seat from a ‘hot money’ perspective recently.

Perhaps we have the hot money flowing into digital currencies to thank for that? I am not sure quite honestly, but gold could find a way back to higher ground if the global equity markets do take a turn for the worse.

Perhaps the interesting thing over recent weeks and months is that fact that despite a significant further push higher in those equity markets, gold hasn’t really lost that much shine which means it could be ripe for a bounce if the opposite happens.

So, I think gold priced in sterling is most definitely an interesting proposition right now. Of course if the pound were to rise significantly at the same time as gold were to fall then this could make for a further move back through £925 an ounce, and may even threaten the 2016 lows near £700 an ounce.

So for that reason I would advocate only trading money that I can afford to tuck away for some time and money that isn’t readily sensitive to the immediate price.

Of course if the price subsequently charges back above £1,200 then a profit is always a profit, but one that could surely have further to run if it breaks above there again.

The post The merits of Gold priced in Sterling appeared first on The Daily Reckoning - UK Edition.


This number determines the gold price

0
0

Take a guess at how many emails I’ve gotten with the word “gold” in them in the last week.

Now, bear in mind that I subscribe to every financial newsletter there is. So it’s a big number…

But still. I was surprised. I’d never have guessed I get 93 gold-related emails a week.

It goes to show gold has a grip on investors’ imagination. They want to know more about it. They want to understand it. They want to know to use it.

Recently I wrote about interest rates. Today, I want to extend my grand theory of interest rates into gold. Because understanding interest rates is the key to understanding gold.

It’s all about real interest rates

I said central banks have limited control over interest rates, that central bankers are free to steer rates the same way a driver is free to steer his bus off the road…

I said interest rates are really determined by the level of inflation and growth in the economy…

I said interest rates are probably going to stay fairly low for the next ten years…

And as a consequence, you could expect stock prices to stay relatively high.

I didn’t mention it at the time, but interest rates are crucial for gold. Historically, the real interest rate — which is the interest rate, minus the inflation rate — has very closely tracked the gold price.

I’ll show you a chart in a moment so you can see this for yourself. But why does this happen?

The real interest rate is a sort of barometer for the overall health of the economy. A high real interest rate means “I can invest my money and get a good rate of return, and when it’s time to spend it I’ll be able to buy more stuff”. Because of course, buying more stuff is the name of the game. High nominal interest rates and low inflation is the dream scenario, the sign of a healthy economy.

Sometimes interest rates are high but inflation is high too, like in the 1970s. Or sometimes inflation is low, but interest rates are low too, like now. Neither of these are ideal. In both scenarios, the real interest rate will low. Because when nominal rates are low or inflation is high, you can’t invest money, wait a while, and then use it to buy more stuff. An unhealthy economy.

Gold does well when the economy is unhealthy, and badly when it’s healthy.

When real rates are high gold goes down. Then real rates are low it goes up. It doesn’t really matter what’s causing real rates to change — it could be inflation or interest rates, or both together — what matters is the combination of the two.

In recent times real rates were very low in the 1970s due to high inflation — gold went up. Then inflation fell a lot and interest rates didn’t move much, from the 1980s through to 2008 — gold went down. Then nominal rates fell a lot, starting in 2008 — gold went up.

Here’s a chart showing how the two numbers interact. It shows the price of inflation-protected treasury bonds, which are a proxy for the real interest rates.

A 1% change in the TIPS yield has moved the gold price by (roughly) $400/oz since the data series starts in 2003.

This makes perfect sense. Gold is an old store of value, but it doesn’t pay any returns. So, when the returns on offer in the market dry up, gold gets more appealing.

To put it another way: the real interest rate, and the TIPS spread, is a sort of proxy for the amount of extra stuff you can buy in the future if you forego buying stuff now. When the market is booming and there’re loads of investment opportunities, that pushes interest rates up (more stuff in the future). When inflation is high, the price of future stuff goes up (less stuff in the future). The real interest rate puts those two numbers together.

The lower that real interest rate number is (ie, the less future stuff-buying you have to forego), the more you just want to put your money in gold, where at least it’ll be safe. Gold may not pay you any income. But it’s got a good long run record of holding its value.

All in all, gold is a sort of a barometer of the health of our contracts and law and promises based economic system. If the system is humming it should be able to generate 2% real returns for investors every year. If the system is broken in some way (either too depressed to generate returns, or too inflationary), that’ll show up in real interest rates. And gold will go up.

So there you have it. According to my theory, you buy gold when rates are about to drop or inflation is about to go up. When the system breaks down, gold keeps you safe.

The post This number determines the gold price appeared first on The Daily Reckoning - UK Edition.

Crypto versus Gold versus Banks

0
0

As Bitcoin approaches $10k, the old bubble question is raising its head again. Well? Is it a bubble or not? And if it is, was gold considered a bubble when it reached $1.9k? Or the dollar index at 103.80?

The time has come to consider just what we are talking about and when we are talking about it.

Anyone considering this in the same breath as the South Sea Bubble or the Dutch Tulip Bulb fiasco isn’t considering the fact that communication, understanding and acceptance have moved on a great deal since the 1720’s.

