Currency
The world has woken up to the fact that the Central Banks are a curse, rather than a boom to the global economies, and their time left is slowly coming to an end because of new technologies and currencies.
People are starting to park their money in digital currencies, like Bitcoin, rather than parking them in fiat currencies. This is primarily due to the Negative Interest Rate Policy as well as Zero Interest Rate Policy of the Central Banks, which explains the sharp rise in the price of Bitcoin, this year as seen in the chart below.
Billionaire resource investor, Carlo Civelli, believes that the Central Banks cannot get away with all the monetary printing. And I believe that the more they print, the more they push investors away from wanting their fiat currency.
“If we all talk about the end game and a scenario of total collapse, I can see the governments telling everybody that your money is now worthless and the bonds you own are now worthless. You all have to take a haircut”, said Civelli.
The institutional investors are recognizing this outcome,
hence, they are the largest group of Bitcoin buyers.
Jeremy Millar, Founder and Managing Partner at Ledger Partners in London, believes that people at hedge funds and family offices contribute 50% to 90% of the Bitcoin’s current $6.4 billion market cap.
“What is clear though is that over the last two years, bitcoin has emerged from its ‘hacktivist’ origins to a more institutionalized ecosystem which includes the participation of hedge funds, traders, and professional investors,” said Millar, reports Reuters.
Lack of regulation was scaring a few customers; not that regulation helped in any way during the 2007 crash, and neither will it help in the next crash. Nonetheless, the entry of the Winklevoss twins has given the whole industry an entrepreneurial boost. The twin brothers have co-founded the Bitcoin exchange Gemini.
“With Gemini, we’re a regulated trust company in the state of New York; we’re regulated under banking law, so we operate and have the same controls and procedures that you would expect of any financial institution (like your bank). That didn’t exist in the early days of Bitcoin. Quite frankly, it didn’t exist a year ago . . . It was a Wild West in the early days,” said Tyler Winklevoss.
It is not only the U.S. and the European investors who are worried about their currencies, but the Chinese investors are worried, as well, about the decreasing value of the yuan.
Zennon Kapron, founder of Financial Technology Consultancy Kapronasia and author of a book on Bitcoin said, “it seems that China is leading a lot of the movement. People are protecting their investments [by converting yuan into bitcoin],” reports the Wall Street Journal.
The chart below shows the Chinese appetite for Bitcoin. The two Chinese exchanges, Huobi and OKCoin, both witness approximately 92% of the global trade in Bitcoin.
“There’s a lot of hot money in China that has to go somewhere,” says Du Jin, Chief Marketing Officer at Huobi, reports The WSJ.
Austrian economist and investor Tuur Demeester believes that “it is important to use Bitcoin as part of a diversified portfolio.” He adds that bitcoin “offers a counterbalance to a series of growing risks that are associated with traditional investment practices,” reports the Brave New Coin.
“We think a well-rounded portfolio includes investments in a basket of block chain technologies (altcoins), with an emphasis on Bitcoin. This portfolio can play a part in three distinct strategies: as an insurance policy, as a hedge in a broad speculative portfolio and as a calculated bet on an early retirement,” wrote Mr. Demeester, in his report.
He goes on to add that “we believe returns of 100x over 10 years are possible, though obviously not guaranteed.”
Conclusion:
My readers know that I do not big believer in owning fiat currencies for the long-term. My main emphasis is to find ‘alternative’ asset classes, which are mature enough, but not saturated. The risk-reward in such classes should be high.
Gold and silver are undeniably the best investments for the long-term considering the low-risk that they carry. Similarly, within the next few days, I will keep an eye on Bitcoins, as well, and suggest trading ideas so as to profit from it.
Keep watching this space so as to know when to buy each one of the ‘asset classes’
also:
Don’t miss Michael Campbell’s interview: A Truly Great Interview With Uber Money Manager, James Thorne
This series is based on the premise that debt works the same way for countries as it does for individuals and families: When you borrow too much your life spins out of control. For national and multi-national entities that means elections become unpredictable, economies function erratically, and public policies become more ad hoc and less effective.
