Category Archives: Gold

Gold Set Up For Big Move This Year – What About Cryptos?

Gold and silver had a sharp run-up in the last two weeks of 2017.  However, the abrupt move in gold has been accompanied by a rapid rise in the gold futures open interest on the Comex. Furthermore, based on the last COT report the banks have dramatically increased their net short position and the hedge funds have gotten, once again, extremely net long.  I don’t like the looks of the COT report right now plus I anticipate a possible brief “relief” rally in the dollar index.

But what about cryptocurrencies?  Over the past few weeks the largest and most actively traded cryptocurrencies have been massacred in price.  This follows on the heels of the news that the founders of Bitcoin and Litecoin sold 100% of their holdings.  Nothing like insider selling as a signal about the value of what was sold…

Phil Kennedy invited me on to his podcast to discuss precious metals, cryptocurrencies and the U.S. dollar. We engage in a friendly (I want to emphasize “friendly”) debate on the merits of cryptocurrencies:

The bottom line for me is that gold has been declared a Tier 1 bank asset by the Bank of International Settlements. This means that gold is considered the highest form of bank asset. I believe there’s a good chance gold will move toward and over $1400 this year. As for a price prediction for the cryptos – it depends on the degree to which the fear of losing money overwhelms the fear of missing out on gains for the momentum-chasing speculators – most of whom are Asian-based. We may be approaching that point of no return:

2018 Should Be Bullish For The Precious Metals Sector

Usually I’m loathe to stick out price targets on the markets, especially gold and silver, because of the undeniable market intervention of the Central Banks – market manipulation which is blatant to the point at which it is now denied only by card-carrying idiots.

Gold and silver had a sharp run-up in the last two weeks of 2017. However, the abrupt move in gold was accompanied by a rapid rise in the gold futures open interest on the Comex. The “commercial” – aka “the banks” – net short position in Comex gold futures has increased by 100,000 contracts (from 120 net short to 220k net short) in just four weeks through the most recent COT report. That’s a net paper gold short of 22 million ozs, or 623 tonnes of paper sold short. As of yesterday (Tues, Jan 16), the open interest in gold futures increased another 27,000 contracts, most of which, based on the trend in the COT positions,  can be attributed to a continued increase in bank short interest.

To put this paper gold short position in perspective, the Comex reports that its warehouses “safekeep” 9.2 million ounces of gold (this number is unaudited). That’s 11 million ounces less than the bank net short position. However, only 586k ozs of gold are reported to be “registered,” or available for delivery. The ratio of the paper gold short to deliverable gold is 37:1. In other words, each ounce of deliverable gold has been “hypothecated” and re-sold 37 times.

I guess if you are a card-carrying idiot, you have every right to deny that these numbers reflect the flagrant disregard of securities laws by the banks. But of course, the very people appointed to enforce these laws are from law firms that make millions defending the banks’ legal rights to ignore Rule of Law.

On the other hand,  offsetting the attempted control of the price of gold using derivatives, the eastern hemisphere demand for physical gold continues to be immense. It looks like, based on SGE gold withdrawals, China as a whole “consumed” over 2,000 tonnes of gold in 2017. India likely imported and smuggled into the country close to or more than 1,000 tonnes. Turkey imported 370 tonnes of gold in 2017. This exceeded the previous record in 2013 by over 22%. I would note that the size of Turkey’s demand was not expected. I don’t have Russia’s import numbers off the top of my head but Russia imported more in 2017 than has been typical.

The point here is that the eastern hemisphere’s demand for gold on an annualized basis is increasing as the price of gold increases. It’s important to know that, on a seasonal basis, imports into China and India tend to slow down in late January through February before picking up again. My hunch is that the paper gold manipulators are looking to hold down the price of gold as much as possible and wait for eastern demand to subside before attacking the price. 

This will serve as a catalyst to launch another surge higher in the price of gold driven by physical demand.  Demand which might get a boost from the ongoing crash of the cyptocurrencies.

