Fed’s Credibility Problems Go Mainstream

The nation’s pre-eminent central planners just held their annual gathering at an exclusive resort just outside Jackson Hole, Wyoming and discussed how to interfere even more deeply in markets. In a speech entitled “The Federal Reserve’s Monetary Policy Toolkit: Past, Present and Future,” Fed chair Janet Yellen outlined why zero interest rate policy (ZIRP), purchases of toxic mortgage securities, and monetization of Treasury debt just aren’t adequate. Officials must add negative interest rates (NIRP) and purchases of even more sketchy assets to their “toolkit.”

Yellen has spent more than a year floating the idea of negative rates, so it is no surprise she is hustling the ludicrous policy once again. In fact, very little of what she said Friday is new. It was the usual mess of contradictions.

She started with a familiar trope about the economy being close to escape velocity. The Fed chair said she expects to wind down stimulus soon. She then followed by admitting the Fed is currently in a lousy position for handling the next crisis or downturn. Given interest rates are already near zero, officials would need to push them into negative territory. And they should consider buying other types of assets.

We also know from prior statements that Yellen views “helicopter money” is a legitimate tool, an extreme measure which entails printing money and dropping it directly into the hands of consumers.

Many question whether the arrogant and “enterprising” bankers at the Fed actually recognize some limit on what they can do. Regardless, Yellen didn’t specify what she had in mind so we are left to speculate. Maybe she thinks they should buy stocks. Or perhaps she wants to throw another life preserver to Wall Street by sopping up failing subprime car loans or bad oilfield debt.

If there was anything new and interesting last week it was an article by Jon Hilsenrath, who covers the Fed for the Wall Street Journal. It is safe to say he represents the establishment view. At long last, there are signs that disdain for the Fed is moving beyond the community of precious metals investors and free marketeers and into the mainstream.

At long last, there are signs that disdain for the Fed is moving beyond the community of precious metals investors and free marketeers and into the mainstream.

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Hilsenrath suggests the “Once-revered central bank failed to foresee the crisis and has struggled in its aftermath, fostering the rise of populism and distrust of institutions.”

He runs through just how badly and how often Fed officials have missed the mark with regards to forecasts. He talks about flawed models which overlooked important variables. And he quotes Fed officials expressing self-doubt, for example wondering if today’s low interest rates may actually be encouraging people to save more instead of borrowing more as hoped.

It’s a long way from being a thorough critique of a more complete list of Fed sins listed here:

• The cozy revolving door with Wall Street banks.
• Paying triple-A prices to bulk buy train loads of these banks’ worst kind of garbage mortgage securities.
• Steering trillions of dollars worth of Treasury purchases through the banks and paying them huge fees instead of buying direct from the Treasury.
• The complete failure of the Fed, as the chief banking regulator, to hold any senior bank executive accountable for pervasive fraud and cheating their own customers.
• Waging a war on savers with zero interest rates, which impoverish seniors, blow up pension plans and distort capital markets – all to stimulate borrowing.

But Hilsenrath’s critique is also a long way from the religious reverence the mainstream and the financial press lavished on the Fed in years past. So that’s a start!

The bottom line is Yellen is clearly ready to implement even more destructive and bizarre policy tools. Her ideas for restoring prosperity include forcing savers to pay their banks to hold their savings and printing up money to buy an even wider array of whatever junk Wall Street would like to sell.

About the Author:

 Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

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This post first appeared in Money Metals Exchange.

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source http://goldsilverintel.com/feds-credibility-problems-go-mainstream/

What Are These Huge Tonnages In “Precious Metals” On Chinese Commercial Bank Balance Sheets?

There has been much conjecture since 2014 about the increasing numbers in the “precious metals” category on the balance sheets of listed Chinese commercial banks. By the end of 2015 China’s largest banks were holding RMB 598 billion in precious metals.

Some analysts think that the precious metals on Chinese commercial bank balance sheets are gold reserves purchased on behalf of the Chinese central bank, while others surmise that Chinese banks buy gold at the Shanghai Gold Exchange (SGE) and then lend it out so the precious metals on the balance sheets solely represent leased gold. In latter analysis it’s then assumed the leasing inflates the amount of gold withdrawn from SGE designated vaults. Most certainly there is leased gold on Chinese banks’ balance sheets, but this can hardly influence SGE withdrawals, as I have previously explained. Read this and this article for more information.

What do we know beyond the gossip about the precious metals holdings on Chinese commercial bank balance sheets?

From studying the annual reports of the respective banks and additional documentation we know the precious metals can be at least the following things (if I find more clues this post will be updated):

1. Gold savings that belong to the banks’ customers
2. Gold inventory for the banks’ retail gold business
3. Gold leasing business
4. Gold held for hedging purposes

Since the Chinese silver market was liberalized much earlier than gold I don’t think there is any edge for Chinese commercial banks to have a predominant role in the silver market. So, probably most of the precious metals on the balance sheets in question are gold related.

Below is an overview of the precious metals holdings of listed Chinese commercial banks as of 31 December 2015, measured in yuan (RMB). There are 16 listed Chinese commercial banks on China’s A-share market but Huaxia Bank didn’t disclose its precious metals holding in its annual report. If all aggregated precious metals holdings relate to gold, the upper bound is approximately 2,682 tonnes of gold.

Exhibit1. Source: Annual reports

1. Customers’ Gold Savings

A substantial amount of the precious metals reflect (fully backed) customers’ gold deposits in the form of Gold Accumulation Plans (GAP), recorded as an asset and a liability on the balance sheets of the banks. However, to me it’s unknown how much gold is exactly accumulated in China through GAPs. 

Let’s go through the annual reports of the Chinese banks having the largest precious metals holdings, seeking for information with respect to GAPs.

According to the 2015 annual report of Bank of China (BOC):

Precious metals comprise gold, silver and other precious metals. The Group retains all risks and rewards of ownership related to precious metals deposited with the Group as precious metals deposits, … and it records the precious metals received as an asset. A liability to return the amount of precious metals deposited is also recognized.

From the BOC website its GAP seems to be in its infancy, so I don’t expect it to comprise much gold. ICBC on the other hand, introduced a GAP in 2010 and is thought to be largest in China.

