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Has China Finally Lifted its Thumb off of Gold?

Has China Finally Lifted its Thumb off of Gold?

There’s a lot of talk about the Yuan price of gold falling out of a price suppression channel.  Both Zerohedge and Nomura have weighed in on this.

The Yuan price of gold surged overnight to above CNY 8500 per ounce which is a major breakdown  But it’s also indicative of something that has long been suspected during this gold bear market.

China doesn’t want the price of gold to rise.  Those accumulating gold — China and Russia — have zero incentive to accumulate at higher prices.   And the gold chart of the last three years bears out that they have had to come in at higher prices on pullbacks because market bottoms keep coming in higher and higher.

The 2015 low was around $1050.  2016 at $1146.  2017 the low after a pullback in July couldn’t breach $1208 during a strong post-U.S. election rally.  This year the price was briefly pushed below $1200 in the longest downtrend of the seven year bear market but has since popped back over $1230 with its sights now set on  $1250.

China may have no choice here but to let the price of gold rise.  Because conditions in other markets are changing rapidly.  So, ultimately, what China wants really may not matter anymore.

Remember, the eurodollar markets broke in late May this year as Jeffrey Snider at Alhambra Partners reminds us daily.

The PBoC cut the reserve ratio again recently to free up liquidity in Chinese banks but it doesn’t seem to have stemmed the tide.  And that’s why it has continually loosened the Yuan fix rate, now approaching 7 vs. the U.S. dollar.

Offshore dollar markets are the pool of real savings in the global economy and it determines where we are headed.  And the offshore dollar hoarders are pulling out of China… and Europe… and Japan…. and South America.

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

911 was a bank heist

Food for thought.  9/11 was a bank heist.

As we explain in Splitting Pennies and Splitting Bits – the world is not as it seems.

If we can source this untold story even from the JYT then you know it must be real: 

A team of 30 firefighters and police officers are helping to move the metals, a task that can be measured practically down to the flake but that has been rounded off at 379,036 ounces of gold and 29,942,619 ounces of silver.  As layers of debris are peeled away, recovery workers are opening gangways to intact portions of a 16-acre basement that was largely unseen but was a place of spectacular scope in its own right. Just the basement area of the World Trade Center enclosed twice as much space as the entire Empire State Building.  Nearly a quarter of a mile below the spectacular vistas from the towers was their upside-down attic dropping 70 feet below the ground, a strange world with enough room for fortunes in gold and silver, for Godiva chocolates, assault weapons, old furniture, bricks of cocaine, phony taxicabs and Central Intelligence Agency files. With so many people still lost, the owners of this stuff have maintained a discreet silence during the recovery operations. But that doesn’t mean they’re not interested.

So let’s repeat this.  Cocaine, guns, gold, silver, and secret CIA files – all stored underground in the WTC complex and all went missing?  How convenient!

You can’t make this stuff up folks.  Growing up in the 90’s you can’t miss Hollywood films like Die Hard with a Vengeance.  But who would have even suggested, that only 6 years later, an eerily similar plot would unfold in Lower Manhattan, shaping the world forever?

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

Why Competing Currencies is the Solution to a Collapsing Dollar

Why Competing Currencies is the Solution to a Collapsing Dollar

Cooperate when you think everyone involved will benefit.

Compete when you think something needs improvement.

For too long, certain states have been cooperating with the federal government without any benefit to the state or the citizens who live there. I recently highlighted five states, in particular, that would be better off as countries, without the federal government controlling them, and leaching off them.

Instead, states should be competing against the federal government.

They should be solving problems that the federal government cannot, or will not, solve.

One of America’s biggest problems is a fiat currency which has lost 85% of its value since 1971 when Nixon eliminated the gold standard.

Yesterday I discussed one possible solution. States could create or incentivize banks that safely store deposits of gold and silver, and issue a digital representation of its value. The value would not be denominated in dollars. Instead, the precious metals themselves would be indexed to purchasing power.

The banks would make money in the same way banks currently do, by lending and charging interest.

States could incentivize the use of this real money by giving discounts to anyone who paid their taxes with this new digital metal-backed money.

And the state’s incentive to do this is to cushion an economic crisis triggered by massive debt, inflation, and loss of confidence in value the US dollar.

But one possible pitfall of this system is a shortage of physical gold or silver to deposit, thus creating excess demand, and driving the price of gold and silver up.

