Gold & Precious Metals

Junior Gold Stocks Lead: Cup & Handle Breakout

Posted by Morris Hubbartt - Super Force Signals

on Friday, 14 March 2014 13:54

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Super Force Precious Metals Video Analysis
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Morris

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Ronald Stoeferle, author of the respected In Gold We Trust reports, as well as two excellent chartbooks (Gold Bull & Debt Bear and Monetary Tectonics) talked to The Cantillon Observer about the dying global monetary system, about the ongoing fight between inflation and deflation, about the results of central bank policies. One of the things Stoeferle firmly believes, is that gold will become much more important as a monetary asset. From that point of view, he sees gold re-entering classic finance.

Below are several excerpts from the interview which appeared on The Cantillon Observer.

Central bank money printing is all about funding government budget deficits and keeping insolvent banks afloat :

I am firmly convinced that the origin of today’s debt/financial/systemic/political crisis can be traced back to the events of August 15, 1971, when Richard Nixon ended the Bretton Woods agreement with the words “Your dollar will be worth just as much tomorrow as it is today. The effect of this action is to stabilize the dollar” Since then the purchasing power of the dollar in terms of gold has declined from 0.75 grams per dollar to currently 23 milligrams.

We explained this interplay between inflation and deflation in our last Chartbook “Monetary Tectonics”: As Austrians we know that the natural market adjustment process of the current crisis would be highly deflationary. As the financial sector in most parts of the world reversed its preceding credit expansion, overall credit supply is reduced significantly. The reason for this lies within the fractional reserve banking system, as the largest part of money in circulation is created by credit within the commercial banking sector. The much smaller portion is created by central banks.

In a highly leveraged world like today, price deflation is – from a political viewpoint – a horror scenario that has to be averted whatever it takes, due to the following reasons:

  • Debt liquidation and price deflation have fatal consequences for large parts of the banking system, in an over-indebted world.
  • Central banks also have the mandate to guarantee ‘financial market stability’ so they have to make sure “It” doesn’t happen here and keep inflating
  • Deleveraging leads to consumer price deflation and asset price deflation. Tax revenue declines significantly. Asset price inflation is taxed, asset price deflation cannot be.
  • Falling prices result in real appreciation of nominal denominated debt.Increasing amounts of debt can therefore no longer be serviced.

Therefore this (credit) deflation, respectively deleveraging, is currently compensated by very expansionary central bank policies. In my opinion, this is an extremely delicate balancing act that will ultimately fail.

On the expected effects of the unwinding of the extreme monetary policies of central banks: 

My countryman Friedrich August von Hayek once said that “If a policy is pursued over a long period which postpones and delays necessary movements, the result must be that what ought to have been a gradual process of change becomes in the end a problem of the necessity of mass transfers within a short period”. This basically says it all.

It is very sad that nowadays, the main factor influencing financial markets seems to be the anticipation of central bank actions. Market participants are conditioned to monetary stimuli like Pavlov’s dog! Historical market patterns have been radically altered over the recent years. Since 2009 the Fed has reacted to every economic slowdown by introducing fresh easing measures. As a result, we can observe the following paradoxical situation now: disappointing macroeconomic data lead to price increases in stocks, as a continuation of QE is priced in. Better than expected macroeconomic data on the other hand lead most of the time to price declines, as a reduction of future QE is anticipated.

Based on my observations in the last few years, I expect that financial repression in all its ugly facets is going to gain more and more in importance over the coming years. I regard this as a terrible long term strategy, as it will only achieve redistribution and a delay, but no solution to the problem. We already see that the whole “stimulus bubble” does not produce significant effects anymore, as we are experiencing declining marginal utility of additional debt.

On the breaking down of the current world monetary system of fiat monies and introduction of a newly-designed global monetary system:

I am absolutely certain, that the renaissance of gold in classical finance will continue. Last year, OMFIF, a global think tank for central banks and sovereign wealth funds, in a report argued in favour of a remonetisation of gold. In their view, gold should once again play a central role in the international currency system. It’s a really fascinating piece and shows strikingly that fundamental changes to the currency system are already being discussed at the highest levels.

There are many other interesting developments going on. In a study commissioned by the European parliament, author Ansgar Belke came to the conclusion that gold-backed bonds would be far more transparent, attractive for investors than government purchasing programs. According to Belke, gold-backed bonds would alleviate the sovereign debt crisis at least in the short term, as it should lower financing costs and restore the damaged confidence.

Regarding the US dollar, global confidence for it as reserve currency has definitely started to wane. Without a return to sound financial and monetary policy the US dollar sooner or later will be questioned sooner or later.

