Gold & Silver Stocks: It’s Old Turkey Time!
Thursday July 10, 2014 15:25
Those familiar with Jesse Livermore and the book Reminiscences of a Stock Operator know who Old Turkey is. He was Mr. Partridge, an old trader who dispensed great wisdom in few words. Those at the office nicknamed him Turkey because of the way in which he strutted around with his chest puffed out. Livermore gleaned wisdom from Old Turkey which included the importance of never losing one’s position and placing the utmost importance on the major trend. “It’s a bull market,” he often repeated. Precious metals shares are breaking out again after a brief consolidation. It’s time to channel your inner Old Turkey, realize this is a bull market and act accordingly.
The evidence is overwhelming. After rebounding strongly to start the year, the mining stocks corrected through May. The June reversal on record volume created the first higher low. The miners then sustained that strength by closing the month and the quarter with the kind of strength not seen since the bottoming process began in June 2013. In addition to the price action, the miners have outperformed the metals in strong fashion and especially in the last five weeks. These are reliable signals of a new bull market.
Analysts like to be cautious and sometimes prefer to avoid momentum plays but the charts lead me to believe that the momentum is building and has plenty of room to run. From time to time I’ve posted charts of my top 15 index. I wanted to create a much broader index consisting of quality companies with more of an emphasis on larger companies. The first image below is a weekly chart of my new top 40 index. It includes 28 gold stocks and 12 silver stocks. The median capitalization is nearly $750 Million and 15 of the companies are worth $1 Billion or more.
The index appears to be breaking out after a two week consolidation. It closed Wednesday at its highest level in about 15 months. Note that although the index has advanced considerably in the last month and year to date, it is finally emerging from a reverse head and shoulders bottom that lasted 15 months! There is significant upside potential from the pattern and very little overhead resistance until the 2012 highs. Also, note the huge accumulation during the winter and the relative strength against GoldStaying with weekly charts, here is a look at the juniors via GDXJ and SILJ. With a bit more strength to close the week GDXJ will form a higher high and reach a 10-month high. The next resistance isn’t until $52 while the next major resistance isn’t until $70. Meanwhile, if SILJ closes the week at the current level then it would mark the highest weekly close in 15 months. SILJ is starting to breakout from a very well defined head and shoulders pattern which projects roughly 30% upside from Wednesday’s close.In February we argued that the strength in precious metals should not be feared and that there was plenty more upside ahead. That article was premature as its points appear to be more instrumental right now. This is a tough time to buy as miners are no longer dirt cheap and have already rebounded quite a bit. At the same time, there could be a lingering fear that the bear could reassert itself at any moment. That article provides some examples of how markets performed following major bottoms. The rebounds (in miners and general markets) tend to last well beyond one year before there is any significant correction.
The final bottom for miners was in December 2013 and further strength in the coming days and weeks should provide us absolute confirmation. Though the miners have already rebounded significantly, the charts suggest that there is plenty of additional upside potential directly ahead. How do you play it? Focus on quality stocks that are not so overbought and take advantage of dips (5%-10%) when they come. Have an exit strategy just in case and then channel your inner Old Turkey!
Sentiment: Strong Buy
Only A New Gold Standard Will Save The U.S. Dollar - Steve Forbes
By Kitco News
Thursday July 10, 2014 3:35 PM
(Kitco News) - A weak U.S. dollar is a threat to the global economy and the only way to stop the greenback’s decline is to reintroduce a gold standard, said media tycoon, Steve Forbes.
Forbes, the editor and chief of Forbes Media, was one of the keynote speakers at the annual Freedomfest conference in Las Vegas, an annual convention that looks to gather free minds for open discussions on politics and the economy.
Steve Forbes, the editor and chief of Forbes Media, talks to Kitco News at Freedomfest 2014 in Las Vegas
In an interview with Kitco News’ Daniela Cambone, Forbes talked about gold’s role it the U.S. economy, which is also highlighted in his latest book MONEY: How The Destruction Of The Dollar Threatens The Global Economy And What We Can Do About It. He said to stop the decline in the U.S. dollar it only makes sense to link it to gold.
Forbes said different currency valuation methods have been tried for “more than 4,000 year,” and experience shows that having a gold standard is the way to go. He added a gold standard “done right” provides stability and value when it comes to money supply.
“Just as scales measure weight, money should measure value and it does that best when it has a fixed value,” he said. “Nothing else works.”
Although Forbes said that it is only a matter of time before the U.S. economy reverts back to a gold standard, it will take a dramatic shift to bring the change about because a big government prefers a weaker U.S. dollar. However, he sees some big changes on the horizon.
“A weak currency always means a stronger government and a weaker private sector,” he said. “I think people are looking forward to the elections. I think there are going to be some very big changes in our mid-term elections in November and that is going to set the stage for some very interesting showdowns in 2015.”
Also not helping the decline in the dollar is the continued action by the Federal Reserve. Forbes has been critical of the U.S. central bank and again said despite the new leadership from Chair Janet Yellen, it is still “rudderless.”
“(The Fed) has no appreciation for the need for a stable U.S. dollar,” he said. “She does not get it any more than (former Chairman Ben) Bernanke did.”
Although Forbes remains critical of the Fed, he admitted it is good the central bank will eventually exit its monthly bond-purchase program. On Wednesday, minutes from the June Federal Open Market Committee meeting revealed that the committee members favor exiting their quantitative easing strategy by October.
Looking at the gold market, Forbes said he is not expecting to see a significant rally in the yellow metal, unless geopolitical tensions rise out of control.
“Barring some international crisis, I think gold will be treading water as the Fed stops quantitative easing, as people get geared up for higher interest rates,” he said. “I think gold’s play will wait for a while until the Fed does something crazy again.”
Sentiment: Strong Buy
Too Much For The Bears To Stay Short
Thursday July 10, 2014 08:23
First, the Fed minutes confirmed their policy to end the bond buying program by October and then that they would remain accommodative well into the foreseeable horizon. Result; no immediate threat of rate hikes, as some believed. Not sure what play these hawks have been watching, but the Fed dance, as well as that of all major Central banks, has been clearly and aggressively accommodative. The proof in the pudding was enough to get gold to wander up to the $1,332 level yesterday, but the forces of massive stimulus and the added issues of geopolitical issues, now encompassing the Israeli’s, was too much for the bears and the technical level was blown out overnight. There may be some small hurdles at $1,348 but a test of the $1,365 level becomes the next major target, with support now at the $1,332 level. Off to a conference to speak to die-hard bulls, who should be in a great mood.
By Peter Hug
Global Trading Director
Sentiment: Strong Buy
Gold Prices Rise After Release of Federal Reserve Minutes
By Debarati Roy Jul 9, 2014 2:05 PM ET
- Comments Email Print
Gold rose after minutes from the Federal Reserve’s June meeting were released.
Some policy makers were concerned investors may be growing too complacent about the economic outlook and the central bank should be on the lookout for excessive risk-taking, the minutes of the June 17-18 Federal Open Market Committee meeting showed. The central bank said last month that interest rates will stay low for a “considerable time,” boosting demand for the metal as an inflation hedge.
Bullion slumped 28 percent in 2013 amid concern that the U.S. central bank would slow the pace of monetary stimulus. Prices rebound 9.8 percent this year through yesterday partly as signs of a sputtering economic recovery boosted speculation that the Fed would keep borrowing costs near zero percent.
Gold for immediate delivery rose 0.4 percent to $1,324.54 an ounce at 2:03 p.m. New York time. On the Comex, gold futures for August delivery settled 0.6 percent higher at $1,324.30 at 1:35 p.m. in New York.
The precious metal jumped 70 percent from December 2008 to June 2011 as the Fed bought debt and cut interest rates to a record in a bid to boost the U.S. economy. The central bank trimmed its monthly bond-buying program to $35 billion, after five straight cuts of $10 billion each since November.
Sentiment: Strong Buy
Kitco Metals Inc.
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Daily Pfennig: Waiting To See If Yellen Missed Anything
Wednesday July 09, 2014 10:21
In This Issue.
* Asian currencies lead the way VS the dollar overnight...
* A$ is most favored for Uridashi issuance!
* Kiwi passes 88-cents!
* The IMF's latest idea.
And Now. Today's A Pfennig For Your Thoughts.
Waiting To See If Yellen Missed Anything.
Good Day! . And a Wonderful Wednesday to you! Crazy! Two nights, two walk-off home runs in the bottom of the 9th, for my beloved Cardinals! Are you kidding me? We hadn't seen a walk-off home run from the Cardinals since the famous Game 6 of the 2011 World Series by David Freese, and now two nights in a row, hey! Let's make it 3! Sorry for all the baseball talk to start the day, but this is obviously not something I've seen before! Of course I was asleep when the 9th inning came around last night, so I saw it all this morning!
