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Money Printing, Inflation, Gold And Silver
It’s my predilection to believe that the Fed not only will not taper but will eventually be forced to increase the amount of money it is printing, I believe we’ll see the mining stocks outperform the general stock market by a wide margin over the next 12 months. Adding fuel to this will be the market’s realization that not only is inflation not “transitory” but that it’s getting a lot worse.
Patrick at SBTV (and silverbullion.com) invited me back on to his podcast to discuss the Fed, inflation, the financial system and gold (recorded September 2nd):
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Some smaller cap/mid-cap producing mining stocks have been sold down levels from which I believe they will double or triple (or more) in the next bull move in the sector. One of the companies I cover and recommend in my Mining Stock Journal is throwing off close to 9% free cash flow yield. That is the definition of value stock. Many of the junior exploration/development companies I cover, recommend and invest in have the potential to 5-10 baggers from their current down-trodden level. You can learn more about my newsletter here: Mining Stock Journal information. I do not take compensation of any type from mining companies and I have been doing my own research in the sector for over 20 years.
A Taper Is Likely Off The Table – Gold, Silver and Mining Stocks Are Ready To Rumble
The chart above shows the gold/HUI ratio going back to 2001. I would have used GDX but I wanted to take the graph back to beginning of the precious metals bull market and GDX didn’t start trading until May 2006. It’s not perfect, but in general when the ratio is below the horizontal red line, mining stocks are expensive relative to gold – note the big selloff in the HUI (bottom panel) in early 2009 – and the miners underperform gold. When the ratio is above the green line, gold is expensive relative to the miners and the miners will at some point outperform gold. The chart tells me that mining stocks are cheap right now.
This chart shows the XAU/SPX ratio going back to 1973:
It shows the degree to which the mining stocks are undervalued relative to the general stock market. The mining stocks are almost as cheap as they were in 2001 (when I started the HUI was trading at 45). This doesn’t mean that they can’t get even cheaper – something that could happen if/when a stock market “accident” hits. This is why I have been trying to emphasize the importance of keeping a lot of cash on hand in case that “accident” happens. There’s no need to try timing a bottom. If we can capture the middle 60-70% of the next move higher, we’ll make multiples of what we have invested now in mining stocks.
Another indicator that the precious metals sector may be starting to form a bottom is the Commitment of Traders report (as of August 10th, published August 13th):
The graphic above is from the August 13th COT report which shows Comex trader categories for paper silver through August 10th. Both commercial segments (producer/hedger and banks) have been reducing their net short position in silver futures. At the end of January this year the net short position for the swap dealers was 21k contracts. At the same time, the hedge funds (managed money) segment has started to reduce its net long position aggressively and pile into the short side. The most recent COT report from last Friday showed the banks (swap dealers) were net short less than 400 contracts. Based on the change in the open interest in silver contracts (published daily) I would not be surprised to the see banks net long silver – in fact, I expect it. I also expect to see that the hedge funds have further reduced its net long position.
Historically when this pattern has occurred, the precious metals market has bottomed and began a move higher within a couple of months. The next COT report comes out tomorrow (Friday, August 20th). Based on the changes in the daily open interest reports since August 10th, I would not be surprised if the banks are net long silver contracts. The last time I can recall that this happened was in the fall of 2015. The precious metals sector bottomed from the 4 1/2-year bear cycle at the end of 2015. I’m not saying it’s definitive that the pattern will repeat. But I believe, in conjunction with other indicators, that there’s a decent probability the precious metals sector could begin move higher this fall, absent a stock market accident.
Ultimately I think the precious metals sector is setting up for an eventual big reversal. It may have started today now that the employment report has confirmed my view that the economy is rapidly slowing down, which will take discussions of a Fed taper off the table (not that believed the Fed was going to taper anyway). The mining stocks have been ruthlessly sold off over the last four months. However, since the sector decline began in August 2020, GDX managed to hold a double-bottom just above the first bottom it hit in March, which it traded down to its lowest level since June 2020. This has not been noticed by mining stock analysts but technically it is important.