The internet has brought about a revolution in every aspect of our lives yet most people (certainly over the age of 40), only have a rudimentary knowledge of computers and computing and code is just that.

Just imagine what the world will look like to Millennials children or even Millennials themselves when they reach their mid-forties.

I am not talking here about ICO’s or other “quirky” capital raising methods that have sprung up, although their time will come once the wheat is sorted from the chaff, or whatever the twenty first century equivalent of that expression is.

Let’s talk Bitcoin

What is the difference between going into Starbucks and using Apple Pay to pay for your skinny cinnamon latte compared to buying it using your Coinbase account through your mobile device? None!

So, the problem with using cryptocurrency isn’t in its acceptance or ease of use. There is a problem however when it comes to its exchange into Fiat currency which will need to happen for the foreseeable future.

Personally, I have two wallets and they both cause me immense difficulty with that task. I am assuming it is a factor of AML and it works, but anyone wanting the instant gratification of switching between Bitcoin and dollars as easily as switching between Sterling and Euros is set to be disappointed for now.

It is glib in the extreme to label bitcoin a bubble simply because an asset has been created that a lot of people want and there is no “traditional” explanation to its rise in value.

Only time will tell unfortunately but in the

meantime, I prefer to call it a new paradigm in the transfer of value.

[Editors’ note: if you agree with Alan, and you’d like to know how to buy and profit from cryptocurrencies, then I would recommend reading our experts special cryptocurrency blueprint right here.]

All that glitters

I am going to be honest. I just don’t get it.

Why do investors like gold?

How is it a store of value when a lot of trade is on paper and most of those who own it have either no idea where it is. It is darn less usable than other determinants of value, it’s like pre-cash cash.

“Oh well it is a hedge against inflation”, I hear you say. Well, since in this post global financial crisis world inflation seems to have disappeared, unless you are in the U.K. or Zimbabwe, that is so twentieth century!

Nixon should have put gold to bed in 1970 when he removed the dollar from the gold standard. The only thing it has going for it is that there are as many bulls as there are bears, and that makes a market.

I wrote an article about the gold market recently, and while doing my research, I read a lot of commentators who specialize in the yellow metal, and I saw as many very cogent pieces talking $2000 as I did $500.

Job for life

When I realized I wasn’t the next Jimmy Greaves (Early 70’s equivalent of Harry Kane) I realized I needed a job. “Join a bank” my mother told me, “It’s a job for life”.

Rather incredibly that was in 1973 and what has followed has led me to see that whatever else banking is, it doesn’t provide anyone with a job for life.  Banking has changed out of all recognition over the past fifty years and sadly, virtually none of that change has been for the better.

The advances in technology that have brought a revolution to most people’s lives have, as they apply to banks, been jealously guarded and used to simply increase profitability to an obscene level.

I recently drew cash from an ATM in my home town and had to split a ten pound note for two fives. I innocently wandered into the banking hall (that dates me!) which was deserted and asked the cashier to make the exchange.

She asked to see the debit card I had used and since it wasn’t issued by her bank politely refused and suggested I try my own bank which was “only” a hundred metres down the road.

I then found myself in another bank, this time one I do maintain an account with. I was paying cash into my account and I looked everywhere for a cashier only to be told by the “customer service advisor” that this branch only used machines. I found the machine and then found it was “out of order” I went back to the advisor and she told me that they do have a cashier “upstairs”.

“She only deals with Premium account holders, but you may be able to get her to help you,” if I really wanted to pay in today. Up I went, and she initially refused but I finally managed to persuade her since I had no other choice (although she did actually ask me if I had an account with any other bank that I could use).

To complete the litany, my daughter asked me to pay some money I owed her into her account. This happened to be on a Saturday. I asked the cashier (same bank, different branch) to make sure it was credited “today”. She told me that if I wanted same day value, I should go to the Post Office as banks only open as a “mailbox” on a Saturday and transactions aren’t processed until Monday!

I went to the Post Office and, yes, my daughter was able to draw the money out later to finance a Saturday night out.

Those three incidents have happened to me in the last three months! I think they illustrate perfectly how banks have decided to leave the arena, certainly when it comes to dealing with personal customers which was always their strength.

When talking about banks however, it is impossible not to mention Cyprus. Someone “stole” a large part of Cypriots savings in 2012 at the instruction of the European Central Bank.

Transfer of value is the only use for money. Money is very much a catchall word. When will Bitcoin become money? It is already?

I am not sure if I am a fan of cryptocurrency or a hater of banks. I think a bit of both.

The banks mealy-mouthed efforts to enter the digital market, even though it’s specifically designed to exclude them, typifies the current state of both their value proposition, and the drivers of their boards of directors. Every barrier they put up to “the man in the street” being able to run his life without them hammers another nail into their coffin.

The post Crypto versus Gold versus Banks appeared first on The Daily Reckoning - UK Edition.

Four major catalysts for gold

0
0

On Sept. 29, the August core PCE year-over-year (YoY) inflation figure was released. And the data came in exactly as I expected. YoY inflation for August was just 1.3%, down 0.6% from the January reading of 1.9%. That marked eight consecutive months of flat or lower readings.

