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  • All I Want for Christmas Is a Rising Gold Price

    That’s the bounce, I thought to myself this morning not long after my alarm went off.

    Yep. That’s the first thing I do in the morning.

    Before I feed the kids and give the dog breakfast…

    Before I return any messages…

    Before I even turn a light on…

    I’m checking to see what happened with the fear metal overnight.

    And this morning, I got what I’ve been looking for.

    After eight weeks of heading south and small rallies being snuffed out, the move was made.

    It looks like there might be a Santa rally after all…

    Everyone, get set for the next leg up in the gold market.

    Santa rally for gold?

    The US dollar gold price jumped 1% overnight.

    And now the technical set up for gold suggests that there’s a move up coming.

    I know, I know. A 1% jump doesn’t sound like much.

    So let me put it this way.

    That 1% jump meant that gold moved US$16 (AU$23) per ounce higher overnight.

    Now, that’s not a massive jump.

    Yet, it’s what this price suggests that really matters.

    Overnight the yellow metal moved above US$1,470 (AU$2,148).

    Essentially putting the price above previous points of short-term resistance.

    In other words, for the past four weeks, the US dollar price of gold has struggled to stay above US$1,470.

    Moving beyond that is a good sign.

    US dollar gold price — next leg of the rally?

    Source: Goldprice.org

    Does that mean the Santa rally is about to find its way to gold?

    Possibly.

    Driving the move last night was the suggestion that President Trump could delay any sort of US–China trade deal until 2020.

    That thought rattled markets.

    That’s all the more important as without some sort of inked agreement, US tariffs on Chinese goods apply as of 15 December.

    Roughly 10 days from now.

    This sort of geopolitical instability could give the gold price rally legs to move back up above US$1,500 before the end of the year.

    Which really, is all I want for Christmas…

    The gold windows

    Nonetheless, what the gold price does in the next three weeks doesn’t really matter.

    While a short rally is good news, there’s much bigger things at work for gold…

    It’ll only be a matter of months before we start to see some serious moves in the price of gold.

    How do I know?

    Simple. It’s about looking at the past two gold bull markets to know which way things are going.

    Rather, I like to call it my gold windows theory.

    It isn’t some complex mathematical idea.

    Nope. It’s incredibly simple.

    The idea is that a gold bull market moves in three distinct stages: Currency devaluation, investor phase, and then, mania.

    However, in each of these phases, there are smaller steps along the way.

    And these smaller steps help you identify where the gold price is in each phase.

    I believe we are firmly in the investor phase of the gold windows.

    We can tell this by the type of money flowing into gold.

    In the past two gold windows, the investor phase has been identified by the creation of gold futures and then exchange traded funds based on the gold price.

    This time around, the investor phase has been created by central banks and institutional money buying gold.

    Does that mean the gold mania phase is next? Is the price of gold about to go parabolic?

    Not exactly.

    The investor phase can take a couple of years to play out.

    However, at this point, gold will still rally. But it’s likely it will make stealthy year-on-year gains. You know, climb up 15–25% each year for a couple more years.

    But, before we get to the final phase of the gold windows…one more pattern needs to reveal itself.

    And that showed up in the final days of 2018…

    Currencies predict a gold rally

    Believe it or not, the next clue to what’s happening for gold comes not from the gold market…but from currencies.

    Not gold in terms of US dollars…

    …but the value of gold in Turkish lira, Russian ruble, Indian rupiah, South African rand, Brazilian real, and the Mexican peso.

    All of these emerging market currencies have all-time highs when compared to gold.

    Sure, neither Russia nor Turkey is known for currency or political stability.

    Yet both of those currencies reflect a change in perception. Investors aren’t fleeing into more stable currencies like the euro or US dollar. Rather, they are moving into hard money such as gold.

    It’s a similar story for Brazil and South Africa.

    Remember, these are gold-producing countries.

    But those are just emerging markets, right?

    Emerging markets traditionally have weak currencies, so all-time highs in their gold price shouldn’t be a surprise.