So here’s another alternative.

State Cryptocurrency

You know the golden rule–he who has the gold makes the rules.

If states position themselves right, they can avert financial disaster when DC’s luck finally runs out.

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

How States Can Escape America’s Looming Financial Meltdown


How States Can Escape America’s Looming Financial Meltdown

The USA is $21.4 trillion in debt. That is larger than the entire US economy. And it shows no sign of slowing down.

To put that in perspective, imagine spending $28 million per day, EVERYDAY since Jesus walked the earth. Even then, you’d still have a trillion dollars to go…

But it gets worse. This debt does not even include unfunded liabilities, like the promise to pay out Social Security benefits to retirees. Social Security is underfunded by a whopping $50 TRILLION.

Worse still is that the Federal Reserve has the power to print money, and set interest rates. That means the economy you and I see on a daily basis is not reality.

Markets always have corrections. It is natural for sectors to wax and wane. Some years boom, and some years bust.

But the Federal Reserve has made this problem a hundred times worse. The booms are astronomical because of artificially low interest rates.

That means it is easy to borrow money, even if there isn’t much real capital out there to borrow. And that means money gets wasted, placed in bad investments, or squandered and misallocated on unneeded projects.

We are living in a ticking time bomb.

I have no particular faith in any government.

But I do believe the smaller the government gets, the easier it is to control. Your vote might actually count at the state level.

And living down the street from your State Representative helps to keep him fearful of his constituents. Politicians should fear the people.

State governments can cushion the collapse of the federal government.

This collapse will be triggered by monetary policy.

So states should make sure their economies can keep on chugging along in the event of such a catastrophic financial meltdown.

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

You Can’t Eat Gold 

“You can’t eat gold.” The enemies of gold often unleash this little zinger, as if it dismisses the idea of owning gold and indeed the whole gold standard. It is a fact, you cannot eat gold. However, it dismisses nothing.

This gives us an idea. Let’s tie three facts together. One, you can’t eat gold. Two, gold is in backwardation in Switzerland. And three, speculation is a bet on the price action.

The fact that gold is inedible is supposed (by the enemies of liberty) to be proof positive that a gold standard wouldn’t work. Of course, there’s always the retort: You can’t eat dollars!

That may be emotionally satisfying, but there is a deeper issuer that the anti-gold crowd is missing. Yes, money makes terrible food but, also, food makes terrible money. A car makes a lousy airplane. And a shoe makes an awful TV. Cow poop is putrid as food for people, but it works well as fertilizer for plants. Each thing fits a particular purpose.

Why does food make terrible money? One reason is that it’s perishable. No one—other than a refrigerated warehouse—can make a bid on food beyond his own short-term needs. Without this robust bid, food has limited marketability. That is, it has a wide spread between its bid and offer prices.

Think of it in human terms, or even personal terms. Suppose you strolling along the sidewalk, and you’re hungry. You see a restaurant sign, “Hamburger + fries + drink $10.” You would pay the offer price. The next restaurant is going out of business, and its sign says, “All inventory must go! 50 hamburgers and 50 pounds of fries for $100!” You would not pay it (unless you were with 49 friends).

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

Peter Schiff Explains “What Happens Next” In 47 Words

Outspoken critic of The Fed and one of the few that can see through the endless barrage of bullshit to how this really ends, has laid out in a tweet “what happens next”…

Likely sequence of events:

1. Bear market;

2. Recession;

3. Deficits explode;

4. Return of ZIRP and QE;

5. Dollar tanks;

6. Gold soars;

7. CPI spikes;

8. Long-term rates rise;

9. Fed. forced to hike rates during recession

10. A financial crisis without stimulus or bailouts!

h/t @PeterSchiff

People Will Be Dumping Dollars & Buying Gold – Peter Schiff

People Will Be Dumping Dollars & Buying Gold – Peter Schiff

Money manager Peter Schiff was in a small group warning of a coming financial meltdown that happened in 2008. Schiff says, “I was kind of a fixture on financial cable TV giving these warnings. My thought was the bubble would burst, and I knew that it would. Once the housing bubble burst and we had this financial crisis, I knew it would follow along with the Great Recession. I thought the Federal Reserve would try the best it could to reflate the bubbles in the stock markets and housing markets. But my thought was that their efforts would fail. The markets would not allow it and that a dollar collapse would intervene and would prevent new debt from being issued to fully reflate those bubbles. I was actually wrong. They didn’t just try to reflate the bubbles, they actually succeeded in blowing them bigger than ever.”