Needless to say, the Fed is miles away from their 2.0% target. They’re actually moving consistently in the wrong direction.

Second, when the September employment report came out, a Reuters survey of economists had expected the economy to add 90,000 jobs in September.

How many did it really add?

Not zero, but less than zero. The economy shed 33,000 in September. This was the first time in seven years that the U.S. economy lost jobs.

Now, that may be partly due to the hurricanes that struck Texas and Florida.

But coming on top of the weak inflation data that also came out, it will certainly give the Fed more than enough reason to hit the “pause” button on a December rate hike.

But incredibly, markets gave a nearly 90% chance of a rate hike based on CME Fed Funds futures. That rate will drop significantly by December 13 when the FOMC meets again with a press conference.

Once the market wakes up to the real state of play, the current trends will suddenly reverse. You’ll see the dollar down and gold, euros and bond prices up.

On that score, one of the largest and most conservative wealth managers in the world, Pictet Group, based in Geneva, Switzerland, offers a very constructive view on gold.

Pictet’s strategist, Luc Luyet, says that the Fed will be on hold for the rest of 2017 and most of 2018 because of U.S. disinflation and the failure of President Trump to deliver on his growth agenda. I agree.

With the Fed in easing mode, the dollar will weaken and the dollar price of gold will remain strong. This is a fundamental case for gold that does not take into account other positive vectors such as geopolitical shocks from North Korea or outright assaults on the dollar from Russia and China (see below for more on these).

When a conservative institution like Pictet Group has a kind word for gold, you know the rest of the institutional world will not be far behind.

This all creates an opportunity for an excellent entry point for gold and gold mining stocks. You have a chance to take advantage of weakness and position ahead of the rally to come when reality sets in.

[Editor’s note: on the subject of gold mining stocks, our gold expert, Simon Popple, has a great opportunity to share with you this week. We’ll be sending those details to you very soon, so keep an eye on your inbox.]

Another tailwind for gold is the continuing nuclear standoff with North Korea, as I hinted at above.

There is no doubt that North Korea and the U.S. are on a collision course and headed for war unless North Korea relents, which seems unlikely, or the U.S. acquiesces to North Korean possession of nuclear weapons, which is also unlikely.

At this point, it’s almost certainly too late for negotiation or diplomacy.

The U.S. only has two choices now. The first is to do nothing and learn to live with nuclear blackmail from North Korea. As I said, that is unlikely. The second option is to attack, probably within the next six months, to destroy the Kim regime and its weapons programs.

Trump will go for the attack option.
You don’t even need to ask what will happen to gold prices in that scenario.

They’ll skyrocket and then much higher from there as the repercussions begin.

This is just another reason to acquire physical gold and gold mining stocks if you don’t already have them is now.

Another key gold story from this year is that China has upped its estimate of proven gold reserves to 12,100 tonnes. This report was the source of a lot of confusion among those who follow China, Russia, gold and the status of the U.S. dollar.

Some readers took the word “reserves” to refer to China’s official gold reserves held by the People’s Bank of China and its off-the-books sister entity, the State Administration of Foreign Exchange (SAFE). That’s incorrect.

China’s official gold reserves are about 1,800 tonnes, but may be as high as 5,000 tonnes once off-the-books gold is counted. Some think it’s even higher.

But the report refers to “proven reserves,” which is a geologic (and engineering) concept familiar to the mining community. Basically, it’s an estimate of how much gold is buried in the ground in China and could feasibly be mined at current prices with current technology.

12,000 tonnes is still a lot of gold, but it will take 10 years or more and billions of dollars to dig it up and refine it. Even at 1,000 tonnes per year (double China’s current rate of production), this only increases gold supply about 0.5% per year. That would happen in conjunction with a diminution of gold output from traditional sources such as South Africa.

So increased Chinese gold production may replace diminished South African production, but it does not signify a major increase in global production. It’s worth noting, but not a game changer.

Still, the timing was curious because it came just two weeks after China launched its oil-for-yuan attack on the petrodollar, with the yuan backed up by gold available from the Shanghai Gold Exchange.

In order for the oil-yuan-gold deal to be credible, China needs to show that it could deliver physical gold to the exchange without touching official reserves. This report makes it clear that China will have ample internal gold supplies for years to come. This adds credibility to its plan to price oil in yuan convertible to gold.

If China relied exclusively on gold imports, it could be strangled by gold sanctions aimed at China by the U.S. and its allies such as Canada and Australia. Instead, China looks ready to go it alone with its own gold. That’s a very big deal and one more nail in the petrodollar’s coffin.

It’s also extremely bullish for gold. Any effort to monetize gold implies much higher gold prices in order to avoid deflation given current gold-to-money ratios.

This is just one more reason to position in gold before this horse leaves the barn.

Finally, we need to consider the difficulty of physical gold supplies to keep up with increasing demand. The global gold supply increases only about 1.6% per year, and the floating supply of gold has been disappearing into private vaults from Zurich to Shanghai.

Refiners cannot find enough “scrap” gold (your discarded jewelry) to produce fine gold to meet demand. If demand increases appreciably from here, and there’s excellent reason to believe it will, there’s only one solution to the shortage of gold supply. And that’s much higher prices.