I also saw Brazil take their worst home country loss, or if it wasn't the worst in score, it was in the worst for the timing of when they lost! A 7-1 loss to Germany in their home country, in the Semifinals of the World Cup! OUCH! Now that's going to leave a mark! Now it's up to Lionel Messi to keep the World Cup Final Game from being an "all European" affair. Now, onto other things.
Well, the currencies spent the day in a very tight range, tight like a Tupperware seal. But behind the very tight range was a softness to the dollar. I told you on Monday that we would see the dollar drift this week with not much data to review, and that's exactly what has happened the past two days. Gold added a couple of bucks, while the alternative precious metals of Platinum and Palladium took a bigger chunk of gains VS the dollar on the day.
Yesterday, we had the high yielders with the best gains VS the dollar, and this morning, it's the Asian currencies from China, India & Singapore that have booked the best gains VS the dollar. It was nice to open the screens up this morning and see the Indian rupee gaining again. The recent moves in the rupee have not been favorable, with the price of Oil causing most of the damage, but the price of Oil has retreated from the $107 level of a couple of weeks ago, to $103 and change this morning, still over $100, but retreating nonetheless. And that has helped the rupee to get back on terra firma.
I just received some research on the new Indian Budget, and I haven't had an opportunity to go through it yet, but I will! I'm hoping it is chock-full-o-surprises for the Indian economy, that is in need of surprises to unlock this potentially take no prisoners economy.
Slipping into the S. Pacific, the New Zealand dollar / kiwi has pushed past 88-cents this morning. The Fitch news that I told you about yesterday, is really providing kiwi with a nice base to push forward from. Reserve Bank of New Zealand (RBNZ) Asst. Gov. McDermott talked last night about how important growth in output is desirable and with it gives the New Zealand economy the opportunity to grow without raging inflation pressures.. The best part of his speech is what he didn't say. He didn't say that kiwi strength is a problem. He obviously didn't tear a page out of the book on "how to diss kiwi" written by former RBNZ Gov. Bollard!
There's an article on Bloomberg this morning, on how Nomura Holdings, Inc. has been the best currency forecaster over the past 4 quarters, which is impressive, but the thing I like in Nomura's latest report is that they see the Aussie dollar (A$) continuing to gain to 96-cents, from its current level of 94-cents by year-end. Nomura bases its forecast on the economic recovery going on in China right now.
Remember when I told you about what Uridashi Bonds were? Well, in case you've forgotten or are new to class, a Uridashi bond is a bond issued by Japan, but denominated in another currency, usually a much higher yielding currency, so that the owner of the bond gets a much higher yield. Japanese investors love these bonds, for they can't get yields like the ones from Australia, New Zealand and Brazil, at home!
Well, I'm told that Uridashi bond issuance has gone into overdrive the last three months with total issuance across all currencies increasing to $19.8 Billion from just $7.2 Billion in the first quarter. And guess which currency is favored above all the rest? The Aussie dollar (A$), with total A$ issuance increasing almost 4-fold! Brazilian real is a close second. But the A$ is the most favored! No wonder the A$ has gained a couple of whole figure-cents the past couple of months!
Oh, and the Chinese renminbi, was allowed to appreciate overnight as I mentioned above. As if. As if we didn't know that the renminbi / yuan would appreciate ahead of the Chinese - U.S. talks that begin today!
China is expected to announce their latest report on Currency Reserves. I expect the total to come in around $4 Trillion worth. So, that puts China with $4 Trillion in reserves, and the U.S. Fed with a $4 Trillion Balance Sheet of debt holdings. And there are still people out there that don't believe in the "China story". I had a dear reader send me a long note about how I'm so wrong about the dollar weakening beyond recognition. And that's fine, he did it nicely, and with lots of facts, so he did his homework. But, didn't mention debt. Hmmm. I wonder what the U.S. is going to do with all that debt? Rising interest rates will make the debt servicing even more expensive and eat away tax receipts. But don't worry about that debt, right?
Oh, and one more thing. when I talk about the dollar collapsing, I'm not talking about it going away forever. I'm talking about in price and value. But then one can't ever forget that no fiat currency has ever lasted forever.
The Wall Street Journal (WSJ) reported yesterday that Asia's Central Banks grew their currency reserves in June, at the fastest pace since 2011, bringing their total currency reserves to $7.47 Billion. The reporter was estimating that China's currency reserves will be around $4 Trillion, but Singapore, Taiwan, S. Korea and Japan have already reported. I received a note from a dear reader who asked me what the ramifications of this growing currency reserves in Asia were.
Well, basically, the Asian Central Banks would prefer to not hold such large currency reserves, but given what the U.S., Japan, and Eurozone have been doing with bond buying / QE, these Central Banks don't have any other choice. You see, these Central Banks buy up the currencies that offset their respective base currencies, and have flooded the markets, in order to keep their base currencies from getting out of whack. In other words, too strong.
The scary part, is that there are so many dollars floating around. That, won't be good for the dollar in the long run, you know you're mother told you that too much of a good thing wasn't good. And think of this way. Let's say you make a lot of money, but the money goes to your neighbor who gets to hold it, and do with it as he pleases. That's not an ideal situation now is it?
British pound sterling, which has been the belle of the ball in Europe for the last couple of months is still reeling from the negative Industrial Production report that printed yesterday morning. It was like a shock to the system! You see, the data from the U.K. had met or beaten expectations for an extended period of time, and the pound sterling enthusiasts just weren't prepared for a negative data print! I told you to be careful with pound sterling, didn't I? Now the U.K. will print their Trade Balance (Deficit) tomorrow, and hope that their next data print after that, returns to "happy times" in the U.K. again.
There's something fishy going on in Canada folks. The Dept. of Finance will make an announcement this morning at 9 ET, and the announcement is under lock-up, and there is no indication of what they are going to announce. Probably nothing, but the suspense has got my attention for sure! The Canadian dollar / loonie doesn't seem fazed by the suspicious unknown announcement, which is probably a good indicator that this won't amount to a hill of beans.
The euro moved back over 1.36 yesterday, but once again it bounced around the level all day, before finally settling above 1.36 overnight. I had to love a comment by ECB Executive Board Member Coeure, who said, "it is wrong to say that the euro is too strong." He also went on to say that the "exchange rate is not an objective for the ECB". Good for you Mr. Coeure! Central Banks should only be concerned about providing price stability.
Speaking of the euro. My guitar playing buddy, and investment analyst supreme, Steve Sjuggerud wrote a very strong opinionated dissing of the euro because of rising interest rates in the U.S. while the Eurozone struggles with an economy that needs ZIRP. I sent him an email and said," Just a thought that I've been repeating in my letter over and over again that one of the main reasons the euro has retained its strength against the dollar despite all the negativity in the Eurozone, is that the ECB's balance sheet is shrinking, while the Fed's is still growing (not as fast obviously, but growing still nonetheless).
Yes, interest rates have always been a key fundamental of a currency's strength.. But since 2008, fundamentals have really been removed from the markets, don't you think? It's all been Central Bank driving the assets around."
I'm sure Steve will be correct in the end, for he has far more gray matter than I. But I just wanted to ask him his thoughts on what I had to say. I'll let you know if he responds. He's so busy, that I'm sure he'll never see the email. But I can always hold out hope!
Had to stop and sing along with the St. Louis band, Mama's Pride, and their hit song: Blue Mist. But I'm back now. OK. ready for this? You know me and my dislike for the hedonic adjustments that the Bureau of Labor Statistics (BLS), and trust me I've seen all the other names that you dear readers call them, but the kinder gentler me, can't use them any longer. And one of those hedonic adjustments is the BLS's use of what they call the Birth/ Death model, where the BLS makes an adjustment to the jobs report from their view that tons of new businesses have been added, which will take a month to get on the jobs surveys. I've never seen any actual proof that these new businesses even existed, so to me, these jobs were "ghost jobs".
Well, yesterday in the 5- Minute Forecast, my friend, Dave Gonigam, had something that plays well in the sandbox with my suspicions that the Birth / Death model is hogwash. Let's go to the tape. "Unfortunately, another study by the Brookings Institution finds businesses are now going defunct faster than they're coming into existence. "This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech," says the study.
Affirmation comes from the Labor Department, which finds the number of businesses less than a year old at its lowest in records going back to 1994." Dave then inserted a graph showing this huge downward slide in the number of firms less than 1 year old. Well, the U.S. Data Cupboard is still in search of a restocking and really doesn't get much in the way of restocking today, but this afternoon, we will see the Fed's FOMC Meeting Minutes from their June 2-day boondoggle. I think the markets are waiting to see if there was more to the meeting than what Janet Yellen told us about last month.
Gold is up $5 this morning, and has remained above $1,300 again for some time. The last time it slowly rose to near $1,350 it got taken down by the price manipulators, let's see how long this will last this time. Our metals guru, Tim Smith, told me yesterday that the Gold fixing price was published and not 5 minutes later, Gold was taken down $10. I shouted back. If that doesn't scream price manipulation I don't know what does!