From reading ICBC’s 2015 annual report [brackets added by me]:

Seizing the opportunities arising from customers’ wealth increase and capital market growth, the Bank made efforts to establish a mega asset management business system across the whole value chain and enhance its specialized operating capabilities on the strength of the Group’s asset management, custody, pension and precious metal businesses, …

The [ICBC] Group records the precious metals received as an asset. A liability to return the amount of precious metals deposited is also recognized. …

On ICBC’s website we read:

统计显示，截至2014年末，工行积存金的业务规模已超过250吨，同比增长超过150%，积存客户数量已超过100万户。

According to statistics, by the end of 2014, the business size of ICBC’s GAP was more than 250 tonnes, a 150% YOY increase. GAP clients are more than 1 million.

Screenshot from ICBC’s Ruyi Gold Accumulation Plan.

In the 2015 annual report by China Construction Bank (CCB):

While consolidating our traditionally advantageous businesses in housing finance and cost advisory service among other things, we actively expanded our presence in … precious metals.

The Bank supported product innovation, provided and optimized new products such as … gold purchase and saving.

The Bank proactively responded to changes in the precious metals market via pursuing marketing expansion, enlarging customer base and enforcing product innovation. The Bank launched innovative products and business models, including gold accumulation plan ….

To me it’s unknown how much gold CCB’s GAP comprises.

All in all, part of the precious metals on the listed Chinese commercial banks’ balance sheets are gold savings held on behalf of clients instead of reflecting the banks own metals.

(Likely, gold saved in Chinese GAPs is not stored in SGE designated vaults.)

2. Bank Gold Inventory

Chinese banks offer a wide range of retail gold investment products for sale. Naturally, any gold inventory for this business is recorded on the balance sheets. From ICBC’s 2015 annual report:

To echo the changes in market demands, the Bank developed a variety of new brands on assorted themes and introduced a slew of products, e.g. Chinese Zodiac Coins and Panda Gold and Silver Coins, under agent sales. The Bank expanded the online channels, through which the flagship store “ICBC Gold Manager” witnessed substantial growth of sales, and it also piloted the direct distribution of logistics suiting to the characteristics of e-commerce.

ICBC gold bars.

According to the World Gold Council roughly 60 % of Chinese retail gold investment demand is supplied through commercial banks. 

Courtesy World Gold Council. Note, “retail investment demand” excludes direct purchases at the SGE by individuals and institutions.

Additionally, I have no proof, but it can be that some of the inventory in the vaults of the SGE is appearing on the Chinese bank balance sheets. Most of the banks listed in exhibit 1 have a PBOC gold import license. Once the bullion is imported into the Chinese domestic gold market, often done through consignment, it must be sold first through the SGE. By the time it has arrived in an SGE designated vault and before it’s withdrawn, possibly it’s shown on the balance sheet of the importing bank. Though, this analysis is speculation.

3. Gold Leasing

Probably the largest share of the precious metals on the balance sheets have to do with gold leasing. At the moment, there are no official accounting rules or guidelines related to how to record bank’s gold leasing activities. (In this post, I don’t distinguish between gold leasing and gold lending because the essence is the same.) However, most banks seem to still put gold leasing activity in the precious metals category of their balance sheet. 

According to the A-share annual report of the Bank of Communications [brackets added by me]:

与本集团交易活动无关的贵金属包括经营章币销售等按照取得时的成本进行初始计量，以成本与可变现净值两者的较低者进行后续计量。与本集团交易活动有关的贵金属包括贵金属租赁、拆借等按照公允价值进行初始计量和后续计量，重新计量所产生的公允价值变动直接计入当期损益。

Precious metals that are not related to the Group’s trading activities including coins and medallions sales are initially measured at acquisition cost and subsequently measured at the lower of cost and net realizable value. Precious metals that are related to the Group’s trading activities including precious metals lease and [precious metals] interbank lending are initially and subsequently recognized at fair value, with changes in fair value arising from re-measurement recognized directly in profit or loss in the period in which they arise.

Apparently, the Bank Of Communications has its gold leasing business disclosed on its balance sheet in the precious metals category. 

Below is from the 2015 annual report of Shanghai Pudong Development Bank (page 17):

Translated:

Exhibit 2. Source Shanghai Pudong Development Bank

Shanghai Pudong Development Bank saw its precious metals holdings grow from RMB 11,707,000,000 on December 31, 2014, to RMB 28,724,000,000 on December 31, 2015. As the main cause for the growth in precious metals is considered to be “increased physical gold leases”, we must conclude in the case of Shanghai Pudong Development Bank nearly all precious metals on its balance sheet relate to gold leasing. But does this mean Chinese banks buy gold on the SGE and then lease it out? Not necessarily.

Chinese banks mainly do back-to-back gold leasing – simply connecting supply and demand. Banks don’t have much money of their own. They need to borrow money or gold either from savers or in the interbank market to make loans. Would it make sense for banks to borrow money in order to buy gold to subsequently lend out gold? Or would it be more logic for banks to borrow gold to subsequently lend out gold?

From a source who worked at the precious metals trading desk at ICBC in 2014 I was told first hand ICBC has little gold of itself for leasing, most of the gold lend out is borrowed from third parties. These third parties are mostly SGE members or overseas banks that lend gold through the Chinese OTC market. By the way, all commercial bank gold leasing is settled through the SGE system.

ICBC operates in the lease market as an intermediary by connecting supply (lessors) and demand (lessees), while striking a fee. ICBC can borrow gold from international banks or local gold owners with an SGE Bullion Account, and lend the gold to miners, jewelers or speculators. My assumption is that the international gold lease rate is lower than the Chinese gold lease rate, which attracts gold from the international market into the Chinese domestic gold market. (Whenever a gold loan is to be repaid from the Chinese domestic gold market to an international lender, not the physical metal is exported, but funds cross the Chinese border, as physical gold export is prohibited from the Chinese domestic gold market.)

Also note, if banks would buy the gold to lend out, they are exposed to the price risk of gold. In order to cover this risk, banks need to hedge but this will involve additional costs. As a result, the logical solution is for banks to do back-to-back gold leasing.

The Bank of Beijing is a good example to illustrate back-to-back gold lending. Unlike other Chinese banks, Bank of Beijing does not put gold leasing in the precious metals category. It has a separate line in its books for gold leasing.