There, four catalysts waiting to send gold much higher. The time to move into gold is now before it resumes its upward climb.

The post Four major catalysts for gold appeared first on The Daily Reckoning - UK Edition.

Gold round-up: what our editors think about the yellow metal

0
0

“In the next financial crisis, central banks could engineer a gold price well in excess of $2,000 per ounce.”

So says David Stevenson, who joins a chorus of experts who believe the gold price could be about to go skywards.

How come?

Well, that’s why our editors have been in touch with you over the last few weeks…

You see, as well as weighing in on what interest rates, supply and demand fundamentals, and current geopolitical tensions mean for the yellow metal, they also predicted where the gold price could end up in the not-too-distant future, and what investors need to do to spot the next surge in price.

That’s why today, I thought it would be useful to bring you a round-up of their thoughts, so you’d be in the best position to take advantage should their expectations become a reality.

The key to understanding gold price

Let’s start with our growth expert, Sean Keyes, who thinks the key to understanding gold, and predicting future price hikes, lies in interest rates and inflation:

“When real rates are high gold goes down. Then real rates are low it goes up. It doesn’t really matter what’s causing real rates to change — it could be inflation or interest rates, or both together — what matters is the combination of the two.”

As Sean says here, in the past, the real interest rate has mirrored the gold price.

This, according to Sean, is the green light investors should look out for when trying to spot an incline in price.

David Stevenson agrees.

He kicked off the gold theme last week by deconstructing the popular view that interest rates could be harmful for bullion, and that inflation alone would improve value.

Both, according to David, are only partly right.

He reckons the true driver of the gold price is US real interest rate, saying:
Gold only comes under pressure when nominal rates rise faster than increases in the consumer price index.

Further, before the great financial crisis that began a decade ago, the real interest rate was also viewed as being roughly equivalent to the real economic growth rate.

Now the US economy has been expanding someway faster than 0.5% in recent years. For example, 2017 Q3 annualised real growth was 3%.

So you see, according to David, negative interest rates could be a key facilitator for a rise in gold price.

But why would negative interest rates be a problem now?

In David’s view, the post-financial crisis is “very long in the tooth,” and at this point, recession looks more likely than inflation.

An obvious catalyst

So, with stock prices and junk bonds appearing more vulnerable to significant falls, central banks are likely to rely on negative interest rates to patch-up the wounds.

And this could be excellent news for the gold price:

In the next financial crisis, central banks could engineer even larger negative numbers that could lead to a gold price well in excess of $2,000 per ounce.

That said, there’s another obvious catalyst that could send the gold price on a sharp upwards curve. Our associate Publisher, Glenn Fisher, sat down with GoldCore founder Mark O’Byrne last week to talk about it.

When asked what he believed could trigger a rise, Mark said for him, geopolitics and the supply demand fundamentals would play a key role:

“We are on the cusp of peak gold production…
Gold production in South Africa has already fallen over 75% and it is the canary in the gold mine so to speak.

All the data is suggesting this and leading people in the gold mining industry itself to say we are on the verge of a gold peak.”

According to Mark, “Uber-bull predictions of gold at over $5,000 per ounce are not beyond the realms of possibility…”

It’ll be interesting to see if Mark’s prediction plays out, especially if political tensions between the US and North Korea intensify, as regular contributor, and ex-financial threat analyst for the Pentagon, Jim Rickards, thinks they will…

Gold’s time to shine

You’ve probably heard of Jim Rickards before.

Famously bullish about gold, Jim recently stated in an article for The Daily Reckoning that:

The crisis in North Korea is not getting any better; it’s actually getting worse. Syria, Iran and the South China Sea are additional flashpoints. The headlines may fade in any given week, but geopolitical shocks will return when least expected and send gold soaring in a flight to safety.

Finally, the Fed will not raise rates in December, contrary to market expectations.

As market probabilities catch up with reality, the dollar will sink and gold will rally.”

You can read Jim’s full article here.

Should these events play out, investors may flock to gold as a safe-haven asset, and Jim’s $10,000 per ounce prediction could become a reality a lot sooner than anticipated.

So there you have it.

Our editors hit on some important points about the gold price last week, but the relationship between interest rates and inflation, and mounting geopolitical tensions – both of which are arguably occurring right now – proved to be their two main catalysts.

Whether you agree with them or not, I hope you’ve at least found our editors’ opinions over the last couple of weeks useful.

Perhaps they’ve confirmed your own suspicions that the gold price is going skywards, or maybe you’re still sat firmly on the fence.

Either way, we’d like to hear from you. You can send any feedback in to feedback@agora.co.uk and we’ll address your queries in future articles.

In the meantime, check out this potentially major new gold opportunity from our very own gold expert, Simon Popple.

The post Gold round-up: what our editors think about the yellow metal appeared first on The Daily Reckoning - UK Edition.

Where next for gold?

0
0

Some of you may know Simon Popple, he is Agora Financial UK’s expert on all things gold, and runs the popular Gold Speculator investment service.

He has an impressive CV which includes a period as director of one of Europe’s largest private investment companies. He is also the UK’s agent for South Africa Bullion, so who better to provide us with some perspective on gold’s future for 2018.

