Showing posts with label Gold Bull Market. Show all posts
Showing posts with label Gold Bull Market. Show all posts

01 February 2023

Stocks and Precious Metals Charts - Central Banks Buy Most Gold Since 1967

 

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Upton Sinclair

"It is important to bear this in mind, because it tends to knock down the assertion that the current financial crisis is somehow an act of God, something that just happened.  There was an intent to subvert the regulatory process, to increase leverage beyond what has long been known to be prudent, and to engage in systemic fraud with a group of enables and agencies, such as the ratings firms, in order to reap fabulous personal profits for a small group at the expense of the many. 

There was planning, premeditation, malice aforethought. They may not have intended to harm; they just did not care. They really truly did not care, if they got theirs.  Until the banks are restrained, and the financial system reform, and balance restored to the economy, there will be no sustained recovery.

And there can be no better start than to stop the gambling with the public money that is the core of the existing US banking system.  The parallels with organized crime and the subversion of the public interest through graft and corruption are compelling.  And one thing we must accept is that the financiers will never be able to reform themselves, to regulate themselves, to even tell the truth overmuch about regulation while they are still 'in the game.'  It goes against their very nature, their creed, the rules of their profession. They keep what they kill, and everything that is not theirs is fair game."

Jesse, Restoring Glass-Steagall, 28 October 2009

"Successful crime is dignified with the name of virtue; the good become the slaves of the wicked; might makes right; fear silences the power of the law."

Lucius Annaeus Seneca

“Those entrapped by the herd instinct are drowned in the deluges of history.  But there are always the few who observe, reason, and take precautions, and thus escape the flood.  For these few gold has been the asset of last resort.”

Antony C. Sutton

Just another day in the Pax-American Metaverse.

The FOMC raised interest rates the expected 25 bps.

And in the end Wall Street read this as dovish, and rallied to beat the band, going out near the highs.

The NDX set a new 'third high.'  

The SP 500 was lagging and failed to set a new high.

The Meta stock was soaring after hours dye to 'not as bad' as expected results.

The Dollar slumped hard.

Gold and silver rocketed higher.

While stocks were soaring the Metaverse, back in the real world:  Central Banks Buy the Most Gold since 1967  

And the times, they are a-changing.

Why didn't the spokesmodels, chief strategists, breathless Mahoneys, and sock puppets talk about this historic development, which has been slowly unfolding since before 2009??

Yeah, buddy...

Non-Farm Payrolls on Friday.

Let's see if bully can keep it up.

With these jokers its always easy come, easy go.

Have a pleasant evening.

 



15 October 2015

A Closer Look At An Evolving Gold Chart Formation - Three Scenarios - Time


"Le temps mûrit toute choses; par le temps toutes choses viennent en évidence; le temps est père de la vérité."

François Rabelais


“Hubris calls for nemesis, and in one form or another it's going to get it, not as a punishment from outside, but as the completion of a pattern already started.”

Mary Midgley, Myths We Live By

As we have seen so many times, the nature of a chart formation is revealed at key moments when the chart action approaches a critical decision point, especially after a sustained move higher or lower.

In this case gold is struggling hard to break a multi-year bear market and form a successful bottom off the big 1080 support.

The gold bulls can hope for a retracement that finds support fairly quickly, and mounts another assault at making a higher high than the last failed breakout attempt that was stopped at 1230.

The gold bears are quite confident, to the point of overconfidence in their ability to smash the price lower with an avalanche of paper sells in quiet hours after two years of having their way with this market.

And all the while they have been setting themselves up for an eventual confrontation with the physical consequences of their actions.  By now this should be a very familiar theme for a willful generation on any number of fronts.

A bullish interpretation can hold with declines even down to the bottom of a new bullish uptrending channel.

A break to the downside of 1120 negates this formation.

So in summary there are three general outcomes.
The first is a shallow retracement and a breakout that takes some greater momentum higher towards the 1300 level and makes the bottom with some decisiveness.

The second is a deeper retracement, with support found somewhere above 1120, with another assault mounted for a breakout higher from there.

