Month: July 2020

Will the gold price surge spur high-value mine discoveries?  DW (English)

Wall Street Is Throwing Billions at Once-Shunned Gold Miners  Bloomberg

1. Gold and silver continue to move higher, faster, than forecasted by analysts  Kitco NEWS
2. Gold price surpasses $1,860 – highest since 2011 – MINING.COM  MINING.com
3. Gold surges toward all-time high, silver ends at highest since 2013 as U.S.-China tensions mount  MarketWatch
4. Gold, silver prices surge to highest levels in years  Fox Business
5. Gold approaches record as silver hits six-year high  Aljazeera.com
6. View Full Coverage on Google News

Gold-silver ratio key as markets surge higher  Kitco NEWS

‘$1900 is certainly in sight’: Overvalued equities are buoying gold price – StoneX  Kitco NEWS

Gold price has further to run as USD on cusp of bear trend – Bannockburn Global Forex  Kitco NEWS

Gold and Silver Charging higher again, Platinum joins the party  Kitco NEWS

We tend to spend a lot of time looking into the rearview mirror, especially when under duress.

Connected to this is something psychologists call “recency bias.” This simply means that what has happened in the near to intermediate past tends to inform and influence us as to how we should behave in the future.

The 2011 to early 2019 precious metals bear saga was broken only by a six-month bull hiatus in early 2016 – which then gave most of the rise back over the next two years!

Now, in spite of some very powerful evidence to the contrary, the general investing public still questions both the validity and upside potential of physical precious metals and the share prices of producing miners.

My premise today is that the physical gold and silver market has fundamentally changed. And if you intend to gear up for and stay on this evolving multiple-year historic run, you had best do the same.

Significant increases in demand – especially in the West – tend to begin subtly with large purchase and storage by high net-worth individuals.

Over the last year or so, gold and silver ETF share inflows (which are supposed to be backed by growing amounts of metal) have been surging, setting monthly records time after time. In just the last two years, silver bullion held in trust by these ETFs has risen from a 22-million-ounce loss in 2018, to an 81.7-million-ounce gain last year… and ETF holdings are still marching higher.

Ounces vaulted under the SLV, which holds almost one-half of the silver owned by the world’s ETFs, is published daily and has become a must-follow item for speculators and investors alike. As such, the Trust’s mission of mirroring the metal’s price serves as a proxy for silver investment demand.

By the middle of July, as reported by Adam Hamilton, SLV held over 516 million ounces of silver! Adam believes that this current rise is caused by institutional investors, stating that this “near-vertical holdings build has been highly consistent and disciplined. It has happened whether silver is rising, falling, or grinding sideways.”

There is an interesting discrepancy going on between the amount of gold going into ETFs of record, and the “implied build” taking place in other venues. These take the form of private purchases held either in non-banking vaults, private storage facilities, or (quite literally) holes in the ground.

In addition, Central Banks, probably the largest buyers of gold over the last decade (having been net sellers for a number of years prior to the switch), have become unremitting accumulators. For all their public posturing about “gold not paying interest,” gold being “a barbarous relic,” or a “pet rock,” they certainly have been doing just the opposite!

The most profound exceptions to this have been, when at the start of the (so-far) 20 year bull run, UK bureaucrat Gordon Brown managed to sell fully half of his country’s reserves at an average price of $275, which turned out to be the absolute low of the previous two decades.

Immortalized as “Brown’s Bottom,” his farcical action cost his countrymen billions of dollars in lost value, as gold rocked up to its current level of over $1,800. No doubt this will continue to be “the gift that keeps on taking” as gold adds more thousands of dollars per ounce.

But the top prize for “thinking backward” must go Canada, which although it is the world’s 8th largest gold producer, holds next to nothing. Their puny “reserves” could probably fit on a sturdy coffee table!

The large buying build in both gold and silver have reached the stage where individual investors are starting to realize that, far from being a flash in the pan last spring, elevated premiums, long delivery delays, and difficulty in finding metal at all are becoming the norm.

My suggestion: Expect these trends to persist and become noticeably worse as we move into the fall months, typically one of the strongest time frames for both metals.

The biggest decrease in silver mine supply in recorded history – going back to the 1940’s – has taken place during the last four years (2017-19, CPM Group)! And this was pre-COVID.

As Jeff Clark notes, in 2019, only a single new primary silver mine came online anywhere on the globe. Not to mention that due to the pandemic this year, we can expect a further 10-20% production decrease.

If you have yet to acquire “enough for your needs,” then you’d better get on the stick. Decide what your acquisition plan should look like, how much you intend to budget, what you should buy, and how often you plan to do so. Then don’t fail to do something about it!

Adam Hamilton’s latest essay concludes with the following paragraph.