According to the 2015 annual report of the Bank of Beijing (page 123 and 132):

Exhibit 3.1. “Leased out” is lending. The unit is RMB million.
Exhibit 3.2. “Leased in” is borrowing. The unit is RMB million.

As readers can see from the excerpts above, the Bank of Beijing indeed does back-to-back gold leasing as precious metals “leased in” (RMB 1,400,000,000) are equal to precious metals “leased out”(RMB 1,400,000,000). I suspect most gold leasing by Chinese banks is back-to back leasing.

Because the Bank of Beijing has its leasing business noted in a separated line than its “precious metals”, we can see a huge discrepancy between the Bank of Beijing’s precious metals holdings in exhibit 1 (RMB 55,000,000) and its back-to back leasing business in exhibit 3 (RMB 1,400,000,000). 

Exhibit 4.

Other banks don’t have a separate line for the gold leased out but as mentioned before, they put it in the precious metals category. A widely-accepted method to treat borrowed gold is to include a liability called “financial liability at fair value through profit and loss”. Readers who can understand Chinese are recommended to click this and this link. The ICBC annual report provides an example of how the liability is recorded.

Source: the 2015 annual report of ICBC.

In conclusion, back-to-back gold leasing will result in an asset and a liability, for most banks highly inflating the precious metals category. When looking at exhibit 4 we can see the enormous growth in yearly Chinese gold leasing turnover, which must have enlarged Chinese banks’ balance sheets.  

According to my analysis a large portion of the precious metals on the balance sheets of Chinese banks is back-to-back leasing, which in turn is gold that stays inside the SGE vaults, and thus does not impact SGE withdrawals.   

4. Hedging

China’s commercial banks offer derivatives to retail and institutional customers. Bank of China’s Qi Jin Bao is an example. Qi Jin Bao is in fact gold option business. The retail customer pays a certain amount of money (option premium) and buys a gold call option or put option.

For example (simplified): suppose the current gold price is $1300/oz and a retail customer is bullish on gold and believes that the gold price will rise in 3 months time. Therefore, the retail customer buys a 3 months call option with a notional amount of 100 oz of gold at the strike price of $1300/oz from Bank of China and pays an option premium of $35/oz. If the gold price indeed goes up in 3 month’s time, the retail customer will make money. However, derivatives are a zero-sum game. If the retail customer makes money, then the Bank of China definitely loses money. If the gold price goes up to $2000/oz, Bank of China will lose big time. In order to mitigate this risk, Bank of China will (borrow money to) buy gold to hedge the short call position and the gold purchased will appear on the balance sheet.

Gold on the balance sheets of Chinese commercial banks doesn’t necessarily have to be gold held in China. Chinese banks like ICBC, BOC and Bank of Communications have direct access to the LBMA. As a result, gold on the balance sheets of Chinese commercial banks can be located outside China mainland.

Conclusion

From the descriptions above, the precious metals holdings on the balance sheets of Chinese commercial banks are quite complicated to decipher. One thing is for sure, it’s not all gold owned by banks and leased out, neither is it all purchased by banks on behalf of the Chinese central bank.

In order for us to learn more exactly what the precious metals on the balance sheets represent we need more information, more investigation is needed by gold analysts. Hopefully this blogpost can serve as a springboard to a better collective understanding.

Addendum

In addition to Gold Accumulation Plans many Chinese banks offer a variety of (paper) gold hedging and speculation broker services to their clients. For example, in the annual report 2014 from Agricultural Bank of China (ABC) we can read:

… Precious metals

… As a major precious metal market maker in the PRC, the Bank provided customers with precious metal trading, investment and hedging services through … trading of precious metal derivatives … and trading … the Shanghai Futures Exchange and the London precious metals market.

So, through ABC clients can trade paper gold, but these derivatives would be recorded off-balance sheet, or in a separate line next to “precious metals”. More from the ABC annual report 2014:

Our off-balance sheet items primarily include derivative financial instruments, contingent liabilities and commitments. We enter into currency rate, interest rate and precious metals related derivative financial instruments for the purposes of trading, asset and liability management and business on behalf of customer.

Implying, from my judgement, all the precious metals on-balance sheet are not (customers’) paper gold. 

Koos Jansen
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source http://goldsilverintel.com/huge-tonnages-precious-metals-chinese-commercial-bank-balance-sheets/

The Ultimate time to Pick the Right Mining Companies to Add Another Zero to Your Net Worth

Dennis Higgs is a perfect fit guest for our channel. A multi-decade venture capitalist and energy & mining expert, he’s here to discuss profiting in this shaky market and he is the Director of an incredibly innovative gold company that has already got our members handsome profits. Nevada Exploration is looking strong and the brightest of futures as we hit the best time in modern history for investing in mining stocks.

To watch the interview with Wade Hodges, click here.

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source http://goldsilverintel.com/ultimate-time-pick-right-mining-companies-add-another-zero-net-worth/

Your Retirement Income is at Risk! (part two)

Part one is available here.

Discussed in Part One:

• Richard Russell on “The Big Lie.”

“Central banks create fiat money, denigrate gold, and try to convince the people that the money they print is wealth. That’s the great lie behind fiat money.”

• Social Security and the pension plans of many cities, counties, states, and countries are increasingly insolvent as zero and negative interest rates destroy fixed income investment returns.

• Worse, pension benefits are paid in continually devaluing fiat currencies. If the currency becomes worthless, so are your pension benefits. Zimbabwe, Venezuela, Argentina, and many more come to mind. The dollar, euro, pound, and yen are better by comparison, but that only means their devaluation, so far, has been less drastic. A pack of cigarettes cost $0.25 in the US fifty years ago. Today that same pack is $5.00 to $12.00 depending on taxes. But price increases are fueled by devaluing currencies.

• Central bank inspired zero interest rates and negative interest rates destroy the returns on fixed income debt – notes and bonds – and thereby destroy the investment returns that pension plans require to pay out promised benefits.

SO WHAT?

