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Why did JP Morgan say “Money is gold, nothing else”?

Why did JP Morgan say “Money is gold, nothing else”?

There’s a story about JP Morgan and Andrew Carnegie, from the Panic of 1873. Carnegie was a client of the Morgans, with $50,000 on deposit plus some stocks. After selling his $10,000 interest in a railroad, Carnegie supposedly came by the office to pick up a check for $60,000. To his surprise, JP Morgan handed over a check in the amount of $70,000, explaining that the bank had underestimated how much cash Carnegie had on deposit. Given what seemed like an obvious overpayment, Carnegie refused to take the extra funds at first. He said, “Will you please accept these ten thousand dollars with my best wishes?” But Morgan replied, “No, thank you. I cannot do it.”

A clue as to why JP Morgan would so magnanimously Carnegie more than he expected, is found in his famous 1912 testimony before Congress, when he brought up the subject of character:

Q: Is not commercial credit based primarily upon money or property?

JPM: No, sir. The first thing is character.

Q: Before money or property?

JPM: Before money, or anything else. Money cannot buy it.

In light of this exchange, it’s clear that JP Morgan acted the way he did with Carnegie because he wanted to preserve his reputation of high character. Character, after all, was in his mind crucial to creditworthiness.

Why is character so important? Because credit is all about trust. When a bank extends credit to a debtor, the bank is trusting that he will honor his word, and repay the debt on time. It doesn’t matter if the debtor is wealthy. If he is dishonest, he’ll have a hard time getting credit. It makes sense. As JP Morgan said later on in his testimony: “A man I do not trust could not get money from me on all the bonds in Christendom.”

…click on the above link to read the rest of the article…

Gold Yuan Crypto

George Caleb Bingham The verdict of the people 1854
It’s been a while since we last heard from Dr. D, but here he’s back explaining why neither gold nor the yuan nor cryptocurrencies can or will replace the dollar as the reserve currency, but together they just might:

Dr. D: “Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” –Ogden Nash

Over the last year or two there’s been discussion about the U.S. Federal spending moving beyond $4 TRILLION dollars, and whether a $1+ trillion dollar annual deficit, on top of a $20 Trillion national debt – Federal only – is sustainable. It isn’t.

“What can’t go on, doesn’t” is the famous quote of economist Herbert Stein. Since a spiraling deficit of $1 trillion deficit on a $20 trillion debt can’t go on, what will we replace it with when it very soon doesn’t? Historically gold. Whatever gold exists in the nation’s coffers, whether one coin or 8,000 tons, is used to as the national wealth, and fronted by paper to re-boot the currency. With some additions such as oil and real estate, this was the solution in Spain, France, Germany, and the Soviet Union among hundreds of fiat defaults. Why? Because at a time of broken promises — real goods, commodities that can be seen, touched, and used – are the tangible proof of wealth, requiring no trust, and from which the human trust system of paper and letters of credit can be rebuilt.

But in these complicated, digital times perhaps that’s too simplistic. Perhaps we have grown smarter than all our fathers and this time it will be different. Will it really be the same? Let’s look at how the system works now.

…click on the above link to read the rest of the article…

Sales of Physical Gold Explode as the Currency Wars Continue to Unfold 

Sales of Physical Gold Explode as the Currency Wars Continue to Unfold - Nathan Mcdonald (03/08/2018)

Trade wars are erupting, scandals are unfolding and now the United States is entering into the much prophesied currency wars that many experts have predicted was coming for years.

The United States and China, who continue to hold out against American tariffs, are entering into a quickly accelerating downward spiral.

Already the US government has ordered a massive $34 Billion worth of tariffs on Chinese goods entering into the United States, while at the same time, China has fired back shots of their own, issuing tariffs of their own kind.

As predicted, this would be far from the last that we would see, as now, we are learning today that President Trump plans on increasing tariffs by an additional 25% , up from the previous 10%.

This equates to a stunning $200 Billion worth of tariffs on Chinese goods, attempting to enter the United States marketplace.