Having said all of that, I believe there’s a good chance that gold will move toward and possibly over $1400 during 2018. This Trump tax cut will negatively impact the Government’s spending deficit by a meaningful amount and the U.S. will be forced to issue well over $1 trillion in Treasury debt this year. Moody’s placed the U.S. Government’s rating on watch for a possible downgrade. During the course of the year I expect to see the dollar index drop below 90, which is a key technical support level. If this occurs, gold will quickly move over $1400.

A portion of the commentary above is an excerpt from the latest  Mining Stock Journal.

Who’s Going To Stop The Madness?

Every month consumer debt in aggregate hits a new record. Auto loans and student loans have been hitting monthly record highs for quite some time. In November credit card debt hit a record high in total and increased a record monthly amount for any one month. Mathematically this can’t go on forever. In fact, there are signs – indicators not reported widely by the financial media and, predictably, completely disregarded by Wall Street – that indicate the debt party is coming to an end. Events that follow the end of the party will be less than pleasant for the majority of U.S. households.

Every week in the Short Seller’s Journal I present data which reflects the deteriorating condition of middle class America. For definitional purposes, “middle class” is defined as any household that is unable to afford their own politician, which means 99.5% of all households.

As an example, buried in Wells Fargo’s Q4 earnings presentation was data that showed charge-offs in WFC’s credit card loan portfolio in Q4 soared 21% vs. Q3. The charge-off rate as a percent of average loans outstanding increased to 3.66% in Q4 from 3.08% in Q3. This is a 19% increase in the charge-off rate. While this might seem like a low number outright, not only is it headed in the wrong direction, it’s not too far below the nationwide bank credit card charge-off rate in 2007 of 4.15%. Again, this fits my thesis that the financial condition of the average household is deteriorating.

In addition, the dollar volume of auto loan originations at WFC declined 33% and home mortgage originations fell 26%. in Q4 2017 vs 2016. WFC’s mortgage applications in Q4 dropped 16% in dollar volume from Q4 2016. And its application pipeline (applications submitted and waiting for the purchase to close) declined 23% for the quarter vs Q4 2016.

WFC is the second largest mortgage originator after Quicken Loans. It is also a major player in auto loan underwriting. If auto and mortgage loan origination statistics are declining at a double-digit rate at WFC, it’s a good bet that this is a secular trend across the industry. Simply put, middle America – the 99.5%’ers – are running out of capacity to assume even more debt. This in turn will translate into a unexpectedly precipitous drop in consumer spending, especially on large-ticket items like cars, furniture and homes.

I stumbled on a blog a couple weeks ago called  A Cold War Relic. The proprietor works at an auto dealership and presents valuable insight on the factors that will drive auto sales into the ground and send auto loan defaults soaring. His latest post, “What’s Going To Stop Me,” is well worth reading:

This dark momentum could strangle the industry, but everyone refuses to stop it. Every time a customer accepts a $500 monthly payment on another overpriced compact crossover, they are feeding that momentum. When dealers structure deals for far more than the car is worth, they are feeding that momentum. The problem is: who is going to actually tell anybody “no?” Customers want their cars and refuse [do not have the funds] to put money down to get them. A large number of dealerships are fighting to attain sales numbers the market can’t currently support.

I get cursed out every month when our store misses the targets set for us by the manufacturer, even though I’m fighting against larger stores offering deeper discounts on new cars. On top of that, it’s not just your credit criminal customer that isn’t reading what they’ve signed anymore. When you have consumers with 700+ FICO scores rolling over portions of debt they already couldn’t handle on top of new debt and financing the whole thing over increasingly long terms at interest rates they arguably no longer deserve. The problem is that prime credit customers are slowly becoming credit criminals.

You can read the rest of this here (highly recommended):   Auto Loan Crack-Up Boom Coming

In the latest issue of the Short Seller’s Journal, I present a no-brainer homebuilder short idea plus I illustrate the mechanics of shorting a stock for those who only use put options.  In addition I review the Company’s fundamentals.  This is probably the only homebuilder for which unit sales are dropping – in this case falling at a double-digit percentage rate. I believe shorting this stock is good – at the very least – for a 30% ROR by the end of the year, if not sooner. You can find out more details about the Short Seller’s Journal here: Subscription Information.