Ten years later, Schiff is warning of another financial calamity bigger than the last one. Schiff says, “The problem is now we are on the precipice of a much bigger crisis than before. The next time, if they try to reflate those bubbles, which they will, it will be a spectacular failure because the markets are now prepared for the opposite. Everybody, right now, assumes the Fed is going to be able to keep raising rates. They assume they are going to shrink its balance sheet and that we have this booming economy that will never bust. When the Fed has to reverse course abruptly, acknowledge the underlying weakness that everybody has been oblivious to and they start cutting rates and launching another round of quantitative easing (money printing), I think the dollar is going to fall through the floor. I think the inflationary fires that are already burning pretty hot are going to ignite.

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

Silver v Gold Standard

QUESTION: Mr. Armstrong; You do not give much credence to the world returning to a gold standard. Didn’t the entire world use the gold standard before?

Thank you for your input

JK

 

ANSWER: The entire world has NEVER been on the gold standard simultaneously. Asia was on a silver standard while the West was on a gold standard. Above is the first coin struck in Hong Kong in 1866 which was the Hong Kong Dollar. The West struck Trade Dollars during the 19th century to pay for goods from Asia and they were silver – never gold. Here is an example of both the British and American trade dollars used in payments particularly with China.

It is just not practical that we have a monetary system that is based upon a commodity. The true value of money is the productive-capability of its people. China, Germany, Japan, all rose from economic depression WITHOUT gold. They did it with the productive capacity of the people. The produce whatever and sell it to someone else and then get gold or whatever in return. This theory that you have nothing without gold is just stupid. It would mean that no nation could ever rise no matter how good their people are because they lack a natural source of gold.

The collapse of the Turkish lira is a reflection of the collapse in confidence in the government. The same has taken place in Venezuela. China and Japan rose from the ashes, not because of their possession of commodities, but because they could bring their people to bear and produce various items efficiently and cost-effective. It was the people first that produced the economic recovery and then they bought even gold.

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

Global Central Bank Buying Puts A Floor Under The Price of Gold

Global Central Bank Buying Puts A Floor Under The Price of Gold

The only reason the price of gold’s down on the year is because of a strong dollar.

Actually – for how much the dollar’s rallied this year, gold holding around the $1,200 range is very bullish.

And if gold’s been able to hold its own during a stronger dollar and aggressive Federal Reserve tightening – imagine what it will do once they decide to begin easing. . .

Putting it simply – the price will soar. . .

So, who’s taking advantage of this weaker gold price?

The Global Central banks – but specifically the Emerging Markets.

Here is the latest data showing the Q2/2018 Central Bank gold reserves.

This comes after Central Banks added 116.5 tons to their ‘official’ reserves in Q1/2018.  This was the highest first quarter increase over the last four years.

It’s widely known that in the 1990’s and first decade of the new millennium – Central Bank’s were dumping their gold.

Starting in the late 1980’s, gold reserves in Central Bank vaults declined from roughly 36,000 to just under 30,000. That’s a huge drop.

To be clear, they didn’t just sell the gold. The Central Banks also engaged in the ‘gold carry trade’.

This is when Central Banks ‘lease’ their gold reserves to investment banks for a set amount of time and a bit of interest.

The investment banks then sell that gold in to the market – get dollars in return – and buy bonds or equities.

After a while, they take the profits and buy the gold back – returning it to the Central Banks.

You can see how lucrative this trade is. And how it incentivizes the investment banks to keep the gold price down (since they have to buy back the gold later to return it to the Central Banks).

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

Signs of the Gold Apocalypse: M&A and Fund Extinction

Signs of the Gold Apocalypse: M&A and Fund Extinction

For bear markets to truly end investor sentiment has to get to a point where they would rather walk on broken glass than buy that asset or asset class.  We’re reaching that point in the precious metals market.

In conjunction with that we also have to see arrogance on the part of short-sellers convinced that all rallies will be sold, keeping a lid on prices.  It doesn’t matter if buyers come in at higher prices or above significant technical support levels, they will push because they become convinced this is a one-way trade.