And lastly, we must keep an open mind about a possible breakdown below 1120 setting up a retest of support, perhaps down towards 1080, or the establishment of a trading range.
I am not applying the normal probabilities to this evolving chart formation because of the obvious price manipulation that has been occurring in the paper gold markets, justified in the minds of the ringleaders no doubt by 'the currency war' and the flexing of monetary muscles.

In this environment gold and silver are being traded more like currency crosses, and less like commodities with a real basis of physical supply and demand underlying the transactions.

Perhaps the money masters may take their cue from the platinum coin, and declare a pile of sand to a thousand tonnes of bullion, of whatever variety they wish.

And you might be suprised at how many true believers will gratefully rise to praise this, drinking deeply of the madness of the will to power.  If only all would believe, it would be true! But alas, they never do.   There are always a stubborn few who fail to follow the dream into the abyss.  And so the world divides into the enlightened and the spoilers, between us, and them.

To the truly relativistic mind, nothing is impossible if you apply enough conviction and power, at least in the musings of the modern and, at the lingering last, the high walled bunkers of the few.  Their pipe bowls waft out familiar dreams, of freedom from restraints, and from their own mortality, and in the end perhaps, the last of their humanity.

All will be revealed with time.  We cannot presume to know exactly when.

Till human voices wake us, and we drown.





01 June 2013

The Longer Term Fundamentals of the Gold Market As They Are Today


There should be no doubt in anyone's mind that the fundamentals for world gold supply and demand have changed dramatically over the past ten years at least.

The world's central banks, most significantly in the West, had been selling bullion from their central bank reserves since 1989. The first chart below shows the long decline in the official gold reserves of the central banks through the long bear market from 1979 through 2000, and even in the beginning of the bull market.


There was an explicit public arrangement called the Washington Agreement struck in 1999 to regulate that official selling after a particular central bank had disrupted the market.
"Under the agreement, the European Central Bank (ECB), the 11 national central banks of nations then participating in the new European currency, plus those of Sweden, Switzerland and the United Kingdom, agreed that gold should remain an important element of global monetary reserves and to limit their sales to no more than 400 tonnes (12.9 million oz) annually over the five years September 1999 to September 2004, being 2,000 tonnes (64.5 million oz) in all.

The agreement came in response to concerns in the gold market after the United Kingdom treasury announced that it was proposing to sell 58% of UK gold reserves through Bank of England auctions (aka Brown's Bottom), coupled with the prospect of significant sales by the Swiss National Bank and the possibility of on-going sales by Austria and the Netherlands, plus proposals of sales by the IMF. The UK announcement, in particular, had greatly unsettled the market because, unlike most other European sales by central banks in recent years, it was announced in advance. Sales by such countries as Belgium and the Netherlands had always been discreet and announced after the event. So the Washington/European Agreement was at least perceived as putting a cap on European sales."
There is some speculation as to the reason why the UK's Brown decided to engage in that rather extraordinary action, against the counsel of his own advisors, but that does not concern us here. 

This outright selling in gold by central banks is different from the leasing of gold by central banks, which is generally not transparent and openly announced. In this leasing operation, bullion banks pay a small lease rate to the central bank for the right to use that gold as collateral and for sale, with the promise to replace it after a period of time with a fee. It is a subject of controversy how much of the existing stock of central banks has been committed to the market through leasing arrangements. The number is not insubstantial. The gold is likely to have been sold or otherwise committed, and must be repurchased to be returned.

There is a very high likelihood that gold collateral has been rehypothecated, or used many times with a number of parties holding claim to it. This is a common practice and is referred to as fractional gold reserves. These most often take the form of 'unallocated bullion' which is when a certificate of ownership is issued, but no particular bars have been identified. And as we saw in the failure of MF Global, even allocated bullion ownership, in which specific bars are committed and paid for, ownership can be a rather philosophical concept in which possession is nine-tenths of the law.

The second chart shows the period from 2000 to 2012, with emphasis on 'the Turn' which is when central banks turned from net sellers to net buyers of gold. I cannot stress enough how important this is to the fundamental outlook.