The Fatal Mistake Crypto Investors are Making Now

I find it amusing that the stock market is attributing so much value to the “blockchain” technology.  In reality, blockchain technology is just a piece of software that increases the degree of security for digital transactions.  I fail to see how this will revolutionize our lives the way the roll-out of the internet or the implementation of mass production or the invention of the internal combustion engine or the harnessing of electricity  changed and affected our daily lives.  I believe the technology has been egregiously over-hyped by promoters who make unrealistic claims about the potential for blockchain software.

But for now it sure is a great “buzzword” for unscrupulous operators to make  a lot of money selling blockchain “snake-oil” to suckers.   Just add the word “blockchain” to the name of your company and the stock will triple in a day.  It’s like the dot.com bubble when any stock with “dot.com” in the name of the company soared.  99.9% of those stocks disappeared completely by 2003.

This article was written Josh Brown of The Reformed Broker

Let’s start our discussion with the technology which made Bitcoin possible called “blockchain”. In very simple terms the blockchain technology is a record of all transactions ever done in Bitcoin. Imagine a gigantic piece of paper that lists every transaction ever completed. Then imagine that there are thousands of copies of this paper, and all of them are automatically updated when any two people agree to exchange Bitcoins. Every time a transaction takes place all these copies are checked for consistency to make sure you actually have the Bitcoins you claim to have. If everything checks out the new transaction is added to all the pieces of paper at once.

This is the heart of the truly genius idea that is blockchain, and it is what it makes it possible to have certainty over a Bitcoin balance someone owns, without needing any central party (like a bank) to verify it. If all the pieces of paper agree then the balance is correct, and trying to doctor or fake all the pieces of paper at once is impossible. The best (and worst) thing about this technology is that it has been made available for absolutely FREE to anyone who wants to use it.

You can read the rest of this here:  The Fatal Mistake Crypto Investors are Making Now

Returning to a Gold Standard – Why and How

This article is from Dr. Fraser Murrell via The Daily Coin:

In the 1600s, Sir Isaac Newton presided over a (bi-metal) Gold and Silver Standard, with the flaw being the fix of silver to gold. In the 1900s, John Maynard Keynes “revolutionized” economics, with the result being certain economic collapse. In both cases there was a logical error in the key definition of “price”, which is critical to the stability of the economy. This note examines the problem and then goes on to present a workable Gold Standard, which it is argued, is the most stable frame of reference for our economy.

You can read the rest of this here:   Returning to a Gold Standard

Novo Resources Is Not Worth $600 Million

Novo is not worth the $544 million market cap based on Friday’s close using fully-diluted shares.   Novo might eventually be worth $600 million or even more.  But that reality is several years away.  I have been recommending selling to my Mining Stock Journal subscribers for several months.  I don’t just ideas to buy, I help my subscribers avoid stocks that are overvalued, for whatever reason.

Novo Resources is a Vancouver-based junior mining exploration company that is in the early stages of exploring its Karratha gold project in Australia. It also has another gold project, Beatons Creek, in Australia and a property in Nevada. Novo had an extraordinary run in price starting in early July, when it ran from 63 cents (US$) to US$7 by the early October. At its peak valuation, its market cap was $1.39 billion. The stock began to head south after hitting $7. It plunged nearly 29% today (Dec 21) after releasing its latest exploration update.

Seeking Alpha published my analysis if Novo – you can read the rest of it here:  Novo Is Not Worth $600 million

Click on this image to learn more about the Mining Stock Journal:

Is Gold Ready To Move Higher?

The simple answer to that question is: who knows, eventually it will. I like to look at the Commitment of Traders report for signals. I think the COT offers better information than looking at charts, although I like to use my COT analysis in conjunction with charts. My fund partner keeps a database of COT gold and silver data going back to May 2005. Over this time, there’s been a strong correlation between the direction of gold, the net long position of the hedge funds, the net short position of the banks and the total open interest in gold (silver) futures.