The commentary above is from the August 19th Mining Stock Journal. Some smaller cap/mid-cap producing mining stocks have been sold down levels from which I believe they will double or triple (or more) in the next bull move in the sector. One of the companies I cover and recommend in my Mining Stock Journal is throwing of close to 9% free cash flow yield. That is the definition of value stock. Many of the junior exploration/development companies I cover, recommend and invest in have the potential to 5-10 baggers from their current down-trodden level. You can learn more about my newsletter here: Mining Stock Journal information. I do not take compensation of any type from mining companies and I have been doing my own research in the sector for over 20 years.
What Is The Fed Hiding? A Hidden Bailout Of The Banks?
Wall Street on Parade has discovered that three of the Fed’s programs used to monetize bad assets on the big Wall Street Bank balance sheets have been removed from the Fed’s monthly reports to Congress. The programs were legacy bailout facilities from the 2008 bailout program that had been resurrected in March 2020: the Primary Dealer Credit Facility (PDCF); the Commercial Paper Funding Facility (CPFF); and the Money Market Mutual Fund Liquidity Facility (MMLF). The transaction details no longer available to Congress and the public include the names of the recipients and the dollar amounts received.
Coincidentally, I was discussing with a colleague just last week the fact that, despite the fact that a large portion of commercial real estate loans outstanding are non-performing, we never hear about the fallout from this. It’s my belief that the Fed is monetizing TBTF bank exposure to distressed CRE assets, which include $100’s of billions in gross exposure via credit default swaps. Per the latest OCC quarterly report on bank trading and derivatives activity, the notional value of credit derivatives at the end of March at the top 25 commercial banks was $3.36 trillion. The notional amount of all derivatives (central cleared and OTC) was $189 trillion, most of which are OTC (not centrally cleared and therefore much higher risk).
As Wall Street on Parade points out, much of what the Fed does is hidden from public oversight. A report from the GAO in 2011 revealed that:
“The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression…”
As WSoP also discovered, a follow-up report from a private organization showed the total bailout from 2008 was $29 trillion.
The amount of money printed by the Fed and handed to the banks is just part of the Fed’s great hyperinflationary bank bailout policies. With the removal of three key bailout programs from public purview, its likely that the Fed’s clandestine monetization of distressed bank assets is about to go into over-drive – 2008-2010 on steriods. Is this what the Fed wants to hide?
It’s worth reading the entire report from WSoP: Three of the Fed’s Wall Street Bailout Programs Vanish from Its Monthly Reports to Congress
Silver Price Manipulation And A Home Run Junior Mining Play
Jay Powell And The Horses Ass
“The concept of transitory is really this: it is that, uh, the increases will happen. We’re not saying they will reverse. That’s not what transitory means. It means that the increases in prices will happen, so there will be inflation, but that the process of inflation, uh, will stop so that, so that there won’t be furth- uhn fur-.. When we, when we think of inflation we really think of inflation going up year up year upon year upon year – that’s inflation. When you have inflation for 12 months, or whatever it might be, I’m just taking an example, I’m not making a estimate, then you have a price increase, but you don’t have an inflation process. And so, uh, part of that just is, uh, if it doesn’t affect longer term inflation expectations then it’s very likely not to infect, eh to, to affect the process of inflation going forward. So what what what I mean by transitory is just something that doesn’t leave a permanent mark on the inflation process. Again, we don’t mean, I don’t mean, that, that, that, that, you know, producers are gonna take those price increases back – that’s, that’s not the idea. It’s just that they won’t go on indefinitely.
So, to the extent people are, are, are implementing price increases because raw materials are going up, or labor costs, or something’s going up, um, uh, you know, the question really for inflation really is ‘Does that mean they are going to up the next year by the same amount, so you’re gonna be in a process where inflation, the inflation process, gets going?’ And that happens because people’s expectations about future, uh, inflation mo-, move up. And we don’t think that’s happening, there’s no evidence that it’s happening, all the evidence is that it’s not happening, but, nonetheless, we have to watch this very carefully because this is, you know, uh uh, we have two mandates: maximum employment and price stability: price stability for us means inflation averaging two percent over time, and so, we’ve gotta be very careful about that”. – Jay Powell explaining “transitory” inflation, verbatim from the transcript of the post-FOMC press conference (courtesy of James Anderson, SD Bullion, @jameshenryand)
Is The Fed Bracing For Impact? Got Gold (And Silver?)