Therefore I believe that gold should continue to be an integral part of every investment portfolio, as it is the only liquid investment asset that neither involves a liability nor a creditor relationship. It is the only international means of payment independent of governments, and has survived every war and national bankruptcy. I truly believe that it’s monetary importance, which has established and manifested itself in the course of the past several centuries, is in the process of being rediscovered.

What von Mises would be saying and doing about the policies of the central banks if he were alive today:

I think Mises would be very, very concerned. As he famously said “Continued inflation inevitably leads to catastrophe”. Another one of my favourite quotes is: “Inflation and credit expansion, the preferred methods of present day government openhandedness, do not add anything to the amount of resources available. They make some people more prosperous, but only to the extent that they make others poorer.”… This is what we are seeing at the moment and I am absolutely certain that it will end in tears.

 

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Breakout in Gold and Gold Miners!

Posted by Jordan Roy-Byrne - The Daily Goldd

on Thursday, 13 March 2014 19:25

Lately we’ve been writing about why we expected the rebound in precious metals to continue without any serious setbacks. After a major low, sentiment can remain muted for several months even in contrast to the improving market action. Yet, a look at history shows that rebounds from major lows can continue unabated and unscathed for more than a year. The rebound in precious metals thus far appears to be following this script. It has received a further boost with the breakout in Gold yesterday and as of now, the breakout in the gold miners.

First, let’s take a look at Gold. The chart below highlights the importance of $1350-$1360 which was major trendline resistance since April 2013 and November 2012. With the breakout past $1360, the next key target is $1420. Gold has weekly resistance at $1400 so keep that in mind as well. If Gold can takeout $1420 convincingly on a weekly basis then it could have legs to $1500.

mar13edgold

Today we have the gold miners, both GDX and GDXJ breaking out of their consolidations. For several weeks both markets held in tight consolidations which appear to bullish flag continuation patterns. GDX’s upside target is $31 while GDXJ could reach $53. The 400-day moving averages could intersect with these targets to form strong resistance.

mar13edminers

The gold stock bull analog chart shows that this current recovery in the HUI Gold Bugs Index is very much in-line with historical recoveries. The current recovery is in blue.

mar13huibulls

Last week we wrote:

It is incredibly difficult to buy at this juncture but, as we noted in our last editorial, the evidence favors doing so. Pullbacks, until we see much larger gains should be brief and should be used as an opportunity. ETFs such as GDX, GDXJ, and GLDX have spent the last 11 days consolidating and digesting gains.

When the market evolves according to your thesis you don’t do anything. You sit tight until you decide to take profits or something changes. Considerable near-term upside potential remains in play for the gold stocks. Silver and the silver stocks have lagged in recent weeks but they will perform well if this breakout is sustained as we expect. As the previous chart shows, there is potentially a lot more upside in play for the balance of the year. Be long, sit tight and have an exit strategy (to limit losses) in case things play out differently. If you’d be interested in learning about the companies poised to outperform the sector, then we invite you to learn more about our service.

Good Luck!

Jordan Roy-Byrne, CMT

Jordan@TheDailyGold.com

Ed Note: Go HERE and scroll down to the bottom where you can enter your email address and receive 2 Free Reports, News and Premium Samples. 

Sellers Exhausted, Inventories Low, Physical Demand is Rising

Posted by Charles Oliver for Sprott Asset Mgmt

on Thursday, 13 March 2014 11:07

Charles Oliver: Gold to 5,000 within a few Years

Charles Oliver joined Sprott Asset Management LP in January 2008. He focuses on gold and silver investments as a portfolio manager for the Sprott Gold & Precious Minerals Fund and the Silver Equities Class.

When I spoke to Mr. Oliver last summer, he said the weakness in the gold price in the face of unprecedented money printing from the Fed had taken him by surprise.

Have we passed a decisive point since then? Is gold heading up?

“I believed throughout 2013, with the price of gold coming down, the fundamentals were only getting better,” he answered. “During that time, the Chinese bought like mad and the Fed printed another trillion dollars through QE. Nonetheless, heavy selling took the gold price down.

“Today, the difference is that the sellers are exhausted, and physical demand is catching up. One of the numbers we are looking at is the quantity of registered inventories on the COMEX for gold. That’s the amount of physical gold that is available when someone asks for physical delivery instead of a cash settlement.”

In the following chart from Bloomberg, we can see inventories of physical gold on the COMEX (in ounces) have declined dramatically, falling by around 30% in the past year:

image001

Please note these are total eligible reserves, which can become registered by the banks in order to settle futures contracts for physical delivery. 

Mr. Oliver continues: “One day, we might see someone try to break the market on the physical side, by demanding delivery of more tons than can be supplied – hence driving the price up.