OK, so what was the best performing commodity in the first 6 months of this year? Well, if you said: Coffee, you would win the Gold Star today! Coffee rose about 50% in the first six months this year, which is quite impressive, eh? But what about the second half of 2014? Well, Jeff Kilburg of KKM Financial said that Gold reminds him of coffee. "Coffee got thrown to the curb just like Gold, and look what it did?" Kilburg likes Gold going forward.
For What It's Worth. And to me. it's not worth much! This idea by the IMF that is. (That sort of sounds like the Beverly Hillbillies song, and up from the ground came a bubbling crude, Oil that is. black Gold, Texas tea!) And I don't make this stuff up folks, this was in a working paper printed by the IMF just last month, June 2014! Now, before you go out to the garage or barn and get your pitchfork or rake to march on IMF headquarters, let me remind you that it's just an IMF idea, and our fave lawmakers (Congress) have not passed through any IMF ideas recently. So, put away the sharp objects and read on!
First, let's recall the IMF idea to steal, I mean take, from savers, their savings to use to pay off debt servicing of Eurozone debt (bonds). OK. so now, the IMF thinks that they can play Hotel California with bond investors. Remember that great rock song says, "you can check out but you can never leave". The IMF's newest idea is to simply not retire bonds, but to extend them. So, a 5 year bond becomes a 20-year bond, or a 2-year note becomes a 20-year bond. Hey! If you liked owning the bond for 5 years, you're going to love owning for 20 years!
For now, all these ideas are presented to the Eurozone. But do you really think that that's where these ideas will stay? Especially given the debt problems in the U.S.!
Chuck again. I know, I never really left you, as I just told you about the IMF idea. But let me say this. The IMF (and to extend that, our lawmakers) have not ever brought to the forefront an idea to reform the current system. All they ever come up with are ways to hurt savers, but just keep spending and spending. I'm just saying.
To recap. The dollar remains soft, with the high yielders and overnight the Asian currencies. Gold is up $5 with the other precious metals doing well too. The dollar continues to drift this week with no data to view. The Fed's FOMC Meeting Minutes print this afternoon, and Chuck thinks the markets are waiting to see if they can find something in the minutes that Janet Yellen didn't tell us about already. They're probably looking for love in all the wrong places. Kiwi trades over 88-cents and still basking in the Fitch comments, while the A$ is the favored currency to issue Uridashi bonds.
Currencies today 7/9/14. American Style: A$ .9405, kiwi .8805, C$ .9375, euro 1.3610, sterling 1.7115, Swiss $1.1195, . European Style: rand 10.7020, krone 6.1785, SEK 6.8075, forint 227.35, zloty 3.0350, koruna 20.1675, RUB 34.09, yen 101.70, sing 1.2425, HKD 7.7505, INR 59.75, China 6.1565, pesos 12.99, BRL 2.2120, Dollar Index 80.20, Oil $103.44, 10-year 2.57%, Silver $21.15, Platinum $1,502.00, Palladium $872.00, and Gold. $1,325.70
That's it for today. Pretty wordy today, eh? See what happens when I get the proper amount of sleep! HA! The visit to the retina specialist yesterday went fine. Jr. Walker and the All-Stars are playing: What Does It Take on the IPod right now. Love that saxophone! I was a happy camper yesterday when I saw the latest: Things that make you go Hmmm, from Grant Williams in my email box! I don't believe there's a better mind or writer out there folks. (well, maybe James Grant would beat him on the mind part) I had written a long paragraph about the White House requesting $3.8 Billion for the immigration problem, but decided against putting my thoughts on that whole thing down, as it would probably not go over well with everyone, including my legal review! So, that discussion gets saved for the Butler patio! So, memo to Cardinals. Don't depend on a walk-off homer every night! Well, I'm within a week of my summer vacation now, so, you know me, it's time to wind it down! HA! I'm hoping you'll understand! HA! Any-old-way, it's time to get off the bus, right here, right now, and hope you have a Wonderful Wednesday!
Sentiment: Strong Buy
Golden Star Reports Preliminary Second Quarter 2014 Production Results
TORONTO, ONTARIO --( Marketwired - July 8, 2014 ) - Golden Star Resources Ltd. (TSX:GSC)(NYSE MKT:GSS)(GHANA:GSR) today announces its preliminary production results from its Wassa and Bogoso mines for the three month period ended June 30, 2014 .
In the second quarter of 2014, the Company sold a total of 61,720 ounces of gold at an average realized price of $1,289 per ounce. Of this, 29,445 ounces were produced at Wassa and 32,275 were produced at Bogoso.
As at June 30, 2014 , the Company has sold 127,532 ounces of gold year to date and had a cash balance of $43 million . No further drawdowns on the Ecobank loan were made in the second quarter.
Management is reviewing the mine plans for the remainder of the year to determine if the Company's mines will meet the gold production guidance previously disclosed to the public.
The Company plans to release its second quarter 2014 financial results on Wednesday, July 30, 2014 , after market close. Management will host a call on Thursday, July 31, 2014 at 10:00 am EDT .
Sam Coetzer , President and CEO of Golden Star commented on these results as follows:
"Gold production in the second quarter was below expectations. The primary reason for this was the high level of rainfall concentrated over a short period of time. Despite extensive dewatering of the Bogoso North and Chujah pits, access to higher grade ore at the bottom of these pits was very limited. Access to ore at Wassa was also hampered. Stockpiled lower grade ore was therefore treated at all operations during the quarter and production from higher grade material, particularly at Bogoso, has been deferred. Rain also hampered hydraulic mining at the Bogoso tailings facility. Encouragingly, when access was facilitated, mined grade from the bottom of the Bogoso North and Chujah pits was significantly higher than in the last quarter, in line with our mine plan. At the start of the third quarter, with the heavy rains expected to be behind us, we are now mining in higher grade zones. Accordingly we expect improved production in the next two quarters."
Sentiment: Strong Buy
Precious metals investors have endured much hardship during the recent bear market but David H. Smith, senior analyst with David Morgan's The Morgan Report, believes that another secular bull market in precious metals is already underway. In this interview with The Gold Report, Smith says that platinum group metals will lead the resurgence and have a favorable long-term risk/reward ratio.
The Gold Report: South African platinum group metals (PGM) miners have been plagued by a 21-week strike, which has cost those companies an estimated $2 billion in lost revenue. Is there an end in sight?
David H. Smith: It's the end of the beginning rather than the beginning of the end, because this is a systemic issue between the miners and companies. The companies are trying to recoup their costs because they are producing PGMs below the cost of production, whereas the miners are still not getting much money for doing a dangerous job. During that five-month strike the mining companies were losing 5,000–10,000 ounces (5,000–10,000 oz) per day of production. It certainly didn't help the supply side of the equation for PGMs.
TGR: Spot platinum prices have witnessed steady support above $1,400/oz since January and roughly $1,450/oz more recently. Would an end to the strike bring with it price weakness?
DHS: Yes, because it's a buy-the-rumor, sell-the-fact situation. On the day that the strike was said to have concluded, PGM prices dropped $40-50/oz because that was the expectation. I look at it as a buying opportunity for people who believe the PGM story has upside. Both platinum and palladium are in a deficit situation but platinum is still more than $400/oz from its five-year high, whereas palladium penetrated its five-year high a few weeks ago. Of the two, palladium has a higher percentage profit potential, in my view, given that it can be substituted for so many of platinum's uses and yet sells for $500–600/oz less.
TGR: You have written on what you call "The Precious Metals Four." As part of that you see platinum and palladium being the frontrunners in the eventual price rebound in precious metals. Tell us more.
DHS: The precious metals four are gold, silver, platinum and palladium. Investors interested in precious metals should focus on all four even if they don't hold all of them because of how they relate to each other and how their chart patterns correlate.
My premise is that platinum and palladium—and this has been documented by Sprott Asset Management, Rick Rule and several others—are going to be in a long-term supply deficit because the primary producers in South Africa and Russia are not going to be able to ramp up production any time soon, whereas catalytic converters, exchange-traded funds and individual PGM purchases (physical metal, jewelry) continue to sharply move demand. Meanwhile, gold and silver have been in a three-year cyclical bear market until just a few weeks ago when they made a large reversal on high volume in what looks to be the start of the next leg of the secular bull market in precious metals.
TGR: But the PGM market is relatively small, so one new producer can instantly change the market.
DHS: Yes, the PGM market is about 7 million ounces (7 Moz) annually for both platinum and palladium, whereas the gold market is about 80 Moz annually. The PGM market is infinitesimal, yet those metals have a lot of critical uses. It may take a little longer than I would like to reach a certain target, but the bull run in precious metals is underway and I think it's going to last a long time.
TGR: How do investors get in on the run? Is it about being in bullion or equities or both?
