Thursday, February 2, 2017

Gold World News Flash

Gold World News Flash

With The Greek Crisis Back, There Are Five Possible Scenarios From Here

Posted: 02 Feb 2017 01:13 AM PST

As discussed last Friday, Greece is back in the public spotlight and - hardly surprising - it is once again on the verge of collapse. Greek yields surged in the past week as the country didn't secure a positive review at the Eurogroup on 26 January. Additional noise came from indications that the IMF still views the Greek debt as unsustainable without further measures from the Greek government (the term was "explosive"), as well as  additional debt relief clarifications from European creditors.

So is a rerun of the summer of 2015 inevitable? According to Credit Suisse's Giovanni Zanni, the most likely outcome - for now-  is an amicable, and quick, resolution. However the longer nothing substantive changes, the more likely it is that the 4, far less pleasant scenarios, kick in.

While it is difficult  to attribute a specific probability to each of those, they are ranked them below by the most to the least likely. These scenarios should also provide a roadmap for investors in the process of assessing when risks could increase and when they could die down: as a rule of thumb, we would expect a sell-off to be ongoing until the next "node", unless the tension is released by some form of  agreement, which we still believe will come at some point in the coming months. In the absence of any deal, market stress is likely to steadily increase ahead of large Greek bond redemptions, in particular those in late July, with a calendar pretty similar to that of 2015. But while we expected at the time that a solution would have come very late in the game (in July, precisely), this time the base case scenario is for a quicker resolution.

Here are the five possible scenarios from the Swiss bank:

  • Scenario 1:Quick resolution (in the coming days)

The Greek government is reportedly trying to find an agreement, providing a series of measures that should be largely compliant with the creditors' requests and are crafted in a way that should be sufficient to convince the IMF to agree to continued participation in the programme. There is a key IMF meeting on 6 February: if the measures are accepted then it should open the way for a successful completion of the review on 20 February by the Eurogroup. This, in our view, would also set in motion a clarification of the medium-term relief measures (after 2018) to be granted, conditionally, to Greece. And from there the Debt Sustainability Analysis of both the IMF and the ECB should reinforce Greece's position and allow the European Central Bank to include GGBs in its QE program.

That is clearly the positive scenario – and the most optimistic in the timing (e.g., it might still happen as above, broadly speaking, but delayed by a few days or weeks, clearly) – but we still think it can happen, with a decent probability. This would lead in all likelihood to a prompt reversal of the spread widening seen in recent weeks, and to further convergence ahead – especially if and when the participation of GGBs in ECB's QE is announced.

The other four (less positive to outright negative) scenarios are discussed overleaf.

  • Scenario 2: "We need more time" (March-April)

There is a fundamental "irreconcilable trinity" between the views of the IMF, that of European creditors and those of the Greek government: at the cost of oversimplifying, Greeks want less reform, more debt relief, and would prefer a lower primary surplus target; the IMF would like more structural reforms, more debt relief from European creditors, and lower primary surpluses – expecting Greece to deliver primary surpluses at 3.5% of GDP for the foreseeable future is seen as unrealistic; finally, European creditors are relatively agnostic on reforms, want ideally as little debt relief as possible, and prefer higher primary surpluses to fill the debt sustainability gap. It is not clear that these differences can be resolved, effortlessly, in a short period of time – it might still require a further layer of negotiations and developments. Still, there is some kind of "political imperative", we believe, with indeed the preference by all to close the negotiations ahead of at least the French elections, in order not to poison further the European political debate. As such, a decision might eventually be pushed through next month or in April, at the latest, if disagreements are not too extreme.

  • Scenario 3: brinkmanship (July)

This scenario would mimic the events of 2015, when the confrontation was pushed to the limit of default from the Greek side, in the hope of getting the best possible deal. In our view, that strategy didn't work for Greece and created uncertainty and another recession in that year. As such, we struggle to see this strategy as intentional this time – but it could end up being the default option in the absence of an agreement under scenarios 1 and 2 and in the context of elections and events in the rest of Europe diverting the focus on Greek matters.

  • Scenario 4: Early elections (before the summer)

Early elections cannot be discarded, if a satisfactory agreement is not found in the coming two to three months. It is likely that most MPs dislike this option, as early elections would likely see several in the majority losing their seats: current polls suggest a very strong preference for the center-right opposition (New Democracy), as we show in Figure 6. However, it would be a way to preserve an "anti-system"  role to the ruling party, Syriza, with the aim and hope to return in government at a (not too) later stage, in a new election round. From a market perspective, early elections would clearly be a negative, short term, but we also stress that the likely victory of the centre-right would be probably seen as a positive medium-term outcome.