• There is no free lunch. If bankers create currency via fractional reserve banking and central bankers create currency via QE and other nonsense, the currencies are devalued and we all pay via higher prices, decreased earnings, and devalued savings.
• If creating currency via fractional reserve banking actually created wealth, then Zimbabwe, Argentina, and Venezuela would be wealthy. Created currency and QE are supposedly good for governments, politicians, and the financial cartel, but ultimately they make the rest of us poorer – someone has to pay for deficit spending, the interest “drag” from debt, and banker salaries. Who pays? Savers, pension funds, your retirement funds, your retirement income, and insurance companies – because central banks have devalued their currencies and pushed the return on fixed income investments to near zero.
• When governments need more revenue they look for easily available pools of “wealth” to tax, confiscate, or absorb. There are many $ trillions in public pension assets, IRAs, private pension plans, 401(k) and similar plans that could become targets for insolvent governments. What if pension plans were required to invest in official sovereign debt that yielded nearly nothing or required guaranteed losses?

CONSIDER THE FOLLOWING:

Charles Hugh Smith:

“In effect, gambling on additional future asset inflation is the only game in town. Institutional money managers are buying bonds that yield less than zero not because they’re pleased to lose money, but because they anticipate rates dropping further.” [Think bubble and coming crash…]

From John Mauldin in “Promises, Promises, Pension Promises”

“Public pension plans are rarely fully funded. They assume that future investment returns will make up the difference. What if they don’t?”

“The largest part of the money that a pension manager assumes they will pay out in 20 years comes from the investment returns on current assets.”

“Bottom line … US public service pensions are toast.”

“Another year, another mess with California’s public employee pensions. The California Public Employees’ Retirement System (CalPERS) announced this week that the rate of return for its investments for the fiscal year ending on June 30 was less than one percent. It was 0.61 percent.”

“That’s a far cry from the 7.5% CalPERS assume it will get.”

“If you’re a retired teacher, firefighter, etc., you naturally want what you were promised. You probably won’t get it. That’s just simple reality. The taxpayers don’t have the money. Now is an excellent time to accept that fact and make alternate plans.”

Repeat: “You probably won’t get it [promised pension benefits].” … “Now is an excellent time to accept that fact and make alternate plans.”

From Zerohedge:

“MetLife just announced a massive earnings miss and job cuts which the CEO attributed to lower investment income due to, you guessed it, low interest rates.”

Low interest rates destroy the returns on fixed income “investments.” MetLife and CalPERS are two of MANY examples.

CONCLUSIONS:

• Your retirement income and assets are at risk. Subsequent to “The Big Lie” we have been force fed with fractional reserve banking, central banks, QE, NIRP, continually devaluing currencies, dramatically reduced fixed income returns, declining returns on pension assets, and the insolvency of an increasing number of pension plans.

• “US public service pensions are toast.” Social Security and other public pension plans are increasingly insolvent. Many private pension funds are in equally bad shape. The choices are default, reduced benefits, or more contributions from … employees, governments, taxpayers … all of us.

• “You probably won’t get it.” The retirement income and medical benefits that we have been promised are at risk. The longer central banks keep interest rates at near-zero levels, the more insolvent our public and private pension plans become. If CalPERS assumes 7.5% annual returns and actually earns 0.61% (year after year), do you think they will catch up by earning over 14% in following years, while interest rates stay near zero? The stock market is currently at all-time highs. What will a recession and/or stock market crash do to stock market returns and CalPERS assets? From Zerohedge: Sell Everything.

• You might have little control over your Social Security benefits and many other public and private pension plans. You do have control over your personal investments in gold and silver. Stack, Stack, Stack!

• Protect your retirement assets, understand the strain that zero interest rates place upon public and private pension systems, and realize that your retirement income from both public and private pensions is at risk. Also, consider the morality and fairness of “printing currencies” while governments continually borrow, but with no intention of repaying those debts … instead of responsibly managing expenses, assets, and financial systems.

• Internationalizing your personal pension funds and hard assets makes sense for some individuals who need to protect assets while living in an increasingly predatory environment due to governmental and central bank policies. You may need to diversify your wealth offshore – possibly in gold and silver – to preserve and protect your retirement income. One option is here.

• Hard asset insurance with no counter-party risk is ESSENTIAL to protect your retirement income and retirement assets. Stack silver and gold – with no debt based counter-party risk – to supplement other public and private pension plans.

• Jim Sinclair warns that we should “Get out of the system” or GOTS. Too soon is better than too late – after the door slams shut. Assets held outside the debt based fiat banking and brokerage systems sound increasingly safer than levitated stock and bond markets, false confidence, and promises from politicians and central bankers.

Gold and silver will be increasingly essential for preservation of our future retirement assets and income ….

Gary Christenson

The Deviant Investor

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source http://goldsilverintel.com/retirement-income-risk-part-two/

FOMC Vice Chair Stan Fischer Endorses Negative Rates

Multiple central banks around the globe are embracing negative interest rates. This is being done in an effort to spur economic growth, encourage spending, stimulate lending and force savers to put their money at risk in the markets. Central banks have been very effective in creating asset price inflation, including in stocks, bonds and real estate, where prices all have skyrocketed.

FOMC Vice Chair Stan Fischer told Bloomberg Surveillance today that he thinks negative interest rates are working in other countries. While this currently seems unthinkable in the U.S., I would not be surprised to hear a rising chorus of support for negative rates in the US should another major market crash materialize.

In fact, Yellen even brought up the possibility late last year, stating:

“Potentially anything – including negative interest rates – would be on the table. But we would have to study carefully how they would work here in the U.S. context.”

Furthermore, the FED required banks to include the possibility of negatively yielding Treasury rates in recent stress tests. Suddenly, zero interest rate policy, or ZIRP, may not be enough. The economy may now need a negative interest rate policy, or NIRP, to keep chugging along.

While the Fed isn’t “planning to do anything in that direction,” the central banks using them “basically think they’re quite successful,” Fischer said Tuesday on Bloomberg Television with Tom Keene in Washington. He reiterated that Fed rate increases will be data dependent without giving a specific timeline.

“We’re in a world where they seem to work,” Fischer said, noting that while negative rates are “difficult to deal with” for savers, they typically “go along with quite decent equity prices.”

“The United States is fortunate that we aren’t in a position where interest rates have to be negative.”