This drastic increase in tariffs comes on the heels of a significant decrease in the value of the Yuan, which essentially has circumvented the previous tariffs placed by President Trumps administration .

These actions, and China’s willingness to devalue their currency proves just how serious they are about winning this currency war, while at the same time, so too does Trump’s acceleration in additional tariffs.

Just how low China is willing to take the Yuan is yet to be seen, as are the unintended consequences of taking such a drastic action.

Already, markets, especially those in China, are experiencing significant turbulence, as they corrected sharply lower.

Meanwhile, markets in the West were more optimistic in their ability to see this trade war through, as Apple surged higher, pulling the broader markets up, along with it.

…click on the above link to read the rest of the article…

The Case For Gold Is Not About Price

The Case For Gold Is Not About Price

Gold

Between the years 1971 and 2011, the price of gold went from $42.00 per ounce to $1900.00 per ounce – a forty-five-fold increase. This is depicted on the chart below…

(Click to enlarge)

Looking at the chart, it would appear that gold is in a long-term bull market and that continually higher prices over time can be expected. Proponents of this approach to gold cite fundamentals such as a weakening U.S. dollar, social unrest, wars (combat and trade), political instability, etc.

And the numbers seem to bear this out. For the forty-year period between August 1971 and August 2011, the price of gold was up forty-four hundred percent.

But are we really making any money? The chart below paints a clearer picture…

(Click to enlarge)

The inflation-adjusted chart immediately above seems to support a severely modified view of gold from that which we mentioned earlier. Rather than long-term, ever-higher, onward and upward, we see strictly defined periods of extreme volatility. Indeed, it appears almost cyclical.

And our previous total return of 4,400 percent for the forty-year period August 1971 to August 2011, is reduced to 900 percent. Even so, that is the equivalent of a 6% average annual return, net of inflation. Which is huge.

(In case you are interested, the average annual return for the S&P 500 – with dividends reinvested – for the same exact time period, is 5.13 percent. That relatively small differential on an annual basis is magnified considerably when you compare cumulative total returns: Gold at 900% vs. S&P 500 at 639%)

So, does the nine hundred percent total return/6% annual return represent a profit?  Yes, most definitely. Net of the effects of inflation, the price of gold increased ten-fold; all of which represents added value. Here’s why…

In 1971, the cost for one loaf of bread was $.24. The average cost for one gallon of gasoline was $.36. With gold at $42.00 per ounce, you could purchase one hundred

…click on the above link to read the rest of the article…

Everyone is Hoarding Gold

Everyone is Hoarding Gold

Tolkunbek Abdygulov of the Kyrgyz Central Bank has stated that any currency, whether dollars, rubles, or yuan, has become too vulnerable. The small mountain nation, with a population of 6 million, relies heavily on Russian and Chinese imports. With the possibility of global trades war on the horizon, Kyrgyzstan prefers to protect its financial stability by amassing gold. It suffered during the ruble devaluation in 2015, and it is turning to gold as a hedge against any renewed economic upheaval.

Kyrgyzstan is merely following in the steps of other, larger nations, such as Russian, India, and Turkey, who are also increasing their gold reserves. The U.S. and Germany both have reserves that are 70 percent of its central bank holdings. If there is a trade war, countries are prepared.

Gold has traded steadily and unspectacularly for the past decade, but looming tariffs and trade sanctions have pushed gold out of the doldrums and into the stoplight.

Kyrgyzstan, one of the few post-Soviet republics with its currency, has been buying gold since 2014. Abdygulov has kept the nation’s currency, the som, relatively steady and recognizes that stockpiling gold will serve as a hedge against inflation.

Kyrgyzstan is smart to worry. Following President Trump’s promise to institute tariffs on imports, Russian has sold off half of its U.S. Treasury bonds, more than $47 billion, in retaliation. At the same time, Russia’s central bank has increased its gold reserves to 62 million ounces, at a value of $80.5 billion, in an effort to diversify its reserves in view of possible geopolitical unrest. Russian is less interested in increasing return on its investments.

