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Katwomyn

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Gold to benefit from ongoing Fed Intervention

 

https://www.sharecafe.com.au/2020/06/12/gol...d-intervention/

 

1. Equities are expensive

2. Fed Policies Exacerbate Income Equality

3. Which brings us to gold

4. Silver emerging from Gold's shadow

Summary

 

There is a remarkable disconnect between Wall Street and Main Street. Markets have rallied sharply due to the unprecedented amount of liquidity injected into them, while most investment funds remained underweighted, and are now being forced back into the markets.

The economic and financial damage will be long-lasting and will provide ongoing support for the current precious metals rally. Gold and silver have a major role to play and there is strong upside potential with respect to both, especially if we use their post-GFC price performances as a guide ..

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With so much medical, economic, and political uncertainty, what’s the best asset class for investor allocations today? The best asset class is also the oldest asset class — gold.

 

For the past three months, gold has been trading in a narrow range between US$1,685 per ounce and US$1,750 per ounce (that’s a 1.9% range above or below the central tendency of US$1,720 per ounce).

 

In recent days, that range has narrowed further to a US$1,720–1,745 per ounce range, a mere 0.7% above or below the US$1,732.50 centre of the range.

 

When trading in a volatile asset narrows to that extent, it’s a sign that the asset is ready for a material technical breakout. The question is will gold breakout to the upside or downside?

 

Here are the fab four signs that gold will break out to the upside:

 

The first sign is that it’s already happening. In early morning trading on 22 June, gold broke out to US$1,770 per ounce. That’s a decisive break above the prior US$1,750 per ounce high end of the recent trading range. Of course, we’re not day traders and another pullback is always possible. Still, this kind of decisive move is confirmation that the upside breakout thesis is correct.

 

The second sign is continued strong buying of gold by central banks. The central banks as a whole went from net sellers to net buyers of gold in 2010. The recent buying has been growing larger, now around 500 tonnes per year. That’s a huge amount considering that the total official supply of gold is only 34,000 tonnes. When central banks are buying, you should ask yourself what they’re seeing that everyday investors may be missing.

 

The third factor is that global mining output is flat at around 3,500 tonnes per year. Output is not going down, but gold is getting harder to find despite low costs of capital, higher gold prices, and improved technology. When supply is flat and demand is up, then prices have nowhere to go but up.

 

The fourth factor is the emergence of a two-tier market. Gold futures prices and London market prices are around US$1,740 per ounce recently. But, if you call a real dealer to buy real gold, the price they quote is ‘spot plus commission’. That’s fine, but the commissions have been expanding from 2% to 4%, to 10%, and even higher in some cases.

 

This means that US$1,740 per ounce gold is really US$1,915 per ounce with a 10% commission. That higher commission is not the result of dealer greed. It’s the result of scarcity and the dealer’s efforts to balance supply and demand.

 

What it really means is that real price of gold is closer to US$1,850 per ounce once the excess commission is added to the spot price. When it comes to gold prices, forget New York and London. Real prices are already higher than you know.

 

Gold is an inflation hedge for obvious reasons. It is also a deflation hedge because deflation will cause central banks to create inflation by raising the price of gold. Gold is also liquid in all states of the world. Physical gold cannot be electronically hacked, frozen, or seized. A 10% allocation of investible assets to gold is the best cure for COVID-19.

 

Jim Rickards

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ASX-listed gold miners and explorers are positioned for another positive session after spot prices for the precious metal sailed passed $US1800 an ounce in trade overnight, setting fresh post-GFC highs.

 

After hitting technical resistance just below the $US1800 milestone in US trade one day earlier, prices on the spot market last night jumped to as high as $US1818 an ounce. Prices have eased back to just above $US1810 heading into early Asian trade.

 

Demand for physical gold has seen sustained support from investors looking to hedge inflation risk in an environment where cash rates are not expected to be lifted from historic lows for the foreseeable future and the supply of money is increased.

 

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From GATA

“We are all used to the bullion banks covering their shorts on Comex by waiting until the speculators are over-bullish and vulnerable to mark-downs that trigger their stops. Algorithmic traders go from long to short in a heartbeat as well, and they dump contracts into a falling market, speeding up the decline. We should say at this juncture that the Managed Money speculators are short-term, attracted by futures leverage, and their gold position is often part of a wider risk strategy deployed by hedge funds. They do not intend to stand for delivery. The wider investment world taking strategic portfolio decisions does not often get involved with gold, so the Comex gold contract has been a secular play.

 

In the non-speculative category, the bullion banks (Swaps) had 56% of the shorts and the Producer/Merchants 44%. Mark-to-market value of the Swaps net short position was $25bn. Of the speculative longs, the managed money category (hedge funds) held 69%, and at 296,106 long contracts it was almost a record. There was a high level of bullishness; easy pickings for the bullion banks, who by the following December drove the price down to $1120, reducing their net shorts to under 50,000 contracts.