Simon, gold prices gained over 23% in 2016-17, and this has caused some to claim that a multi-year secular bull market has begun which will lead to $10,000 per ounce for gold by the mid-2020s. What does this bull market mean for gold and do you agree with those predictions?

Whilst I certainly think the next bull market has begun, I’ve got no idea where it will take us.

I’m confident we will break through the previous high of £1,900 per ounce, but to be honest, nobody really knows where the price could go.

My point is that it does not need to go anywhere near its previous high for investors to make some fantastic returns from the mining stocks.

If you take a look at the bond, equities and real estate markets right now, it’s clear they are at multi-year, in some cases, all-time highs. The same cannot be said for the miners. They are one of the few asset classes in the doldrums right now.

You probably need to be a contrarian to follow them, but with gold prices ticking up, I don’t think you’ll be a contrarian for long!

Do you think recent gains could be another bear trap lying in wait?

We all know that markets go up and down, with commodities being particularly volatile. So to make money in this market you really need to do two things.

Firstly, don’t commit all your money at once. If the market takes off, then great, but if it falls back, then you’ve got some more capital to inject at lower prices.

Secondly, don’t commit capital which you’ll need to access in the next 12 – 18 months. Because if you need to spend it, you could find yourself liquidating at the worst possible moment.

There are also rumblings of a great economic meltdown on the horizon, is gold still a safe haven for storing wealth in times of economic stress?

Historically, gold has been a safe haven and I would hope that would be the case in the future.

But we don’t make up the rules…

Compared to other assets there are two very distinguishing features of gold.

Firstly, throughout the world gold has been used as a store of value for thousands of years.

Secondly, it’s tangible, unlike crypto currencies which require a computer to trade. I like tangible stuff!

If the wheels fall off the global economy I think these two attributes will be vital.

Russia, China, Iran and Turkey have been buying gold in huge quantities, do you see a reason for this?

I think they recognise the inherent value of gold. Simple as that.

If there’s another meltdown, then having at least part of your currency backed by something people understand (and attribute value to) makes perfect sense.

Fiat money can be printed. Gold can’t.

Have you seen an impact on the gold market because of the crypto currency boom?

Despite a decent return on the gold price last year, the gold and silver miners had a relatively modest year. So I think that some of the capital that would have flowed into them has found its way into cryptos.

Given the massive volatility in cryptos right now, it would be no surprise to me if gold miners benefit, as investors switch from cryptos to them. At least gold miners are producing something tangible.

Are you positive about mining operations in 2018, will there be a healthy stream of new gold entering the market?

Yes, I am very positive about mining in 2018. Although we have gone past the point of peak discovery, there’s no reason to believe we won’t see a healthy stream of new gold entering the market this year.

The million dollar question is what will the demand be?

If there is a move to physical gold because of some “major event”, I think the price would be significantly higher. How much higher is impossible to say, but probably enough to make some great returns from mining stocks.

I think it makes sense for everyone to have at least a small proportion of their portfolio in gold.

Thank you, Simon.

P.S. If you believe in the bright future of gold and an upcoming price rally, or even if you’re on the fence, then I’d recommend reading Jim Rickard’s FREE book, A New Case for Gold.

Jim is a former financial threat analyst to the Pentagon and has three New York Times bestsellers behind him.

In A New Case for Gold, Jim delves into the future of the precious metal, and provides his expert advice on how you should prepare. Click here to find out how to claim your FREE copy and begin preparing for a golden future.

The post Where next for gold? appeared first on The Daily Reckoning - UK Edition.

What has happened every ten years?

0
0

In 1977-1978 the Dow Industrial Index fell 28% – Gold soared 92%.

Remember the crash in 1987?

When the Dow Industrial Index tumbled 39% – Gold was up 8%.

Closer to home, when the Dow Industrial capitulated 32% in the 2008 crash – Gold rose 44%. 2018?

We have already seen a correction – and I believe this is only the beginning.

Appreciate that history is not always a precursor to what may happen in this day and age, so I dug a bit deeper to see what others are saying.

I did not have to dig very deep.

Bank of America has a Bull and Bear Indicator.

When it gets triggered, it’s a remarkable event.

According to Bank of America back-tests, not only does this particular indicator have a 100% hit rate once triggered…

…but on 11 out of 11 signals since 2002, the market dropped on average 12% after it was triggered.

And it’s moving fast – in January 2017 it was a “comfortable” 2.8 and just over 12 months later – it’s flashing red.


Click to enlarge image

Same old, same old?

If you’re not a fan of gold, you might think it’s boring, non-yielding and very cyclical.

But about every ten years the market takes a tumble. And there’s no denying gold has done very well in those periods.

In 2008 the financial system was close to completely collapsing – but Quantitative Easing saved the day. Printing money at ultra-low interest rates has been great.

But what happens when there’s another crash?

Interest rates are already low, debt is already at eye watering levels.The dollar is already in free fall.

They’ve run out of road. There’s nowhere else to kick the can.

QE papered over the cracks, but this can’t go on forever.

What do we know that ain’t so?

Will Rogers once said: “It’s not what we don’t know that hurts, it’s what we know that ain’t so.”

