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Gold & Precious Metals

Great Rotation and Gold

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Posted by Arkadiusz Sieron

on Friday, 20 January 2017 07:23

The performance of gold in 2017 depends largely on whether the Trump’s presidency will lead to lasting shift in the markets. What changes do we mean? Some analysts mention the reflation, others point out the ‘risk on’ sentiment and the ‘great rotation’ out of bonds and into stocks. Ray Dalio, the founder and chairman of Bridgewater, claims that the Trump’s victory was a turning point ending the period characterized by increasing globalization, free trade, and global connectedness; relatively innocuous fiscal policies; sluggishGDP growth, low inflation, and falling bond yields. The new period is believed to be characterized more by decreasing globalization, free trade, and global connectedness; aggressively stimulative fiscal policies; increased economic growth, higher inflation, and rising bond yields.

Indeed, the U.S. Treasury yields, stock prices and inflation expectations have increased since the U.S. presidential election, which may really signal that we had already made the secular low in bond prices and inflation. We do not argue with that. The million-dollar question is whether these changes will be permanent, or, in other words, whether the expectations of Trump’s pro-growth policies are realistic.

You see, the whole reasoning is based on three premises. First, the new president will inaugurate a heavy schedule of fiscal spending. Second, this fiscal stimulus will significantly contribute to the economic growth and force the Fed to accelerate its tightening cycle to prevent the economy from overheating. Third, the tax cuts and boosted government spending will lead to higher inflation and, thus, higher long-term interest rates. Fourth, Trump will trigger a new ‘Reagan revolution’.

However, there are serious problems with these assumptions. First, Trump’s proposals would take a lot of time and political negotiation to be implemented and it would take even more time to influence the U.S. corporations’ profits. If they are introduced at all, because Republicans may actually not support higher fiscal deficits. Similarly, infrastructure projects have never been high on the Republican’s agenda. Actually, Trump did not say anything about more government spending. Instead, he proposed tax incentives for private companies to invest in infrastructure. Second, assuming that the U.S. economy is close to full employment (as the Fed argues), the increased government spending (if it happens and if it is funded by direct or indirect money printing) may only increase inflation instead of accelerating real economic growth (by the way, government projects are often ineffective). Third, it is not clear how the mere redistribution of funds from the private sector to the government or vice versa should increase inflation. However, assuming that it will, the widely expected higher inflation would increase nominal interest rates, but not real interest rates, which are crucial for the gold market. Fourth, the macroeconomic situation is now completely different than under Reagan when interest rates and inflation were much higher, while the public debt was relatively low. Therefore, Reagan had fiscal room to increase indebtedness and had a major tailwind in the form of potentially lower interest rates, in contrast to Trump who will face rising interest rates and an already high debt-to-GDP ratio, as one can see in the chart below.

Chart 1: The U.S. public debt-to-GDP ratio (green line, left axis, in %) and the 10-year Treasury yield (red line, right axis, in %) from 1980 to 2016.

1-public-debt-to-gdp-interest-rates



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Gold & Precious Metals

BIG MOVEMENT AHEAD IN THE SILVER MARKET… Serious Trouble In The Paper Markets

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Posted by Steve St. Angelo - SRSrocco Report

on Wednesday, 18 January 2017 07:39

The Silver Market will experience a significant trend change in the future due the unraveling of the paper markets.  Already we are witnessing a lot of political turmoil and havoc as President-elect Donald Trump gets ready to take over the White House in the next few days.

It’s also logical to assume the policy changes President-elect Trump wants to make will cause serious ramifications to the highly leveraged debt-based fiat monetary system… whether he realizes it or not.

Craig over at TFMetalsReport.com recently interviewed Paul Myclhresstabout the huge problem the Chinese government is dealing with as they liquidate Dollars to prop up their banking and economic system.  I highly recommend listening to that interview if you haven’t.

Thus, the continued liquidation of U.S. Dollar Reserves by China and other countries is probably the reason for the ongoing decline in International Reserves covered in Hugo Salinas Price’s newest article, The Further Decline In International Reserves:

PLATA-International-Reserves-JAN-13-2017

Over the past 29 months, the decline in Reserves took place at a rate of about $42 billion dollars a month. At this rate, by the end of 2017 International Reserves will likely decline by another $504 billion dollars, to $10.31 Trillion, which will increase the decline from the peak in 2014 to 14.31%.

As we can see from Hugo’s chart above, countries continue to liquidate their official reserves (mostly U.S. Dollar reserves) to prop up their financial and economic systems.  This is a very BAD SIGN… likely to get much worse in the future.