…click on the above link to read the rest of the article…

Another Billionaire Warns “We’re Running Out Of Gold”

Simply put, mining companies are no longer finding vast, new deposits of gold to replace their aging mines.

I quoted Pierre Lassonde, the billionaire founder of gold royalty giant Franco-Nevada and former head of Newmont Mining:

If you look back to the 70s, 80s and 90s, in every one of those decades, the industry found at least one 50+ million-ounce gold deposit, at least ten 30+ million-ounce deposits, and countless 5 to 10 million ounce deposits.

But if you look at the last 15 years, we found no 50-million-ounce deposit, no 30-million-ounce deposit and only very few 15 million ounce deposits.

Pierre Lassonde is one of the most well-respected and knowledgeable mining experts in the world. And he thinks we’re reaching ‘peak gold’.

But, as Simon reports today, he’s not alone.

Last month, Rudy Fronk, Chairman and CEO of Seabridge Gold noted:

Peak gold is the new reality in the gold business with reserves now being mined much faster than they are being replaced.

Nick Holland, CEO of South Africa’s largest gold producer Gold Fields:

“We were all talking about how production was going to increase every year. I think those days are probably gone.

Kevin Dushnisky, President of mining giant Barrick Gold:

“Falling grades and production levels, a lack of new discoveries, and extended project development timelines are bullish for the medium and long-term gold price outlook.

But the biggest warning comes from resource legend Ian Telfer, chairman of Goldcorp. In an interview with Financial Post, Telfer said:

“If I could give one sentence about the gold mining business… it’s that in my life, gold produced from mines has gone up pretty steadily for 40 years.

Well, either this year it starts to go down, or next year it starts to go down, or it’s already going down… We’re right at peak gold here.

…click on the above link to read the rest of the article…

Has The PBOC Taken Control of The Gold “Market”?

Has The PBOC Taken Control of The Gold "Market"? - Craig Hemke (10/07/2018)

The evidence is mounting, and we invite you to consider the implications.

First, a few items of background information. Perhaps these are unrelated, perhaps they are not.

Fast forward to the summer of 2018. Two weeks ago, our fellow columnist here at Sprott Money, David Brady, wrote an insightful piece regarding a new correlation for the global gold price—the USDCNY—which is the exchange rate of US$ to Chinese yuan. Though the PBOC maintains a “peg” for this rate, the rate is allowed to fluctuate if the PBOC deems it necessary. Before we go on, I urge you to read David’s column: https://www.sprottmoney.com/Blog/gold-the-chinese-…

Now consider this. Since the PBOC began to actively devalue the yuan versus the dollar four weeks ago, the price of COMEX gold has tracked the yuan nearly tick-for tick. This is clearly shown on the chart below. We’ve taken the USDCNY and inverted it to CNYUSD. This is shown in candlesticks. The price of the Aug18 COMEX gold is represented as a blue line.

…click on the above link to read the rest of the article…

Congressman Alex Mooney’s Bill Defines the Dollar as a Unit of Gold

This story came out in March, but I just now caught it. I salute Mooney for wording the legislation correctly.

HR 5404 A bill to define the dollar as a fixed weight of gold was introduced to the Committee on Financial Services on 22nd March 2018 by congressman Alex Mooney.

Here is the actual HR5404 Bill.

Key Item

“Effective 30 months after the date of enactment of this Act – (1) the secretary of the Treasury shall define the dollar in terms of a fixed weight of gold, based on that day’s closing market price of gold; and (2) Federal Reserve Banks shall make the Federal Reserve notes exchangeable with gold at the statutory gold definition for the dollar.”

That is how it must work. Mooney did not make the mistake of setting a price for gold. He correctly defined the dollar as a unit of weight.