    Well…what about Australia or Canada?

    Both are major, developed gold-mining economies.

    At least, that’s where the all-time highs in local currencies started.

    Gold in Aussie dollars is around $2,158. And the more the Aussie dollar falls, the higher the Aussie dollar gold price will rise.

    Meanwhile, the Canadian loonie (dollar) is only CA$75 (AU$82) from its all-time high as well.

    It’s no longer just emerging market currencies wreaking havoc against gold. Major developed economies are falling in value too.

    This isn’t a one-off.

    This pattern revealed itself in the 2000s gold bull market. And it’s the crucial stage in the ‘investor phase’ of the gold window.

    Remember, this currency weakness happened before we knew a financial crisis was going to land at our feet.

    Gold is doing exactly what it should be.

    Alerting us to stress in the financial system.

    For now, it’s showing up in emerging markets and commodity-producing nations.

    Now it’s starting to hit major global currencies.

    Gold reached an all-time high in the Japanese yen in September this year. As did the euro.

    The only currencies yet to hit new highs in the gold price?

    The Swiss Franc and the US dollar.

    The gold price rally is just beginning.

    And it’s giving you clues as to what’s about to happen next.

    Until next time,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    The post All I Want for Christmas Is a Rising Gold Price appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Central Banks Buy More Gold – Higher Gold Prices in the Near Future?

    Central banks moved from being net sellers to net buyers of gold in 2010. This big picture trend marks a sea change.

    Central banks had been dumping gold since the 1960s, in an effort to suppress the price and to get out of a noninterest-bearing asset, and into bonds and other assets that produce returns.

    Some central banks, like Canada, have reduced their gold reserves to near zero. Australia has 79 tonnes of gold.

    The shift to net buying by central banks was driven by Russia and China, who together have purchased almost 4,000 tonnes of gold since 2009.

    In effect, developing economies were acquiring gold while developed economies were still reducing gold reserves or just staying even.

    Bloomberg recently reported that Germany increased its gold reserves in September by about 2.6 metric tonnes.

    This is not a huge amount (Russia buys about 30 metric tonnes per month), but the fact that Germany increased its reserves at all is big news.

    This is the first increase by Germany in 21 years.

    Germany is the fourth-largest economy in the world, after the US, China, and Japan.

    Its purchase breaks the mould of only developing economies buying gold. Now the developed economies are jumping into the pool.

    There are several ways to interpret this move. Germany may simply want to diversify its holdings away from Treasuries and other sovereign debt.

    Germany may anticipate inflation in Europe and knows that gold is the best inflation hedge. Finally, Germany may see a global move away from US dollar hegemony and could be hedging its bets. None of these reasons are positive for the dollar.

    But they are all extremely bullish for gold.

    Netherlands central bank praises gold as ‘symbol of solidity

    The relationship between central banks and gold is turning on a dime.

    From 1950 to 1980, US gold reserves fell from 20,000 tonnes to 8,133 tonnes, a 60% decline.

    In the late 1990s, the UK sold more than half their gold reserves (at the lowest prices in over 20 years and the lowest prices since).

    In the early 2000s, Switzerland sold over 1,000 tonnes of gold reserves, which prompted a popular revolt against the sales and a referendum to prevent further reductions (the referendum failed, but the point was made and Switzerland has in fact ceased gold sales).

    Finally, the IMF sold 400 tonnes of gold in 2010; that was the last such sale by them.

    Over the course of this orchestrated gold dumping, central banks continually disparaged the role of gold as a monetary asset.

    In 2012, former Fed Chair Ben Bernanke told a class at George Washington University that gold standards had failed in the past and were not feasible today (which is untrue). Bernanke also described the US gold reserve as a mere ‘tradition’, with no role in the current monetary system.

    In 1999, a gold seller’s cartel was organised under the name of the Central Bank Gold Agreement (CBGA).

    The CBGA was intended to limit gold sales to 2,500 tonnes per year to prevent crashing the price too much. The CBGA was renewed at five-year intervals in 2004, 2009, and 2014.