Over this time period (Since May 2005), the total open interest in Comex gold futures has averaged 429k contracts. The hedge fund net long position in gold futures has averaged 142.8k and the bank net short position has averaged 168.1k contracts. Since 2015, we’ve had two price cycles starting with the low in December 2015. At the December 2015 low in gold, the hedge fund net long position was 9,750k contracts and the bank net short was 2.9k contracts.  The December hedge fund net long was an extraordinary low net long position and the bank net short was extraordinarily low. This makes sense given that mid-December marked the bottom of the nearly 6-year bear cycle within the secular gold bull market.

If we go back July 2016, the open interest in Comex gold has declined 206k contracts – a staggering 26 million ozs – 737 tonnes (25% worth of gold produced annually).   The Comex banks were short an eye-popping 340k contracts – 34 million ounces, or 964 tonnes of paper gold. This represents an undeniably enormous effort by the Fed via the Comex banks to cap the price of gold.

As of the last COT report (Dec 12th, the hedge fund net long was 107k and the bank net short was 119k. The overall open interest was 446k, about 20k contracts above the average open interest since May 2005.  In a “horsehoes and handgrenades” context,  we should have seen the bottom a week ago.

The open interest report thru Tuesday (Dec 19th) showed 446k open interest. Assuming most of that drop in o/i was decline in the hedge fund net long and bank net short, we should start to head higher, but don’t expect this happen continuously, in parabolic crypto-coin fashion.  The gold bubble is yet to occur.   I can’t promise that gold will move higher from here.  The best we can do is assess probabilities based on historical data relationships as they apply currently.

I want to mention briefly that Dennis Gartman has exited the long position in gold in his theoretical portfolio. Gartman’s market calls have a spectacular track record as a reliable contrarian indicator. I kid you not. This would suggest that the gold market is at or near a bottom.

Back in the September, I advised my Mining Stock Journal subscribers that I suspected the coming sell-off in gold – manipulated sell-off, of course – would take gold down to mid-$1240 area.   It hit $1241 on December 12th.  Sometimes the coin does indeed land on “heads” when I call “heads.”  I also discussed the hedge we were implementing on our mining stock portfolio and provided details on the my opinion of best way for subscribers  to hedge a junior portfolio.  The hedge easily saved us at least 7% (700 basis points) of performance this quarter.

The stock I presented in the last issue (Dec 14th) is up 12% and it’s still highly undervalued, especially given that it will start producing in late 2018.  You can learn more about this stock and subscription details using this link:  Mining Stock Journal.

Gold EFPs: Absolute Proof That Paper Gold Is A Fraud

A guest post by Stewart Dougherty

IRD’s Note:  In the past year, there has been a noticeably substantial  increase in the use of the obscurely defined EFPs (Exchange for Physicals) and PNTs (Privately Negotiated Transactions) in the settlement of Comex gold and silver futures contracts.  In simple terms, the EFPs and PNTs enable the counterparties  a Comex futures contract or LBMA forward to settle the contract in an acceptable form other than the actual physical commodity as required by the contract specifications (e.g. one gold futures contract requires the delivery of a 100 oz. gold bar as qualified by the Comex).  As an example, the counterparty that is required to deliver gold under Comex contract terms can deliver a comparable dollar amount of GLD shares if the counterparty standing for delivery agrees to take delivery of the GLD shares.

The EFPs and PNTs plunge the Comex operations into even greater opacity – likely intentionally.  In all probability, the EFPs and PNTs are used to bridge the gap between the amount of gold (silver) that needs to be delivered and the amount of gold (silver) that is available to be delivered.  The settlement of the contract occurs outside of the Comex.  These contract settlement devices further enable the ability of the western Central Banks to execute the successful manipulation of the gold (silver) price.