DHS: I have worked for more than a decade with David Morgan at The Morgan Report and he suggests buying the physical metal first. Once you're comfortable with your allotment of physical precious metals, then start looking at equities. Shares can offer two or three times the upside potential on a percentage basis to the metal, but some go bankrupt and others underperform. Look at producers and royalty companies first, and if you have some money left over, buy a couple of exploration stocks with the hope of 10 or 20 times gains, knowing that they also represent a potential 100% risk to the funds you commit to a given position.
TGR: What are your near- and medium-term forecasts for platinum and palladium?
DHS: It's really difficult to put a time and price on any commodity. It's more important to look at the risk/reward ratio. Over the next two or three years, in my opinion, the risk for having a platinum/palladium position is probably about one and the reward is four or five. I like those metrics.
If people are looking for a certain price target in a given timeframe and it doesn't happen, they lose faith and believe that the premise is wrong. The premise might still be accurate; it just may take more time to get there. For example, for some time I believed we would see a breakout in PGM prices. It took longer than I expected, but the premise was valid. The same thing is going to happen with uranium. It's taking longer than most people expect, but when it happens I think it's going to be a very powerful breakout.
TGR: Are there other PGM development plays or are there some producers that are producing PGMs as a byproduct?
DHS: There are some, most notably in South Africa but, frankly, due to country risk I don't follow them. (Interestingly, in looking at Russia's massive Norlisk project, the primary metals harvested there are nickel and copper—with palladium as a byproduct!) My primary interest is the gold and silver market, but I'm also interested in PGMs in the sense that their chart patterns will inform us as to how gold and silver will look when they move into a public mania phase.
Some years ago palladium went to $1,090/oz after Ford Motor Co. (F:NYSE) bought a lot of supply. At one point, as David Morgan has stated publicly—at the time he was involved in that futures market—the exchange demanded two times the total value of a palladium contract as margin money, a 200% margin call. That's eventually what we could see in all four of the precious metals.
TGR: Does the current precious metals rally have legs?
DHS: Over the last few weeks we have seen, in some cases, a record volume turnaround in the physical metals and the buying of mining shares, which started about a week or two before metals prices turned. We have touched this area twice before over the last year or so and each time it's held. Anything is possible. We could see weakness and surprise announcements that could cause new lows in gold and silver, but I think they'll be short-lived. I think the risk/reward ratio is very favorable. If you're trying to find zero risk, you're not going to be involved. With great reward there's always great risk. It's how you manage that risk that determines how well you do.
TGR: Another big theme is China's growing influence on the gold market. Tell us about that.
DHS: China always has a long-term strategy. China's gold strategy involves several aspects, one of which is thought to be a gold-backed yuan. Another is to diversify out of U.S. dollars in its trade account balances, if for no other reason than currency diversification. If there's a rift between China and the U.S., China doesn't want to have its money hostage in U.S. Treasuries. And China is going to keep acquiring gold and silver, most of it under the radar. State-owned enterprises have bought some major gold companies, and last week China established a trading office in Vancouver to expand its reach into the mining sector.
There's a Chinese game—the Japanese call it Go—that's played with black and white stones on a table. The object is to surround your opponent and keep him or her from moving. That's what the Chinese are doing—but for them it's not a game.
TGR: Some recent news reports suggest China plans to introduce vending machines so that Chinese people have better access to gold.
DHS: That shows how widespread the idea of gold ownership is. Last year China was the world's largest gold consumer but India will probably retake the top spot this year. People buy gold in Asia for different reasons than you or I. They're not trying to sell it when it goes up $50/oz. They look at it for the accumulation of wealth and for security.
TGR: You also see it as an extension of central bank gold buying.
DHS: Yes. China is still an authoritarian society and if the government said tomorrow that it's illegal to hold gold and that Chinese citizens must turn it in, most Chinese people would. I think this is a kind of Plan B for the central bank, if it is indeed trying to accumulate as much gold as possible—and all indications point to that.
TGR: At about this time last year you told investors to set aside some money for what you called "stupid cheap" prices.
DHS: It's time to look at prices in relation to where you think they'll be in a few years. A few weeks ago, the prices were stupid cheap.
The idea of setting aside extra money is not only for stupid cheap prices, but also for something that comes out of the blue that is undervalued in relation to everything else. Having the money and courage to take advantage of those opportunities is what I call psychological capital. If you lose that, you can actually lose your ability to trade effectively.
TGR: What's your view on Colombia?
DHS: I don't think you can eliminate country risk. Colombia is a much better place to do business than it was a few years ago. Investors have to continually look at where they are investing and ask: Am I willing to accept the risk in relation to the reward that I hope to get from holding stocks in that country?
TGR: Do you have any parting thoughts for precious metals investors?
DHS: The last three years have been incredibly difficult. No one, myself included, thought it would take three years to spin out of this. I still believe the potential is so large over the next few years that a modest position in the better precious metals stocks and holding some of the physical metal will result in outsized gains for people who really understand what's driving this market. This is a global bull market. The one in 1979–1980 was largely confined to North America. Asia wasn't even a component. Asia is driving this market and at some point everybody is going to be on that bandwagon, as David Morgan and Doug Casey and a few others have said. Investors willing to accept the volatility with what's going on are going to be very happy they did.
TGR: Thank you for talking with us, David.
Sentiment: Strong Buy
Tis Gold We Trust, Not Fairy Dust
Monday July 07, 2014 16:22
And yet, don't blow off Gold dust too lightly: hoover up enough of it and, as we'll later note, one can retire in grand style. But first:
Gold just completed a first-class week in firming the formative stages for higher levels ahead, settling Thursday at 1320 (and then in our Friday, Fourth of July-shortened session yesterday at 1321).
"Oh c'mon, mmb, a +4 change for the week can hardly be called first class..."
My dear Squire, that is precisely why we harp upon "change" as being an illusion, whereas "price" is the truth: Gold's intra-week high price of 1334 was more than sufficient for allowing us straight away to display that the weekly parabolic trend -- which after having spent a rather 13 dull weeks on the ShortSide -- has now flipped to Long per the rightmost new blue dot:
Moreover: Gold's having cleared its parabolic hurdle adds further justification for the run to a new high for the year above 1392. As you may recall a couple of weeks ago, Gold's Price Oscillator study turned positive, the daily price bars changing from red to green, from which we then offered, (per our Market Rhythms analysis), a 67% chance of price reaching at least the 1384 level...
...the notion then being within the trading community of price's being so close to the year's high of 1392, that 'twill test it, which in turn being so close to the century mark of 1400, that it too 'twill be achieved. If for no other reason, 'tis how market psychology plays into price targets.
In addition, if not already exciting enough to have commenced this missive by displaying Gold's parabolic breakout to the LongSide, supported in furtherance by a Market Rhythm target which can in turn propel price back above 1400, given that we've now glided though mid-year, we're pleased to present the current BEGOS Markets standings. And as you can see, the precious metals are leading the pack:
And notably therein, look at the run for Sister Silver, which per the right-hand column ranked a lowly 7th just a quarter ago. Betcha haven't seen these great markets ranked this way in your FinMedia musings, eh? No. Indeed over this extended holiday weekend, ask your barbecue buddies which market has performed better year-to-date: Gold or Stocks? 10'll getcha 20 they'll all choose the latter.
Which brings us to the mention of "fairy dust" in this piece's title. Most of you know that I've bypassed the BubbleVision of televised financial networks for many years, in preference to reading and radio; 'tis but on the ever so rare occasion that I'll pop on the FinTélé, (and within 60 seconds then wonder why). However early Thursday with ECB President Draghi on deck, to then be soon followed by a cavalcade of incoming economic data, I took a very quick peek and -- perfectly timed by the luck of the draw -- heard one of the most common-sense observations to come out of the boob-tube in years. A popular network anchor, in actually acknowledging the uneven nature of the economic recovery, suggested that the stock market's nevertheless continuing to rise must be due to "fairy dust". (My not being able to agree more, nor risk ruining the moment, I switched off the set rather than wait for Mario).
Admittedly, the Econ Baro (below) has ratcheted back up since its sudden mid-June pothole excursion. But as we point out time and again, an S&P 500 carrying (at this writing) our calculated "live" price-earnings ratio of 32.0x, and lowly yield of 1.975% versus the "safety" of the 10-yr. Treasury Note's 2.648%, is complete vindication for the anchor's analogy to "fairy dust":
As well, given the aforementioned psychology that should Gold upon nearing 1400 then pass up through it, so 'tis same for the S&P now at 1985 to likely tap 2000. The traders shall cause it to happen. But at these disproportionate heights given unsupportive trailing earnings, and now those for Q2 ready to roll in, plus an Index yield which is 25% below that of debt -- not to mention the assuredly vast equities principal risk -- to refer to these complacently lofty stock market levels as powered even by "fairy dust" is gross understatement. Do we thus remain on crash-watch? Is there fog in San Francisco? (There used to be a mountain just outside the window here).