  • Scenario 5: Grexit? Oh pleeease!

SYRIZA parliamentary spokesman Nikos Xydakis said earlier this week that a debate about Greece's membership of the euro should not be taboo, seemingly reopening the discussion on Greece's EU membership. We have debated this issue at length in the past, and believe it wouldn't make sense for Greece to leave – and actually it is already damaging for the country to even discuss it. The opposition was quick in criticising Mr Xydakis and there is clearly no support in the parliament for it and even less so in the country (Figure 7).

* * *

Finally, here is a timeline of next events:

Below, we provide a timeline of key relevant dates and events in the coming months. There is an immediate set of events (in February) that could resolve the issues and make the programme progress swiftly. If not in February, there are several intermediate dates that could still deliver an agreement, although at a later stage, most likely around the scheduled Eurogroup meetings – although an extraordinary gathering to approve the bailout happened in the past and cannot be discarded. July 17 – or 20 – would be the "hard" deadline, as Greece would be, same as in July 2015, unable to repay those amounts without additional support under the EU/IMF programme. There are earlier relatively large redemptions, notably in late February and in April – but we believe there is probably room in Greece's public finances  to fulfill those commitments.

AK-47 Maker Staffs Up Amid Surge In Export Orders

Posted: 01 Feb 2017 11:45 PM PST

As the world roils amid Middle East maelstroms, Donald Trump dysphoria, and terrorist tantrums, there is a silver-lining for some. As MSN reports, the maker of the AK-47 semi-automatic machine gun says it is to increase staff by 30% because of a surge in export orders.

As a reminder this surge in demand follows US sanctions banning the import of Kalashnikov firearms from Russia in 2014.

The Kalashnikov Group put out a press release from its Moscow office Monday stating that it will create a further 1,700 jobs this year.

"Following the growth of production volume, which was driven by the rise in the number of export orders, it was decided to increase the number of the Group's employees," said Alexey Krivoruchko, chief executive of the Kalashnikov Group.


"The challenge we face is managing the growing number of orders. To fulfil them, as of April 2017, production will run in three shifts," he added.

The Kalashnikov Group said it employed around 5,500 people at the end of 2016. The new staff will be recruited to work as service technicians, grinders, toolmakers and machine operators.


Kalashnikovs remain the most popular rifle in history...

A Time For Caution

Posted: 01 Feb 2017 07:40 PM PST

Submitted by Paul Brodsky via,

In Contrarianism in 2017 we cited the following macro dynamics that keep us cautious on equities, bullish on Treasuries and gold, and negative on credit:

  • already steamy global equity market valuations
  • already over-leveraged global balance sheets
  • already old and aging global demographics
  • already nervous US trade partners with alternative options for trade
  • already hostile reactions from potentially belligerent foreign trade partners seeking to replace US global market share

Below, we explore each of these dynamics in depth.

Equity Valuations

Given the current macroeconomic and geopolitical setup (discussed below), the highest nominal and risk-adjusted returns in 2017 and into the foreseeable future will be captured through value investing.

The maps above and below, calculated by StarCapital, show the respective ranges of non-cyclically-adjusted and cyclically-adjusted P/E multiples across equity markets at the end of 2016.

Generally, the largest and most mature equity markets have the most extended P/Es (Graph 1). When those P/Es are cyclically adjusted (Graph 2), fewer equity markets appear to have steamy valuations. (CAPE valuations shown in Graph 2 are P/Es adjusted for the moving average of ten years of inflation-adjusted earnings.) Nominal P/Es strip out past economic trends, such as output growth and inflation, while Cyclically-Adjusted Price Earnings assumes future economic growth will look much like the past.

When CAPEs are significantly higher than P/Es it implies to us that businesses need faster economic growth than is available now to support equity prices. Notably, this is the case in the US and Japan. The performance of equity markets in economies where past output growth and inflation have been higher than they are today, such as Brazil and Australia, tend to look more reasonable when cyclically-adjusted. China appears relatively cheap in nominal terms and less-cheap in CAPE terms. Comparing these metrics is important because it highlights the need to have a strong macro and geopolitical opinion prior to allocating capital.