Yes, indeed, how robust is our economy that it can stay afloat with interest rates near zero, but not yet below zero. We can’t raise rates much above zero, but at least we aren’t negative (yet). Such confidence-inspiring words!

When Fischer said that negative rates seem to work, perhaps he meant that they work for central bankers. For retirees, savers and conservative investors, not so much.

Implications for Gold Investors

Gold prices have risen sharply in 2016, following the first rate hike in years that took place in December of 2015. This first rate hike did not cause the gold price to tumble. Those thinking another nudge of 25 basis points will crush the gold bull are mistaken. Yet, they have convinced a good number of people to exit their positions.

Gold and silver prices have corrected over the past month, primarily driven by fears that the FED is going to start raising rates aggressively. But what if the analysts have it wrong and the FED isn’t going to raise rates anytime soon? What if the markets are not strong enough to support higher interest rates? Or what if the FED does hike the benchmark rate and the stock market collapses?

Mike Maloney is quite confident that the liquidity-driven ‘recovery’ created by the world’s central banks is now over. In his estimation, the path ahead is one of accelerating descent into inevitable currency destruction. He is not alone. Some of the world’s top investors view the equity market as vastly overvalued and due for a major correction.

While we can’t rule out another small hike of 25 basis points by year end, I think the FED will have to reverse course at some point in next few years. I believe we are more likely to see negative interest rates than a FED funds rate above 2%. If I am correct, the market is mispricing assets and there are opportunities to profit from this mispricing.

It is my view that misguided fears of rising rates have pushed the USD higher and capped the gold price advance. These fears are unfounded. I believe that gold and silver are headed much higher, even if rates slowly creep higher. But if negative rates are a possibility in the United States, then gold and silver prices are severely undervalued at current levels and set to rocket substantially higher.

We believe the market is currently blessing investors with an excellent opportunity to buy the dip in precious metals and quality mining stocks. You can subscribe to our paid newsletter and get our top gold and silver stock picks here.

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source http://goldsilverintel.com/fomc-vice-chair-stan-fischer-endorses-negative-rates/

Gold May Be Worth Much More Than You Think – Deutsche Bank

Gold is kicking off the week under pressure as markets continue to digest last week’s comments from Federal Reserve officials in Jackson Hole, but some analysts think investors may not be pricing the yellow metal properly. This week, Deutsche Bank analysts argued there is a correlation between gold prices and the level of monetary expansion by central banks, and according to this relationship, the metal should be some $400 higher. Frank Holmes of U.S. global investors agrees, noting that Deutsche Bank’s number may even be ‘conservative.’ Speaking with Kitco News on Tuesday, Holmes added that some famed gold investors argue that the true value of gold sits more at $8,000 an ounce. Gold futures have been under pressure since late last week in the aftermath of Fed Chair Janet Yellen’s comments, which were construed as hawkish by the marketplace.

This video is brought to you by Kitco News.

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source http://goldsilverintel.com/gold-may-worth-much-think-deutsche-bank/

Buy Low, Sell High – Not So Much For Gold?

Buy low, sell high, as the old adage goes but one veteran trader says this might not apply to gold right now. Speaking with Kitco News, Todd ‘Bubba’ Horowitz said it is important for investors to look at the yellow metal’s relative value, especially if you’re investing for the longer term. ‘I think it’s going to be very tricky here,’ he said. ‘I don’t believe the Fed is going to raise rates, I don’t think the street believes it yet but if they do, the dollar is going to skyrocket and I think that’ll put a lot of pressure on gold.’ The yellow metal hit a two-month low Tuesday with December Comex gold futures last trading down $14.50 at $1,312.60 an ounce.

This video is brought to you by Kitco News.

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source http://goldsilverintel.com/buy-low-sell-high-not-much-gold/

How High Will Silver’s Value Increase Compared To Gold During The Next Crash? Check Out These Charts

Many investors believe the value of silver will surge much higher in percentage terms compared to gold during the next financial and economic crash.  I happen to belong to that savvy group of silver investors, and for good reason.  If we look at the charts below, the data proves that silver is certainly the more undervalued precious metal asset.  Thus, it will likely make silver one of the best investment strategies of a lifetime.

While some readers may say that this is just more hype, the fundamentals provide us a pretty clear picture.  That is, if we are able to understand the entire system and how things are likely to unfold.

Before I post these two charts, I want to say a few words about several emails I have received from my readers over the past week.  After I wrote the article, UNLOCKING GOLD’S TRUE VALUE: The Economic Code – Finally Revealed, some readers finally understood that ENERGY is the critical factor in providing value to most goods and services in the world.

When they find out that ENERGY is everything, the LIGHT-BULBS go off and they finally get the vital importance.  It took me years of research before it made sense to me.  Still, the majority of my readers likely just skip over it and continue to see energy as just a part of the economy.

Even mainstream analysts separate the Energy Sector from the Health Care Sector, the Manufacturing Sector or even the Service Industry… so on and so forth.  They look at energy as just a mere segment of the market.  For some strange reason, they believe the Health Care, Manufacturing and Service sectors are powered by Fairies or Elves.  I can assure you, all sectors of the market are run by energy.  Take energy away, and Apple’s products and stock price would get flushed down the toilet.

When precious metals investors finally realize that ENERGY is the KEY to everything, they will no longer worry about gold and silver manipulation, the Federal Reserve FOMC meetings, the One World Government or dozens of other distractions. 

I continue to read and hear about the ONE WORLD GOVERNMENT and how Globalism is going to rule the world.  I would like to kindly remind those reading this article that globalism was a short-term arrangement only possible due to cheap and abundant oil production.  As U.S. and global oil production heads south in earnest over the next 5-10 years, globalism will experience the same fate as the Dinosaur.

Conspiracy theory obsessed Americans in the future will no longer worry about the Global Elite and their One World Currency (for example), but rather if their neighbor is stealing their vegetables from their garden at night.  Basically, fear or worry will move away from GRAND CONSPIRACIES to more practical day-to-day local or regional living situations.

Mark my words on this….

Anyhow, I am glad some readers are finally connecting the dots that energy is the key to everything.

That being said, there has been a lot of chatter over the years in the precious metals community that there is more gold investment in the world than silver.  I actually have stated this a few times myself.  So, I thought it would be a good idea to check this out and to see if it was true.