    Suddenly, the CBGA was not renewed in 2019 and is now a dead letter.

    The reason? Beginning in 2010, central banks turned from being net sellers to net buyers of gold. Russia and China have more than tripled their gold reserves since 2009. Other buyers include Mexico, Vietnam, Iran, and Turkey.

    Now the enthusiasm of central banks for gold has spread to developed economies as well.

    The central bank of the Netherlands (DNB) has recently said that a ‘bar of gold always retains its value, crisis or no crisis. This creates a sense of security.’

    The Netherlands is also building a new military facility to protect their gold (the US gold supply is stored in West Point and Fort Knox, both US Army facilities).

    We are now in a new age when gold is regaining the respect of central banks and is slowly reclaiming its role as a monetary asset.

    This is significant in more ways than one. Above all, it implies much higher gold prices in the near future.

    All the best,

    Jim Rickards Signature

    Jim Rickards,
    Strategist, The Daily Reckoning Australia

    The post Central Banks Buy More Gold – Higher Gold Prices in the Near Future? appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Gold Isn’t Expensive, It’s Just Your Money Is Worthless

    Today I want to introduce you to someone you’ve never heard of.

    And trust me, he likes it that way. He’s done everything he can to protect his privacy.

    As he said to me when I sought him out, ‘Why do you want to talk to me? I have nothing to sell…no product. I’m simply a private investor.

    Nonetheless, this man I unearthed is highly sought after to speak at the biggest precious metals investment conferences around the world…

    …the sort of events an ordinary investor can’t buy a ticket to…

    The type of events he presents at, a person has to register.

    And after providing some information about yourself, the organisers will decide if you are a ‘qualified investor’.

    Only then will you be sent an invitation to BUY a ticket to the event.

    So if you ever manage to get to one of these precious metals events, you’re rubbing shoulders with private family money, wealthy individuals, and hedge fund managers.

    Institutional investors fly from all over the world to hear him speak at these exclusive conferences.

    Are you following me here?

    People managing vast amounts of wealth seek out his opinion. In turn, wealth managers and advisers can use this information to guide their clients’ investments.

    Why does this matter now?

    As you know, I spent all of last week introducing you to the BIG names I’ve recently interviewed as part of my new service, Rock Stock Insider.

    The sort of names that are famous for their expertise in the gold and commodities industry.

    However, a crucial part of my analysis involves following what BIG money does too.

    Where the institutional money flows…

    If you want to know what the elite are doing with their money…you need to know who they go to for advice.

    The expert you’ve never heard of

    Allow me to introduce you to a recent interviewee you’ve never heard of, Claude Bejet…the guy big money turns to.

    That’s it.

    No fancy title to follow his name (none), no long-winded description of which hedge fund he is managing (none)…or how many degrees he has (two, by the way).

    Claude — French born, now Swiss based — and I would talk twice more over Skype before we managed to sit down for our interview.

    Aside from being coveted on the speaking circuit, Claude works hard to maintain his anonymity on the internet. ‘That is not because I am a crank,’ he told me late one night over one of our first Skype calls. ‘I like privacy. It is simple.

    And trust me, it took some convincing to get Claude to speak to me.

    But there was a good reason why I wanted to share his thoughts with you.

    Because Claude has a unique way of looking at gold, and what it’s worth when compared to your dollars.

    Calculate the value this way

    With gold trading above US$1,460 per ounce, people often ask me if they’ve missed out on the chance to buy gold.

    Worse, when I tell them it’s closer to AU$2,150 in Australia per ounce…they back off.

    That’s too expensive they tell me. Yet, the gold price rally is just getting started.

    And again, this is something Claude and I cover in depth.

    You’ve just got to look at the ‘cost’ of the yellow metal differently.

    The traditional rule when it came to the value of gold, is that it should be roughly worth the same as all the balance sheets from the four major central banks: the Federal Reserve Bank (Fed), the Bank of England (BoE), Bank of Japan (BoJ), and the European Central Bank (ECB).