 

It was a game that evolved out of Comex futures being used simply to offset long bullion positions at the LBMA. Over time, bullion bank traders increased their trading position limits, as opposed to their pure hedging activity, making easy money jobbing the other side of Managed Money trades.

 

Now look at the current situation, with the gold price at decade highs ($1775) and open interest at 561,628 (30 June).

 

Bullion banks are between a rock and a hard place. For years they’ve been playing the hedge funds as an angler hooks and plays a fish. That game has ceased and there is no easy way for them to get level. For the moment they are trying to put a lid on the price, but the cost has been rising open interest, and therefore rising mark-to-market positions.

The August active contract runs off the board at the end of this month and bullion banks are likely to be forced into large delivery volumes again. Furthermore, the exchange for delivery arbitrage facility between Comex and the LBMA is broken, allowing Comex premiums to London spot to go unchallenged.

 

It is increasingly possible the gold contract is evolving into deep crisis, and that force majeure might have to be declared if, as seems increasingly inevitable, a wider banking crisis ensues.â€

 

The comeuppance frot he Commercial banks scamming the gold price is something I have been waiting for.

Its a bit like the the line from Fiddler on the Roof. "It seems we have been waiting for the messiah for a very long time".

Maybe this time they will finally get crushed.

Wouldn't be bad for the price of PM's either!.

Mick

 

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David brady, writing in Sprott Money has a very different take on gold.

He is very bearish on all markets.

 

Market fundamentals continue to pile up on the negative side. ECB sits on its hands—i.e., does nothing new—and the Fed slashes liquidity, all while commercial real estate loan losses mount, retail mortgage delinquencies soar at a record pace, and the $600/week for numerous Americans ends in two weeks. Throw in an escalating trade and geopolitical war between the U.S. and China and it’s not rocket science to see where this is heading.

However, this does not mean that the converse of being bullish on gold and other PM's.

 

My expectation is that when stocks fall, precious metals and miners will too, much like they did in March. Falling bond yields are unlikely to stem their decline because inflation expectations will probably drop even faster, causing real yields to rise. That said, I must emphasize again that this will be the last and best opportunity to buy Gold, Silver, and the miners given the helicopter drop and Fed printing to follow soon after, imho. Said differently, when stocks soar ahead of the November election, so do precious metals and miners—and then some.

 

Switching to Gold, specifically, as the biggest market in the precious metals space… I don’t rule out a test of the 2011 record high before we head down, but as I’ve said, I sincerely doubt we break it on the first attempt, and even if we do, it is likely to be a false breakout.

 

Multiple negative divergences across all timeframes continue to pile up, and it’s not a question of “if†but “when†they finally weigh on Gold, just as they did in March.

 

This seems a reasonable proposition, particularly as he says the precedent was set back in March.

It is food for thought, I may end up returning to mostly cash over the short term.

 

Mick

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  • 2 weeks later...

gold futures trading at US$1943

I saw an estimate the other day, and I’ve spent hours looking for the source and can’t find it now, that total global financial assets are approximately $350 trillion. Tradeable gold and silver assets are approximately $2.9 trillion, or 0.8% of investable financial assets.

(If any of you can check these numbers for me I will be eternally grateful and you will receive much gratitude in return and maybe even dinner...)

 

What does this mean? It means that the vast majority of institutions have a tiny, tiny allocation to gold.

 

We all know the expression follow the money.

 

Who are the world’s most powerful and influential insiders?

 

You’re absolutely right, the central banks, and particularly now that they run the world. In fact central banks are the ultimate insiders, the mother of all insiders!

 

Central banks are increasing their exposure to gold as a way of reducing their exposure to negative yielding bonds and to hedge against a possible decline in the US$.

 

Furthermore, sovereign wealth funds see gold as an inflation hedge with a low correlation to other financial assets.

 

Let’s be clear the speculators are massively long gold and silver and it is severely overbought... no doubt about that.

 

However, can you remember a macro-economic and geopolitical environment as favourable, for gold, as the one we have today ?

Jonathan Pain
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Profit taking time.

After gold pushed within 20 bucks of the magical 2000, its suddenly dropped 40 bucks.

Silver after climbing to 26.47 high, is smashed back to 24.59.

The big question is, wi;ll it follow suit in the US market overnight??

Nothing in terms of funnymentals have changed, just the sentiment.Reckon they will both head down overnight.

Mick

 

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Formation of trueGold Consortium

 

Mine-to-marketplace gold supply chain assurance solution

ASX listed Security Matters Ltd (SMX) has entered into agreements with a wholly owned entity of Perth Mint to form the trueGold Consortium.

 trueGold will utilise SMX’s unique molecular marking technology and blockchain platform to launch what it believes to be, the world’s first fully transparent mine-to-marketplace ESG focussed gold supply chain assurance solution.

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