I have had many people ask me if the recent upward action in the gold market is for real this time. My inclination is that it is indeed “real” this time. I have been hearing for years that gold would have to get past the Magineaux line of $1350.00 per ounce and indeed close above $1385.00 to break out of a long basing process. That has happened.
In the last couple of weeks gold has rallied strongly and has recently taken out all of the barriers that those who watch charts use to determine whether to buy or sell. My take is that we have entered a phase where we may see some real fireworks going forward.
While I believe that we will see prices that are exponentially higher than we are seeing today NEVER think that it will be like a rocket ship. There are many forces that want to keep the price low and they are intervening massively in the market right now. Expect sharp rallies and sharp pullbacks.
There are many reasons to believe this. First and foremost it appears that the world- not just Russia, China, India, Iran, Turkey and others that we are threatening with tariffs and economic warfare, are buying gold in amounts that are historic. It appears that the rest of the world has decided that the US dollar is a weapon that they would like to neuter. The countries of the world are buying gold now in record amounts. On the other side, according to Miles Franklin’s David Schectman the banks, like JP Morgan are shorting against the buyers and keeping the price contained.
According to the World Gold Council, Goldman Sachs Global Investment Research, central bank gold purchases have increased in 2019 through April from 117 TONS of gold in 2018 to 211 tons of gold through April 2019. This is an 80% increase in purchases year over year when the previous year set an all-time record of 651 TONS. Again, I have to ask why would central banks, who can create “money” or at least purchasing power with a mouse click be buying this amount of gold? UNLESS they know all too well that they have created far too much and that its purchasing power may be nearing an expiration date. Or, that this current downturn in the economy that I have been writing about for months, could be the last hurrah for those trying to bail out the system one last time. How many trillions, tens or hundreds of trillions may that take?
There are signs everywhere that the global economy is indeed in freefall. Shipping rates, container rates, trucking rates, sales, manufacturing and consumer sentiment are all falling off of a cliff in the last few months. Just this morning US Durable Goods Orders were reported to plunge the most in 3 years by Zerohedge. The only numbers rising are debts in all forms- personal, corporate, public, government and defaults of loans in many forms. Auto loans and student debt are the most obvious but there are many cities, towns and states that are in huge trouble but are masking it with yet more debt. Keep in mind that they can’t “print” money like the national governments. Also keep in mind that without that “printing” our economy would look FAR different than it does today as we “print” to keep an illusion of normalcy- as long as we can anyway.
The economic numbers that have been released and reported in my articles in the last few months are now being compared to the numbers last seen during the downturn in 2008. My guess is that those in charge are propping this illusion up with numbers that none of us can fathom. Of course, I believe THEY know it and that is likely why they are purchasing an asset that has held its purchasing power for 5000 years rather than counting on their trigger finger.
Let’s not also forget about the major banks and their massive purchases of gold and silver while they have been actively suppressing the price with paper contracts that they pass off as gold (created out of nowhere similar to “money printing” with a derivative contract) and buy physical gold and silver for their own vaults. I have written in the past about the tons purchased by HSBC and Goldman Sachs and Ted Butler has written that JP Morgan has amassed 850 million ounces of silver and between 20-25 million ounces of gold. WHEN they decide to let the price rise they will be in line to make possibly hundreds of billions in profits. This, of course, will be in addition to the massive profits that they have likely made shorting it the last 7 years or so. If only we had the same rules that they play by!
Again, just today, it was announced that Merrill Lynch has been fined a $25 million CRIMINAL fine for manipulating the precious metals markets. Too bad this is just a fraction of a percent of the manipulation in this and most other tradable markets these days. As usual, not one banker will be held accountable. Just the fine- which may be a fraction of a percent of what they “earned” by scamming the rest of us. It appears crime does pay- if you are connected.
The bond markets are another sign that all is NOT well. Negative interest rates globally have reached near $13 trillion. That means that anyone buying these bonds is expecting to lose money if held to maturity. Long term rates in the US are falling and there is virtually no yield curve at all. This is not good for the banks as they make money paying depositors short-term and lending long term. This generally slows down lending and leads to economic contraction- as we are seeing across the board.
In addition, the reason some people give as a reason to not hold gold is that it doesn’t pay a yield. Once you have virtually no yields anyway that argument goes away. Of course, with negative interest being paid (or levied?) on $13 trillion of bonds globally- and priced in currencies that have a horrible track record on top of that- an asset that holds value, yield or not may make a lot of sense.
Let’s also remember that the world’s financial system appears to be not only slowing down but there are signs that liquidity (the lifeblood of a debt-based system) is breaking down globally. In China the government is intervening in the overnight lending markets as many banks are rumored to be in trouble after the first government bailout in over 30 years of Baoshang Bank took place on May 24. As reported in Zerohedge 250 billion yuan ($36 billion) has been added into the financial system to fill a funding gap. That was a week ago- it probably is higher today as the stress has not gone away.
Deutsche Bank has a plan to set up a “bad bank” to house 50 billion euros of non-performing assets. Numerous bail-ins and bail-outs have taken place in Europe and have gone virtually unreported in the mainstream media. Portugal, Spain and Italy as well as other Eastern European countries have seen these actions already. Why the news blackout? I have my ideas!
Keep in mind that all of these liquidity problems are coming at a time when central bank intervention is off the charts to keep the system propped up! It appears they are buying all types of assets in massive amounts but instead of a boom we have status quo.
Many countries are seeing their currencies decline meaningfully. This makes it harder to pay off foreign- mainly US dollar-based debt. Of course, the world’s debts are in uncharted territory and this is the likely reason for the global slowdown regardless of the reason du jour on the financial game shows.
I also believe this is the reason that the Fed may be hesitant to lower rates. It just may be that they are wondering out loud- behind closed doors of course- if it will work this time.
Why do you think they may be thinking this? Look at mortgage rates. They have plummeted but the activity in the housing market is not responding. Home sales are tepid at best. It could just be that we have reached debt saturation and the prior cure may become the disease as we go forward.
It really appears that the central banks are not only the lenders of last resort but are also the BUYERS of last resort. Let’s not forget that stock markets have rallied while more assets have been removed from stock funds and stock ETFs than were removed during the last crisis in 2008- let that sink in! Of course, stock buybacks have been another boom to many company’s stock prices also.
My guess is that the authorities are working overtime to keep this system alive a while longer. I also believe that, just in case, our military is positioned so that if all hell breaks loose financially, those in charge will have an excuse as to why things went bad- likely Iran, China or Russia rather than the money “printing” that distorted every asset price on the planet that the markets have been attempting to fix for years but the fake demand created out of money from nowhere has not allowed the market to determine fair value- YET.
As Jeremy Grantham calls it a “reversion to the mean”. Likely, those assets being artificially propped up like stocks, bonds and real estate will fall and those being artificially repressed will rise.
It should be quite a show to behold.