    In turn, that balance sheet ‘value’ should equal the worth of all the gold above ground.

    The theory goes that if the balance sheets of these four central banks expands (ie: they have more ‘assets’ under their control), then the price of gold should rise to reflect that.

    For a long time this was a fairly neat correlation…the only two times it broke was in 1938 and again in 2013, when the Fed said they were ending their quantitative easing program. And that correlation has not repaired itself.

    Which is why Claude says that people need to stop thinking that gold is expensive, and compare it to the value of your own central bank’s balance sheet.

    For example, the Federal Reserve Bank has expanded its balance sheet four times over since 2008. In other words, it’s grown the assets it manages from US$1 trillion in 2008, to almost US$4 trillion in 2019…

    The problem is by increasing the supply of money in the financial system, it erodes your purchasing money. Basically, your money buys less and less.

    So, according to Claude, it’s not that gold is expensive, it’s that the value of your money has been lost.

    Hence why Claude suggests looking at what your central bank has done with its balance sheet, and then work out the price of gold per ounce.

    Gold is set to get cheaper…

    One way to do that, is to look at how many times your central bank has expanded its balance and then divide the ounce of gold in your own currency by that. Let’s use the US dollar gold price as our first example.

    The Fed has expanded their balance sheet four times in the past decade.

    So you take the price of gold in US dollars (US$1,460) and divide that by four…and you come out with a figure around US$365 per ounce.

    Meaning, the gold price in US dollars looks relatively cheap based on central banking actions. Compare that to Australia, where the Reserve Bank of Australia has only increased the balance sheet two times in that time.

    That means an ounce of gold in Australia, is about $1,080 per ounce.

    What we learn by doing this, is seeing just how far the price of gold has disconnected from the expansion of major central banks’ balance sheets…

    Looked at another way, this suggests that the price of gold is actually much cheaper than the supply of fiat dollars in the financial system.

    Here’s why this perspective matters.

    As the financial crisis unravelled in the end of 2008, major central banks around the world started quantitative easing.

    Essentially flooding their local economy with money. Which is why the balance sheets of central banks got bigger.

    Australia however, didn’t start quantitative easing.

    Yet based on our Reserve Banks’ recent rate cuts — and the potential to cut more in 2020 — there is a chance that quantitative easing will happen here…

    And do you know what that means?

    That the RBA will expand our balance sheet.

    Which means that if we apply Claude’s theory…gold in Aussie dollars could be set to get much cheaper per ounce.

    Like I said, this is why it pays to talk to the folks that big money talks to.

    Until next time,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    The post Gold Isn’t Expensive, It’s Just Your Money Is Worthless appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • How the Biggest Trend for 2020 Was Predictable in 2018

    It was the sector that was left for dead…

    The value of the commodity fell so sharply, that for some companies it simply became too expensive to mine.

    Blueprints for new plants were shelved.

    Existing operations were shut.

    Firms gave up looking for it.

    Only idiots were sticking their money in this asset…

    2014 was a bad year

    The year was 2014.

    Bitcoin was still only a novelty for the indoorsy, gamer types. Nobody had heard of the ‘FAANGs’.

    The Fed had yet to begin raising interest rates. And that year, the best performing sectors of the US stock market were real estate and utilities stocks.

    Closer to home, our own Reserve Bank of Australia had set the cash rate to 2.50%.

    Iron ore prices fell 46% and oil continued to slide by almost half.

    So, it comes as no surprise that the Aussie dollar tumbled along with commodity prices. Falling 13% against the US dollar, from 89 US cents in January to 77 US cents by December that year.

    In spite of all of this, the S&P/ASX 200 somehow managed to end the year higher by 9.3%.

    And then there was gold.

    The 2011 gold bull market was over.

    In the three years since its US$1,900 peak, the yellow metal was down a whopping 35% by the end of 2014.