The resulting enormous SLV-holdings builds are unprecedented, forcing them vertically… unleashing a powerful virtuous circle for silver, with investment buying driving silver higher attracting in even more investors. Silver still has a long runway higher to mean revert back up to historic norms relative to gold. And the Fed’s epic monetary inflation should keep demand high.

By just about any metric, the odds overwhelmingly indicate that the historic silver (and gold) institutional and speculator demand now being witnessed, will lead in due time to a virtual “gold rush” by individuals like you and me for what’s left over.

So don’t keep waiting for lower paper prices in hopes of getting some cheap metal.

As investors with this mindset found out last spring, holding out for $12 silver simply meant they had to pay $22, as opposed to being able just a few months before to get it at $17, which included only a single dollar premium over spot.

So don’t be zinc penny wise and copper pound foolish!

Real money – gold and silver – unlike the fake stuff in your wallet, holds and builds value as a counterweight to the ongoing depreciation we’ve all been experiencing in fiat currency purchasing power.

And oh, did I mention that just since 2000, those “paper promises” you’ve been collecting have declined in value by about 44%?

As for gold and silver since then? Try working the math on scratch paper with these statistics. Gold in 2000: c. $265; Today: c. $1,863. Silver in 2000: $4.75; Today $22.37. On the way for both over the next few years to _?__ (fill in the blank).

The price of silver has just spiked up about $2.00—that’s about 10%.

All the usual suspects have been calling for silver to skyrocket. With some amusement, we have been watching ads from a guy known for savvy junior mining stock investments, who has been calling for gold to go up for a while. And recently, silver.

Anyways, the silver trend is obvious. Coming after a long bear market, with many bull traps aka short-lived spikes in the price, and now with central banks committing more Acts of Printing than ever before, and with gold already having gone up near its high in USD and breaking out to new highs in many other currencies, a bull market in silver would seem to make sense.

The technicals for silver look good, too.

Finally, it should be noted that the gold-silver ratio recently made an all-time (as in forever) high well over 120 to 1. This is an all-time low in the price of silver, as measured in gold (the proper way to measure it, really). So it is logical that silver should move up.

So what does Monetary Metals have to say? We could say, well, if a stock picker is going to publish macroeconomic calls, then perhaps we publishing our junior mining stock picks?

Or, instead of that, we should just show the chart that everyone wants to see. The high-resolution picture of the silver price overlaid with the silver basis.

This is a rare sighting. Perhaps not as rare as Sasquatch or Nessie. But rare nonetheless.

We refer to a day with rising price and falling basis. That means as the price increased, the basis decreased. As silver went from $20 to $22, the basis went from 11.6% to 8.5%.

Leaving aside all of our fancy theory as to why this indicates falling abundance—that is, there was less silver metal available to the market at the end of the day at $22 than there was at the start of the day at $20—this action shows something simpler and obviouser.

The price of spot moved up closer to the price of the futures contract (the futures price is still quite a bit higher than the spot price). This tells us that the buying which drove the price up so much was…

…buying of physical metal.

It is worth mentioning that, with the market makers still notable by their absence, the basis is very high and the move down was very big. This does not alter the above conclusion, that the buying was buying of physical metal. It just means that the absolute numbers of basis and change in basis should not be taken to mean the same thing as they would if they had occurred a few years ago.

This is a pretty good signal that a bull market may be returning to silver. Let’s watch the basis and price action closely and see how it develops, before we join the pack by taking a straight edge to a price chart starting at March and drawing a line up and to the right, to pick a price target.

Nomination for the Board of Governors of the Federal Reserve

We read the news today that Judy Shelton has been approved by the Senate Banking Committee. This means that the full Senate can vote whether or not to approve her.

She is not liked in many quarters in Washington. Unlike President Trump’s pick for the other vacant seat (Christopher Waller), the vote on Dr. Shelton fell along strict party lines.

The reason for the antipathy is that she has promoted heretical ideas, dangerous ideas. Ideas about gold, and about a gold-backed Treasury bond. She has said that the US should return to a gold standard (though, alas, she has more recently called for the Fed to cut interest rates).

Given the entire theory developed by Keith Weiner, and our very raison d’etre, we feel we should comment on the prospect of Shelton joining the Fed. We should also disclose that Keith knows Judy, and has discussed gold bonds with her.

The Friedmanites and Keynesians who populate the Fed have the same stale, old ideas. We have remarked many times that their only debate is whether to centrally plan our economy based on discretion or whether to centrally plan our economy based on rules. And within the latter camp, the choice of rules is limited to targeting one or more of: inflation, unemployment, GDP, and the quantity of dollars.

Our opinion is that Dr. Shelton has some new and better ideas.

We make no prediction as to the politics she may encounter at the Fed. But there is a more fundamental problem. The Fed is a central planning agency. Its nature cannot be changed. And there is no good way to do central planning. There is no such thing as a good central plan.