Now specific to Gold and all of our championing about the run to 1400, unlike the S&P, markets generally don't race to targets in a straight line. Here at 1320, Gold through just normal range movement can first easily test 1300 -- without ruining this brand-new parabolic Long trend -- before moving farther up the line. To be sure for Gold, as well as for Silver, they've established true consistency in their respective 21-day linear regression uptrends by virtue of their baby blue dots residing above the +80 levels. And yet therein, please observe just the slightest curling of those Baby Blues to the downside on these views for the last 21 days:
The good news is that neither Gold nor Silver are far afield from their Market Magnets, (a calculation made each day of contract volume-weighted price combined for the most recent 10 trading sessions). Here are the three-month views of these daily Magnets:
However, with respect to Gold's valuation, (the smooth pearly line in this next three-month graphic), which measures price's movements vis-à-vis those of the five primary components that comprise BEGOS, (Bond/Euro/Gold/Oil/S&P), Gold appears momentarily high, notably per the oscillator (price less valuation) in the lower panel.
Of note is that the smooth line itself sits currently just above Gold's 1280-1240 support zone, such that a near-term dip in price sub-1300 ought not be worrisome within the context of normal price fluctuation. In fact for those of you truly scoring at home, Gold's expected daily trading range (EDTR) is currently 15 points, and its weekly calculation is 36 points. Range cognizance conveys comfort to the trader; (the EDTRs for all the BEGOS Markets are, of course, updated daily at the website).
Finally, ahead of The Gold Stack, here we've the 10-day Market Profiles for both Gold and Silver. Trading resistance for the yellow metal is evident in the 1328-1327 area with support at 1316; for the white metal, support is shown at its 21.100 apex:
With Gold's weekly parabolic trend having now flipped to Long, 'tis appropriate that we therefore conclude with...
The Gold Stack:
Gold’s All-Time High: 1923 (06 September 2011)
The Gateway to 2000: 1900+
The Final Frontier: 1800-1900
The Northern Front: 1750-1800
On Maneuvers: 1579-1750
Structural Resistance: 1479 / 1524-1535
The Floor: 1466-1579
Le Sous-sol: Sub-1466
Year-to-Date High: 1392
Base Camp: 1377
Trading Resistance: 1327-1328
Gold Currently: 1320, (weighted-average trading range per day: 15 points)
10-Session “volume-weighted” average price magnet: 1319
Trading Support: 1316
The 300-day Moving Average: 1310
10-Session directional range: 1305 up to 1335 = +30 points or +2%
Neverland: The Whiny 1290s
Support Band: 1280-1240
Structural Support: 1266 / 1227 / 1163 / 1145
The Weekly Parabolic Price to flip Short: 1240
Year-to-Date Low: 1203
As we head out to frolic in our freezing summertime fog, this brief note per our opening paragraph as regards Gold dust. 'Tis not to be taken lightly. Back in 2012, a team installing a California home's ventilation system came across a jar of Gold dust. The purported value? $300,000. Then later that year, a medical research lab in Missouri reported some $700,000 in Gold dust as having gone missing. The moral? "Back off Gold dust woman..."--(Fleetwood Mac, '77). Hang onto your flecks, Folks!
The ensuing week is fairly subdued in terms of scheduled incoming economic data, albeit as noted we'll be receiving the initial doses of Q2 Earnings Season results as well as the FOMC Minutes from its June meeting. I 'spect we'll see the S&P tap 2000, whilst a wee pullback in Gold wouldn't be untoward ... after which how high shall we see price fly, as 'tis Gold we trust, not fairy dust!
By Mark Mead Baillie
Sentiment: Strong Buy
Monday July 07, 2014 08:34
Gold begins the week having tested both sides of its recent range overnight. From a $1,322 open, gold tested and held the $1,312 level against the backdrop of a stronger dollar overnight. On the one hand, gold is being pulled from perceptions that the stronger employment data announced last week is a precursor for higher inflation, and on the other, the perception is that the employment data is a precursor for higher rates sooner. Based on history, it is probably the former, as the Fed continues to confirm accommodation into 2015 and is likely to find itself behind the curve. Short-term, however, the stronger U.S. data relative, the European counterparty would suggest U.S. dollar appreciation. The trade appears to be to buy the dips, as long as technical support holds. We are now in the dog days of summer, generally marked by thin volume and general apathy - sometimes the perfect stage for a significant move.
By Peter Hug
Global Trading Director
Sentiment: Strong Buy
The Gold Report: Let's talk about the Foreign Account Tax Compliance Act (FATCA) of 2010. What is the FATCA regulation?
Edward Karr: In March 2010, Congress passed the Hiring Incentives to Restore Employment Act. The HIRE Act was intended to stimulate domestic jobs in the U.S. FATCA was quietly slipped in as a very small part of the HIRE Act. In a nutshell, FATCA makes every overseas bank, financial company, hedge fund, mutual fund, broker, and dealer an enforcement agent of the U.S. Internal Revenue Service. Starting July 1, 2014, these financial institutions are required to turn over their data on U.S. clients' and U.S. persons' accounts.
Implementing FATCA is costly because many foreign financial institutions did not have the compliance systems and information technology in place to report on U.S. persons' holdings. Banks are being forced to spend tens of millions of dollars to upgrade their systems. And if they do not provide the information to the U.S., the penalties are extremely severe. The U.S. government can levy a 30% withholding penalty on any business that the institution does in the U.S., including trading U.S. dollars, equities, bonds and fixed income instruments. Noncompliance effectively locks a firm out of the U.S. markets.
TGR: FATCA was set up to stop people from cheating on their taxes; will it have some effect?
EK: FATCA goes after a mosquito with a sledgehammer—or in mining terms, uses a D11 bulldozer to move a small pebble. There are 7.6 million (7.6M) U.S. citizens living outside the U.S. who are caught up in this war on tax evasion. However, an organization called Republicans Overseas is launching a constitutional challenge to FATCA lawyered by Jim Bopp. He is the attorney who took down the McCain–Feingold campaign finance law in the Supreme Court. Bopp is confident that FATCA will be overturned.
TGR: Looking forward, then, what is the economic outlook in Europe for gold, commodities and stocks?
EK: The overall European economic outlook is the same muddle-through situation that has dominated the continent for the last couple of years: slow economic growth and possible deflation. After the financial crisis of 2008–2009, the U.S. proactively recapitalized the financial system in the U.S. The European banks still need to be recapitalized. The European Central Bank (ECB) has done a really good job in defending the euro, but the underlying problem of high debt levels on the banks' balance sheets has not been addressed.
Greece is not really a big problem, but keep a close eye on France. It has a very slow growth rate, high debt levels and is basically an economic train wreck in slow motion. In addition, we are seeing a resurgence of ultranationalism in the polls. Europe desperately needs inflation. Deflation, of course, is a central banker's worst nightmare. The bankers need inflation to avoid deflation. The ECB is going to have to start running the money printing presses around the clock. I just see no other way out of the dilemma. The banks can only inflate their way out of their crushing debt loads. And rising, higher inflation means higher interest rates, which is very positive for the gold markets.
TGR: How will higher interest rates impact the gold markets?
EK: As inflation and interest rates rise, so does the consumer demand for gold. People buy gold as a safe haven and a store of value. I have a positive outlook for gold and gold equities as Europe recapitalizes its banking systems and the prices of precious metals explode upward.
TGR: What about banking systems in other areas of the world?
EK: China escaped its last financial crisis with a massive government stimulus program. As a result, China is trapped inside one of the biggest credit bubbles in the history of the human race. Some people believe that when the bubble pops there will be a very hard landing. But with the stroke of a pen, the Chinese government can address economic issues much more effectively than a bunch of European bureaucrats sitting around a table.
TGR: Will inflation hit the U.S?
EK: Because the U.S. banking system is in great relative shape, there will be a resurgence of domestic manufacturing. The U.S. has a lot of land and has plenty of capital and technological savvy. It has abundant, cheap energy compared to the rest of the world. As the manufacturing economy takes off, inflation will gradually pick up there, too, which is positive for gold. Today's gold price of $1,319/ounce ($1,319/oz) is the new base price, in my opinion. Precious metal stocks are extremely cheap right now. This is a great time to buy.
Sentiment: Strong Buy
and you have proven to be a real dumb investor. No one is going to sell to ou at $0.30. Not even %0.50.Why are you still here. Your Mom locked you out of the house.
Sentiment: Strong Buy
Federal Reserve Chair Janet Yellen said Wednesday that the nation’s central bank should not combat financial excesses by raising interest rates except in extreme cases. Instead, she called for targeted regulations that could pop bubbles as needed and a stronger safety net to prevent them in the first place.
The speech marked Yellen’s most detailed response so far to criticisms -- from within and without the central bank -- that the Fed’s years of easy-money policies could be sowing the seeds of the next crisis by encouraging investors to take on excessive risk. Speaking at the International Monetary Fund, Yellen pushed back against those arguments, stating that current pockets of risk within the financial system do not warrant a change in monetary policy.