    Yet even the falling Aussie dollar couldn’t protect the Aussie dollar gold price.

    Once the metal reached AU$1,390, many gold miners in Australia closed up their gold operations.

    Smaller gold miners were rapidly becoming unprofitable. Even major gold mining companies struggled. Both Newcrest Mining and St Barbara saw almost no share price gains that year.

    The sector was dead.

    Surely only a fool would put their money in gold.

    What happened when you weren’t looking?

    Things all began to change in 2015.

    Oh don’t get me wrong, the yellow metal dropped another 10% in US dollar terms.

    However, while investors were dumping their gold stocks…other investors were moving into physical bullion.

    But those investors just happened to be central banks.

    Not major central banks either.

    The smaller ones…the sort of emerging markets no one pays any attention to.

    Central bank gold reserves — 2000–18

    Source: Palisade Research

    While most of the West wasn’t looking, China, India, Russia, Turkey, Mexico, and Kazakhstan slowly began to increase their physical gold position.

    Gold rush 2.0

    That brings us to today.

    The yellow metal is now back in a bull market.

    As I write it’s currently sitting around US$1,475 — give or take a buck or two.

    Central banks bought more gold in 2018 than ANY year since 1967.

    And in the first 10 months of 2019, central banks have bought 17 more tonnes than last year.1

    In other words, central banks are continuing to drive gold bullion purchases.

    But the bullion purchases are solely driven by China or Russia.

    This time, Poland, Egypt, and even Hungary were keen to publicly announce their decision to hold more physical bullion.

    For the first time, a small collection of central banks are on the front foot.

    They are preparing to protect their countries’ wealth with a robust physical gold holding.

    Once again though, their moves are invisible to the rest of the market.

    And as 2019 draws to a close, both Germany’s and the Netherlands’ central banks are making noise about the importance of gold to them.

    Are they sudden advocates of sound money?

    Or are they moving away from fiat currencies?

    Miner mergers were a sign

    As central banks gobble up gold at a rate never seen before, there’s another side to this gold rush.

    We got a glimpse of it at the end of 2018, when Newmont Mining made a bid for Goldcorp.

    Two months later, Canadian-based gold giant Barrick Gold made an offer for Randgold.

    Together those two became a US$24 billion gold behemoth with the largest gold reserve base in the world.

    Yet the ink had barely dried on that merger, and Barrick has come out swinging again. This time with a US$18 billion bid for Newmont.

    Newmont’s management have rejected the offer. Saying Barrick have undervalued the company.

    Whether there’s another takeover attempt next year doesn’t matter.

    Because coupled with central bank gold buying, this merger activity is a very big signal for what’s to come.

    The gold mining giants are fighting over each other’s assets.

    Essentially they are setting the stage for a mega melt-up in gold companies.

    That is, a rush to buy up one another to become the gold miner with the largest resource base.

    This excitement filters down through to the smaller and mid-cap stocks as well.

    Giving us a modern-day gold rush.

    Gold in the ground is getting harder and more expensive to find.

    For gold miners that want to expand and increase their share price, mergers and acquisitions are often the only way to go.

    In other words, to become bigger and leaner in the expensive world of digging for gold, companies need to buy each other out.

    This is the year gold mine assets become controlled by just a few.

    Of course, is all this analysis just hindsight?

    Nope. Today is mostly excerpts from an article I wrote in January this year.

    This gold activity is a trend I have been watching, monitoring, and recommending investors benefit from all year.

    Not only that, I have launched a brand-new service that is dedicated to showing investors how to be ahead of the curve.

    Until next time,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    1 ‘https://www.kitco.com/news/2019-12-04/Central-bank-gold-demand-has-surpassed-2018-s-50-year-record.html’

    The post How the Biggest Trend for 2020 Was Predictable in 2018 appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Welcome to the Biggest and Longest Bull Market Ever

    We are officially in the best and longest bull market in American stock market history. Depending on how you measure it…

    In fact, there are so many different conclusions on just how long the bull market has continued for, and how much it has gone up by, that I got dizzy looking at the distinctions between them.