Thoughts

Supposing HR5404 gets signed into law in 6 months, that would mean that the US would need to transfer to a gold standard by Spring 2021. The mere passing of this bill would send gold rocketing over the next few years and, assuming the US gold stocks are intact, it would neutralise the national debt. While there is no mention of the national debt in the bill, this is clearly a major benefit of a gold standard to the US administration. However, as the gold price rises against federal reserve notes, so does everything else, which means the public worldwide would suffer crippling inflation if they hold FRN dollars and other fiat currencies.

The price of gold would certainly skyrocket, but it is not necessarily so that national debt would be extinguished. However, it is clear that any countries that do not have gold reserves would be severely punished.

…click on the above link to read the rest of the article…

Why Gold Standard is Not Conducive of Boom-Bust Cycles?

According to some commentators on the gold standard, an increase in the supply of gold generates similar distortions that money out of “thin air” does.

Let us start with a barter economy. John the miner produces ten ounces of gold. The reason why he mines gold because he believes there is a market for it. Gold contributes to the wellbeing of individuals.

He exchanges his ten ounces of gold for various goods such as potatoes and tomatoes.

Now people have discovered that gold apart from being useful in making jewellery is also useful for some other applications.

They now assign a much greater exchange value to gold than before. As a result, John the miner could exchange his ten ounces of gold for more potatoes and tomatoes.

Should we condemn this as bad news because John is now diverting more resources to himself? This however, is just what is happening all the time in the market.

As time goes by people, assign greater importance to some goods and diminish the importance of some other goods. Some goods now considered as more important than other goods in supporting people’s life and wellbeing.

Now people have discovered that gold is useful for another use such as to serve as the medium of the exchange. Consequently, they lift further the price of gold in terms of tomatoes and potatoes. Gold now predominantly demanded as a medium of exchange – the demand for the other services of gold such as ornaments is now much lower than before.

Let us see what is going to happen if John were to increase the production of gold. The benefit that gold now supplies people is by providing the services of the medium of the exchange. In this sense, it is a part of the pool of real wealth and promotes people’s life and wellbeing.

…click on the above link to read the rest of the article…

The Yield Curve Is The Economy’s Canary In A Coal Mine

The Yield Curve Is The Economy’s Canary In A Coal Mine

The economy has hit a wall and is now sliding down it. I don’t care what bullish propaganda may or may not be bubbling up in the headlines from the financial media and Wall Street, the hard numbers I look at everyday show accelerating economic weakness. The fact that my view is contrary to mainstream consensus and political propaganda reinforces my conviction that my view about the economy is correct.

As an example of the ongoing underlying systemic decay and collapse conveyed by this week’s title, it was announced that General Electric would be removed from the Dow Jones Industrial Average index and replaced by Walgreen’s. GE was an original member of the index starting in 1896 and was a continuous member since  1907.

GE is an original equipment manufacturer and industrial product innovator. It’s products are used in broad array of applications at all levels of the economy globally.  It is considered a “GDP company.” GE was iconic of American innovation and economic dominance. Walgreen’s is a consumer products reseller that sells pharmaceuticals and junk. Emblematic of the entire system, GE has suffocated itself with poor management which guided the company into a cess-pool of financial leverage and hidden derivatives.

As expressed in past issues (the Short Seller’s Journal), I don’t put a lot of stock in the regional Fed economic surveys, which are heavily shaded by “hope” and “expectation” metrics that are used to inflate the overall index level. These are so-called “soft” data reports. But now even the “outlook” and “expectations” measurements are falling quickly (see last week’s Philly Fed report). The Trump “hope premium” that inflated the stock market starting in November 2016 has left the building.

…click on the above link to read the rest of the article…

It’s Time To Care Again About Gold & Silver

DnD-Production.com/Shutterstock

It’s Time To Care Again About Gold & Silver

Fundamentals and TA are signaling extreme undervaluation

It’s been a while since I’ve covered the precious metals in an article. They’ve been range-bound for much of the past year, with few notable sector developments to report.