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In recent months, the issuance of gold Exchange for Physical (EFP) contracts has surged. EFPs convert a physically deliverable Comex gold contract into an LBMA or LME contract supposedly deliverable at a later date ex London and/or Hong Kong. As an incentive for Comex contract holders to accept EFPs, a cash bonus reportedly is paid. EFPs in silver are also being issued in vast quantities, but we will focus on gold for brevity.

Most gold market observers believe that EFPs are a Comex gimmick designed to prevent, or at least forestall a formal Comex delivery failure. We believe the full story behind the EFPs is more complicated and disturbing, and that it involves collusion, conspiracy, and fraud.

In order to fully understand the corruption within the gold market, we believe that one must first understand the full extent of American political corruption, as the two are directly linked. Inferential Analytics, the forecasting method we have developed and use, is based on linkages, which are crucial to insight. Please bear with us as we take a brief tour of the Washington, D.C. political swamp; it is crucial to understanding the gold swamp.

The 2016 U.S. presidential election was never intended to be an election. Instead, it was a Deep State charade designed to pass the presidential baton from Obama to Clinton. Obama’s reign was an unprecedented financial bonanza for his Deep State handlers, and they were poised to go in for the looting kill upon the second White House coming of the epically money motivated Clintons.

The mainstream media did everything in their power first to derail Trump’s nomination, and then to destroy his prospects in the general election. Anyone who understands American politics knows that there was no way whatsoever any of the non-Trump Republican nominees, such as Rubio, Cruz and Kasich, could ever have beaten the stop-at-nothing Clinton political machine in the general election. None of the Republican candidates was ever supposed to win; their specific purpose was to lose, while creating the false illusion of a real presidential campaign and election.

The Republican establishment was greatly looking forward to the Clinton presidency, as the political streets would have been more thickly paved with gold than ever before in their careers. They could taste the graft, kickbacks, donations, pay for play bribes and other forms of illicit compensation headed their way.

PLEASE CLICK HERE TO READ THE  REST:     GOLD EFPs / FRAUD

Is Bitcoin Demand Hurting The Price Of Gold?

The popular narrative that has gripped the financial media searching for reasons that the price of gold is sluggish for reasons other than overt western Central Bank manipulation, is that Bitcoin interest is diverting cash that would otherwise be going into gold.  However, I would argue that the type of trading funds playing in the cryptocurrency “sandbox” is little more than “action junkies” looking for anything to buy with high upside velocity.  These “investors” never buy gold other than perhaps chasing gold-related securities when the price of gold speeds higher in price (like from early 2016 through August 2016).  In fact, a recent report attributes a large amount of recent volume in Bitcoin trading to  Japanese retail traders / Japanese men dominate Bitcoin trading (Deutshe Bank)

Seeking Alpha has published my analysis explaining just some of the reasons that the idea that cryptocurrencies are diverting capital away from going into physical gold is little more than anti-gold propaganda.  Note: I am not trying to discourage anyone from buying Bitcoin or any other cryptocurrencies.  Over a long enough period of time, assuming the Government stays out of the market – and I firmly believe the Government will eventually interfere with the process – the market will decide the relative legitimacy of cryptocurrencies vs gold as a store of value and as money.

This analysis focuses on the retail investor demand for gold and Bitcoin. Institutional investors, for the most part, do not invest in gold or cryptocurrencies.

I want to dispel a false narrative about Bitcoin and the price of gold. The mainstream and alternative medias have been propagating the idea that the frenzied capital flowing into Bitcoin is affecting the price of gold negatively. The idea is that Bitcoin is an alleged safe haven asset (very unproven, untested) that is diverting capital away from the precious metals. For instance:

“As gold loses steam after rallying to 12-month highs, one market expert says he is seeing bitcoin (sic) take a chunk out of the yellow metal.”  Source: TheStreet.com

This notion has no validity…You can read the rest of this analysis here: Seeking Alpha/Bitcoin/Gold

The Paper Gold Price Attack Cycle Is Almost Over

As students of the gold market know, the paper gold markets in New York and London function as price manipulation mechanisms used by the western Central Banks in their effort to control the price of gold. As the physical demand from the eastern hemisphere pushes the price higher, the operators of the LBMA and Comex print large quantities of paper gold (gold futures, forwards) in order to satisfy the demand of hedge funds, which use futures to chase price momentum (up and down) in gold and silver.