Most people think the bull market in stocks is because the economy is on fire – meriting increases in interest rates.

But that ain’t so. If things were so great the dollar should be rising, but it’s falling.

Something else is happening.

Take a look at this chart:


Click to enlarge image

There’s almost a perfect match between the performance of the S&P and the growth in the Fed’s balance sheet caused by Quantitative Easing.

Here’s the thing.

The bull market is nothing to do with a roaring economy. It’s because so much money has been pumped into the market.

Central Bank policy has essentially meant that investors have bought every dip, knowing there are some very deep pockets nearby with a ready bid.

This has supported the price. But when that support goes, look out below!

Surely bonds are a safe haven?

OK, I hear you say, but what about bonds? They’re the safe haven assets of choice.

Well, take a look at these charts – and remember the lower the yields, the higher the bond price.

I’m just showing the US, UK, Switzerland and Japan, but I can assure you the rest are very similar.


Click to enlarge image

Bonds are already very expensive.

So is real estate for that matter. And if you’re so inclined, cryptocurrencies don’t seem much of a bargain to me either.

Which is why I like gold.

As far as I’m concerned, at least some of your portfolio should be in the yellow metal.

And if you want to try and make some spectacular returns, you should take a look at the miners.

Let me explain why.

If a mining company is operating with All-In Sustaining Costs of $1,100 per ounce, then at the current gold price of [$1,324] they are making about $250 per ounce.

But if the gold price goes up to $1,700 per ounce – an increase of 26%, the miner’s profit could increase from $250 per ounce to $600 per ounce – an increase of 140%!

When investors find out that what they firmly believed isn’t so, they will flood into gold stocks, ultimately driving incredible gains.

The beaten-down and left-for-dead gold miners’ stocks are deeply undervalued today with gold still out of favour.

This is the only sector in all the stock markets likely to power much higher when everything else heads lower.

That’s why I believe great gold stocks are essential to own today. When the markets crash, gold stands to do very well indeed.

If you expect the bull market in stocks and bonds to end soon like I do, investing in gold miners’ stocks could be the best investment decision you make this year.

But don’t just take my word for it…

Click here to find out what best-selling author and gold expert, Jim Rickards, believes could be the most profitable way to play the gold markets in 2018.

The post What has happened every ten years? appeared first on The Daily Reckoning - UK Edition.

Bitcoin vs. Gold

0
0

That was quick!

Late last week I thought most investors were too scared to buy the dip. Boy, was I wrong…

Traders are gobbling up stocks, pushing the major averages higher for five days in a row. Eager buyers have all but erased the market’s double-digit pullback. As of this morning, the Dow, S&P 500, and Nasdaq Composite are all back above their respective 50-day moving averages. The UK’s FTSE is also rebounding strongly.

Futures are up once again this morning. If the gains hold to the closing bell, MarketWatch reminds us that we’ll clock the best weekly performance stocks have seen in more than a year.

Reasons to be optimistic perhaps. Who really knows? Volatility rules the roost here.

It is the gold and crypto markets however, that seem to be rising in the shadow of stock volatility.

Here’s an update on where both markets are at…

Is this Bitcoin comeback the real deal?

Thanks to the return of volatility in the stock market, Bitcoin and other cryptocurrencies have completely fallen off the financial media’s radar.

After being chopped in half, Bitcoin quietly bottomed out in early February and began its comeback journey. It is now up more than 60% off its recent lows and is consolidating just over $10,000.

  Click to enlarge

The parabolic rise we witnessed in Bitcoin during the fourth quarter was unsustainable. But the crypto faithful are quick to remind us that Bitcoin has endured more than a handful of crashes during its short existence. Each time, Bitcoin has recovered and pushed to new highs.

Is this time different?

Gold pushes higher

Stocks aren’t the only asset class pushing higher this week. Precious metals are also perking up. Gold exploded higher on Wednesday and made a run at its January highs near $1,360 as the dollar retreated toward 3-year lows…

  Click to enlarge

We don’t have to search far to find a catalyst for gold’s sharp bounce.

Remember, the U.S. dollar is now off to its worst start of the year since 1987. And it doesn’t look like it’s going to recover anytime soon.

A breakout here could boost gold to prices we haven’t seen in more than four years. With the threat of inflation growing and the dollar tumbling, conditions are ripe for an extended rally in precious metals.

The post Bitcoin vs. Gold appeared first on The Daily Reckoning - UK Edition.


The World Wants Its Gold Back From the U.S.

0
0

We’re all familiar with the so-called “run on the bank.” It usually begins quietly with just a few depositors getting nervous about the solvency of the bank.

They line up to get their cash out before the bank closes its doors. Soon the word spreads and the line gets longer. The bank projects an air of confidence and gives cash to depositors who request it as long as they can, but pretty soon the cash runs out.

The classic image of this is the scene from the Christmas-season film It’s a Wonderful Life, with Jimmy Stewart. We’ve all seen it. Now something similar is happening at the Federal Reserve Bank of New York.

What’s different is that the run on the bank involves gold, not cash. The New York Fed will never run out of cash because they can print all they need. But they could run out of gold.