“The concept of transitory is really this: it is that, uh, the increases will happen. We’re not saying they will reverse. That’s not what transitory means. It means that the increases in prices will happen, so there will be inflation, but that the process of inflation, uh, will stop so that, so that there won’t be furth- uhn fur-..” – Jay Powell, verbatim, on inflation at the last post-FOMC meeting press conference
Wall Street on Parade read through the Fed’s Annual Report for 2020 and discovered a direct correlation between the Fed’s deployment of large repo operations precedes the onset of a financial crisis. This occurred at the end of 1999, 2008 and late 2019 (I predicted in October 2019 that the Fed’s repo operations were nothing more than QE dressed in drag and that a financial crisis was brewing – LINK). Wall St On Parade does the grunt work and it’s worth reading their findings (Repo loans/crisis) because the Reverse Repo operations certainly signal that something ominous is occurring behind the Fed’s “curtain.”
In the context of the high correlation between repo loan spikes and financial system accidents, it makes the Fed’s establishment of a $500 billion “standing” repo facility that is open to both domestic and foreign banks even more intriguing:
“The Federal Open Market Committee on Wednesday announced the establishment of two standing repurchase agreement (repo) facilities—a domestic standing repo facility (SRF) and a repo facility for foreign and international monetary authorities (FIMA repo facility)Under the SRF, the Federal Reserve will conduct daily overnight repo operations against Treasury securities, agency debt securities, and agency mortgage-backed securities, with a maximum operation size of $500 billion.” (FOMC standing repo facility)
With price inflation anything but “transitory,” notwithstanding Powell’s incoherent attempt to explain why he believes price inflation will prove ephemeral, and with economic activity once again deteriorating more quickly than most realize and the stock market at 2-3-sigma over-valuation measurements, the establishment of the $500 billion “standing” repo facility ($500 billion for starters, I predict) is quite possibly a signal that the Fed is bracing for another financial crisis.
“From year-end 2009 through year-end 2018 the Fed reported zero amounts of Repurchase Agreements (Repo Loans) because there was no cataclysmic stock market crash. But beginning on September 17, 2019, the Fed went into panic mode again and began shoveling out Repo Loans to its primary dealers (the trading houses owned by the mega banks on Wall Street) by hundreds of billions of dollars.” (Wall St on Parade)
Note: There’s also a high correlation between periods of extreme official intervention in the precious metals markets using Comex paper derivatives and LBMA unallocated fictitious gold bars. I would suggest that the recent massive interventionary efforts that may have culminated this past Friday and Sunday night are further evidence that a crisis is lurking.
As Ronan Manly queried: “Or do the central banks know that further market turmoil is imminent and need to take down the gold price so that when the gold price then rises, it will be from a lower level?”
Forget The “Taper,” More QE Is Coming Along With Higher Gold And Silver Prices
In the last FOMC policy announcement, the Fed announced that it is establishing a “standing” $500 billion repo facility open to domestic and foreign banks. A repo facility provides overnight or short term liquidity to the banking system. It moves liquidity around from banks that have it to banks that need it and enables the Fed to manage the Fed Funds rate. Yet for several months the Fed has been removing liquidity from the banking system on an overnight basis with reverse repo operations that are now averaging over $900 billion on daily basis.
Why on one hand is the Fed removing liquidity from the banking system on a temporary basis, yet on the other hand establishing a mechanism to inject liquidity into the banking system? Isn’t this akin to a Ponzi scheme in which the Fed can print the money it needs to operate the scam rather than face the problem of finding stool pigeons to provide the funding? This puzzling behavior by the Fed would suggest that there’s a couple of big banks domestically and in the EU that are facing liquidity problems. Citibank and HSBC come to mind as Citi was secretly the recipient of the biggest bailout by the Fed in 2008 and HSBC has massive exposure to commercial real estate, particularly in Hong Kong. But it could be any of the Too Big To Fail banks.