World Official Gold vs Silver Investment Holdings

If we go by the data from GFMS (Gold Fields Mineral Service), which is now apart of the Thomson Reuters conglomerate, and the CPM Group, total world official gold and silver investment holdings are a lot closer in range than I originally thought.

NOTE:  I decided to use the data from the CPM Group’s 2016 Silver Yearbook because they are the only source that provides an estimated total for silver.

Of course, this data has to be taken with a grain of salt, but it does at least provide us with a decent estimate.

The chart below shows that the total “Official” world investment holdings of gold are 2.25 billion oz versus 2.54 billion oz for silver:

So, if we go by the “Official sources”, there is a wee bit more silver investment inventories in the world than gold.  To understand how I arrived at these figures, let’s start with the following table:

This was found on Wikipedia, but the source was published by the USGS based on data from the World Gold Council.  Wikipedia also provided updated Central Bank gold holdings as of June 2016.  I then added the additional 5,000 tonnes of gold bar and coin demand from 2012-2015.  Basically, total gold investment in the world is approximately 70,000 metric tons (mt).  This translates to a cool 2.25 billion oz.

According to the CPM Group’s 2016 Silver Yearbook, they estimate total silver bar and coin inventories in the world at 2,539,000,000 oz or 2.54 billion oz.  They break it down to 1.58 billion in silver coins and 961 million oz in silver bars.  This figure looks about right to me, but of course, it’s an estimate.  There could be more silver bullion held privately that we don’t know about, but that could also be true for gold.

Regardless, there is about 290 million oz more silver investment in the world than gold.  Thus, according to these official sources, there is 13% more silver investment inventories than gold.  However, that is not all that much when we compare the value of both.

I arrived at the total values in the chart above by multiplying a gold price of $1,350 and silver price of $20 by their total respective inventories.  As we can see, the total value of gold investment inventories equals $3 trillion versus a measly $50.8 billion in silver.  

So, when the trillions of Dollars of Fed liquidity no longer works, as the monetary crack addicted economy finally crashes, investors fleeing stocks and bonds will finally find out just how little silver investment there is in the world.  The funneling of massive funds into silver will drive up the value much higher than gold.  Thus, $10 billion dollars flowing into the world gold investment market will push the total value up one-third of a percent (0.3%), while that same $10 billion into silver will push up the total value by 16%.  That is, if the price of silver remained the same.

However, there is one more important factor we need to address here.  What about Central Bank gold and silver holdings??  According to the two official sources quoted above, Central Banks hold one hell of a lot more gold than silver (no surprise here):

If we trust the estimates by the official sources, Central Banks hold a massive 1+ billion oz of gold compared to 46.8 million oz of silver.  Roughly, Central Banks hold 22 times more gold than silver.  The U.S. Treasury and other (mostly) Western Central Banks unloaded their massive silver stockpiles 50+ years ago, when they (mistakenly) realized silver was becoming way too valuable to be used as a currency and that it’s citizens wouldn’t mind using base metal slugs for trade.

OKAY… Clarification Of the World Gold & Silver Inventories Listed Above & A Few Words For The Grand Conspiracy Skeptics

Let me start with a few words for the Grand Conspiracy Skeptics.  I would imagine many readers rolled their eyes at the information above because “THEY KNOW BETTER.”  Well, maybe they do.  For example, some analysts are stating that the Chinese Govt holds upwards of 30,000 mt of gold… much higher than the official figure.  Furthermore, others believe the U.S. Treasury holds very little of their supposed 8,133 mt of gold reserves.

Sure, this may be true, but this gold had to come from existing investment stocks.  If the Chinese do have a lot more gold, maybe a good portion came from U.S. Treasury stocks or from private investors who still to this day, don’t realize their allocated or unallocated gold was sold or leased right out from underneath them.  This would not change the overall figure of physical gold investment, rather it only changes the amount individual Central Banks or private investors own.

Now, for those individuals who believe in the Grand Conspiracies put forth by Bix Weir and other assorted Gadflies (really don’t mean to disrespectful here) that the world has more like 1-2 million tons of gold floating around, there isn’t much I can say to change your opinion.  You are likely to take that PEARL of a lousy conspiracy to the grave with you.

This is due to the seemingly religious indoctrination of lousy conspiracies such as Yamashita’s gold, and the massive Marcos gold hoard in the Philippines.  I have looked over the documentation and I could see why some folks would believe these fanciful stories.  However, if we go by science, we find that it was impossible to mine that much gold unless we had assistance from space Aliens from galaxies far, far away.

According to the detailed data put out by the U.S. Bureau of Mines 1930 report and the USGS, the overwhelming majority of cumulative world gold production came since 1900.  Why?  Because we tapped into massive oil reserves containing thousands of energy slaves in each barrel.  As global oil production increased exponentially, so did the mining of gold, silver and just about every other metal.  No magic here… just real science if we allow our brains to absorb facts rather than lousy conspiracy gossip.

While the figures in the chart are not 100% accurate, I would suggest a 10-20% error of accuracy would be reasonable to assume.  Thus, total world gold production of 166,640 mt could be closer to 200,000 mt.  However, there is no way the world is hiding 1-2 million metric tons of gold in some cellar, basement or underground Nazi bunker.

While conspiracies do take place in our world, not everything is a conspiracy.  If we use some logic and reasoning, many lousy conspiracies should be put to DEATH once and for all.  Unfortunately, writing about real and lousy conspiracies is a good way to make a living selling newsletters.  While I have no reservation with an individual making a BUCK (Dollar) discussing more viable conspiracies, I find the peddling of lousy conspiracies distracts people from the real problems at hand.

Okay, enough about gold conspiracies… I could go on forever about this subject matter.  Let’s switch to looking at the actual data shown again in this table:

You will notice how much gold is estimated to be held in jewelry (includes religious objects and artwork).  There’s actually more gold held in this category than in both investment and Central Bank holdings.  While jewelry is not an actual investment inventory, a lot of that gold jewelry could come back into the market if the price of gold started to head towards $5-$10,000.

