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Gold & Precious Metals

Gold-Silver Ratio: Debunking The Myth

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Posted by Kelsey Williams - Kelsey's Gold Facts

on Friday, 16 June 2017 06:19

A 16-to-1 gold to silver ratio has been the Holy Grail of some silver investors since the mid-sixties.

Unfortunately, fifty years later, it is a quest that continues unabated without success.

In fact, there is evidence that contradicts and widens the chasm that separates wishful thinking from reality.

In the Mint Act of 1792, the U.S. government arbitrarily chose a 16 to 1 ratio of gold prices to silver prices. The actual prices were set at $20.67 per ounce for gold; and $1.29 per ounce for silver.

Prior to 1792 the U.S. did not strike its own coinage. That changed with the establishment of the Philadelphia Mint, which was also authorized by the Mint Act of 1792.

The official price of silver and the market value of silver remained relatively close until the late 1800s.

In 1859, prospectors discovered the Comstock Lode in Virginia City, Nevada. It was the largest silver vein in the world.

Combined with silver already in circulation, this additional supply “flooded the market” and forced the value of silver well below its official price of $1.29 per ounce. This is another classic, historical example of inflation in a pure sense – a devaluation of the money supply. The silver in a silver dollar was now worth much less than the official price of $1.29 per ounce. (Also see: Mansa Musa, Gold, And Inflation)

Congress responded promptly by passing the Coinage Act of 1873, ceasing all production of silver coinage in the U.S. Five years later it reversed itself by passing the Bland-Allison Act which restored silver as legal tender and required the U.S. Treasury to buy large quantities of it. Silver producers were awash with the metal and it was hoped that this new agreement would create more jobs within the mining industry.

A series of other legislative efforts either repealed earlier bills, and/or furthered the requirements of the U.S. Treasury to purchase silver to support the market or to use in the production of silver coinage.

For the next seventy years, the U.S. government ramped up its efforts to control the price of silver. It offered to buy silver at artificially high prices which in turn over-stimulated production of the white metal. This was pleasing to voters in silver mining states. But in the process, the U.S. government acquired a stockpile of over two billion ounces of unneeded silver.

All the while, the market price for silver continued to decline. In 1887, the average annual price of silver dropped below $1.00 and by 1932, at the depths of the Depression, reached a low of $.25 per ounce.

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Gold & Precious Metals

One Massive, Global, Serial Bubble

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Posted by Michael Balllanger for The Gold Report

on Thursday, 15 June 2017 07:16

Precious metals expert Michael Ballanger reflects on the state of the stock and bond markets and their effect on the gold market.

Ballanger6-13-17cover

 

These missives that I construct periodically usually have as their genesis a "Eureka!" moment while reading a research piece or a written commentary from one of the thousands of self-styled market authorities or if I have the random luck of catching an interview on Bloomberg or (UGH!) CNBC. During a normal week, I will text myself a quick note or leave myself a voice note when and if an idea comes to mind so when I am travelling, it is usually preferable that I be close to a decent WiFi signal in order for my ramblings to be relevant. 

During the past two weeks, I found myself swept up in a wondrous journey to the land of my ancestors and rather than bore you all with the bark and rings of my Family Tree, suffice it to say that walking through castles built in the 10th century that are still intact and more magnificent today than they were when constructed is, to put it mildly, awe-inspiring. Just walking up the side of the hill in front of the walls gives one a sense of just how dangerous it was to live and how important was the need for protection and strategic advantage. That is relevant to the topic of valuations in today's bond and stock markets as there has never been a greater need for that very protection and strategic advantage, so by merely looking at Rock of Cashel Castle, you get a sense of that urgency through the imagery.



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Gold & Precious Metals

All Golden Eyes On The Fed

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Posted by Stewart Thomson - Graceland Updatesn - Graceland Updates

on Wednesday, 14 June 2017 08:58

1.   The next US central bank interest rate announcement is scheduled for tomorrow (Ed. Today 06/14/17) afternoon.  Gold and related assets are now in “pause mode”against most fiat currencies.

2.   Gold has a rough general tendency to decline ahead of a rate hike, and then rally strongly after a hike is announced.

3.   That has happened in textbook fashion with the first three rate hikes in the current hiking cycle.  

4.   There’s no guarantee that it happens again this time, but if it does gold should take out the weekly chart downtrend line that has the attention of institutional technical analysts.

