Gold’s Irresistible Forces in 2017
- Gold should have fallen last week. Here’s why it rose $30 instead
- Mining experts agree: Global gold production peaking now, supply can only tighten
- New source of gold demand could use up half of global production in a year
- G-20 fallout: Is it all downhill from here for the dollar?
- Reliable indicator says economy now strongest in two years
- Outsmarting the bureaucrats… global demand for U.S. stocks… taking issue with our “Immortal Trump” sales message… and more!
Gold begins the new week a solid $30 higher than it began last week.
Under ordinary circumstances, the Federal Reserve’s move to raise interest rates last Wednesday would’ve put the gold price on its heels.
But circumstances are not ordinary now, says Jim Rickards: “There is more driving the gold price right now than central bank policy and U.S. interest rates.
“Fundamental supply and demand has entered the picture, with physical shortages being reported from Zurich to Shanghai. As well as strong demand coming from central banks in China, Russia, Central Asia and elsewhere. Individual demand for physical gold remains high in China and India. There’s just not enough physical gold to go around.
“Normally, an environment like this would bring out the ‘paper gold’ crowd hitting gold from the short side in the futures markets. Yet leveraged manipulation by shorts is a dangerous game when there is a genuine shortage of physical gold to cover open positions. The physical gold market is calling the paper gold market’s bluff.”
“In the not-too-distant future, we’ll see a serious supply crunch hit home with gold,” adds Byron King, our resident geologist who does the company-level research for Rickards’ Gold Speculator.
Byron was in Toronto earlier this month for the annual convention of PDAC, the Prospectors & Developers Association of Canada. It’s the premier mining conference in the Western Hemisphere. “I was fortunate to sit in on a talk by Ryan Cochrane, from the consulting group Wood Mackenzie. He compared trends between the world’s major gold and copper mines.”
That’s an intriguing comparison to make: “In essence,” says Byron, “copper mines tend to have a life of many decades, while most pure-play gold mines will last 10–15 years. Plus, he highlighted the recently accelerating decline in ore grade in the gold sector (60% decline in grade) versus in copper (30% decline).
“Ryan predicts that gold mine supply is likely to ‘peak this year and decline thereafter.’ Not too far out, he believes that gold supply will move into ‘sharp mine supply contraction.’”
The chart we shared last year might’ve been off by a year or two… but there’s an undeniable two-decade lag between trends in gold discovery and trends in gold production. More and more industry experts say there’s nowhere to go from here but down…
Sure enough, production from the biggest gold miners fell last year.
More from Byron: “According to Frik Els of Mining.com, the world’s top 10 publicly traded mining firms delivered not quite 29.5 million ounces in 2016, a 4% decrease from 2015. Essentially, it’s 30% of the world’s cumulative global gold output last year of 100 million ounces.
“Looking ahead, the gold mining industry remains challenged by the legacy of fewer discoveries, meaning that you can’t mine what you haven’t discovered. That plus lower ore grades, tight economics and quirky legal and regulatory environments in many countries.”
Meanwhile as supply shrinks, gold demand is about to surge among the globe’s 1.6 billion Muslims.
Last November we told you about a plan in the works for gold investment guidelines that would comply with Sharia — the religious law governing members of the Islamic faith. At issue is that under Sharia, gold jewelry and gold currency are permissible… but to buy gold hoping that its price in paper currency will rise is more of a gray area.
Now the Accounting and Auditing Organization for Islamic Financial Institutions has issued those guidelines. “Investment demand for gold among Muslims could surge by several hundred tons, amounting to tens of billions of dollars,” writes Stefan Gleason at MoneyMetals.
Don’t underestimate the significance, Byron tells us: “For example, by 2020, Shariah-compliant investment assets owned by Muslims are estimated to grow to about $6.5 trillion, according to the Islamic Financial Services Board. If Islamic clients devote a mere 1% portfolio allocation to gold, that translates to $65 billion of new demand, or more than half of annual global gold output.”
New demand… tight supply… It’s in this environment that a tiny gold miner is about to “flip the switch” on a gold hoard so rich that it’s 15 times the concentration of the average gold mine. Mining plays with similar characteristics have generated gains of 5,379%. The mine is located in a region Byron knows very well. He and Jim Rickards are convinced something big could happen any moment now.
Which is why this presentation will come offline tonight at midnight. Give it a look right now, while you still can.
The major U.S. stock indexes can scarcely trouble themselves to react to confirmation that the FBI is looking into “links” between the Trump campaign and Russia.
As we check our screens, the Dow is slightly in the green, while the Nasdaq is inching into record territory at 5,911.
Nor do there appear to be any stock market tremors after a minor dust-up at the G-20 conference in Baden-Baden, Germany — the one we mentioned while it was in progress on Friday.
The “communique” issued by the finance ministers after the meeting differs from the one last year because U.S. Treasury Secretary Steve Mnuchin insisted on dropping language disavowing protectionist trade policy.
But don’t discount the longer-term effects of that change on the dollar, counsels EverBank’s Chuck Butler in today’s Daily Pfennig.
“The currency markets have a long history of taking currencies from countries that implement protectionism measures to the woodshed,” Chuck writes. “And they don’t let them out for a long time, either!
“We would have to go back to the early 2000s, when the new president, Bush, implemented tariffs on Japanese steel. When I read that news the morning it was announced, I immediately got on my soapbox and shouted to the world that a weak dollar trend was coming. And so it did. So right now this is just talk of protectionism measures, but you can feel the foundation of the strong dollar trend shaking.”