    Here’s one version of events from Deutsche Bank.

    Bull and bear markets


    Port Phillip Publishing

    Source: Deutsche Bank

    [Click to open in a new window]

    CNBC has a completely different version of events for the boom since 2009, and those which came before:


    Port Phillip Publishing

    Source: Deutsche Bank

    [Click to open in a new window]

    Given the wild variety of analyses, even climate scientists would be embarrassed by the claims that finance researchers are making about exactly what the US stock market has achieved since 2009. Nobody can agree.

    But, for the sake of examining what happens next, let’s assume this really is the best and longest bull market in US stocks, however you choose to measure it.

    Because after the biggest and longest boom you get what?

    A quick glance at the first chart above and you’ll notice that longer and larger booms are usually followed by worse and longer lasting busts. It’s a bit like a hangover, really.

    Today, we dig into what this suggests will happen next. But first, why does it matter to Australians?

    So far, we’ve missed out on much of the US’ stock market boom. But would we miss out on the US’ bust too? Unlikely…

    That’s the biggest lesson Aussies should learn from 2008. The world is now so interconnected that our asset prices can’t escape.

    Which means it’s worth paying attention to what’s going on in the US.

    So, will the biggest bust follow on from the biggest boom?

    What bothers me about the proportional boom and bust narrative is just how bad things would get. After the biggest ever boom comes what exactly? What exactly is the biggest ever bust?

    Or has the world changed, as I’ve opined in the past? Are central bankers now omnipotent, omnipresent, and omniscient enough to save us?

    Well, they’re certainly very powerful. Recently, the largest three central banks began printing money in concert. A Deutsche Bank tracking list revealed literally every asset class they tracked rose in price year to date…

    So what I wanted to discuss in today’s Daily Reckoning is what the world would look like without a crash. What if booms don’t bust anymore? What happens instead?

    I’m struggling to describe what that world would look like. Economic doldrums, financial sclerosis, and malaise just don’t seem to do the trick. So I’ll have to explain it the long way.

    Booms are times when there’s overinvestment, too much borrowing, and a lot of suspicious success which wouldn’t happen outside of a boom. The point being that an end and a reversal is built into the boom. For a reason. Just as you get a hangover for a reason.

    But what if you don’t get the reversal? What if those investments stick around, the debt isn’t written off and corporations with iffy financials turn into the undead — zombies?

    Actually, they’d be more like vampires — living off the lifeblood of the living. They soak up the resources which would’ve been used to generate the next boom. Hence the prolonged malaise and doldrums I mentioned.

    An economy requiring life support won’t jump out of bed and head off on its next adventure. Keeping the zombies alive prevents a recovery.

    The textbook case of all this was Japan. Now it’s Italy too. The economy can’t grow because there are too many vampires keeping their hands on the resources needed.

    But the economy and asset prices are two different things. That’s what the current boom taught us. And investors are interested in the latter — asset prices.

    The US has had a very poor economic recovery compared to the past. While also delivering the biggest stock market boom…

    This either suggests that the coming stock market bust will be even more severe because it’s based on boom time bubbles instead of real growth, or it suggests that asset prices and the economy have diverged.

    In Japan, deflation in asset and consumer prices was part of the lost decades that followed the end of their epic boom. Asset prices reflected the economy. But allowing this would be sacrilege to central bankers today.

    The American central bankers are even toying with running inflation above their legal mandate to keep up appearances.

    The point is, it’s tough to be a pessimist on asset prices these days. Even if you are sceptical on the economy, or if you’re expecting doldrums, that still doesn’t mean the stock market will go down.

    Not that it’s a good idea to punt your life savings on the assumption central bankers can keep the stock market going up. Just that it could continue to pay to play.

    The question becomes how.

    Until next time,

    Nick Hubble Signature

    Nick Hubble,
    For The Daily Reckoning Australia

    The post Welcome to the Biggest and Longest Bull Market Ever appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

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