Yellen did acknowledge that there may be extraordinary circumstances in which raising interest rates may be the appropriate tool. But she offered no framework to guide that decision.
“Because these issues are both new and complex, there is no simple rule that can prescribe, even in a general sense, how monetary policy should adjust in response to shifts in the outlook for financial stability,” Yellen said.
Yellen focused instead on what are known as macroprudential tools that aim to strengthen the foundations of the financial system. She also outlined several targeted responses the Fed and other regulators could take during times of crisis to shore up any remaining areas of weakness.
The central bank’s ongoing work to establish higher capital requirements for banks and guidelines for winding down large firms at the heart of the financial system are among the key macroprodential measures. But Yellen also said that work to reform some areas -- particularly the triparty repo market and money market mutual funds -- “has, at times, been frustratingly slow.” Yellen also suggested additional regulations may be needed to curb risks in the wholesale funding markets.
Such reforms could help the country’s increasingly complex and interconnected financial system to withstand the inevitable cycles of boom and bust, Yellen said.
“Because a resilient financial system can withstand unexpected developments, identification of bubbles is less critical,” she said.
But when crisis does strike, Yellen said the Fed could “lean against the wind” by temporarily increasing capital buffers, as outlined in a new global agreement on banking standards known as Basel III. She also cited the Fed’s bank stress tests as an example of how the central bank is ensuring that financial institutions plan for the unexpected.
Yellen argued that those weapons would likely be more effective than the blunt tool of monetary policy. To make her point, she rebutted a common criticism that the Fed primed the stage for the Great Recession by waiting too long to raise interest rates, allowing home prices to rise unabated and encouraging investors to pile on risk.
Yellen conceded that policymakers “failed to anticipate” the ensuing global financial crisis but also argued that monetary policy would have been “insufficient” to address the problems that caused it. Higher rates would not have beefed up regulation or increased the transparency of the exotic new financial instruments at the heart of the crisis -- or the firms that helped generate them.
In fact, Yellen said that raising rates would likely have caused greater unemployment, which would likely have led to more people defaulting on their debts.
“A more balanced assessment, in my view, would be that increased focus on financial stability risks is appropriate in monetary policy discussions, but the potential cost, in terms of diminished macroeconomic performance, is likely to be too great to give financial stability risks a central role in monetary policy decisions, at least most of the time,” she said.
The debate over financial stability is part of the fundamental rethinking of the role of central banks in the wake of the global recession. But Yellen pointed out that though much of the discussion has focused on the trade-offs between curbing risks and central banks’ traditional mandates of maximum employment and price stability, those three goals complement one another more often than not.
“A smoothly operating financial system promotes the efficient allocation of saving and investment, facilitating economic growth and employment. A strong labor market contributes to healthy household and business balance sheets, thereby contributing to financial stability. And price stability contributes not only to the efficient allocation of resources in the real economy, but also to reduced uncertainty and efficient pricing in financial markets, which in turn supports financial stability,” she said.
Sentiment: Strong Buy
Wednesday July 02, 2014 08:39
Gold is opening under some pressure against the back drop of the ADP numbers for June released this morning. The ADP numbers indicated 281,000 jobs created in June, a reconfirmation that the U.S. economy remains on a growth path. The number will be negative for the metals as first blush would suggest the economy is beginning to gain momentum, which would suggest the Fed will raise rates earlier than expected - but the caveat is that the Fed will not raise rates until well into 2015. The contrarian then would buy metals on the dips, as the Fed will begin to fall behind on the inflation curve. If gold can hold the $1,322 level today, the technicals will continue to indicate an upward bias. Extremely thin out there.
By Peter Hug
Global Trading Director
Sentiment: Strong Buy
While Geopolitical Tensions are Supporting Gold Prices in the Short-Term, New Developments in the Mid-East and Asia will Send Prices Higher in the Long-Term.
Tuesday July 01, 2014 12:55
Gold prices remain well above the important support level of $1300 an ounce as geopolitical tensions in Ukraine and Iraq continue to spur demand. Also, despite the printing of trillions of dollars, the U.S economy tanked in the first quarter putting pressure on the greenback.
Gold prices rallied during early afternoon trading on Comex on Monday pushing the price of the yellow metal to a 10 week high while the U.S dollar continues to languish at seven-week lows against a basket of major currencies. The price of spot gold hit an intra-day high of $1329.10 an ounce but ended slightly lower.
Last week, news that the U.S. economy contracted in the first quarter by the most since the depths of the last recession as consumer spending cooled, sent gold prices slightly higher as the greenback fell against other major currencies. The dollar index extended its recent fall from 81.00 to reach as low as 80.01 before closing at 80.00 at the end of week, only to continue its slide on Monday. The dollar index fell to a low of 79.759, a low not seen since May 9, while the euro hit a six-week high near $1.3700, a move that is bound to put more pressure on the European Central Bank.
According to the U.S. Department of Commerce, Gross Domestic Product (GDP) fell at a 2.9% annualised rate, more than forecast and the worst reading since the same three months in 2009, after a previously reported 1% drop. It marked the biggest downward revision from the agency’s second GDP estimate since records began in 1976. According to consensus forecasts, economists were anticipating the worst, expecting GDP to fall 1.8% in the first three months of the year.
"With the third estimate for the first quarter, the increase in personal consumption expenditures (PCE) was smaller than previously estimated, and the decline in exports was larger than previously estimated," the report said.
The figure just goes to show that the expansionary monetary policies of the US Federal Reserve have done little if anything to stimulate the economy. And, as I have stated on numerous occasions, all it has done is to artificially prop up prices of stocks, bonds and in some instances houses.
Also, the latest report on inflation from the Bureau of Labour Statistics showed that the final first quarter price index was unchanged from the preliminary increase of 1.3%. Excluding food and energy costs, the core price index also remained unchanged at 1.3%, down from the fourth quarter's reading of 1.8%. Durable goods orders increased 1.2%, down slightly from the preliminary estimated increase of 1.4% and down from the fourth quarter increase of 2.8%. Yet, despite the US government assuming that inflation is running at a rate of 1.3%, to anyone who eats prices show a very different story. Over the last 3 years, prices have increased substantially. And, the price of fuel in the U.S is at record highs in many states. It seems that the U.S government is using deceptive inflation numbers when calculating GDP and inflation is a lot higher than reported. Fears are mounting that the dovish Fed will risk out-of-control inflation in a desperate gamble to spur growth.
Last week, Ukraine signed a landmark economic trade pact with the European Union. Petro Poroshenko, the president of Ukraine, signed the accord at a ceremony in Brussels, calling it a “new perspective for my country”.
The leaders of Georgia and Moldova also signed “association agreements” in a historic step for the three former Soviet countries.
The EU agreements signed with Ukraine, Georgia and Moldova lift trade tariffs and promise help with economic reforms, while stopping short of a pathway to membership. The deals are seen as part of an ongoing struggle between Russia and the West to exert influence over former Soviet states. Moscow had tried to entice Kiev into membership in a customs union with itself, Belarus and Kazakhstan, and may raise its own tariffs in retaliation at the EU agreement.
The trade deal came amid tense talks over a peace plan suggested by Mr Poroshenko. He er announced a week-long ceasefire in an attempt to persuade pro-Russia rebels in the east of Ukraine to lay down their arms. However, Poroshenko has ended the ceasefire with separatists in the east, saying: "We will attack, we will free our land."
Mr Poroshenko said the chance to implement a peace plan was lost because of the "criminal activities" of pro-Russian militants.
Both sides have accused each other of violating the truce.
"The decision not to continue the ceasefire is our answer to terrorists, militants and marauders," Mr Poroshenko said.
With regard to the other current hot-spot violence continues to rage in Iraq. Iraq says it has received the first batch of fighter jets it ordered from Russia to help it as it fights an offensive by Sunni rebels.
Fresh clashes have been reported between jihadist-led Sunni rebels and government forces around the Iraqi city of Tikrit.
A local source told the BBC the rebels had meanwhile seized parts of a nearby military base in a counter-attack.
US President Barack Obama has announced he is sending about another 200 troops to protect the US embassy in Baghdad.
This means about 750 US troops are in and around Iraq, but President Obama has ruled out sending combat troops to fight alongside the Iraqi army.
While Western governments together with their financial institutions continue to propagate misinformation about gold, Asian countries look at it with an entirely different perspective. For them, owning gold is essential and they are doing whatever they can to encourage their citizens to have some of the yellow metal.
In the longer-term, developments in Dubai, Singapore and China are most certainly going to help boost the price of gold.
The Shanghai Gold Exchange (SGE) have plans to introduce a global trading platform in the city's pilot free trade zone, a move that could challenge the dominance of New York and London in gold trade and pricing.
SGE, the world's biggest physical gold exchange, where domestic banks, miners and retailers buy and sell gold, could also open up the international platform to foreign brokerages and gold producers.