Until recently, the New York Fed had about 6,000 tons of gold stored in its vaults on Liberty Street in Lower Manhattan. Contrary to popular belief, the gold stored there does not belong to the United States (the U.S. gold is stored in Fort Knox and West Point).

The Fed gold belongs to countries around the world and the International Monetary Fund.

Beginning a few years ago, central banks demanded the return of their gold to their home countries. Germany was the most prominent example, but there were others, including smaller holders such as Azerbaijan.

The process is difficult because the Fed bullion consists of old bars, some stacked up since the 1920s, that don’t meet today’s standard for purity and size. This doesn’t mean the gold is bad, just that the bars have to be melted down and re-refined to meet the new standards.

Now, one of the largest holders, Turkey, is reclaiming its gold also. Turkey has had 220 tons stored in the U.S.

And Turkish President Recep Tayyip Erdogan has recently suggested that international loans should be made in gold instead of dollars.

Here’s what he told the Global Entrepreneurship Congress in Istanbul on April 16:

I made a suggestion at a G-20 meeting. I asked: Why do we make all loans in dollars? Let’s use another currency. I suggest that the loans should be made based on gold…

With the dollar the world is always under exchange rate pressure. We should save states and nations from this exchange rate pressure. Gold has never been a tool of oppression throughout history.

Meanwhile, Russia and China continue to amass gold.

The gold stash in New York is dwindling and global behavior is coming to resemble a run on the gold bank.

Skeptics claim not all of the gold is there. My own view is that New York does have the gold, although a lot of it may be leased out to support gold price manipulation by the big banks and China.

Either way, we may soon find out if New York has to shut its gold doors just like any other insolvent bank.

And we may also find out how much patience the world has left with the dollar.

If, as I suspect,  a dollar reboot is on the horizon, average Brits could benefit from the potential change.

Hit this link to find out how.

The post The World Wants Its Gold Back From the U.S. appeared first on The Daily Reckoning - UK Edition.

Seven Pillars of Gold

0
0

You need to own gold and you need to own shares in companies that find and mine it. I lay out seven reasons below, in what I’m calling the “Seven Pillars of Gold.”

Here they are:

Pillar One: Oil prices are rising

From 2015 to late 2017, we enjoyed a three year respite from the olden days of $100 oil; but now, oil has decided to get up off the mat.

In the US, from a price in the $40 range a mere six months ago, we’re now into the $70s per barrel and higher prices are forecast. Of course, oil means energy, which means that higher oil costs will translate into higher prices for just about everything, not just at the fuel pump.

More costly energy will be a core component of inflation throughout the economy. That is, it will cost more to drive a car, for farmers to grow food, truckers to transport that food, businesses to buy supplies ranging from paint to roofing shingles.

Rising energy costs are a type of inflation that we saw in the mid-2000s, during the previous run up to oil at over $130 per barrel in 2008. Then though, energy costs were squashed by “importing deflation” from low-priced overseas goods. But that trick has played out.

Americans haven’t experienced gut-ripping energy-based inflation in perhaps two generations, since the late 1970s and early 1980s. But when higher oil prices really pull into port, the ripple effect of inflation across every part of the economy will weaken the dollar’s purchasing power.

We’ll see it in higher gold prices.

Pillar Two: Interest rates are rising

According to the Congressional Budget Office (CBO), interest on the national debt is among the fastest growing parts of the federal budget. In fact, by 2028 – just 10 years from now – the federal budget will spend more on interest payments (about one trillion dollars per year) than on defence (currently about $800 billion total).

Rising interest rates will crowd out most everything else in the federal budget, from defense to air traffic control to national parks. The budget money just won’t be there, because so much will go to pay interest. The only workarounds for Congress are less spending (ha!) or just open the spigots and roll with higher annual budget deficits.

Any way you cut it, the dollar – and the Federal Reserve’s unique powers of “money creation” – will surely be in play to wallpaper this mess. Again, we’ll see reduced purchasing power and higher gold prices.

Pillar Three: The petro-yuan

China has begun trading for oil in yuan, recently launching its so-called “petro-yuan.” Here’s the facts.

China is working hard to abandon the dollar as an instrument with which to pay for oil. It’ll use its own currency, the yuan, where and when possible. Currently, China’s petro-yuan contracts are what are called “long-dated,” meaning they commence in September 2018. (Four months is “long” if you’re trading.) In this respect, the Chinese are taking things slowly at first; no surprises.

China’s ultimate goal is to convince Saudi Arabia – one of China’s top-three oil suppliers – to take yuan in exchange for oil, and thus to abandon the 45-year link of Saudi oil to the petro-dollar.

If the globally dollarized oil trade takes a hit, it means many more bad things for the purchasing power of those “dead presidents” in your wallet or bank account.

Here’s the good news in all this. If you understand the implications, you are already several months ahead of the broad market on this. You have time to buy in on gold and miners. The entire setup is overall favourable for gold.

Pillar Four: Currency Wars

We’re already in the midst of “Currency Wars,” along the lines of what my colleague Jim Rickards discussed in his 2010 book of that title.