What if the future does not look like the past, specifically what if global GDP is lower and global inflation is higher? In such a scenario, we think the soundness of balance sheets – not revenues and earnings – would determine the relative performance of equity markets and the winners within them. The map below shows Price-to-Book ratios of global equity markets.

Using this metric, markets such as Russia, China and Brazil seem to be priced most reasonably. All things equal, the implication is that equity markets in some large emerging economies (and Japan) are priced best for a slowing global economy, all things equal.

Of course, all things are not equal. Geopolitics and FX exchange rates will play a significant role in equity performance given changes in global output and inflation. Since output and inflation are the primary drivers of geopolitics and exchange rates, developing a macroeconomic view of the world prior to allocating to world equity markets is critical.

It is also interesting to review valuation metrics across industries on a worldwide basis. We developed the table below from valuation data gathered by StarCapital:

A snapshot of valuations tells us little about the prospects for and industry, and different valuation metrics are more relevant than others depending on the industry. However, the good work provided by StarCapital not only shows that equities are fully valued on a worldwide basis, but also sets a baseline to compare specific geographies and businesses to global valuations. This should come in handy when macro and geopolitical events do not go according to consensus expectations.

Global Leverage

Monetary leverage is technically the quantity of bank assets in relation to the quantity of base money.1 Central banks are only obligated to create enough base money (through QE) to reserve bank assets. Since bank assets are technically created through the bank loan process, the majority of bank assets, which include deposits (i.e., money), is effectively credit extended by central banks.

Graph 4 shows the history of US dollar leverage. (Were the graph to go back to 1970, there would be virtually no leverage, as bank assets were effectively backed by gold.) As we can see, the Fed’s bank reserve creation beginning with QE in 2009 began to de-leverage the US banking, which stands at about a 4:1 ratio presently. We can assume that the onset of another recession would be treated by the Fed in the same way – a reversion to QE that further de-leverages the banking system. The limit of Fed QE that creates bank reserves is another $12 trillion. Reliable monetary leverage data across the world is difficult to come by, but we believe US dollars are among the least levered of all major currencies.

It is critical to understand that central bank responses to economic adversity – adversity that threatens the value of collateral supporting bank asset values - are devoted to saving its primary constituency, the banking system. There is no formal obligation to support the value of non-bank credit.

Economic leverage includes bank assets plus credit extended outright by bondholders and other, less formal creditors. The great majority of economic leverage is not technically the obligation of central banks because it is credit extended and debt held outside the banking system. This includes sovereign and provincial debt, household consumer, mortgage and school loan debt, and corporate debt.

US dollar leverage, when calculated by formal debt obligations versus base money, stands at over 15:1. (Even if we were to use formal debt obligations over deposits, leverage would still be about 5:1.) This leverage level gets closer to capturing the practical burden of outstanding debt. The burden comes in the form of debt service and eventual repayment.

To be clear, there is no need to repay debt as long as central banks have unlimited balance sheets; they can legally purchase all outstanding debt denominated in the currency they issue. In fact, throughout this long leveraging phase of the current super-leveraging cycle, aggregate debt has never been reduced, and indeed is growing at a parabolic pace as the cycle ages. To make matters even more threatening, there are obligations that are not captured in Graph 5 - off-balance sheet obligations such as unfunded entitlement obligations that analysts suggest place total dollar-denominated debt at well over $100 trillion (current dollars). This would bring the total US economic leverage ratio to over 25:1.

Finally, as it relates to defining the level of systemic leverage, debt is almost always issued at interest, meaning that for every dollar of debt issued it takes more money to repay it, depending upon its duration and the interest rate attached to it. The magnitude of all this dollar-denominated debt is not out of context with debt denominated in other currencies. As the graphs clearly illustrate, there is nowhere near enough money – formal or otherwise – to cover leverage levels across bank and non-bank balance sheets.

The bottom line is that credit – which is ultimately a claim on base money (not assets that collateralize debt) – is the mother of all bubbles, perhaps the biggest worldwide bubble ever. This is truly not hyperbole. The 17th century tulip craze in Holland, for example, in which 12 acres of land was exchanged for one Semper Augustus bulb, ultimately led to a crash in the price of assets and a debasement of guilders. Other currencies, however, were not nearly as affected. Today, all currencies are leveraged and ultimately tied only to the US dollar, the hegemonic global currency. As with all bubbles, the current currency bubble can only be remedied by either debt deflation, currency inflation, or both.