The lone economic indicator of the day has taken an interesting, maybe even meaningful, turn upward.
The Chicago Fed National Activity Index is a composite of 85 economic indicators — noteworthy because it’s called nearly every recession of the last five decades.
But this morning, the number indicates we’re nowhere near recession. Indeed, the index’s three-month average has moved substantially above zero for the first time in two years. That means for the last three months the economy’s been growing faster than the average over the last 50 years…
Both employment and manufacturing contributed to the boost.
How to outsmart bureaucrats gone wild: About 10 days ago, we told you the University of California, Berkeley was about to pull 20,000 free online lectures from the web and make them available only to university students, faculty and staff.
The problem was the lectures were not closed-captioned; thus, the U.S. Justice Department determined that posting them for all to see violated the Americans With Disabilities Act. Pulling them offline was easier than going to the trouble of adding captions.
Enter a nascent website called LBRY…
“LBRY is the first truly free and censorship-resistant way to exchange content,” says the page where the lectures will soon be hosted. “The LBRY protocol provides a completely decentralized network for discovering, distributing and publishing all types of content and information, from books to movies.”
By using the blockchain — a topic we explored in depth earlier this month — LBRY makes sure the content will stay public forever.
No, we don’t understand all the technical details either. But if it end-runs the bureaucrats — legally, at that! — we’re all for it.
“As you frequently note, the U.S. stock market seems to be defying gravity by many standard valuation metrics,” begins today’s mailbag.
“I think it is critical to try to find some reasons why, both to know if this is a trend that will continue and that we shouldn’t sit out of and to know when a top finally appears to have been reached. I have been thinking about one possibility, which I’m sure has been touched on from time to time but which I think warrants careful attention.
“I frequently hear about the strong U.S. dollar. Might dollar appreciation be drawing large volumes of foreign investment into the U.S. stock markets? Foreign investors might not expect particularly great performance from the U.S. companies underlying these investments, but if the value of the currency these investments are denominated in, the dollar, continues to rise against their home currencies, the investments can still be quite profitable for them.
“Do your editors have their fingers on information about foreign inflows and outflows from the U.S. stock markets? Can they correlate these with changes in the value of the dollar?
“If some sort of broad correlations seem evident, it might be worthwhile to pursue the study further and see if the data can be disaggregated to specific countries (or regions with a common currency, notably the euro).
“One implication of these considerations might be that although the Federal Reserve’s attempts to raise U.S. interest rates would, all things being equal, seem to depress stocks based on simple discounted cash flow valuation models, the attempts might also continue to strengthen the dollar, potentially pushing stocks up due to foreign cash inflows. On the other hand, there could be some chicken-and-egg issues here. Perhaps foreign investment in U.S. stocks could be strong for other reasons (like perceptions of the U.S. as a ‘safe haven’), and these inflows would, in turn, strengthen the dollar. Having a good cause-and-effect theory would be ideal, but simple correlation could provide meaningful signals — as long as we’re comfortable that some causal relationship does exist and that the correlation is not simply spurious.
“I don’t have the wherewithal to do these studies myself, but I think they might be of great interest to your readers and to subscribers to your various services.”
The 5: Great questions. We’ll look into them. And thanks for reminding us again we have some of the smartest readers we’ll find anywhere.
Well, for the most part. Which brings us to a reader’s objections against a sales message of ours that got some buzz over the weekend. He has three issues with us, which he enumerated as a), b) and 3). Heh…
- “I deeply resent your comments on Obama and Obamacare. Obamacare was by no means a great failure. Yours is the failure — for failing to understand how greater the good it provided to this nation. I am Who’s Who in America and Who’s Who in the World and one of ‘2000 Outstanding Intellectuals of the 21st Century’ (IBC) so I do not really suffer fools gladly.
b) “The present occupant of the White House is a totally immoral and incompetent man who knows almost nothing about anything. That you should even consider the possibility that this alleged cure for cancer would, if successful, then elevate him to the rank of ‘the greatest president in American history’ tells me more about your judgment than I can ever trust.
3) “You are focused only on money and profits, just like him. The greatness of a nation does not just come from cancer cures; to think so is to radicalize the definition of greatness. No wonder you have his photo plastered on your message about this alleged cure.
“It will take a hell of a lot more than a great cancer cure (if that turns out to be the case) to elevate this guy to the ranks you so loftily and carelessly want him to reach. There is infinitely more to a culture than a cancer cure, and he is failing miserably at almost everything he has tried in his lamentable presidency.”
The 5: We love the logical fallacy of appeal to authority. But we really love it when the authority is same person making the appeal!
But to address your substantive point: We don’t take partisan sides around here, as anyone who’s been reading us for a while can attest. We do, however, recognize that political leaders often get credit for things when they don’t deserve it. We think it entirely plausible — even likely — that Trump will get credit for this “gold cancer cure” even if he has nothing to do with it himself.
Besides, can’t you sort of hear his voice reading our headline aloud? “The No. 1 POTUS of all time…”
Actually, I hear the voice of Frank Caliendo doing his Trump impression, but that’s just me…
Happy Vernal Equinox,
The 5 Min. Forecast
P.S. Absolute last chance: The Jim Rickards presentation on a fabulously rich gold deposit he’s called “God’s Gold” comes offline tonight at midnight. Here’s your final opportunity to look.