These types of monetary competitions are built around the very real understanding that nuclear armed nations cannot afford to fight old-fashioned, kinetic wars with each other. No battleships and bombers; but large, powerful nations can still play other games; such as cyber war and attacks on the other nation’s currency.

The currency war idea is ripe to hatch in the sense that Russia and China (among others) have accumulated immense amounts of gold over the past decade or so. Russia, in particular, is quite transparent about its national gold reserves, and Russian spokespeople make no secret that the gold is intended as a defense against dollar hegemony.

One of Jim’s theses in Currency Wars is that Russia and China could team up to combine their respective gold resources, and create a rival currency to the dollar. If the world trading system has an alternative to the dollar, it’s hard to imagine that the scenario would favor the U.S. dollar. Usage would likely decline to some level from decades past.

In other words, the dollar has had a runup in its percentage of world trade over the past 45 years. Looking ahead, if the dollar loses even some of its status as the world’s “reserve currency,” we should definitely expect to see its value decline and gold prices to increase.

Pillar Five: Tariffs, sanctions and potential trade wars

With global trade, it’s fair to say that everything is related to everything else. Lay a higher tariff on Chinese steel, and China taxes U.S. soybeans. Ban exports of high tech chips to China, and China might ban exports of rare earth magnetic powders to the U.S.

The “era of dollar supremacy is fast ending.

We no longer live in a unipolar, post-Cold War world in which the U.S. reigns supreme.” Indeed, to a large degree, the U.S. owes its current global economic and political dominance to a unique, near-accidental correlation of forces at the end of World War II in 1945. It’s a long story.

The short version is that the most destructive war in human history created the greatest economic engine that the world has ever seen. Post war, the U.S. was like the proverbial Phoenix, rising out of the ashes. It’s a massive, complex historical process, of course; but the point to keep in mind is that the post-war world – certainly that world for the U.S. – is coming to the end of its long, 73-year run.

Other nations, and even entire regions of the rest of the world, are rising; new phoenixes from their own beds of ash. Consider what analyst Christopher Preble recently wrote in the New York Times, that “America’s share of global wealth is shrinking. By some estimates, the United States accounted for roughly 50% of global output at the end of World War II… It has fallen to 15.1% today.”

Now, President Trump is using tariffs, taxes, sanctions and policy changes to try and rearrange the global trading dynamic. But global trade has evolved over the past four generations. Trump may or may not succeed in his quest to rearrange the elements of the U.S. economy; to “Make America Great Again. But if our nation is going to get into a trade war, you better have some gold in the vault.

Pillar Six: War

We’re living in a time of risky geopolitics, right at the edge of true war. Wars cost much “silver,” as the ancient Chinese scholar Sun Tzu once noted. As Sun Tzu wrote, “if the campaign is protracted, the resources of the State will not be equal to the strain.”

Now, consider the global scale of current saber rattling, from the Baltics to the Black Sea, to the Persian Gulf to the South China Sea, Korea and more.

More specifically, consider how NATO has expanded right against Russia, drawing wrath from the latter. Or think about Ukraine, where recent fighting has killed tens of thousands of soldiers and civilians. I barely need mention the Middle East, from Libya to Syria to Afghanistan.

You may have seen articles about the “new Cold War” between Russia and the West. It’s not just abstract anymore, either. It’s fair to say that U.S. forces are already “fighting” against Russians, in a manner of speaking, via full-fledged electronic warfare in the skies over Syria.

Meanwhile, on the other side of the globe, according to Admiral Philip Davidson, the likely next leader of U.S. Pacific Command, China has already taken control of the South China Sea.

We’re living in a world that’s quite close to real war, not just “currency wars.” And gold prices tend to spike on rumors of war, let alone when the shooting begins. One way or another – near-war, fight a war, win a war or especially when a side “loses” a war – it’s not good for the dollar. Come war, and rumor of war, we’ll see the value of dollars decline and gold prices increase.

Pillar Seven: Peak Gold

In a world where demand for gold is likely to rise for a wide variety of reasons, there will be less of it available to buy. We’re just not seeing a lot of new gold discovery. And fewer companies are spending the kind of funds required to make big impacts.

I’ve discussed the lack of investment and how large companies are spending big bucks, simply to stand still in terms of output. Even large gold miners are actively planning to shrink output, to focus on profitability.

We’re “there,” at the peak of gold production for a while to come, barring some sort of technical revolution – which might happen, but we’re not there yet.

When I look at the landscape for gold, I see the results of the lack of past exploration and development, and in consequence, few new mines coming online.

It’s accurate to say that gold output globally has plateaued just now; it’s likely declining in years to come. The result will be higher prices for gold, and for companies that mine it.

So there you have it; seven reasons why gold prices are geared to rise, benefitting metal owners and well-run miners that can pull yellow metal out of the ground.

Gold is in a breakout pattern, awaiting its moment. The price has been dammed-up for a while, via all manner of manipulations. But that golden dam is ready to break.

All the debt, the bad policy, the war dangers, the lack of investment and new output… It’s a prime setup for buying power to rush into the precious metal space.

And if you’re not already invested when the move begins, you’ll wind up chasing momentum.

 

The post Seven Pillars of Gold appeared first on The Daily Reckoning - UK Edition.





Latest Images