So then what should investors expect? Does there have to be an event that triggers a decline in confidence of global currencies or the dollar? We do not think so. At some point, money needed to service and repay debt should crowd out money available to pay for needs and wants. Where is that point?

There is no way to know for sure, however, the graph below shows worldwide credit in relation to private sector output through 2015. The continually rising ratio broke downward in 2000 when it exceeded 130% and again in 2006 and 2009 when it approached 130%. We assume the ratio is above that level now, especially since private sectors in the US, China, Europe and other economies continue to add debt amid slowing output growth rates. The idea that debt-funded government spending will support overall output growth is the latest hope among the growth-at-all-costs crowd. As it relates to this discussion, such a pursuit would be pointless if it does not extinguish private sector debt.

Finally, the graph below shows “what’s different this time”. In 1971, banks were able to begin expanding their balance sheets in relation to their economies once the global monetary system went off a fixed-rate of exchange to gold and political economists setting central bank credit policies were able to keep a perpetually accommodative lending environment.

The bottom line is that in the current global monetary regime money is a political concept without boundaries. (What could possibly go wrong…?)

Aging Demographics

In 1981, when the global economy was just about to embark on the leveraging phase of the super-leverage cycle, the average baby boomer in the US was 27 years-old. Today, the average baby boomer is 60. The same demographic shift holds true, more or less, across the largest advanced and advancing economies. In 1981, household debt levels were also much lower, and so household balance sheet were leverage-able. Interest rates off which bank loans and mortgages are priced were around 15%. Total mortgage debt was less than $1 trillion in the US.

As interest rates began to decline in 1982, young, aspirational baby boomers began to borrow to buy homes (which also allowed them to invest in risk assets). The technology-led growth in the mortgage backed securities market and the secular decline in interest rates further allowed them to continually refinance their debt and upsize their homes. Home mortgages in the US peaked at about $10.7 trillion in 2008, and has since declined by about a $1 trillion over the last eight years (see Graph 8 below).

The demand for risk assets at current prices, including homes and equity, is declining rapidly among the largest holders of them. This trend should accelerate in the coming years as baby boomers across all large economies get older, re-imagine their aspirations, and reduce consumption. The critical point is that while it is possible that past and current consumption of older populations will be replaced by their children, it is not possible for parents to pass down their assets at current values. Why? Because those assets are encumbered with debt that must be either extinguished or assigned (and taxed) upon death. There will be a growing supply of risk assets relative to new borrowings that would fund purchases of them.

Finally, it is well-known that 2.1 children per woman is the neutral fertility rate at which the global population neither grows nor contracts. As Graph 9 shows, world fertility rates are right at this level and fertility rates of women in high income economies are currently below it. So, it seems unlikely that consumer demand for goods and services can be sustained at current prices. Asset values that depend on demand and output growth derived from population growth should become stressed.


World trade rose significantly following the opening of China and the Russian bloc. Trade began to moderate as infrastructure and costs of production in emerging economies began to mature. Trade is once again more economic, more a function of debt-driven supply feeding debt-driven demand.

Meanwhile, consumers in importing economies ran up debts and became less able to provide sufficient demand for exporters. The net effect has been declining trade volumes, which used to grow at double the rate of GDP growth. Now, global trade struggles to grow at all.

Trade data released for November 2016 popped higher unexpectedly. (Graph 13 above only runs through October 2016.) This suggests that the reversal of the significant decline in the price of oil from mid-2014 through 2015 might now be pushing trade volume higher. If so, increasing trade volume from more oil exports should not be considered beneficial, as higher oil prices provides a further economic headwind.

As trade channels matured, exporters managed the exchange value of their currencies lower to make their goods and services cheaper to consumers in importing economies. This made the dollar appear stronger.

A very long term graph of the dollar (below) puts everything in perspective and implies much, in our view. The story it tells is a global economy struggling to grow organically and a monetary exchange system struggling to survive.

The graph begins in 1973 when the current flexible exchange rate monetary system officially began. The new regime centered on the US dollar as the global hegemonic currency rather than the dollar’s convertibility to gold at a fixed exchange rate, which had been the Bretton Woods model since 1945. The dollar’s exchange rate vis-à-vis other global currencies fell from 1973 through 1978, most likely due to the need to increase the supply of dollars to satisfy global trade. The dollar then began a long march higher, not peaking until 1985. This dollar strength fed on itself, and was likely due in large part to high interest rates and increasing demand for US Treasuries, which had risen meaningfully in 1980, and US equities, which had begun what would become a thirty year bull market.