Evidently, according sources, the SGE is looking to launch three yuan-denominated physical gold contracts, of 100 grams, 1 kg and the bigger London good delivery bar weighing 12.5 kg.
According to Thomson Reuters GFMS, the SGE is the biggest physical exchange. And, it has the world's second-most traded gold futures contract though trading is largely limited to the domestic market with volumes of about 41,176 tons last year, still well behind COMEX's 147,083 tons.
So, instead of flowing through the gateway of Hong Kong, much of China’s gold imports in the years ahead will be coming directly into Shanghai’s free trade zone. This will make it difficult to correctly determine the quantity of gold flowing into China, since China doesn’t release trade data on gold. Information through the SGE comes out months after the fact, and there are questions about its accuracy.
Traditionally, most gold imports into China have been transported through Hong Kong. And, the data provided by the Hong Kong authorities was very transparent often being used as proxy for overall Chinese gold demand.
So, the more gold that flows into China via Shanghai, the more difficult it is going to be to get an accurate read on China’s gold demand. In addition, the Chinese government is also permitting gold imports directly into both Beijing and Shenzhen. But the majority of the gold should go to the SGE.
At the same time, it was announced at a conference in Singapore that Singapore intends to launch a physical gold contract as well.
The contract is expected to debut in September and will be the first wholesale 25 kilo bar contract, and it will introduce centralized trading and clearing of a physically delivered gold contract in Singapore.
The new contract will allow gold suppliers to “connect more effectively with their Asian clientele,” the WGC said. There will be six daily contracts, which will give physical users access to competitively priced kilo bars, they added.
The moves underscore rising pressure from Asia, home to the top two gold consumers – China and India - to have pricing references that better reflect the region's market dynamics, and the growing disenchantment with prices set in the West.
The London fix, the global benchmark for spot gold prices that is determined by a group of four banks over a teleconference, is being investigated by regulators in Europe and the United States under suspicion it may have been manipulated.
And, while these two major centres aim to become leading global trading centres for gold, Dubai has similar plans as well. The Dubai Gold and Commodities Exchange (DGCX) which originally planned to offer the first spot gold contract in the Middle East this month, is expected to launch the contract in the next two or three months.
DGCX is working with bullion banks and refineries to design a spot gold contract to suit the needs of the sector. The new spot contract is also going to for one kilogram (32 troy ounces) of 0.995 purity gold.
As much of 40% of the gold traded globally comes through Dubai, the commercial hub of the United Arab Emirates, with US$75 billion of gold traded through the city last year, according to Ahmed Bin Sulayem, executive chairman of the Dubai Multi Commodities Centre, which facilities the trade.
The exchange hopes to attract mining companies, refiners, fabricators, traders and international banks to the new spot gold contract. The DGCX will aim for the delivery of gold within two days of a trade.
With slowing growth and rising inflation, I wonder what central bankers will do next. So far, all they have done is create an ocean of credit that is acting as a lifeline to bankrupt countries and financial institutions. And, if the central banks stop printing, these institutions will be in serious trouble. Even worse, governments will lose their main buyer of debt and be in serious danger of default.
On the other hand, the inflationary effects of their monetary policy are starting to be felt all over the world. So if central banks keep printing, they will do even more damage to their currencies and anyone who uses them.
I am very happy that I own physical gold and silver.Gold prices continue to hover around the $1320/oz. level and above the support at $1300/oz. as well as the 200 and 50 day MA. While it is possible to see a small correction and re-test of $1300/oz. the price looks set to continue in an upward bias
Sentiment: Strong Buy
Traders Unwilling to Be Short
Tuesday July 01, 2014 08:46
Continued short covering in a thin market yesterday popped gold, in two blinks of an eye to the $1,330 level. Weakness in the US$, which I believe is counter-intuitive to the comparable European and American economies, and some minor softness in the equity markets encouraged the shorts to cover on the last trading day of the 2nd quarter. Technically the markets continue to post higher lows and intra-day highs, which may suggest a test of the $1,337 level, but this trader is seeing good two sided volume, which indicates a market that is, as of now, not fully convicted. Thin volume markets are never a good gauge of direction, but this continued grind to higher levels will eventually attract idle and rotational capital. Platinum broke the $1,500 level this morning and palladium is eyeing resistance at $850.
By Peter Hug
Global Trading Director
Sentiment: Strong Buy
Gold: The Pause That Refreshes
Monday June 30, 2014 15:01
Amidst the earliest musings for The Gold Update of a couple of missives back, at which time the yellow metal was in a mild upward tilt whilst still entrapped in the 1280-1240 support zone, I swerved into a loyal and valued reader who remarked that the real story was the miners being en route to surpassing the performance of Gold itself on the upside. This is, of course, the wont for the shares of mining and royalty companies -- and as all engaged precious metal equities investors know -- sadly 'tis the same when on the downside. Live by the volatility, and at minimum, have a near-death experience by it: "Another gold stocks investor, Nurse Assay? ... Yes Dr. Lode, the ER is teeming with them."
Then reminding the reader whilst I am not a stocks follower per se, (beyond our various S&P 500 valuation and ranking categories as displayed at the website), that nevertheless come month's end we'll post the usual year-over-year track of Gold's percentage performance vs. those of its precious metal equities brethren, thereby vindicating such real story volatility notion. So with but one trading session left in June, let's go for it, the following chart featuring Gold itself, the HUI (Gold Bugs Index), the XAU (Philly Exchange Precious Metals Index), GDX (the exchange-traded fund of miners) and RGLD (the royalty company Royal Gold):
Quite the changed picture from those posted these many months, as now all of that Spring-time selling from 2013 has moved off of the chart. What is notably striking in the above view is the more volatile amplitude of the equities indices in oscillating 'round either side of Gold, as it essentially snakes through the center of them.
And as we displayed at the end of Q1, 'tis time again to bring up the comparative tracks of Gold year-to-date through Q2 for both 2013 and 2014. +10% surely trumps -30%, this year's broad consolidation lending more confidence to the worst as having passed:
Now as for Gold's currently enjoying "the pause that refreshes", it shows stark and rightly justified per the following two panel graphic. On the left in a three-month view we've Gold's settle yesterday (Friday) at 1316, price almost childlike in curling back toward the rising Magnet as if to say, "C'mon on Mummy I beat you!" On the right in a 12-month view is further evidence of price's recent racing away so as to increase Gold's expected daily trading range between low and high to almost 15 points. Summer is heating up:
Here, too, we've Gold's pause in view, and yet in marked contrast to the chronic complacency of the ever-upward, meandering S&P, their comparative percentage tracks for the last month as follows:
Next in turning to Gold's weekly bars -- and contrary to having penned a week ago that the parabolic trend would flip from Short to Long at 1332 -- we "missed it by that much" as Gold only reached 1326, (again having gotten too far ahead of Mummy). But as shown below, trading through 1327 in the ensuing week ought trip the flip, in turn lending support to the Daily Oscillator's already Long stance (as described a week ago) for Gold's then making the run up to 1384:
As for the state of interest rates, St. Louis' FRB president James Bullard on Thursday put forth the notion of their rising sooner than later, an arguably inflationary Gold positive. To be sure, our CPI certainly has been increasing year-to-date, the just-reported +0.4% increase for May being the largest monthly rise since last June's +0.5%. Indeed as we approach the celebration of our StateSide once-had Independence, 'tis reported that prices for hot dogs, fireworks and gasoline are at their highest levels since 2008, (the latter alone averaging $3.68/gallon -- for which here in San Francisco we'd certainly relish, having just filled up for $4.79/gallon, albeit still a bargain given France's $8/gallon). Nonetheless with such digression in mind, conversely here below we've the yield on the five-year Treasury Note since its 5.241% peak during 2007, (monthly bars-to-date). The current level of 1.638% yield for such five-year dough hardly makes its T-Note worth purchasing. But the three descending lines drawn upon the chart depict the yield's regression trend channels such as to raise an eyebrow in noting that such lowly rate may be poised for an upside breakout per the rightmost area of the graphic as the upper blue line is tested:
But then again, maybe not, the Dollar dropping to its lowest level in five weeks, at least against the ¥en, given StateSide signs of an "uneven recovery" which we deem a Gold positive. Let's look at both the Dollar and the Economic Barometer.
First here's the Dollar Index with the same charting presentation as used above for the T-Note yield, (monthly bars from 2007-to-date and regression trend channels). Give or take a few points, the Dollar's valuation is right around where 'twas back in '07, the overall trend being essentially "choppy-flat" with range notably narrowing:
"But how can that be, mmb? Our money supply is up almost 40% since then!"
A perfectly logical deduction that, Squire, but allow me to very loosely state: "so is everybody else's". Which is why we oft say that Gold plays no currency favourites. Moreover, the total mined Gold supply since 2007 is up just a wee two-tenths of one percent, (assuming some 165,000 total metric tons on the planet, increasing at a paltry pace of just 50 metric tons per year). Reason enough for Gold to already be hovering about $2,000/oz., (depending upon the starting point from where one measures). Still, with respect to the prior interest rate graphic, there is quite the disconnect with the Dollar, such as to opine that either the former rise, else the latter dive. Either way, through these years of quantitative easing both StateSide and 'round the world, there's been a heckova lot more accounting units of currency created than physical units of Gold.