Economists, pundits and investment managers can say whatever they like, but the proven fact remains that the world's central banks, on the whole, do not agree with them that gold is not an important store of value, and likely to become more important in the future. It is somewhat ironic that these same fellows would uphold the power of the central bank on one hand, and say things like Don't fight the Fed, or Bernanke says what the market is, but then will turn around and suggest you ignore what the central banks of the world are doing on the whole. It is hard to imagine that this is not someone woefully ignorant of current trends or with some other agenda who would take such an obtuse position.

And of course we also have the statement and opinions of those who say, personally I think gold is barbaric and useless, but then will say, money is based on consensus, and so fiat money is sound. Again, the clear consensus of the central banks is that gold is an important facet of their reserves, and the importance to their future plans is growing, for whatever reasons they have not yet disclosed.

The third chart demonstrates the significant increase in gold bullion acquired by the Chinese. This is both private and official purchases. A large producer in their own right, China exports little of their domestic production, and is a large net importer. Several other countries are following the same pattern, the common thread being that they are the high growth countries who have the need to increase their reserves, or whose people have new wealth they wish to deploy.


The fourth chart shows the well established fact that the increase in the gold supply through mining is relatively inelastic with regard to price. It takes significant effort and capital to create new mining operations, and there is a natural decay in the productivity of existing mines as with most natural resources. The estimate is that the gold supply can increase through mining at roughly 2% per year. This is one of the features that has long made gold attractive as a form of money.

As demand increases therefore, the price of gold must rise. If someone wishes to hold the price steady, new supplies of gold must be found, and they will not be discovered in mines.


There is a fairly well established 'scrap market' in which old jewelry and other gold objects can be purchased and melted down for bullion. But this market again is not robustly elastic although it can respond to higher prices more readily than mining operations.

So for ready access to gold to meet market demands, other sources of gold must be found.

This is where we get into the concept of 'fractional reserve gold' and 'paper gold' in which ownership is more of a financial concept than a hard reality. This includes both the leasing of official reserves, and the use of unallocated reserves that would be discovered in purchasing programs and perhaps even some well known funds.

One would hope that highly transparent audits of such things would exist from impeccable sources, but sadly that does not seem to be the case.

Leverage and rehypothecation are two of the largest factors in the recent financial crises, in addition to the mispricing of risk and fraudulent representations.

I think one of the more remarkable features of the current situation is the storage of official bullion in custody in New York and London. Venezuela was one of the first countries to demand that their gold be repatriated from New York, and this has happened despite much scoffing and derision by the usual pundits.

But then in response to domestic requests and changing circumstances, the German central bank requested that some portion of their gold be returned from out of country.

The German gold had been stored out of country in response to concerns that the gold was not safe, given the divided nature of the country and fears of a Soviet incursion. Obviously with their country reunited and at peace, it would make sense to return things to normal.

They had already received much of their gold back from London, in large part because it was incurring significant storage fees. They are also requesting their gold back from France.
By 2020, the Bundesbank intends to store half of Germany’s gold reserves in its own vaults in Germany. The other half will remain in storage at its partner central banks in New York and London. With this new storage plan, the Bundesbank is focusing on the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centres abroad within a short space of time.

The following table shows the current and the envisaged future allocation of Germany’s gold reserves across the various storage locations:

31 December 2012  31 December 2020
Frankfurt am Main31 %  50 %
New York45 %  37 %
London13 %  13 %
Paris11 %  0 %

To this end, the Bundesbank is planning a phased relocation of 300 tonnes of gold from New York to Frankfurt as well as an additional 374 tonnes from Paris to Frankfurt by 2020.

What is so remarkable is the response from New York. The Fed is agreeing to return a portion of Germany's gold in SEVEN YEARS. 

Until the fundamentals change, the offtake of gold will continue to deplete supply, until the price moves to strike an equilibrium.

And as I have attempted to show at some length and detail on this site, the recent sell off in the price of gold was largely motivated by speculation in paper gold on western markets, specifically London and New York, that resulted not in a decrease in demand but an increase in demand that led quickly to spot shortages, delays, and premiums over the paper price for actual bullion.