Matter-a-fact, a lot more gold jewelry makes its way back into the market each year because the selling or pawning of gold is worth the owners time and effort compared to silver jewelry:

According to the sources shown at the bottom of the chart, there was nearly two times more gold jewelry sold back into the market as scrap supply in 2015 (1,000 mt) versus silver jewelry (551 mt).   So, a good percentage of the gold jewelry held by citizens throughout the world could come back into the market if the price or value of gold surged higher.

This would also be true for silver.  However, a lot of silver that was made into jewelry over the years may have been discarded into the thousands upon thousands of landfills in the world due to its insignificant value.  When Americans get into a CLEAN UP MODE at their house, they will likely throw out silver jewelry because it’s just a part of the staggering amount of junk and clutter that accumulates over the years.

On the other hand, if they came across an old gold ring, then of course they would consider taking that down to the pawn shop so they could head to Las Vegas for the weekend for a much needed rest from the RAT RACE.

Regardless, most of the available gold on the planet is still held by citizens throughout the world.  However, upwards of half of the silver is likely gone forever as industrial waste in landfills or still being used in electrical functions in the hundreds of millions of homes, cars and electronics throughout the world.  Very little of this silver will ever be recycled.

The Value Of Silver Will Surge Compared To Gold In The Future

The value of silver will surge much higher relative to gold in the future.  This is due to several factors:

1. Investment funds moving into silver will push its value up much higher than gold in percentage terms due to its low price.
2. While there isn’t more gold investment in the world than silver (according to official sources), silver inventories only outweigh gold by 13%.  This is insignificant when we consider its low price or value.
3. There is 22 times more gold held by Central Banks than silver.  When the mad scramble to own precious metals finally takes place… don’t count on Central Banks to help much with silver supply.
4. The public will more than likely move into silver rather than gold due to its affordability.  Thus, the masses will have a much more profound impact on the price (or value) of silver than gold

There are several more factors I could list, but these are by far the most important.  Furthermore, I could write several additional articles just on clarifying the official figures in more detail… but it’s more important to understand the overall trend.

Precious metals will be the go to assets due to their ability to store ECONOMIC ENERGY.  The current $250 trillion in global stocks, bonds, real estate and insurance funds are not stores of economic energy… rather they are economic energy IOU’s.  These energy IOU’s worked find (sort of) during the rise of cheap energy production.  However, they will collapse as the opposite takes place.

Check back for new articles and updates at the SRSrocco Report.

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How To Save for Retirement Without a 401(k)

The 401(k) retirement plan used to be a fairly standard benefit offered to employees at mid- to large-sized companies throughout the 1980s,’90s, and early 2000s. The plans served not only as a savings vehicle for retirement but also—thanks to matching employer contributions—as a means of attracting new talent and as an incentive for existing employees to remain with the company.

But the glory days of the 401(k) appear to be coming to an end. In October 2015, Bloomberg reported that almost half of all US workers do not have access to a company-sponsored retirement plan and that only 45% of businesses with fewer than 100 employees offer 401(k) plans. Those numbers are expected to continue trending downward.

So in the absence of a 401(k) plan with matching employer contributions, how can you save for retirement? Here are a few of the top alternatives:

• Traditional IRA — funded with pre-tax income; annual contribution limit of $5,500 (or $6,500 if you’re over 50); mandatory distributions beginning at age 70 1/2
• Roth IRA — funded with after-tax money; annual contribution limit of $5,500 (or $6,500 if you’re over 50); no mandatory distributions; available only to individuals earning less than $114,000 per year or couples earning less than $191,000 per year; contributions do not reduce your income tax liability
• MyRA — government-backed plan; annual contribution limit of $5,500 until account balance reaches a maximum of $15,000; allows for investment only in government savings bonds; returns of 2-3% may not keep pace with inflation
• Brokerage account — for investing in stocks, bonds, mutual funds, and other securities; no contribution limits or distribution requirements; subject to ongoing capital gains and other taxes; subject to brokerage fees and transaction fees
• Self-directed IRA — may be set up as a traditional IRA or Roth IRA for many of the same benefits; allows you to invest in precious metals (gold, silver, platinum, and palladium) as well as real estate, LLCs, mortgages, franchises, etc.

Of these options, self-directed IRAs give you the greatest amount of control and flexibility with your money. Not only do they offer tax-free growth, but they also allow you to protect your portfolio with gold, which is the best hedge against inflation, a sputtering domestic economy, and global economic ills that might arise in the future. 401(k) plans from former jobs are also eligible for a tax-free rollover to a Gold IRA.

Although 401(k) plans are not quite a thing of the past, they sure are headed that way. So don’t look to your employer for a secure future; instead, take retirement saving and investing into your own hands by opening a self-directed Gold IRA through American Bullion today.

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.

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Yellen’s Speech In Jackson Hole And Gold

 

credit: commona.wikimedia.org

On Friday, Fed Chair Janet Yellen delivered a speech entitled “Designing Resilient Monetary Policy Frameworks for the Future” at the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming. What can we learn from it?

September Hike More Likely

As we had expected, Yellen’s speech was a bit hawkish, as she pointed out that the data has recently improved. Although economic growth has not been impressive, it has been sufficient to strengthen further the labor market, according to Yellen. The key sentence from her economic outlooks is this one:

“In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”

Therefore, Yellen’s remarks increased the likelihood of a September hike. The market rate hike odds for the next month jumped from 21 to 33 percent. However, due to presidential election in November, December move still appears to be the most likely outcome – the rate hike chances for that month rose from 51.7 to 59.1 percent. Although we remain skeptical whether the Fed could hike in September, the increase in expectations of such a move is negative for the precious metals market. Thus, the price of gold declined on Friday and could remain under downward pressure in the near future, especially if August nonfarm payrolls turn out to be strong, and other FOMC members also send hawkish signals. For example, Fed Vice Chair Stanley Fischer said that Yellen’s comments were consistent with a September rate hike and possibly two hikes this year. His remarks pushed gold down.

Yellen Speaks Japanese

Although her speech was generally viewed as hawkish, Yellen also made a very interesting dovish point about future potential monetary policy:

“On the monetary policy side, future policymakers might choose to consider some additional tools that have been employed by other central banks, though adding them to our toolkit would require a very careful weighing of costs and benefits and, in some cases, could require legislation. For example, future policymakers may wish to explore the possibility of purchasing a broader range of assets.”