The early 1980s experience showed that managing economies and trade in a flexible exchange rate system could work. US policy makers would maintain the exchange value of the dollar in a reasonably narrow range vs. the currencies of its trade partners, and in return it would be able to greatly influence global pricing of goods and services and offer its enormous consumer base for world consumption. The US economy, meanwhile, would benefit from importing capital to its financial markets.

The dollar declined from 1985 to 1995, but not so much as to threaten the viability of the regime. During this period, the US ran up significant budget deficits, which reduced the dollar’s relative attractiveness. This deficit spending coincided with lower income taxes and domestic incentives to invest. Significant capital was formed in the US and around the free world. US and NATO armaments were expanded and stockpiled. The flexible exchange rate monetary system had been used to outspend and open formerly closed and belligerent cold war economies that were not part of the regime, like China and Russia.

The dollar then strengthened from 1995 through early 2002, peaking near its long-term mid-range. No doubt dollar strength was influenced greatly by the substantial increase in equity prices that attracted global capital. The dollar again began to decline as the US and its allies went to war.

The war on terror remains a very difficult thing to analyze, perhaps because it is ostensibly not driven by economics. Anything contrary to the narrative centering on religious zealotry is considered a conspiracy theory. We accept that, but will argue the source of radical Islamic terror is economic just the same. There are two simple reasons for our skepticism.

First, economically content societies do not tend to produce broad religious fundamentalism that includes a culture of suicide. Second, an outright revolt from OPEC in the 1970s helped define the current finance-based monetary system. The system gave crude exporters the ability to exchange their natural resources for value in the form of a stable dollar and dollar- sterling- and then euro-denominated financial assets. Islamic societies abiding by Sharia law without natural resources to exchange were left out in the cold. The finance/leverage/inflation-based post-Bretton Woods monetary system impoverished them.

The dollar declined from 2002 to 2011 as America extended its deficit spending and the euro, sterling and gold provided reasonable alternative stores of value. It again found strength in 2011, and continues strong today. Why is the dollar’s exchange value vis-à-vis other currencies gaining now? We think it is more a function of other economies’ and currencies’ relative weakness. Simply, the prospects are dimmer for maintaining furt

Trump devaluation claims raise fears of global currency war

Posted: 01 Feb 2017 06:09 PM PST

By Shawn Donnan, Robin Harding, and Katie Martin
Financial Times, London
Wednesday, February 1, 2017

The Trump administration's willingness to break with tradition and comment about currency valuations has raised fears that the US might lead the world into a new round of currency wars, angering and unnerving allies.

Shinzo Abe, Japan's prime minister, complained on Wednesday after Mr Trump attacked China and Japan for "play[ing] the devaluation market."

In response, Mr Abe told the Japanese parliament: "The kind of criticism they are making of yen manipulation is incorrect."

The previous day Angela Merkel, Germany's chancellor, denied that Berlin was seeking to influence the valuation of the euro -- after a top Trump adviser in an interview with the Financial Times accused Berlin of exploiting a "grossly undervalued" euro.

The administration's comments were the latest sign of a dramatic departure from past practice that began during last year's campaign when Mr. Trump complained that a strong dollar was hurting U.S. companies. ...

... For the remainder of the report:


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Gold Price Closed at $1205.60 Down $3 or -0.25%

Posted: 01 Feb 2017 05:01 PM PST

1-Feb-17PriceChange% Change
Gold Price, $/oz1,205.60-3.00-0.25%
Silver Price, $/oz17.42-0.09-0.53%
Gold/Silver Ratio69.2080.1920.28%
Silver/Gold Ratio0.0144-0.0000-0.28%
S&P 5002,279.550.680.03%
Dow in GOLD $s323.911.300.40%
Dow in GOLD oz15.670.060.40%
Dow in SILVER oz1,084.447.230.67%
US Dollar Index99.48-0.93-0.93%
IMPORTANT NOTE: The following are wholesale, not retail, prices. To figure our retail selling price, multiply the "ask" price by 1.035. To figure our retail buying price, multiple the "bid" price by 0.97. Lower commissions apply to larger orders, higher commissions to very small orders.
SPOT GOLD:1,208.90