And civil unrest becomes the rule rather than the exception. In the US, for instance, it’s suddenly open season on both black men and the police. And in Europe, the following happened in just the past couple of weeks:
Machete-Wielding Syrian Refugee Kills One; Injures Two In Southern German City
(Zero Hedge) – The perpetrator had an argument with a woman near the central bus terminal in Reutlingen, and during the altercation severely injured the woman using a machete. The woman died of her injuries at the scene, police said. The perpetrator was then detained near the scene “in minutes” after the incident but managed to injure another woman and a man, police added. The eye witnesses described the attacker to Bild as “fully insane,” adding that he tried to attack a police car with his machete.
German Police Kill Assailant After Ax Attack Aboard a Train
(New York Times) – WEIMAR, Germany — A 17-year-old Afghan youth who came to Germanyas a migrant last year attacked several passengers with an ax and a knife on a train in the south of the country late on Monday, injuring at least four people, while 14 others were treated for shock, the police said.
After the train made an emergency stop, the attacker fled and was pursued by police officers, who fatally shot him, according to the interior minister of the state of Bavaria, Joachim Herrmann. The motive for the attack remained unclear.
The young man had entered Germany without his parents and applied for asylum, Mr. Herrmann said. According to government figures, more than 14,400 unaccompanied minors arrived last year among the more than one million migrants who entered the country.
Munich shooting: 9 victims, gunman dead, police say
(CNN) – At least nine people were killed and 16 others injured Friday in a shooting rampage at a busy shopping district in Munich, Germany, police said.
The unidentified attacker was an 18-year-old German-Iranian who had lived in Munich for at least two years. The man was not known to police and his motives are unclear, authorities said. No group has claimed responsibility.
Many children were among the casualties.
Attack on Nice | Truck rampage rattles an already unsettled France
(AP) — The Bastille Day truck attack in Nice may have shaken France’s collective psyche, further unnerving a country already traumatized by extremist attacks that have become alarmingly more frequent.
Despite being under a heightened state of emergency, French security forces failed to stop Mohamed Lahouaiej Bouhlel from barging past police vehicles at the entrance to Nice’s famed Riviera beachfront, where the zig-zagging truck he was driving instantly transformed a crowd of families and fun-seekers into utter tragedy.
“The fact that this attack occurred when security measures were supposedly in place makes this very different from previous attacks,” said Neil Greenberg, a professor of military mental health at King’s College London. “That undermines the trust people have in the government to stop these events and it is extraordinarily hard to rebuild that trust once it’s lost.”
This sudden outbreak of apparent insanity doesn’t seem closely tied to the recent change in our borrowing habits. But it is, in several ways. First, the ability to borrow effectively-unlimited amounts of money has set major governments free to intervene militarily in the Middle East and elsewhere, leading to the flood of refugees now destabilizing Europe and breeding the kinds of nothing-left-to-lose behavior chronicled above.
Second, since borrowing and spending money in the present is effectively stealing growth from the future, the more a country borrows, the harder it becomes to provide good jobs and effective public services for the people at the bottom of the economic ladder. Poor, desperate people are inherently more volatile and more likely to crack under the strain of their poverty.
Third, as the easy money policies that once greased the wheels of statist political machines stop working, the people in charge (who have just that one tool in their box) are resorting to ever-more-extreme parodies of past policies – low interest rates being replaced by negative rates, short-term infusions of modest liquidity giving way to massive and apparently permanent central bank purchases of bonds and stocks). These new policies, rather than being simply ineffective, are actively damaging. So the death spiral of the fiat currency, fractional reserve banking system is being turbocharged, which is why the atrocities seem to be occurring at shorter and shorter intervals.
Note that three of the four attacks mentioned here didn’t require guns. People are figuring out that trucks and tools work just fine for mass slaughter as long as the attacker doesn’t mind dying at the end. This opens up myriad possibilities for creative nihilists.