I do not know the future. It is patently obvious that China and Russia and a few other countries, are making a concerted effort to increase their gold reserves for some reason. There is significant speculation that the nations will be changing to a new form of reserve currency for trade that will be backed at least partially by gold.  In addition, several countries are said to be making plans to back their national currencies by gold in some manner as the devaluations of world currencies obtain momentum.  I think these all these plans are under serious discussion today. There is no doubt that international discussion have been going on for some time.

I am aware that there are other, more specialized and sophisticated, studies out there about the gold and silver markets.  Much of them are with regard to the shorter term for traders.  But there are a few extraordinary efforts conducted by groups like GATA, data compilers like the World Gold Council, and individuals such as Eric Sprott, who has done a remarkable job of attempting to derive the demand and supply data for gold over a longer period of time.

My goal here is to present what I like to think of as the bigger picture.  My own analysis of the global economy started in 1992 in a brief return to academics, and a natural interest as someone involved in international business. 

Starting with the Asia currency crisis of the 1990's and the collapse of the rouble, my thinking led me to assume that there was going to have to be a significant change in the structure of the global trading arrangements with regard to currencies.  Up to that point in 1999 I had no interest in gold whatsoever.  I discovered gold and silver in my process of thinking about other things, and everything I had anticipated seems to have been unfolding, with variations of course.

There is the little detail that the second credit bubble tied to housing has collapsed, and the powers that be will not take the banks down, but are going to try and reflate the financial paper, particularly bonds and equities, by devaluing the major developed currencies.  They are doing fairly well of hiding its effects, but at some point it is going to bite.  A lot of the shenanigans going around now are trying to position the public, weakest segments first, into picking up the tab.

Make of this what you will, but I think the facts are sound. I suggest you look at this, and then come to their own conclusions.  It may provide a framework with which to interpret events as they continue to unfold.

28 April 2012

Gold Bull's Long Term Trendline - The Indispensable Chart



Although they cannot resist its inevitable climb because of the changes in the global monetary system and the ongoing currency wars, the Western central banks wish the increase in the price of gold to remain 'orderly.'

And so it is.




Thanks to my friend Nick Laird at Sharelynx.com.

Nick has one of the most amazing collections of charts on the web. 
Browsing his historical monetary and financial charts is a good way to spend a Sunday afternoon.

19 October 2011

This Is the Gold Bull Market



Here is something from my 'private stock.'

This is the picture of a quiet flight to quality.

If you must trade, buy strength and sell weakness, and not the other way around when driven by greed and fear.

But for almost everyone, it is better to see the trend and ride its crest, perhaps hedging a little at the extremes, while the fundamentals that created it are intact.

What are the fundamentals driving this phenomenon?  Keep Jesse's Paradox in mind.

And if you have to rely on something wonkish,  with the trappings of an economic theory, then an eye to negative interest rates on the ten year bond is not bad, provided that you can find a measure of price inflation that has not been fouled by official corruption.



11 July 2010

Jesse's Paradox: Gold Can Perform Well In Both Monetary Inflation and Deflation



The average punter understands the first graph to the right. Gold tends to increase in price in times of monetary inflation, because as an alternative store of wealth it provides a safe haven from central bank debasement of the currency.

By monetary inflation, we do not mean the simple, nominal growth in money supply, and of course the same can be said of a simple decrease and deflation. This is obvious when one considers that money must have a natural relationship to the demand for it relative to population growth, but most importantly to the growth of real GDP.

But notice the second chart, and this is the one which so many speculators and economists miss. Gold tends to perform well when the inflation adjusted returns on the longer end of the curve are low. In other words, when the real returns on bonds are inadequate to the risk. But the risk of what?

Inflation, pure and simple. Deflation is a prelude to inflation, and sometimes a brief hyperinflation, in a fiat currency regime.  And even while the nominal money supply may remain flat or even negative, the decay in the underlying assets that support it may be declining, and sometimes dramatically so. 

The smarter money is not chasing the latest wiggles in the Elliot waves, or the price manipulation shenanigans of the central bankers and their minions at the bullion banks. They have been buying ahead of the increasing likelihood of a monetary event.

The underlying value of the dollars are deteriorating. So even though there might be fewer dollars nominally, in fact there should be much fewer dollars because of the contraction in GDP.

And the quality of the assets underlying those fewer dollars are much lower quality than only a few years ago.