But I feel compelled to write about them today for two reasons:

  1. The probability of an upwards re-pricing of the precious metals is rising, and
  2. Both gold & silver are quite over-sold right now, technically-speaking.

With technical and fundamental indicators flashing green simultaneously like this, now is an advantageous time to consider increasing your PM exposure (I did so myself yesterday).

The Human Factor

Before I go into further detail on the current conditions of the PM market, here’s a recent personal experience that underscores how few people have any real familiarity with gold & silver as an asset class, let alone own any (beyond, perhaps, a bit of jewelry).

A good friend moved and needed help transporting some bullion from his old town to his new one. Most of it was silver, several thousand ounces worth.

That much silver is pretty friggin’ heavy.

So we huffed and strained, hauling that load out of one bank vault, into his car, and from there into the vault at his new bank. While we did our best to be as discrete as possible, our sweaty, grunting 2-man production was hard for the bank staff to ignore.

Managers at both banks figured out what was going on, as it was pretty obvious. And both separately asked us out of genuine curiosity, “Is that real silver?”.

My friend briefly handed over a 100-oz bar so they could see for themselves, sparking conversations about the merits of owning physical bullion.

…click on the above link to read the rest of the article…

U.S. Gold Exports to London Surge

U.S. GOLD EXPORTS TO LONDON SURGE

As U.S. gold exports to Hong Kong and China fell 25% in the first four months of the year, London picked up the slack.  According to the USGS, U.S. gold exports to London surged more than doubled from January to April, compared to the same period last year.  Interestingly, the amount of gold exported to London during this period nearly equaled the total U.S. domestic gold mine supply.

From the data reported in the USGS Gold Mineral Industry Survey’s, U.S. gold exports to the U.K. (London) jumped to 64.3 metric tons (mt) Jan-Apr, versus 25.5 mt during the first four months last year:

Here is the breakdown of U.S. gold exports to London for each month:

Jan = 12.2 mt

Feb = 12.1 mt

Mar = 21.2 mt

Apr = 18.8 mt

Total 64.3 mt 

As I have mentioned, a lot London’s gold is exported to China and Switzerland.  And then, the majority of Switzerland’s gold is exported to Hong Kong and China.  For example, according to the statistics on GoldChartsrus, in March, the U.K. exported 16 mt of gold to China and 32 mt of gold to Switzerland.   In the very same month, Switzerland exported 80 mt of gold to Hong Kong and China.  So, most of the west’s gold still ends up in Hong Kong and China.

Here are the top three countries that received gold exports from the United States Jan-Apr 2017 versus 2018:

From Jan-Apr 2017, the United Kingdom received 25.5 mt of gold from the U.S., compared to 69 mt shipped to Hong Kong and China and 48.3 mt sent to Switzerland.  Now during the same period this year, U.S. gold exports to the U.K. jumped to 64.3 mt while Hong Kong and China fell to 50.5 mt and Switzerland declined to 40 mt:

…click on the above link to read the rest of the article…

Manipulation of Gold & Silver by Bullion Banks

Manipulation of Gold & Silver by Bullion Banks

As a former spot currency trader for a major international bank, I have had first-hand experience of central banks directly intervening in currency markets in massive size, repeatedly. You’ll hear a lot of people say market manipulation is a conspiracy theory, despite the fact that it has been proven in court several times in various assets classes and especially in precious metals. Books have been written about Gold and Silver manipulation for decades. Central Bankers have admitted it publicly. Now it has become so obvious that it’s predictable. I know because I made 500% in less than 24 hours on Friday last on a 1-week SLV 15.50 strike put option I bought on Thursday at 2pm. I bought that put expecting the Bullion Banks to come in and hammer the metals, given the typical signals I was seeing ahead of each time they slam Gold and/or Silver lower. Moreover, I began warning people on Twitter a week ahead of time that this could happen (note the dates posted):

I’ll provide those typical signals later, but let’s take a look at what happened to Gold…

Since May 24th, Gold has been capped at its 200 day moving average despite being oversold, extreme overbearish per the DSI and Funds positioning being at levels that has consistently led to strong rallies over the past 3 years. Yet, on this occasion the price went down?