We see this in the government bond markets as well.  In traderspeak it’s called the [Insert Head of Central Bank Here] Put.  The Greenspan Put begat the Bernanke Putwhich morphed into the Yellen Put.

Over the past few months we’ve seen sign after sign that the gold and silver markets are nearing the end of their bear markets.  These are signs of extreme distress.  The first I’ve already mentioned, record speculative short positions among futures traders.

Then there was the re-balancing of Vanguard’s $2.3 billion Gold and Precious Metals fund into the Global Capital Cycles Fund, trimming exposure to precious metals to 25% of AUM — Assets Under Management.

And now we’re seeing the M&A (Mergers and Acquisitions) phase of the bear market.  Where companies begin merging to shave costs after having already cut back on production to preserve cash flow.

It was just announced that American Barrick Corp (NYSE:ABX) and RandGold Corp (NASDAQ:GOLD) are merging into one company.  The largest mining company by market cap in the world at around $18 billion.

Primary silver producers like Endeavor Silver (NYSE:EXK) are shuttering high-cost mines in this pricing environment.  Well run companies with low debt and strong balance sheets don’t do mergers like this, they tough it out or go on a hostile raid of assets under-valued by the market.

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

Gold in the “Everything Bubble”: Effective Diversification?

Gold in the “Everything Bubble”: Effective Diversification?

What do you do when nearly all asset classes are overvalued?

Diversification is one of the oldest principles by which people try to hang on to their wealth, however little they might have. Don’t put all your eggs in one basket, it goes. Diversification is not designed to maximize profits or minimize costs. It’s designed to get you through a smaller or larger fiasco, not necessarily unscathed but with at least some of your eggs intact so that you can go to market another day. This search for stability is a critical concept when looking at gold as diversification of risk in other asset classes.

There are many reasons to own or trade gold that are beyond the scope of my thoughts here on diversification. So I’ll leave them for another day.

The classic and most basic diversification for American households has been the triad of stocks, bonds, and real estate. In the past, it was often held that when stocks go up, bonds decline. This has to do in part with the Fed, which tends to raise rates when things get hot, thus driving up bond yields (which means by definition that bond prices decline). So stocks and bonds balanced each other out to some extent.

Throw in some leveraged real estate – the house you live in – and in the past, your assets were considered sufficiently diversified.

But this no longer applies today: Stocks, bonds, and real estate – both residential and commercial – all boomed together since the onset of QE in 2009. Other asset classes boomed to, including art and classic cars. Almost everything went up together in near lockstep. For a while, gold and silver, which had been on a surge since 2001 continued to surge. In other words, it was very difficult to achieve actual diversification.

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

Central Bank Gold Purchases Now Control 10% Of The Total Market

Central Bank Gold Purchases Now Control 10% Of The Total Market

Central Banks have become big players in the gold market and now control 10% of the total market demand.  Now, this wasn’t always the case.  Just ten years ago, the Central Banks were main suppliers via their policy of dumping gold into the market.  However, the Central Bank strategy to sell gold into the market to depress the price, had quite the opposite effect.

For example, Central Banks dumped over 2,600 metric tons of gold into the market between 2003 and 2007, according to data from the World Gold Council.  So, what kind of impact on price did the sale of 84 million oz of Central Bank gold have on the market during that period?  The price of gold nearly doubled from $363 in 2003 to $695 in 2007.

The last year Central Banks sold gold into the market was in 2009.  However, it was only 34 metric tons.  Since 2010, Central Banks have been net purchases of gold.  Between 2010 and 2017, Central Banks purchased nearly 3,700 metric tons (mt) or a stunning 119 million oz of gold.

And Central Bank gold purchases don’t seem to be slowing.  The World Gold Council (WGC) just released yesterday in their Market Update: Central bank buying activity, that official gold purchases are now 10% of the total market.

Using data from the WGC Demand Trends, Central Banks purchased 193 mt of gold in the first half of 2018, representing 10% of the total global demand:

The majority of the official gold purchases during the 1H of 2018 came from Russia, Turkey, and Kazakhstan.  Now, what a difference than just a little more than a decade ago when Central Banks were selling rather than buying gold.

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

Which Precious Metals Are Likely To Be Better Investments During The Next Market Crash?

Which Precious Metals Are Likely To Be Better Investments During The Next Market Crash?