We will not join the chorus cheering for her appointment. This is not because we don’t like her. If a person with a reputation for good ideas joins an organization with a reputation for central planning, it is the latter reputation that will survive.

Some might criticize us, and demand if we don’t care to minimize the harm inflicted by the Fed. Isn’t it better to have good people at the Fed, than bad?

To which we reply: we trust the Fed well enough to keep working towards its true purpose. Forget GDP and inflation and unemployment. The job of the central bank is to enable the government and its cronies to borrow more, more cheaply.

And this includes keeping them solvent. We trust the Fed will do what it needs to do to the quantity of dollars and the interest rate. And to buy whatever securities it needs to buy, to stave off the insolvency of any financial intermediary it cares about.

In other words, it will keep the capital-consuming machine going as long as it can, heedless of the consumption of capital. This will hold true with or without Dr. Shelton.

We wish her the best, but this does not alter our view of the Fed one iota. Or our mission to revive the gold standard, by paying interest on gold and silver to everyone.

The torrid rally in the silver market reached a major milestone this morning as prices hit $21/oz.

On Monday, the silver spot price tracked by Money Metals Exchange closed at $20.12 (the futures market price settled at $20.19).

That marks the first above-$20 close for silver since 2016.

The white-hot silver market is busting through some resistance levels that should clear the way for higher highs ahead. Silver prices traded up Tuesday morning to $21.21 oz.

How high will silver ultimately go?

Technical traders believe that a decisive break above $21 will send silver zooming up to $26 over a relatively short period of time. If silver breaks above $26, then prior highs come into play, including the all-time high around $49.

In terms of U.S. dollars, there is no particular upper limit since the currency is under a continuous devaluation campaign. The value of the dollar might only depreciate at about 2% per year as “targeted” by the Federal Reserve.

Or it could at some point begin to depreciate a much more rapid pace, sending silver and other hard assets much higher in nominal terms.

Silver could, however, become overvalued in real terms – that is, too expensive relative to other assets including gold, copper, real estate, and stocks. It could happen down the road… but not anytime soon.

It was only four months ago that silver was fetching a historically cheap price in real terms. It traded its largest discount to gold on record and its lowest level relative to the stock market in a generation.

Since then, silver has shot up 75% – from just under $12/oz to $21. That near-vertical rate of ascent can’t be sustained in perpetuity. The market will eventually have to pull back and cool off before re-launching into a new upleg.

However, investors who are hoping to be able to accumulate more silver at lower prices won’t necessarily get that opportunity. The market could well spike to $26/oz on momentum buying before suffering any significant retracement.

When silver crossed above $20/oz four years ago, it didn’t stay up there for long. Some additional back-and-forth between bulls and bears could be in the cards before sub-$20 silver is finally a thing of the past.

The good news for bulls is that there appears to now be strong support within the former resistance zone of $18.50-$19.75/oz.

When that range is viewed from the perspective of downside potential versus a long-term upside target at the former all-time high of $49.50/oz, buying silver in the low $20s still represents a favorable risk/reward opportunity.

Of course, many silver bugs are eying triple-digit prices in the bull market ahead. Silver could conceivably hit $100, $150, or even higher levels on fears of physical shortages or a currency crisis.

One thing that is guaranteed in the silver market is volatility. Riding out swings in silver prices is like saddling up on a wild, untamed horse. It will try to throw you off at every turn.

The classic TV series “The Lone Ranger” featured a hero who rode on “the thundering hoofbeats of the great horse Silver.” Famously, the Lone Ranger would intone, “Come on, Silver! Let’s go, big fellow! Hi-yo, Silver! Away!”

Silver investors who are able to hang on to their position – and add to it when opportunities present – will be saying “Hi-yo, Silver!” too as prices move to higher highs.

The Lone Ranger carried actual silver bullets as symbols of his steadfast pursuit of justice against evildoers. Similarly, gold and silver coins are symbols of the justice of sound money against the evils perpetuated by politicians and bankers who control the fiat monetary regime.

Unfortunately, justice in real life is complicated and often elusive. The bad guys aren’t always punished, and the good guys don’t always win.

What will win out ultimately is economic reality. The forces of supply and demand are much like the immutable laws of nature.

They exert pressure on prices regardless of our wishes or moral considerations.

Some investors will benefit while others will get hurt from the price trends ahead. If unprecedented levels of government stimulus and Federal Reserve currency creation begin to produce higher rates of price inflation without generating real economic growth, then stagflation could be a portfolio killer for conventional stock and bond allocations.

If stagflation contributes to rising safe-haven demand for precious metals – which are currently facing supply challenges thanks to COVID-related shutdowns of mines and refineries – then physical silver could prove to be an ideal portfolio diversifier.

We’ve already seen some of silver’s explosive price potential exhibited this year. Even bigger moves are likely still to come.