Yellen’s suggestion of expanding monetary policy programs to include other assets is a Japanese idea, since the Bank of Japan buys not only government bonds, but also exchange-traded funds (actually, it owns already around half of Japan’s ETFs market). Surely, Yellen pointed out that “Fed isn’t actively considering these tools”, but why should we believe in it? As a reminder, the Bank of Japan adopted negative interest rates shortly after it denied that it would ever consider such a move. Therefore, Yellen’s discussion of the Fed’s tools available in the future when the next recession strikes counterbalanced her hawkish tone slightly. However, her remarks should not fire up gold bulls. Although she mentioned the possibility of broadening the range of assets purchased by the Fed and called for more government spending (“a wide range of possible fiscal policy tools and approaches could enhance the cyclical stability of the economy”), she did not say anything about negative interest rates or helicopter money.

Conclusion

To sum up, Yellen’s speech given in Jackson Hole was slightly hawkish, but it was an expected outcome. She did not say anything particularly new, but her upbeat tone about the U.S. economy and the case for an interest rate hike increased the market odds of an increase in federal funds rate in September. We still consider December as a more probable time for an interest rate hike, but the change in expectations should be a headwind for the shiny metal in the near future.

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

This postfirst appeared in Gold-Eagle.com.

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The Countdown to $1,519 Gold

Gold and miners are on the launch pad. I say this despite a two-week pullback in both the metal and mining stocks. That’s fine. It means we have a chance to buy great stocks at bargain prices.

I have said and will keep saying that gold doesn’t travel in a straight line. It zigs and zags. But one thing is for sure: Gold is in a new bull market. It has been since February. And corrections in a bull market are an opportunity to buy.

I’ll explain the forces driving the bull market. First, why am I calling a “new bull” in gold, anyway? Because gold is cyclical. It came out of a 52-month brutal bear market that ended in January. Now it is time for gold bulls to shine.

Looking at the chart, you can see gold has bottomed. This recent correction is just a wobble in a strong move higher.

In just a bit, I’ll tell you about something that could kick this golden rocket into overdrive.

Supply and Demand

Again, gold is cyclical. A lot of this is due to supply and demand. As gold prices go lower, mines shut down and new projects are canceled. Production goes down.

According to Thomson Reuters’ GFMS, global production of gold is expected to fall 3% in 2016. That will put an end to seven years of rising output. By 2018, GFMS expects that global gold mine production will fall by around 315 metric tons.

Meanwhile, demand is soaring. Globally, total demand for the yellow metal rose to 1,050 metric tons in the second quarter. That’s a rise of 15% year over year.

Bar and coin demand actually doubled year over year. And ETF inflows surged.

Holdings of gold in bullion-backed ETFs are currently at 65.3 million troy ounces.

Now, that’s not close to the highs set back in 2013. But that just means there’s plenty of room for investors to add to holdings.

Beyond the supply-demand squeeze and investor demand, I could talk about many forces driving gold higher. The growing middle class in Asia, rising worries about the euro and the global financial system, and purchases by central banks all play their part.

But there is a new force in the market that is potential rocket fuel for gold prices.

I’m talking about negative interest rates.

A New Force in the Market

I told you back in May about how negative interest rates are lighting a fire under gold prices.

The reason is there is normally a “carrying cost” to gold. That is, the money you invest in gold could earn you interest in bonds. And gold doesn’t pay interest.

But now, many government bonds across Europe and Asia don’t pay interest. In fact, many sport negative yields.

Governments around the world are issuing trillions and trillions of dollars of government bonds that offer negative yields. These bizarre bonds pay no interest to the bondholder; they charge interest to the bondholder.

And negative-yield debt is ballooning like some monstrous zeppelin.

• In February, there was $5.5 trillion in negative-yielding debt.
• In June, there was $10.4 trillion in negative-yielding debt.
• And now? The value of negative-yielding debt has soared to $13.4 trillion!

Until now, the only ones feeling the pinch of negative interest rates were buyers of government debt in Europe and Asia, as well as big banks.

But that’s changing.

In a recent article for The Non-Dollar Report, I wrote:

Negative rates haven’t percolated through to most savings accounts yet, but consumers across Europe and the world can see that’s coming. So if negative interest rates are becoming the new normal, gold could be seen as a high-yield asset.

And now, guess what? Just like I predicted, negative rates are finally being passed along to companies and consumers.

The Royal Bank of Scotland says it will charge some corporate customers for holding their money.

Meanwhile, a German savings bank, Raiffeisen Gmund am Tegernsee, said that it will start charging retail customers to hold cash, according to Bloomberg reports.

But what choice does the bank have? The European Central Bank initiated negative interest rates two years ago. And the ECB has since cut its deposit rate – what banks pay to park excess funds there overnight – three times more.

Sure, that’s just one bank. But if you don’t think that’s a test case for other banks, you’d better wake up and smell the coffee.

And if people start to get charged for the cash they have on deposit, that rips the lid off the carrying cost on gold. I predict gold ownership will soar.

After all, if done correctly, at least owning gold won’t cost you money – unlike owning government bonds in Berlin or Paris.

The “race to the bottom” in yield is likely to only get worse.

For example, the Bank of Japan set a rate of -0.1% on some deposits, and it shows no signs of blinking. In fact, Bank of Japan Governor Haruhiko Kuroda said in press reports that Japan’s negative rate policy has not reached its limits.

“The degree of negative rates introduced by European central banks is bigger than Japan. Technically there definitely is room for a further cut,” Kuroda said.

All Eyes on the Fed

How about the U.S. Fed? Janet Yellen and her Fed governors may talk a tough game about raising rates. They may even be hinting they’ll raise them in September. But the U.S. Fed has been “on the cusp” of raising interest rates several times, only to flinch at the last moment.

Here’s what I predict…

If the Fed does raise rates in September, it will be one and done. And the gold markets will feel a weight lift.

If the Fed doesn’t raise rates in September, it will have cried wolf too many times. Gold will head higher anyway.

My target on gold is $1,519. I think we’ll be there by the middle of next year.

But the real winner in that rally will be select miners. They’re leveraged to the underlying metal.

The countdown is coming. Prepare yourself.

Good investing,

Sean

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