American Eagle1.001,237.911,248.791,248.79
1/2 AE0.50622.07636.491,272.97
1/4 AE0.25317.07324.891,299.57
1/10 AE0.10126.83132.371,323.75
Aust. 100 corona0.981,175.481,184.481,208.41
British sovereign0.24286.71299.711,273.19
French 20 franc0.19225.70231.701,241.04
Maple Leaf1.001,218.901,232.901,232.90
1/2 Maple Leaf0.50695.12634.671,269.35
1/4 Maple Leaf0.25308.27323.381,293.52
1/10 Maple Leaf0.10128.14131.771,317.70
Mexican 50 peso1.211,444.331,455.331,207.04
.9999 bar1.001,208.901,220.901,220.90

VG+ Morgan $B4 19050.7723.0027.000.04
VG+ Peace dollar0.7717.0020.000.03
90% silver coin bags0.7212,348.0512,634.0517.67
US 40% silver 1/2s0.304,991.405,141.4017.43
100 oz .999 bar100.001,747.001,772.0017.72
10 oz .999 bar10.00177.20182.2018.22
1 oz .999 round1.0017.8218.1218.12
Am Eagle, 200 oz Min1.0019.0720.5720.57

Plat. Platypus1.001,011.301,041.301,041.30

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Silver Undervalued vs Gold as Dollar Jumps on US Jobs in Trump Rally Part 3

Posted: 01 Feb 2017 04:00 PM PST

Bullion Vault

Gold Seeker Closing Report: Gold and Silver End Slightly Lower

Posted: 01 Feb 2017 01:38 PM PST

Gold fell $13.90 to $1198.20 in midmorning New York trade before it bounced back higher into the close, but it still ended with a loss of 0.25%. Silver slipped to as low as $17.361 and ended with a loss of 0.11%.

5 Confessions by Malachi Martin #NWO

Posted: 01 Feb 2017 01:00 PM PST

Why is there a giant reptilian in the Vatican? Former preist malachi martin, states the devil is in the vatican - #NWO The Financial Armageddon Economic Collapse Blog tracks trends and forecasts , futurists , visionaries , free investigative journalists , researchers ,...

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Trump – Yellen Showdown Postponed

Posted: 01 Feb 2017 12:51 PM PST

This post Trump – Yellen Showdown Postponed appeared first on Daily Reckoning.

"The Trump administration has clearly signaled that the day of the strong dollar is over," says Jim Rickards.

"The dollar tumbled on Tuesday," says the Reuters newswire, "headed for its worst start to a year in three decades." We noted yesterday how Team Trump was jawboning the dollar downward.

But what about the Federal Reserve? What about the epic showdown between the White House and the Fed that we were anticipating a month ago?

Trump has grand plans for tax cuts, infrastructure spending, defense spending, all manner of dollar-weakening "stimulus." But going into 2017, the Fed was talking about raising interest rates three times a year.

Fiscal loosening, monetary tightening: What happens to the dollar — and the economy — when Trump mashes the accelerator while Janet Yellen slams the brakes?

As it happens, the Fed is wrapping up two days of meetings today. It has issued a "policy statement" right around the time this is posted. Almost no one anticipates a rate increase today; traders will instead try to read between the lines to divine the Fed's intentions for its March 15 meeting and beyond.

But they're wasting their breath. Jim says the outlines for the next few months are already coming into view… and the situation has changed from only a month ago. The Trump – Yellen showdown has been averted… for now.

"The dollar may get one last boost from a Fed rate hike in March, but after that, even the Fed will acknowledge that they got it wrong again and start another easing cycle," Jim tells us.

The Fed has been lurching back and forth between tightening and easing for nearly four years now — ever since Yellen's predecessor Ben Bernanke dropped a bombshell by telling Congress the Fed was looking to "taper" its $85 billion a month in bond purchases.

Just in the last two years, we've been treated to the following fits and starts…

  • Tightening, March 2015: The Fed drops the word "patient" from its language describing how soon it will raise the fed funds rate from near zero
  • Easing, September 2015: The Fed is widely expected to pull the trigger on raising the rate, but punts instead because the economy seems too weak
  • Tightening, December 2015: A mere three months on, the Fed goes through with a rate increase and promises up to four more in 2016
  • Easing, March 2016: Again only three months on, those plans for four increases in 2016 are dialed back to two, again because the economy appears too weak
  • Tightening: December 2016: The Fed finally pulls the trigger on what turns out to be its one and only increase in 2016.