5.   Please click here now. Double-click to enlarge this fabulous monthly gold chart.



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Gold & Precious Metals

SWOT Analysis: Gold’s Strength Is Justified Says UBS

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Posted by Frank Holmes - US Global Investors

on Tuesday, 13 June 2017 07:24

Strengths

 

  • The best performing precious metal for the week was palladium, up 5.10 percent.  Grant Sporre, an analyst at Deutsche Bank, noted there is a genuine physical tightness in the market, but the spike had all the hallmarks of someone being caught short and being squeezed.  Bullionvault’s Gold Investor Index, which measures the balance of client buyers against sellers, rose the most in two years reaching a high of 55.3 in May versus 52.1 in April, reports Bloomberg. In India, gold imports jumped fourfold in May to 126 metric tons from 31.5 metric tons in the same month last year. In a report by the World Gold Council, consumption in India could climb dramatically this year as a “simple” nationwide Goods  Services Tax will boost the economy, making the gold industry more transparent to benefit buyers, reports Bloomberg.
  • Amid unease over a congressional hearing on possible links between Russia and the Trump campaign, holdings in SPDR Gold Shares (the world’s largest gold-backed ETF) climbed to the highest this year on the back of safe-haven demand, reports Bloomberg. In the two weeks through the end of May, hedge funds and other large speculators boosted their bullish bets on the precious metal by 37 percent, notes another Bloomberg article, the most since 2007 according to government data.
  • Japanese investors sold a record amount of U.S. debt in April, reports Bloomberg. “Political turmoil in Washington and uncertainty about French elections pushed down Treasury yields, diminishing their attractiveness,” the article continues. Japanese investors cut holdings of U.S. debt by $33.2 billion in April, the most in data going back to 2005, according to a Ministry of Finance balance-of-payments report.

 

Weaknesses

 

  • The worst performing precious metal for the week was silver, off 1.90 percent and largely in sync with the fall in gold.  Data from the People’s Bank of China show that the Asian nation kept its gold reserves unchanged for the fifth straight month. Holdings stand at 59.24 million ounces for the end of May, the same level since the end of October. UBS commented on the moves in a report this week. “We maintain our base case that purchases should resume up ahead as overall official reserves stabilize, given that the diversification argument remains intact,” writes Joni Teves at UBS. “Nevertheless, we acknowledge growing risks to this view considering that the pause in buying has gone on longer than we initially expected.”
  • According to an emailed statement from the Athens-based Energy Ministry, the Greek government will seek arbitration against Hellas Gold to “ensure contractual obligations of the company,” reports Bloomberg. The compliance measures are in reference to Kassandra mines in northern Greece. On the flip side of things, Eldorado Gold says is hasn’t been notified of the Greek arbitration, and says it operates in accordance with all applicable laws and regulations in jurisdictions where it conducts business.
  • Employees at Freeport McMoRan’s Grasberg mine in Indonesia who stopped showing up for work in mid-April (totaling 4,000 employees and contractors), are in the process of being replaced, reports Bloomberg. Freeport CFO Kathleen Quirk said in a presentation in Chicago that all 4,000 are deemed to have resigned. The company’s top priority for the remainder of 2017 is getting a long-term extension to operating rights in Indonesia.

 

Opportunities

 

  • A rush to haven assets has led to two firms saying they plan to open vaults in Europe capable of holding more than 100 million euros in gold, reports Bloomberg. This would offer customers lower costs that ETPs as well as protection from rising prices. “Inflation is a key concern for many of our clients,” said Ross Norman, CEO of Sharps Pixley. In a related note, China (the world’s biggest gold market) could boost its imports through Hong Kong  by about half this year, as investors seek to protect their wealth from currency risks, reports Bloomberg. In fact, China’s gold imports are already heading higher in 2017. A slowing property market and volatile stocks also add to the safe-haven allure, according to the Chinese Gold & Silver Exchange Society.

 

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Gold & Precious Metals

Why the World’s Billionaire Investors Buy Precious Metals

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Posted by Visual Capitalist

on Tuesday, 13 June 2017 07:00

billionaires-precious-metals

Why are these billionaires buying precious metals? 

Their cited reasons can basically be summed up with six categories: wealth preservation, store of value, inflation hedge, portfolio diversification, future upside, and investment fundamentals.

What Billionaire Investors are Doing

1. Lord Jacob Rothschild
In late summer 2016, Rothschild announced changes to the RIT Partners portfolio because he was worried about very low interest rates, negative yields, and quantitative easing, saying they are part of the “greatest monetary experiment in monetary policy in the history of the world”.

His solution? Buy gold to help preserve wealth, and as a store of value for the future.

2. David Einhorn
Einhorn has a similar assessment. He believes that monetary policy is becoming increasingly adventurous, and that this – along with the policies of the Trump administration – will eventually lead to large amounts of inflation. 

In February 2017, he shorted sovereigns, and bought gold. 

3. Ray Dalio
Ray Dalio is the founder of the world’s top hedge fund, Bridgewater Associates, but he’s also no stranger to gold. 

If you don’t own gold, you know neither history nor economics.

– Ray Dalio, Bridgewater Associates

More recently, in 2016, Dalio is quoted as telling investors to own a well-diversified portfolio that is 5-10% gold.

4. Stanley Druckenmiller
Druckenmiller, some people argue, is the best money manager of all time. 

Lately, he’s placed his bets on gold as well, but for different reasons than the above managers. Druckenmiller has always placed big trades with lots of conviction, and in February 2017 he put his money in gold because “no country wants its currency to strengthen”.



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