Precious Metals

     

 

 

Where the Good Things Go

Many gold bugs make an implicit assumption. Gold is good, therefore it will go up. This is tempting but wrong (ignoring that gold does not go anywhere, it’s the dollar that goes down). One error is in thinking that now you have discovered a truth, everyone else will see it quickly. And there is a subtler error. The error is to think good things must go up. Sometimes they do, but why?

 

Since putting in a secular low at the turn of the millennium, gold is still the by far best performing major asset class, despite suffering a big correction from its 2011 peak. There is good reason to expect that the secular bull market isn’t over yet, regardless of the fact that the market is testing the patience of bulls. This is probably a case of “it will go wherever it needs to go, just not when you think it should”. [PT] – click to enlarge.

 

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Too Big to Fail?

 

Dear Mr. Butler, in your article of 2 October, entitled Thoughtful Disagreement, you say:

 

“Someone will come up with the thoughtful disagreement that makes the body of my premise invalid or the price of silver will validate the premise by exploding.”

 

Ted Butler – we first became aware of Mr. Butler in 1998, and as far as we know, he has been making the bullish case for silver ever since. Back in the late 90s this was actually a fairly well-timed case, as silver eventually rose from a low of around $4 in 2000/2001 to a high of almost $50 in 2011, but we neither bought into the “shortage” story (note: one of the reasons why gold and silver are monetary metals is precisely that their above-ground stock is so large that shortages are extremely unlikely to ever develop), nor the idea that nefarious forces kept prices from rising. This is not to say that nefarious forces as such don’t exist, only that they probably have better (and more profitable) things to do. Also, since silver was the best-performing commodity from 2000-2011, they would have to be considered pretty inept. [PT]

 

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Fat-Boy Waves

The prices of the metals dropped $17 and $0.35, and the gold-silver ratio rose to 77.  A look at the chart of either metal shows that a downtrend in prices (i.e. uptrend in the dollar) that began in mid-April reversed in mid-July. Then the prices began rising (i.e. dollar began falling). But that move ended September 8.

 

Stars of the most popular global market sitcoms, widely suspected of being “gold wave-makers”. From left to right: Auntie Janet “Transitory” Yellen, Mario “Smaug” Draghi, and last but not least, the healthiest leader in history, Jong-un “Fat-Boy” Kim, as always positively radiating good vibes. [PT] – click to enlarge.

 

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Precious Metals Supply and Demand Report

The price of gold dropped $24, and that of silver 60 cents this week. This is a far cry from Sep 8, when the price of silver hit $18.21. Since then, it’s been almost all downhill. What happened? Since the beginning of last month, the price of silver had been rising and at the basis along with it.

 

Spot silver, daily. The rally was quite sizable, but at the peak a divergence with the gold price emerged (gold exceeded its April high, while silver failed to do so). That is not always meaningful, but it is always a “heads-up”, particularly when prices have already trended for a while. Silver obviously remains stuck in a medium term trading range for now. The longer this continues, the more meaningful an eventual breakout in prices will be. [PT] – click to enlarge.

 

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Back to the Happy Place Amid a Falling Dollar

The prices of the metals dropped this week, $24 and $0.38. This could be because the asset markets have returned to their happy, happy place where every day the stock market ticks up relentlessly.

 

Sometimes, happiness is fleeting… – click to enlarge.

 

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The Instability Problem

Bitcoin is often promoted as the antidote to the madness of fiat irredeemable currencies. It is also promoted as their replacement. Bitcoin is promoted not only as money, but the future money, and our monetary future.

In fact, it is not.

 

A tragedy… get the hankies out! :) [PT]

 

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Fundamental Developments

There were big moves in the metals markets this week. The price of gold was up an additional $21 and that of silver $0.30.

Will the dollar fall further?As always, we are interested in the fundamentals of supply and demand as measured by the basis. But first, here are the charts of the prices of gold and silver, and the gold-silver ratio.

 

Gold and silver prices in USD terms (as of last week Friday) – click to enlarge.

 

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Forking Incentives

A month ago, we wrote about the bitcoin fork. We described the fork:

 

Picture a bank, the old-fashioned kind. Call it Acme (sorry, we watched too much Coyote and Road Runner growing up). A group of disgruntled employees leave. They take a copy of the book of accounts. They set up a new bank across the street, Wile E Bank. To win customers, they say if you had an account at Acme Bank, you now have an account at Wile, with the same balance!

 

BCH, son of Bitcoin, born by forking – down quite a bit from its highs, but still up 130% in the past month, and sporting the third-largest market cap in crypto-currency land. [PT] – click to enlarge.

 

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Fundamental Developments

The price of gold dropped two bucks, and silver two cents. However, it was a pretty wild ride around the time when some information came out from our monetary masters at their annual boondoggle at Jackson Hole. We will show some charts of Friday’s intraday action, below.

 

The overseers of the developed world’s major currency printing presses at Jackson Hole. It almost looks as if they have been literally put out to pasture, alas, that is not the case. [PT]

Photo credit: Reuters

 

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Waiting for the Flood

We have noticed a proliferation of pundits, newsletter hawkers, and even mainstream market analysts focusing on one aspect of the bitcoin market. Big money, institutional money, public markets money, is soon to flood into bitcoin. Or so they say.

 

A weekly chart of bitcoin – it actually looks pretty “flooded” to us already. [PT] – click to enlarge.

 

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How We Got Used to Fiat Money

Most false or irrational ideas about money are not new. For example, take the idea that government can just fix the price of one monetary asset against another. Some people think that we can have a gold standard by such a decree today. This idea goes back at least as far as the Coinage Act of 1792, when the government fixed 371.25 grains of silver to the same value as 24.75 grains of gold, or a ratio of 15 to 1. This caused problems because the market valued silver a bit lower than that.

 

The gold-silver ratio from 1800 to 1915. In the 1870s, numerous nations around the world dropped bimetallism in favor of a gold standard (France was a noteworthy exception). Thereafter it quickly became obvious that silver had been vastly overvalued at the official exchange ratio. It was essentially a subsidy for silver miners. Once a pure gold standard was adopted, mild consumer price deflation became the norm, as economic productivity grew faster than the supply of gold. Contrary to what virtually all central bankers nowadays assert, this had no negative effects on the economy whatsoever. On the contrary, the four decades following the adoption of the gold standard produced the biggest and most equitable real per capita growth the US has ever seen – such growth rates were never again recaptured. Of course, at the time government spending represented between 3% to 4% of total economic output, i.e., government was but a footnote in most people’s lives. The reason why governments subsequently sabotaged the gold standard was precisely that they wanted to grow without limit. [PT]

 

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Fundamental Developments

Last week he price of gold was up nine bucks, and that of silver 6 cents. These small changes mask the relatively big drop on Tuesday—$13 in gold and $0.48 in silver — and recovery the rest of the week. The gains above previous week occurred on Thursday.

 

Speculators have lately warmed up to precious metals – this is also evident in a large increase in net speculative long positions in the futures markets [PT]

 

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THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

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