Two headlines hint at what happens next:
Donald Trump says French and Germans to face “extreme vetting”
Don’t miss Michael Campbell’s: A Truly Great Interview With Uber Money Manager, James Thorne
Let’s start this off with a broad overall look at the various players in the silver market.
Silver CoT Futures and Options Combined, Disaggregated Report
The gigantic war continues unabated. Hedge funds keeping pile in on the long side while Commercials and Swap Dealers keep selling them all they want. The hedge fund net long is at a new all time high. The Swap Dealer net short is also at a new all time high. Commercial net shorts are fast approaching the all time high set back in October 2009.
Monthly Silver Chart
The difference between the imbalance between the hedge funds longs and the other large shorts is being supplied this time around by the Swap Dealers whose net short position is nearly 9x as large as it was back when the Commercials notched their all time high in short positioning.
Hedge Funds Outright Positions in Silver
Combined Commercial and Swap Dealers Shorts
In trying to understand this, the following comparison chart helps to shed some light on the subject.
Silver Monthly Chart and EEM Emerging markets ETF Chart
If you study this chart carefully, you cannot help notice how closely the silver price has tended to move along with the overall EMERGING MARKETS for a long time now. Try not to get hung up in the actual price levels of either asset but rather the general direction of price movement for both. It is rather remarkable is it not?
Here is a more short term look at the same two assets.
Emerging Markets ETF Daily Chart
There has been a bit of divergence between the two recently with silver clearly outperforming the EM’s late last month ( June) but lagging by comparison so far this month ( July).
I look at the Emerging markets as another one of those excellent indicators of investor RISK APPETITE. That sector gets savaged when investors are scaling back RISK BETS. On the other hand, when investors are in the mood for risk, they pile into the Emerging Markets.
In a note to clients this past week, JP Morgan states that retail investors stashed $10.2 BILLION into emerging market stocks and bonds, the second-largest amount on record, as recorded by a story on Dow Jones.
While the International Monetary Fund just recently downgraded growth prospects for developed economies, they did not do the same for emerging markets. With the Fed and other Central Banks in no hurry to raise interest rates, there are few if any headwinds for emerging markets.
The one thing to watch will be the US Dollar in this regard. In times past, a strong US Dollar has tended to coincide with downward pressure on Emerging markets. Keep in mind that while the Fed’s mandate is not supposed to cover international developments as a result of their monetary policy stance, they have nonetheless not been shy about referring to overseas developments as impacting their thinking on interest rate policy.
I have stated all of this to make the point that this titanic struggle is in reality nothing more than a huge standoff between hedge funds who are piling into silver as evidence of a general trend towards RISK TAKING and Commercials and Swap Dealers who do not see current silver demand sufficiently strongly enough to justify prices at these levels.
With all of the hot money unleashed by ultra low interest rate policies here and abroad, the sums of capital that can flood into RISK ASSETS is simply enormous. That is why we keep seeing more and more hedge fund buying in spite of the fact that the commercial side is equally determined. The amount of speculative inflows seems inexhaustible when one considers just how yield starved so many investors are world-wide.
Money managers get paid to produce returns on invested capital and right now there is a lot of that capital seeking yield. They really have little choice but to plow it into any asset class that they believe they can push higher.
All of this being said, the composition of this silver market internally is becoming extremely unnerving for me.
Silver Weekly Chart
As long as the assumption that Central Banks are going to keep the liquidity spigots wide open indefinitely remains the general consensus, there does not seem to be anything that might upset this relentless chasing of risk assets. That is all fine and dandy – what bothers me however is I know full well how fickle this hot money can be. It can shift faster than Donald Trump or Hillary Clinton can change a position on an issue. Because of its very nature, it is impatient. If upward momentum stalls all the while the market grows increasingly lopsided, as silver is currently doing, all it takes to send this money packing is the breaching of a downside chart support level. That is when anyone who is carelessly indifferent can get seriously hurt.
If you are long in silver – be cautious and whatever you do, do not grow careless or listen to the siren song of the gold/silver cult gurus. We are in very unsettled times and quite frankly, into uncharted waters when it comes to how all of these Central Bank machinations in our interest rate markets are going to play out. Before you succumb to their predictions of $100 silver, let’s first see if it can get back above $20 and particularly if it can clear $22.