Gold seems to perform less well, underperforming other asset classes, in a healthy economy where the growth of money is related to the organic growth of real production and not to financial engineering. Gold seems to be a hold in 'normal' times.

I would suggest that the extraordinary price in gold now is because for many years the central banks artificially suppressed the price and the means of production for gold by selling their holdings in a conscious attempt to mask their monetization and the unreasonable growth of the financial sector. They wanted things to look 'normal' while they were becoming increasingly out of balance, especially with regard to debt and international trade balances, and so they opted for appearance versus reality.

As Fernando of the Fed would day, "It is better for the economy to look good than to be good, and dahling while we were printing money and selling the public's gold it looked marvelous!"

And what if the Fed starts allowing the 10 year Treasury yield to start rising naturally. Will that be the time to start selling gold? Probably not because the money supply would most likely be artificially increasing again, and that yield increase would be a remedial reaction.  Keep an eye to negative real interest rates if you can find an indicator of inflation that has not been corrupted.

Cargo Cult Economics

People who really do not understand what is happening in a complex system sometimes react in funny ways, and suggest things that would be laughable if there were not in a relative position of power. Anyone who has worked in a large corporation will understand what funny things bosses can be when struggling to deal with complexity that they do not understand. Our duty of course is to help them, for the good of all, but sometimes that is beyond our reach, especially in dealing with Type A bosses who cannot conceive that there might be something beyond their comprehension. Since 'killing the messenger' is their reflexive reaction, their learning curves tend to be quite long, generally resolved in the insolvency of the division or even the entire company.

What I find incredibly amusing are the high priests of the economic cargo cult, dressed up in the ritualistic accoutrement's of academic credentials, sporting the codpieces of monetary policy, carrying the totems of efficient market theory, arrogant and presumptuous even in their frustration and failure. They are just so incredibly and unsuspectingly funny. I am sure history will have a good laugh over it, and for us, well at times we have to grin and bear it.

Much of what Larry Summers is doing now makes me think of Dilbert's boss. If gold is the signal of a problem in the economy, well then, let's just manipulate the price of gold. If slumping stock prices are a sign of economic deterioration, well then, lets just buy the futures and prop them up whenever they slide. See how short term and easy things can be?

This is not always humorous of course. Powerful people who are frustrated and amoral can tend to do increasingly destructive things. And then the response of the people is to try to ignore them. If necessary one must basically tell them to 'stuff it,' and give them the boot. And if they persist and start acting out, well, tyrants eventually get replaced one way or the other, but it is far too early to discuss things like that now.

When Will the Gold Bull Market End

So, the frustrated investor says, when will gold finally start topping?

Gold have topped when the smart money is convinced that the real economy is becoming naturally sustainable, robustly organic in its credit creation and allocation, and healthy in the growth of the median wage to support consumption, without subsidy or interference or new unpayable debt from the Federal Reserve, or the draconian 'taxes' from an outsized financial sector that stifles real growth.

When people are no longer obsessed with what Goldman Sachs and their ilk are doing, or what Bernanke and his merry pranksters have to say that day, then will be the time to be out of gold. I do not see even a move in that direction anywhere on the horizon.  Because of the credibility trap, the impulse to reform is stifled in the corridors of power.

This is no top, and sentiment is unusually bearish. As I have said, I believe this is the base for a new leg up that is going to surprise all but a few. No one knows the future and I could be wrong.

But I do not think that I am, unless there is a new market panic and a general liquidation of all assets. The hedge funds, BIS, and the Fed can play their games, but they cannot hold back the tide of history without being overwhelmed.

09 July 2010

CNBC Europe: Is Gold a Bubble, Or an Outstanding Value, or Both?


My friend Horst from Germany sent this to me.

I think you will find it to be of interest.

The subject discussion revolves around the currencies, paper gold, and bullion.

Ben Davies, CEO of Hinde Capital














I cannot help but note that the level of discussion in CNBC Europe and Bloomberg Asia is much more serious than that of Bloomberg and CNBC USA. I wonder why this is, given the global character of the financial markets.

And then there is Fox Business where T/A does not necessarily have anything to do with technical analysis or charting.

24 March 2010