The Silver Market Will Experience A Huge Trend Change In The Future



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Gold & Precious Metals

Gold Stocks: A Fabulous Rally Accelerates

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Posted by Stewart Thomson - Graceland Updates

on Tuesday, 17 January 2017 08:20

2017jan17gold1

Jan 17, 2017

  1. Rate hikes tend to be good for gold, and even better for gold stocks. On that note, please  click here or on the above image now. Double-click to enlarge this hourly bars gold chart.
  2. Since Janet Yellen hiked rates in December, gold has rallied almost $90. That’s good news, but the great news is that the US central bank plans more rate hikes this year.
  3. Gold has a rough historical tendency to decline ahead of rate hikes, and rally strongly after they happen.
  4. Please  click here now. Double-click to enlarge this daily bars gold chart.
  5. The 14,7,7 Stochastics oscillator is beginning to show signs of “flat lining” in the overbought position. That tends to happen during very strong rallies.


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Gold & Precious Metals

Gold's Fundamental Outlook for 2017

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Posted by Arkadiusz Sieron

on Monday, 16 January 2017 11:51

Predicting, especially the future, is very difficult. Still, let's try to figure out what investors should expect from the gold market next year. For sure, in the long run, the price of gold will mainly depend on the U.S. dollar, the real interest rates, and the market uncertainty. How will these factors develop and affect the gold market?

Well, as one can see in the chart below, the level of investors' confidence has strengthened recently, as both the market volatility (represented by the CBOE Volatility Index) and credit spreads (illustrated by the BofA Merrill Lynch US High Yield Option-Adjusted Spread) have diminished after the U.S. presidential election. Hence, the risk aversion should be low for a while, and so the safe-haven demand for gold. Surely, if such risks as China's hard landing, the banking crisis in the Eurozone or the turmoil in the U.S. bond markets materialize, gold may again shine as a safe-haven asset. However, investors should remember that gold failed to rally on negative news in 2016, while stock markets flourished.

Chart 1: The CBOE Volatility Index (green line, left axis) and BofA Merrill Lynch US High Yield Option-Adjusted Spread (red line, right axis) in 2016.
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And what about the U.S. dollar and real interest rates? As the next chart shows, both indices have been rising since October, which corresponded to the plunge in gold prices.

Chart 2: The U.S. dollar index (green line, left scale, Trade Weighted Major U.S. Dollar Index) and the U.S. real interest rates (green line, left scale, yields on 5-year Treasury Inflation-Indexed Security) in 2016.



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Gold & Precious Metals

The bullish case for gold in 2017

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Posted by Frank Holmes - US Global Investors

on Thursday, 12 January 2017 08:18

You could say gold miners struck gold in 2016. The group, as measured by the NYSE Arca Gold Miners Index, finished the year up an amazing 55 percent, handily beating all other asset classes shown below.

screen shot 2017-01-11 at 100559 am

Miners were followed by commodities at 25 percent and silver at 15 percent. Gold finished up 8.6 percent, its first positive year since 2012, when it gained 7.1 percent. (Keep your eyes peeled for our forthcoming annual periodic table of commodity returns, one of our perennially popular pieces!)

I find it curious that many in the financial media continue to have a bias against gold, even though it generated better returns in 2016 than 10-year Treasuries and the U.S. dollar, which performed half as well. And when it was up as much as 28 percent in the summer, they still didn’t have anything positive to say, arguing it had gone up too much.

(Gold traders, on the other hand, have a much different opinion about the metal right now. A group of traders recently surveyed by Bloomberg revealed they are the most bullish on goldsince the end of 2015, soon before it rallied in its best first half of the year since 1974. The traders cited geopolitical concerns, both in the U.S. and Europe, as well as stronger demand in 2017.)

And isn’t it interesting that the same media figures who are biased against gold are usually the same ones who seem to have only disparaging things to say about Brexit and President-elect Donald Trump? What they don’t realize is that if Brexit and Trump succeed, so too do the U.K. and the U.S. Are they hoping Brexit and Trump will fail so they can be proved right?

The smart people realize personal politics must be put aside. Despite supporting Hillary Clinton during the primaries, Warren Buffett now says he is behind the president-elect—because he knows that if the U.S. does well, he does well too. Despite campaigning hard against Trump, President Barack Obama says now we should all be rooting for Trump, regardless of our politics.

Negative Real Rates Should Drive Gold Prices



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