Dan Norcini
also:
Don’t miss Michael Campbell’s: A Truly Great Interview With Uber Money Manager, James Thorne
Dan Norcini is a professional off-the-floor commodities trader bringing more than 25 years experience in the markets to provide a trader’s insight and commentary on the day’s price action. His editorial contributions and supporting technical analysis charts cover a broad range of tradable entities including the precious metals and foreign exchange markets as well as the broader commodity world including the grain and livestock markets. He is a frequent contributor to both Reuters and Dow Jones as a market analyst for the livestock sector and can be on occasion be found as a source in the Wall Street Journal’s commodities section. Trader Dan has also been a regular contributor in the past at Jim Sinclair’s JS Mineset and King News World as well as may other Precious Metals oriented websites.
Copyright © 2016 Dan Norcini – All Rights Reserved
All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The information on this site has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any information on this site without obtaining specific advice from their financial advisor. Past performance is no guarantee of future results.
My favorite indicator for real time Gold demand is the amount of Gold in the GLD and its fluctuations over time. As we wrote in our book, the driving force for Gold is investment demand which is driven by changes in real interest rates. Western-based investment demand from big money (i.e Stan Druckenmiller and George Soros) shows up mostly in the ETFs and specifically, GLD. The amount of Gold in GLD has risen steadily even as Gold consolidated a few months back and has been stable in recent weeks even as Gold and gold stocks correct their Brexit breakouts.
The chart below includes the price of Gold, the amount of Gold in GLD (bottom) and the rolling quarterly change in the amount of Gold in GLD. Even as Gold consolidated for several months in the spring, the amount of Gold in GLD increased. Over the past few weeks Gold has retreated by $65/oz yet the GLD has only lost 2% of its Gold. Moreover, note that the recent demand surge (quarterly change) is the second strongest of the past 10 years.
Tonnes in GLD Trust
Note how strong demand for Gold was from 2006 to the middle of 2010. Even though Gold corrected 30% during the financial crisis, GLD only experienced minor outflows of Gold. After Gold bottomed in October 2008, demand exploded.
Interestingly, demand peaked in the middle of 2010 and went sideways for a few years before succumbing to the bear market. That lack of strong demand in 2011 while Gold surged, in hindsight was a warning sign.
In short, this data (amount of Gold in GLD) can be somewhat of a leading indicator for the sector. It has been in the past and it has worked well so far this year. Unless we see huge outflows from the GLD then there isn’t much reason to be concerned with the current correction in Gold and gold stocks.
Turning to the technicals, we find that Gold appears headed for a test of support at $1275 to $1300. That would be a retest of the area from which Gold exploded in the wake of Brexit. It also marks previous resistance. Gold’s primary trend remains bullish as it holds comfortably above key long-term moving averages shown in the chart (which are equivalent to the 20-month and 40-month moving averages).
Gold Weekly Candle Chart
Like Gold, the gold miners and junior gold stocks could be retesting their Brexit breakout. The stocks may be forming a bear flag (yellow) which would lead to another move lower. If that plays out then look for a test of the support points shown, including the 50-day moving averages.
GDX, GDXJ
While Gold and gold shares are correcting now, the real time data coming from GLD suggests Gold demand is and should remain firm. Traders and investors are advised to monitor flows in and out of GLD in order to keep tabs on real time investment demand for Gold. This is one of the many things we monitor to stay in tune with market trends. The short-term trend is down and further weakness would bring about a good buying opportunity in select companies.
Jordan Roy-Byrne, CMT, MFTA
related:
Morris Hubbartt’s Gold’s Correction: Key Technical Highlights
Brexit, Federal Reserve, Turkish Coup…what does it mean for your investments? What’s coming next? Not an easy answer but Caldwell Investment’s chief strategist, James Thorne says there’s one the key variable that you must keep a close eye on.
Do not miss Michael’s Saturday Comment: The Biggest Change in Canada’s Culture…. It’s Not Good News
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