The question on the minds of many investors, is which of the precious metals will be better investments during the next market crash?  I should know because I receive this question in my email box quite often.  So, I decided to test the price action of several metals and how each traded during a large market correction.

This article will focus on the top four precious metals, gold, silver, platinum, and palladium.  Even though Rhodium and other metals are considered precious, the ones listed above take the lion’s share of the investment market.  Furthermore, while platinum and palladium are purchased as investments, they have a much larger industrial component than gold or silver.

As I have mentioned many times, gold and silver disconnected from the broader markets when the Dow Jones Index fell 2,000 points in the first six weeks of 2016.

The two reasons I believe gold and silver jumped considerably as the markets sold off at the beginning of 2016 were:

  1. Gold and Silver were extremely oversold, and the Commercial hedgers’ short positions were at a low, thus very bullish
  2. Investors were extremely worried that the Dow Jones and markets were beginning a massive correction, so they moved into both gold and silver

To explain why investors were spooked in 2016, we need to look at the following chart:

Typically during a major correction, the market makes several attempts at a top.  In 2007, there were three tops made before the market finally came down in 2008.  Then in 2015, we had three more tops and two large corrections.  The reason investors’ worry turned into fear at the beginning of 2016 was that the last top did not reach the previous 18,000 level.

And this can be seen in the next chart:

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

When The U.S. Stock Market Crashes, Buy Gold – David Brady 

When The U.S. Stock Market Crashes, Buy Gold – David Brady 

While we wait for news on the 25% tariffs on $200bln or 40% of Chinese exports to the U.S.—and with the threat of the same on the remaining ~$300bln to follow—I want to outline the endgame for the dollar and the likely beginning of the explosive rally for Gold.

Simply put: When the U.S. stock market crashes, buy Gold.

To be more specific: when the S&P 500 has fallen 20-30%, buy Gold, in my opinion, because the ‘Fed Put’ will soon be exercised at that point. The Fed will reverse policy to stimulus on steroids. The dollar rallied from April 2008 and peaked in March 2009, when stocks bottomed out—the same time the Fed announced QE, or QE1 as we now know it. Then the dollar fell. It is not unreasonable to expect the same to happen this time around. Gold bottomed out in October 2008, as stocks plummeted and then soared 280% to greater than 1900 over the next three years, as QE1 and QE2 were underway.

The coming crash in the U.S. stock market is the catalyst for the Fed’s reversal in policy, so why do I expect a crash?

Quantitative Tightening and Budget Deficits

Lee Adler pointed out several weeks ago that as the budget deficit soars, Treasury bond issuance is increasing by around $100bln per month. At the same time, the Fed is increasing its balance sheet reduction, or “QT” program, to $50bln a month in October, a run-rate of $600bln per year. That means $150bln of additional demand for U.S. Treasuries is required every month.

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

Turkish Banks Liquidate Gold In Currency Crisis Panic

At the peak of the Turkish currency crisis in mid-August, in addition to general concerns about the state of the local economy, one sector got hit especially hard: Turkish banks, which saw their bonds plunge amid growing concerns that the currency slump would makes it impossible for lenders to repay dollar-denominated debts or rollover maturities.

The prompt liquidation was driven by were fears that Turkish lenders would struggle to find the capital to repay the $34.4 billion of bonds sold during a decade of rapid economic growth and historically low global borrowing costs. The near-term along is daunting as Turkish banks have to service $7.6 billion in USD-denominated debt by the end of 2019.

So in a panic scramble to shore up liquidity and reassure investors of their viability, Turkish banks pulled as much as $4.5 billion worth of gold reserves, which they then sold in exchange for “more liquid” assets.

Zooming on just the recent action shows that weekly holdings reported by the Central Bank of Turkey fell by a whopping 20% since June 15 to 15.5 million ounces according to Bloomberg, with the bulk of the exodus, or $3.3 billion, sparked by the central bank’s decision last month to lower reserve requirements.

As a reminder, in order to stem the plunge in the lira, on August 13 the Turkish central bank cut reserve requirements for banks by 4% points for foreign exchange liabilities over one, two and three years, and by 2.5% points over other maturities. This, the central bank said, equated to $3 billion worth of dollar-equivalent gold liquidity.

But why would banks proceed to liquidate their gold holdings as reserves were released?

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

Olduvai IV: Courage
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