It's at this moment we come back to something Jim told me during a visit to our Baltimore offices on a spring day in 2014: "Don't ever think for a minute that the central bankers know what they're doing." Heh…

And so the Fed is setting up to lurch back to easing — even if it won't admit that this afternoon.

Why? "U.S. growth continues to disappoint," says Jim. "Fourth-quarter GDP came in at 1.9%, below expectations — the final chapter on the worst year of U.S. growth since 2011, when the economy was still healing from the global financial crisis. The strong dollar is a major head wind to growth, along with flat labor force participation and weak productivity growth."

And as we mentioned on Monday, the Fed's preferred measure of inflation remains stubbornly below the Fed's 2% target.

Jim's forecast: The Fed will follow through with a rate increase on March 15 — remember, the Fed needs to raise rates so it can lower them again during a crisis — but then the increases will be put on hold.

"The fundamental weakness of the U.S. economy combined with tighter monetary conditions and a strong dollar will induce some combination of job losses, deflation and a stock market correction that will cause the Fed to back off again and ease by the spring."

Result: "When you see a coordinated attack on the dollar from the White House, the Treasury and the Fed, you can bet the dollar will weaken. That means a higher dollar price for gold."

And it's not just a falling dollar that will put wind in gold's sails during 2017. There's also good old supply and demand.

"I've received firsthand reports of shortages of physical gold from refiners," Jim tells us.

"Vault operators have told me physical gold holders are taking gold out of banks and putting it into private vaults, where it is no longer available to prop up the paper market."

Recall that for every ounce of real gold out there, another 100 "paper" ounces trade in the futures markets. Commercial banks whose customers put real gold on deposit effectively borrow against that gold to leverage those paper trades. It's one way the powers that be manage to keep a lid on the price of gold. That's why the withdrawal of that gold from the banks is so significant.

Even the mining industry says it's running out of gold.

"Due to the price decline since 2011," Jim explains, "new mines are not opening, output from existing mines is declining, old mines are being shut in, capex is being cut and reserves are being reduced."

Add it all up and the reserves of the major gold mining companies have shrunk to their lowest level in a decade…

"We're heading for a crackup," says Jim, "where physical shortages will cause delivery failures and ignite panic buying of physical gold that even the paper market can't contain."

Kind regards,

Dave Gonigam
for The 5 Min. Forecast

The post Trump – Yellen Showdown Postponed appeared first on Daily Reckoning.

Where are Russia's vast gold reserves hidden?

Posted: 01 Feb 2017 11:08 AM PST

By Alexander Bratersky
Russia Beyond the Headlines
(Rossiyskaya Gazeta, Moscow)
Wednesday, February 1, 2017

The topic of gold reserves is increasingly discussed in the international media. Donald Trump, for example, suggested an audit of America's gold reserves to ascertain just how much the country truly has. The question of Germany's gold reserves, kept in the United States for decades, has begun to worry the German public, which begins to think it's necessary to return those reserves home. So it's no surprise that many Russians also wonder what's up with their country's gold reserves and where they're hidden.

Russia ranks sixth in the world in gold reserves, and the Russian Central Bank said they total 1,614.27 tons, which is 15 percent more than last year.

The Russian Central Bank is one of the world's leading gold buyers, and in February 2016 it purchased more than 10 tons of gold.

"When prices are low, governments increase gold reserves, and this often owes to traditions and historical reasons," said Anton Tabakh, an economist and professor at the Higher School of Economics. "In the reliability-liquidity-profitability triad, gold is marketable but prices greatly vary." ...

... For the remainder of the report:


K92 Mining Drills Multiple High-Grade Gold Intersections

Company Announcement
Friday, January 27, 2017

K92 Mining Inc. (TSXV–KNT) announces the latest results from the ongoing grade control drilling program at its high-grade Kainantu Gold Mine in Papua New Guinea. K92 is ramping up the Kainantu gold mine toward commercial production, with its longest continuous production run to date now commenced.