Wall Street Silver invited James Anderson (SD Bullion) and myself on to discuss why the Fed will eventually be forced to print a lot more money and why this will translate into much higher prices for gold and silver (note: the current action in the precious metals is being driven by blatant manipulation primarily using Comex futures – it anything the aggressive effort to control the price of gold is an indicator that the Fed (and other Central Banks) will be printing a lot more money in the near future):
Kitco Acknowledges Gold Price Manipulation – Bloomberg Covers It Up
From GATA:
Congratulations to Kitco News market analyst Jim Wyckoff for tiptoeing up to the gold market manipulation issue in his commentary this morning: KITCO – Gold Manipulation
Wyckoff writes: “The overnight flash crash in gold and silver prices may also be due to thin trading conditions overnight amid the summertime doldrums. Many traders are on vacation and much of Europe is on holiday during August. Many times the ‘big boys’ like the investment banks will make very big trades in low-volume futures trading conditions in order to get the maximum bang for their buck, and that may be what happened overnight.”
Of course if this kind of thing has happened “many times,” as Wyckoff writes, no one would have known it from reading Kitco’s market analysis, just as no one would know from that analysis if those “big boys” include governments and central banks.
But at least Wyckoff’s commentary today implies that it’s getting harder not to acknowledge the elephant in the room. Bloomberg News isn’t yet capable of that, this morning offering only more of last week’s rationalizations for gold’s crash last night and making no attempt to determine who was suddenly selling so much on a not-for-profit basis. Bloomberg again covers up for the market rigging: Bloomberg Propaganda
Bloomberg’s headline is “Flash Crash Shows Why It’s Tough to Be Bullish on Gold Right Now.” But what makes it toughest to be bullish on gold are government’s interventions and the determination of news organizations like Bloomberg not to report them.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
The Fed Goes Full Dove – Get Long Gold, Silver And Mining Stocks
Silver and gold have been under intense attack in the paper silver/gold derivative markets (Comex, OTC derivatives) and the London unallocated phony physical bullion market since August 2020. But I believe that is about to end. The precious metals sector was technically overbought after the massive Q2 2020 rally, making it easy to push the sector lower. But the effort to suppress the prices of gold and silver provides cover for the Fed’s lascivious money printing policy. And that policy is going to get a considerably more lascivious.
WallStreetSilver invited me to discuss the implications of the latest FOMC policy decision and the reasons why it will lead to much higher price level across the precious metals sector:
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The mining stocks are once again historically cheap. At some point this year I will be raising the subscription price, though existing subscribers will be grandfathered at the current monthly rate. If you would like some ideas for investing in mining stocks, take a look at my Mining Stock Journal.
The Fed Goes Full Dove: Rocket Fuel For Gold, Silver and Mining Stocks
I ordinarily do not spend time reading the FOMC policy statement after it’s released, saving that brain damage for CNBC. But I read the June release to assess for myself whether or not the Fed had tilted toward a more “hawkish” policy stance and decided that it had not. Because I’m starting to turn bullish on the precious metals sector, I decided to read the July release as well and compared it to the language in the June statement to see if the language had shifted. The degree to which the policy stance has moved back to 100% “dovish” has been understated by the mainstream media.
As an example, the Fed removed the dollar amount of its monthly Treasury and mortgage purchases ($80 billion and $40 billion). In its place it said that it would continue buying these securities “at least at the current pace.” I interpret this language – and the removal of the specific dollar amounts – as opening up the possibility of increasing the amount of monthly QE. In other words, removing the specific dollar amount levels is a subtle way to remove the boundaries on the dollar amount. The Fed also minimized its view of price inflation by referencing “muted inflation pressures.”
I have said all along that the Fed would eventually be forced to print a lot more money and I believe the new language and phraseology of the latest policy statement is setting up this eventuality. This will be rocket fuel for gold and silver. Craig “Turd” Ferguson invited me onto this Thursday Conversation podcast to discuss the Fed and the precious metals sector – click on the graphic below to access the fun:
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The mining stocks are once again historically cheap. At some point this year I will be raising the subscription price, though existing subscribers will be grandfathered at the current monthly rate. If you would like some ideas for investing in mining stocks, take a look at my Mining Stock Journal.