Second given that notion of our economy's "uneven recovery", here again is the Econ Baro having just gracefully recovered from stepping into a pothole borne of April/May reportings for weakness in Industrial Production, Capacity Utilization, the NAHB Housing Index, Consumer Sentiment and Leading Economic Indicators, albeit those and other surveys have since righted themselves a bit, (at least for the present):
Indeed the S&P, which continues to climb within the context of such "uneven recovery", is apparently simply expecting interest rates to remain at almost nil levels with, at some point, a return to more "free QE".
We maintain that Gold sees such ultimately debasing realities as well. Others of course do not, as evidenced per certain analysts' quotes by which we breezed during the week, collectively as “... the surge in gold can’t sustain itself ... it was a temporary spike because of a confluence of events ... people are leaving gold in search of something better ... you’ve had a bit of safe-haven demand and a bit of inflation-hedge demand ... the view doesn’t change on gold, because this is temporary ..." Same old negative nabob pap. I'd say the following two panel graphic looks quite healthy for Gold going forward.
On the left, the "Baby Blues" have done it! Those blue dots of 21-day linear regression trend consistency having surpassed their +80% level now confirms such trend as up, (duh!). Last July, upon eclipsing the +80% level, Gold traded higher by 100 additional points within five weeks. Then similarly this past January, upon eclipsing the +80% level, Gold traded higher by 110 additional points in some six weeks. A repeat performance from here thus puts Gold into the 1400s. Go Blues! On the right, FRiday's settle (1316) is spot on the longest bar in Gold's Market Profile, meaning that more Gold contracts have traded at 1316 than at any other price in the last 10-trading days (two weeks). Should the aforementioned parabolic weekly trend indeed flip to Long in the new week and the daily Price Oscillator study's Market Rhythm target of 1384 remain in tact, that large clump of trading in these low 1300s ought be brilliant support toward the run to higher levels and a year's new high above 1392:
In wrapping it up for this week, and again with the spectre of higher interest rates lurking about in the minds of some, one has to wonder what the dear Old Lady of Threadneedle Street must think after having been referred to as an "unreliable boyfriend" by Parliamentary Treasury Committee member Pat McFadden, the target of course being Mark Carney. To summarily paraphrase The Guv: "Rates may riser soon than expected ... but not really". 'Tis similar to our StateSide confusion as herein noted via Mr. Bullard's suggestion that rates may rise sooner than later, only to be offset by others pointing to the economy's "uneven recovery". Certain central bank figures may well make for strange bedfellows, but to drag in the Old Lady, indeed question her very gender, is quite deserved of reproach by polite society, wouldn't you say? Ghastly...
Mark Mead Baillie
Sentiment: Strong Buy
Quiet Trade Ahead Of Big Fourth Of July Weekend
Monday June 30, 2014 08:44
Gold continues to be range bound between $1,312 and $1,322. There has been a slight pick-up of physical demand, but not enough of a catalyst to push the market to newer short-term highs. The last trading day of the second quarter may see some more reconfiguring, but this week will be marked by increasing disinterest as we head into the July 4th weekend. Thin volume days can produce exaggerated moves and traders will likely be done by noon Thursday. Assuming no surprises from Iraq, the metals will find short-term direction from the equity markets.
By Peter Hug
Global Trading Director
Sentiment: Strong Buy
Large Speculators Ramp Up Net Bullish Positioning In Gold, Silver – CFTC Data
By Allen Sykora Kitco News
Monday June 30, 2014 11:08 AM
(Kitco News) - Large speculators significantly ramped up their bullish positioning in both gold and silver futures, as reflected by the most recent weekly positioning data from the Commodity Futures Trading Commission.
They also added to their bullish stances in platinum group metals despite the end of a five-month-old strike in the South African mining sector.
All of the metals rose during time period covered by the report, which was for the week through June 24. August gold on the Comex division of the New York Mercantile Exchange rose $49.30 during the week to $1,321.30 an ounce, while September silver soared $1.321 to $21.097. Nymex October platinum rose $29.20 to $1,473.10, while September palladium gained $13.70 to $830.40. Comex September copper moved up 8.7 cents to $3.1450 a pound.
Net long and short positioning in the CFTC data reflect the difference between the total number of bullish (long) and bearish (short) contracts. Traders monitor the data to gauge the general mood of speculators, although excessively high or low numbers are viewed by many as signs of overbought or oversold markets that may be ripe for price corrections.
The CFTC issues two reports -- a “disaggregated” report started in 2007 and meant to offer more detail, and the older “legacy” reporting format still followed by many analysts.
In the disaggregated report, money managers hiked their net long in gold to 114,356 contracts for futures and options combined as of June 24, a jump of 72% from 66,572 the prior week. Barclays pointed out this was due to an almost equal amount of fresh buying and short covering. Total longs jumped by 22,912 lots, reflecting new buying. Meanwhile, total shorts fell by 24,871 lots, which represent short covering, which is buying to exit short positions in which traders had previously sold.
The net length is the most since March 25.
“The move has been buttressed by FOMC (Federal Open Market Committee) statements indicating that U.S. policy rates would remain near zero for a prolonged period, just as geopolitical tensions begun to escalate in Iraq,” said Citi Research.
TD Securities, in a research note, said gold speculative accounts shifted to a heavily net-long position in a delayed reaction to comments from Federal Reserve Chair Janet Yellen that disappointed those who thought she would lean more hawkish. This triggered short covering in gold, with buys stops activated and the market making a technical breakout higher.
The legacy report shows a similar story. The net long of the large non-commercial accounts – commonly referred to as the funds -- climbed to 146,239 for futures and options combined, the most since March 18 and a week-on-week gain of 54% from 94,654. A breakdown of the data shows that new longs rose by 29,511 lots, while total shorts fell by 22,074.
Edward Meir, commodities consultant with INTL FCStone, pointed out one potential drawback to the huge jump in net length, however. If gold can’t continue building on the roughly $40 jump from two weeks ago, fresh longs “may decide to head for the exits just as quickly as they came in,” meaning selling pressure would emerge in the form of long liquidation or profit-taking.
However, HSBC analysts also pointed out gross short positioning still remains at historically high levels, meaning potential for even more short covering.
Percentage-wise, the jump in net length in silver was even more dramatic. In the disaggregated report, money managers’ net-long position skyrocketed to 24,757 lots for futures and options combined, a week-on-week gain of 382% from 5,134. This tended to be tilted toward short covering, as the number of total shorts fell by 13,416 lots and the number of total longs rose by 6,207.
In the legacy report, the large non-commercials upped their net long by 148% to 30,803 lots from 12,403 the prior week. The largest share of the increase was the result of short covering as gross shorts declined by 11,804 lots, although there was also significant fresh buying as reflected by a 6,596-lot increase in gross longs.
Net length in silver for money managers stands at the highest level since Feb. 25. For the non-commercials, the net long slightly exceeded the February peak of 30,164 and thus was the greatest net long since February 2013.Large speculative accounts also added to net-long positions in the platinum group metals, even though a strike in South Africa was declared officially over the day before the deadline for the most recent CFTC data.
“PGMs moved net longer on the worry that a dovish Fed would be behind the inflation curve, but positive labor developments in South Africa held them in check,” TDS said.
Money managers hiked their platinum net long to 35,944 lots in futures and options combined from 33,622 the prior week. There was both fresh buying (total longs rose 1,336) and short covering (total shorts fell by 986).
In the legacy report, the non-commercials hiked their net long to 44,924 lots from 41,620 the previous week. The data also suggested both short covering (decline of 2,446 shorts) and fresh buying (total longs rose 858).
In the case of palladium, the money managers’ net long rose to 19,941 lots from18,550 the week before, mainly as a result of fresh buying, as gross longs climbed by 1,007 lots. The non-commercials upped their net long to 22,201 from 20,976. This also was mainly due to fresh buying as total longs increased by 1,071.
The net positioning for the lone base metal included in the CFTC report – copper – was mixed, although in both cases the buying outpaced the selling in the most recent data. For the disaggregated report, money managers flipped to a net long of 14,325 lots from a net short of 313 the prior week. In the legacy report, the non-commercials were net short but by a smaller margin of 7,578 lots, compared to 17,930 the previous week. In each case, there was both short covering and fresh buying in the week to June 24.
“With this week’s release of China’s official June PMI (Purchasing Managers Index) data, which we expect will also show an acceleration in manufacturing activity for the Asian Dragon, we expect further short covering activity to be a feature of CFTC report for the week ending July 1st,” said Citi Research.
By Allen Sykora of Kitco News
Sentiment: Strong Buy