In September 2016 K92 began a campaign of close-spaced underground diamond drilling as part of a comprehensive grade-control strategy. The current grade-control drilling program is focused on the areas of Irumafimpa and is designed to bring a high degree of confidence to the production planning and scheduling. K92 plans to mine this area in the coming six months. The closed-space drilling pattern of approximately 15 metres by 15 meters has significantly increased the confidence in this sparsely drilled area, with most holes recording high-grade intersections. Approximately 80 percent of the holes completed to date have recorded multiple high-grade intersections indicating the presence of multiple parallel to sub parallel high-grade veins. ...

... For the remainder of the announcement:

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China and The Golden Rule

Posted: 01 Feb 2017 07:16 AM PST

We have been documenting China's insatiable appetite for gold for the past several years. When you realize how much gold China has acquired it puts gold in a completely different light. Gold is money and nothing else. It is used to create jewelry, however, this is nothing more than a centuries old tradition as a means to display and transport of wealth. If your wealth is wearable you can easily move around the region while freeing up space in the trunk or baggage for other items.

Bull Market Psychology

Posted: 01 Feb 2017 07:11 AM PST

Gold made a bear market bottom in 2015, a higher yearly cycle high and yearly cycle low in 2016, and has begun a new bull market. However, traders, following the 4 year bear market, find they cannot easily convert to the new bull market mentality.

Why Alternative Facts and Cashless Will Benefit Gold

Posted: 01 Feb 2017 06:59 AM PST

Why gold will benefit from the alternative fact of the cashless society Alternative facts prevail in the European Commission’s calls for cash controls Terrorism is blamed for the need to control cash Evidence shows criminals find alternative ways to finance activities Citizens continue to want and to use cash in day-to-day life Cashless society is being used to force through other ‘agendas’ Gold and silver will be used as savers are forced to hold assets outside of the financial system

Gold Resource Corporation Expands Arista Mine With Additional Switchback Step-Out Drill Intercepts Including 5 Meters of 3.98 g/t Gold

Posted: 01 Feb 2017 06:40 AM PST

Gold Resource Corporation ( NYSE MKT : GORO ) (the "Company") today announced the continued expansion of its Switchback vein system with additional step-out drill intercepts at the Aguila Project's Arista Mine. These new results, which mark the Company's farthest step-out drill hole to date, intercepted multiple veins including 5.01 meters of 3.98 grams per tonne (g/t) gold, and extends the Switchback system's total strike length to over 575 meters, a 275 meter expansion on strike since January 1, 2017.

The Alternative Fact of the Cashless Society

Posted: 01 Feb 2017 06:35 AM PST

Alternative facts prevail in the European Commission's calls for cash controls Terrorism is blamed for the need to control cash Evidence shows criminals find alternative ways to finance activities Citizens continue to want and to use cash in day-to-day life Cashless society is being used to force through other 'agendas' Gold and silver will be used as savers are forced to hold assets outside of the financial system

Gold Price Set For Very Bullish 2017, Trend Forecast

Posted: 01 Feb 2017 03:42 AM PST

I am very bullish on the gold price in 2017 and while the year has got off to a cracking start I believe we need to see a test of the recent low to lay a stronger foundation from which to launch even higher. Let's review the charts beginning with the long term picture.

Centamin dividend glitters in ‘bumper year’ for Egyptian gold miner

Posted: 01 Feb 2017 03:08 AM PST

This posting includes an audio/video/photo media file: Download Now

Breaking News And Best Of The Web

Posted: 01 Feb 2017 01:37 AM PST

US stocks turn volatile, gold and silver off recent highs. President Trump bans immigration from several countries, fires acting attorney general for refusing to enforce ban, names supreme court nominee. Marine Le Pen catches another break.   Best Of The Web The persuasion filter and immigration – Dilbert Liberals, not Trump, to blame for backlash […]

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Bonterra Hits Big Gold Numbers

Posted: 01 Feb 2017 12:00 AM PST

Bob Moriarty of 321 Gold provides an update on BonTerra Resources after the release of high-grade drill results.

Jobs Report Week: Gold Stays Firm

Posted: 31 Jan 2017 10:12 AM PST

Graceland Update

Gold Price is One Tweet Away from New Highs

Posted: 31 Jan 2017 07:18 AM PST

President Trump's recent comments on Mexico and building a wall should give gold investors optimism, says Daniel Ameduri, cofounder of Future Money Trends. President Trump's recent open display on Twitter regarding Mexico and the wall should give gold investors a surge of optimism. Over the next year, it's highly likely that we will see trade wars erupt with the U.S. and several of its major trading partners, like Mexico, China and the EU.

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