Gold had been trading in a sideways pattern since mid-September between $1320 and $1260:

The graph above is derived from the Comex “continuous contract” end of day price. The continuous contract is not an actual contract. It is rather a price measure that “splices together” the front-month contracts over time for charting purposes.

As you can see, gold has formed a nice uptrend from late December 2016 that seems to have “stalled” since mid-September.  I watch the Comex gold futures open interest level and the COT “structure,” where COT structure is the big bank net short position vs the hedge fund net long position, in order to form an opinion on where I think the price of gold is headed. When the open interest in gold futures is at an extreme high level, combined with a bank net short position that is also extremely high, it almost always implies a price-takedown is coming.

Since mid-September, however, the gold futures open interest has stubbornly persisted above 500,000 contracts until the last week. Similarly, the big bank net short and the hedge fund net long positions have persisted at extremes over this time period. This is because, contrary to the “fake news” anti-gold propaganda spewing from U.S. financial media (Bloomberg and reuters specifically), physical “consumption” in the eastern hemisphere (India, China, Russia, Turkey, etc) has been unexpectedly strong.   Evidence of this is in direct data that comes from these countries and from the unusually high level of Privately Negotiated and Exchange For Physical transactions occurring on the Comex and the LBMA. These are “off exchange” contract settlement transactions that are intentionally opaque in nature.

Historically, extremes in these metrics tend to correct in much less time than the current period.   We have maintained a hedge on our mining stock portfolio for about 80% of the time between mid-September and now. We pulled it off about two weeks ago on a Friday thinking that maybe the ability of the banks to slam the market had diminished this time because of the strong physical demand from the east. Literally about 30 minutes after we took off the hedge the price of gold was slammed (I’m not kidding).

My thinking has been that, if we abide strictly by the COT and open interest, the Comex o/i needs to decline to the low 400k area before the next move higher takes place. When I “eyeballed” the gold chart in early September in the context of historical price-takedown operations, I figured it would take a move down to the $1230-1240 area to wash out enough open interest to rebalance the net short/net long set-up. But the open interest has persisted above 500k and the attacks on the gold price during the paper trading Comex hours have been short-lived in duration and shallow relative to historical intra-day attacks. The banks couldn’t  seem to get gold below $1260-$1270 until this week.

My best guess is that the unusually high demand for physical gold from the eastern hemisphere has prevented the banks from taking the price down enough to trigger one last hedge fund open interest wash-out. The 34,896 contract plunge in gold futures open interest last Tuesday (November 28) was the third largest one-day decline in o/i since the beginning of 2011 and it is a move in the right direction in order to break the “log-jam” in open interest on the Comex.

That said, the eastern hemisphere will go into temporary hibernation in mid to late December thru early January. I suspect that one last “shock and awe” price attack orchestrated in the paper market will be attempted in order to get the open interest down into the low 400k area. I thus expect the bull trend in gold/silver will resume in mid-January. We put the hedge back on this week, though we’ve been trying to trade in and out of it on price swings. In all likelihood, unless I see something that suggests otherwise, we’ll likely go through the Christmas/New Year’s period with a hedge.

One last thought, it’s going to be interesting to watch the Bitcoin bulls squirm and panic when the CME banks wrap their tentacles around Bitcoin futures.  Contrary to the untested notion that the supply of Bitcoin is capped, the supply of paper Bitcoin (futures contracts) is theoretically infinite…

The commentary above is from IRD’s Mining Stock Journal, which focuses on undiscovered gold and silver junior exploration stock ideas as well as presents relative value trading ideas in mid-cap mining stocks.  You learn more about this newsletter hereMining Stock Journal Information.

I wanted to thank you again for explaining to me how you put a hedge on it has saved me a great deal of money  – subscriber feedback received this morning