So why did the price go down? Below is the daily changes in Gold open interest (“OI”) on the COMEX up to and including Friday last.

Notice how OI rose significantly around May 10, and the price of Gold fell hard. Then OI fell consistently but the price did not rise, instead it remained capped under its 200-day MA. Then, beginning Tuesday, June 12 and for the next two days, open interest rose a total of 18k contracts.

…click on the above link to read the rest of the article…

Deutsche Bank could spell economic and financial chaos. Could this be why Germany has repatriated 583 tons of Gold?

Deutsche Bank could spell economic and financial chaos. Could this be why Germany has repatriated 583 tons of Gold?

Before declaring bankruptcy, Lehman Bros. had $639 billion in assets. It was thought to be too big to fail. Currently, Deutsche Bank has almost triple those assets, $1.7 trillion, but its future is in question. The bank’s net income plummeted by 80 percent from its 2017 level. The Federal Reserve has labeled Deutsche Bank’s US operation as troubled. And that might be an understatement.

The growing problems at Deutsche Bank, combined with unprecedented global debts, could spell economic and financial chaos. Deutsche Bank is only one of the major banks in trouble. Others are nipping at its heels.

Mismanagement has plagued Deutsche Bank’s U.S. operations for years. The Federal Reserves criticized it in 2014 for inaccurate reporting and regulatory violations. In 2015, 2016, and 2017, the Federal Reserve demanded corrections, but Deutsche Bank did not comply.

When Deutsche Bank’s stocks crashed, S&P downgraded the bank from A- to BBB+, a rating not far from junk. One of the problems cited by S&P was unstable and shifting leadership and generally poor performance.

Deutsche Bank is far from acknowledging any problems. Its new CEO Sewing spoke to his staff after the rating downgrade and reassured them of the bank’s inherent strength and future strategies. Following this speech, Deutsche Bank was forced to report a drop in revenues of 5 percent, and a decrease in income of 79 percent. Could Sewing have been a tad optimistic?

Its losses for 2017 were reported at 497 million euros, compared to the 290 million euros predicted by Reuters analysts. If Deutsche Bank is to survive, significant changes will have to be implemented. And so far, it’s not even acknowledging it has a problem.

…click on the above link to read the rest of the article…

The Federal Reserve: Public Enemy Number One

The Federal Reserve: Public Enemy Number One

When currency was backed by gold, a central bank’s main function was to maintain the value of the issued currency in terms of gold.  For example, if a central bank created too much money against the gold reserves in the banking system, an increasing number of people would begin to exchange their currency for gold.  To combat this, a central bank would be forced to raise interest rates and decrease the money supply.  The higher interest rates would incentivize people to exchange gold for larger savings on deposit that earn interest.  Banking reserves – gold – would return to the banking system and the economy would return to balance.  The prime reason for insisting on defining currency in terms of a precious metal was to provide a self-correcting braking mechanism to the creation of money.  As expressed by the great Wilhelm Röpke:

If in the production of goods the most important pedal is the accelerator, in the production of money it is the brake.  To insure that this brake works automatically and independently of the whims of government and the pressure of parties and groups seeking “easy money” has been one of the main functions of the gold standard.  That the liberal should prefer the automatic brake of gold to the whims of government in its role of trustee of a managed currency is understandable.”[1]

The US dollar was backed by gold as recently as 1971.  Any central bank in the world could present the Federal Reserve $35 and receive 1-ounce of gold in exchange.  However, on August 15, 1971 – blaming it on the “gnomes of Zurich” – President Nixon “temporarily” broke the dollar’s last link with gold.  Nixon closed the “gold window” and reneged on the promise to exchange an ounce of gold for $35.  Since then, the system of credit in the US has been under the Fed’s complete control.

…click on the above link to read the rest of the article…

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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