“Because of this threat, I would tell investors in the metals to stick to ‘fully-allocated’ products, where you have a claim to a specific amount of metal that is physically held in a vault, not lent out or hypothecated.”

So have we reached a point where physical demand will drive the price of gold up?

“The demand coming from China boggles the mind. Imports of gold through Beijing were somewhere on the order of 100 tons a month last fall.1 Assuming this trend continues, China might import 1,200 tons or more this year. That is nearly half of the world’s annual mine production of around 2,600, whereas 5 years ago, they hardly imported any. I believe a good portion of the 800 tons2 that were sold from ETF holdings subsequently were shipped to Asia.”

Gold and associated stocks have attracted value-oriented investors to the space, he adds.

“I’ve noted interest from the ‘big money’ in the U.S., partly because gold stock valuations are the cheapest they have been in 25 years. Last fall, big mining companies were paying dividends as high as 5% according to my numbers, whereas they usually paid under 1% — if anything — a decade ago. Price appreciation and companies cutting their dividends have brought them back to lower levels generally since then.

“Asian entities have been eyeing gold companies for the last decade. Last year we saw the Chinese make a few acquisitions in the Australian market, and they continue to show interest in gold companies in many different jurisdictions. And of course, Sprott itself recently launched two important partnerships with major sovereign and semi-sovereign funds in South Korea and China.”

Could gold head lower in the near-term?

“As far as the price going down again, we already saw gold bounce off from $1,180 in December, which represented a 39 % retracement from the peak – a significant number from a technical perspective. Certainly another powerful support level would be around $1,000. There were several times before 2008 when gold hit that level and came back. I believe that would be a very firm support level for gold if it dropped again.”

Where is gold headed a few years out?

“In 1980, when the gold price peaked at $800, it took 1 ounce of gold to buy the Dow Jones Index. After 1980, financial assets took the lead over hard assets. In 1999, it took 44 ounces of gold to buy the Dow Jones, at a gold price of $250. If gold were to regain the position it held in 1980, we could easily see a 3:1 ratio – gold at $5,000 given the current level of the Dow Jones, or even $15,000 if gold returns to the 1:1 level.

“Ultimately, I believe that the gold price could reach $5,000 within a few years, and perhaps go well beyond. Deficits and rising debts, exacerbated by demographic issues, are here to stay. And money printing and higher gold demand along with them.”

P.S.: Want to discuss investing with someone from the Sprott team? For U.S., and all non-Canadian investors, contact us at contact@sprottglobal.com, or call 1.800.477.7853. Canadian residents may contact Michael Kosowan at MKosowan@sprottwealth.com.

Charles Oliver joined Sprott Asset Management LP in 2008. He is Lead Portfolio Manager of the Sprott Gold & Precious Mineral Fund and co-manager of Sprott Silver Equities Class. Charles combines a big picture approach with a bottom-up process, and focuses on strong management teams with sound strategy.

1 http://www.bloomberg.com/news/2014-01-27/china-s-gold-imports-from-hong-kong-climb-to-record.html

2 http://www.mineweb.com/mineweb/content/en/mineweb-gold-analysis?oid=221870&sn=Detail

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Gold: 14 Years & Three Patterns

Posted by Deviant Investor

on Wednesday, 12 March 2014 13:49

Gold peaked in August of 2011 and fell erratically into December 2013.

Was that the end of the collapse, or is there more downside coming in gold prices?

Bearish Scenario: Listen to the banks who are forecasting weak prices in 2014 and thereafter.“Nothing to see here folks, the dollar has weakened drastically since 1971, gold sells for 30 times its 1971 price, but it’s all good. Just move on and pretend… Gold will drop below $1000 before you can say 2016 elections…”

I’m not a fan of:

 

  • The bearish gold scenario when decades of Federal Reserve “printing” and US government budget deficits have all but guaranteed continued destruction of the purchasing power of the dollar.
  • Belief that even though dollar debasement practices have accelerated since the 2008 crash, gold prices will fall because bankers say so.
  • Propaganda that gold is useless and that unbacked debt based fiat currencies are solid and stable.
  • Large High Frequency Trading companies that short the gold market, loudly proclaim that gold prices will fall, dump a huge number of paper contracts on the Comex, quietly cover their shorts after the gold price crash, book huge profits, and then reverse the process as they push prices up. These traders are in the business of making profits so none of this is surprising.

Instead of listening to self-serving banker opinions, let’s examine the data. The following chart shows monthly prices for gold since 2000. Note that highs and lows as listed in the monthly data are slightly different from actual hourly highs and lows. For this analysis over 14 years, the differences are immaterial.

….to see a larger image and to read more including conclusion go HERE

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