Tag Archives: gold

Gold Surges Against Emerging Market Currencies

Gold Surges To Record In Turkey and Other Emerging Markets as Currencies Collapse

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  • Turkey’s election angst, geopolitical risk and collapse of the lira is driving up demand for gold
  • Turkish lira has collapsed versus gold and now the lowest on record (see chart)
  • Significant demand for gold coins in Turkey and central bank has repatriated gold and added to gold reserves
  • “Having the gold physically at home allows countries to feel like they are in control of their reserves” Dr Brian Lucey
  • Gold acting as a hedge and has been “expensive” not to own gold in Turkey, Syria, Venezuela, Argentina, Angola, Russia and many other countries in the Middle East, Asia, South America, Africa and Europe (see table of worst performing currencies in 2018 including the Swedish krona)

from Bloomberg:

With just a month until elections, shopkeepers at Turkey’s biggest bazaar say they’re seeing a jump in demand for gold coins.

“Turkish people have an interesting behavior — they buy gold when the prices are rising, they think it’s gonna rise more,” said Gokhan Karakan, 32, who runs a gold exchange office in the heart of Istanbul’s Grand Bazaar. “People think there is a trend here and choose to buy gold until uncertainty is out of the way.”

On Friday afternoon, at the Grand Bazaar — one of the world’s oldest covered markets — shopkeepers said more customers were buying gold, instead of selling it, in hopes that the metal will keep its worth as the value of the lira plunges.

Gold priced in lira is more “expensive” than ever, but that’s not deterring buyers, who are looking for a safe haven.

“Turkish people love gold,” said Tekin Firat, 30, who owns and runs a gold store the bazaar. “People think that it will never lose in the long run.”

Citizens are buying up gold as the lira plunges in latest currency crisis. Recep Tayyip Erdogan, who’s about to launch a re-election campaign that may provide the toughest electoral test of his 15 years in power, is an outspoken advocate of cheap money. He’s up against investors demanding higher returns to fund an economy beset by inflation and a swollen current account deficit.

Gold has a special importance in Turkey. The country is to home the ancient kingdom of Lydia, where the earliest known gold coinage originated in the 7th century B.C.

Turkey imported 118 metric tons of bullion, worth $5 billion at today’s prices, in first four months of this year, the most over that period, according to data going back to 1995 from the Istanbul Gold Exchange. Last year, imports reached a record.

It’s not just consumers that are snapping up gold. Official reserves have also increased over the past year. The central bank doesn’t comment on its gold strategy, but previously said the changes in its holdings are part of an effort to diversify its reserves.

The reported figure may be misleadingly high because the central bank allows commercial banks to deposit gold as part of their reserves. The government last year launched a campaign to get more “under-the-pillow gold” into the formal banking system. About half of the 216 ton inflow since the start of 2017 can be attributed to this alternative source, according to Matthew Turner, a strategist at Macquarie Group Ltd. in London.

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Even so, the purchases have happened a year after Erdogan urged Turks to convert their foreign currency savings into liras and gold, and tensions with the U.S. reached a new low.

“The central bank certainly has been more active in the gold market,” said Turner. “It seems the government would like a larger share of its reserves in assets that’s not related to the U.S. dollar.”

In 2017, the central bank withdrew of its 28.7 tons of gold, worth about $1.2 billion, from Federal Reserve vaults. It didn’t say where the gold went, but holdings increased at Borsa Instanbul, the Bank of England and Bank of International Settlements, according to a report released in April.

The decision for any country to withdraw gold from U.S. vaults is rare — happening only a handful of times in the past decade. Since 2011, Germany, the Netherlands, Hungary and Venezuela have repatriated their gold holdings from the U.S.

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Turkey’s decision to withdraw gold may have been a reaction to U.S. court cases against Turkish banks for alleged deals struck with Iran, said Cagdas Kucukemiroglu, a Middle Eastern gold analyst at research firm Metals Focus.

“Having the gold physically at home allows countries to feel like they are in control of their reserves,” said Brian Lucey, a professor of finance at Trinity Business School in Dublin.

Source: ZeroHedge

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Turkey’s Erdogan Recalls Gold Reserves From New York Fed

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The Turkish government has withdrawn its reserves of gold from the Federal Reserve. Erdogan clearly is positioning himself to be able to seek its own power that will be contrary to international policy. Erdogan is one of those politicians who still think in the old days of Empire. As a member of NATO, he has constantly been threatening Greece. So what happens if we see a war between two NATO members? Who does NATO then support? When in doubt, bring the gold home in preparation for in time of war, a currency will not suffice.

Source: Martin Armstrong | Armstrong Economics

Gold Demand Slumps to a 10-Year Low

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A Fox Business report states demand for gold is at a 10-year low. What’s the real story?

For gold investors, the rising market volatility is no match for the currently growing economy, with gold holdings slumping to a decade low, according to the World Gold Council (WGC).

The WGC reported that global gold demand fell to its lowest first-quarter level since 2008, falling to 973 metric tons in the first quarter of 2018, a 7% drop compared to the 1,047 metric tons in the first quarter of 2017.

More Luster in Stock Markets

U.S. retail investors are losing their appetite for physical gold as buoyant stock markets offer tempting alternatives, sending sales of newly minted coins to their lowest in a decade.

More and more coins are also being sold back onto the market, further eroding demand for newly minted products.

Gold American Eagle bullion coin sales from the U.S. Mint slumped to a third of the previous year’s level in 2017, their weakest since 2007.

They were down nearly 60 percent year on year in the first quarter. Sales so far this month, at 2,500 ounces, are less than half last April’s total, and a fraction of the 105,500 ounces sold in April 2016.

Contrary Indicator

For starters. retail investors dumping gold coins is a contrary indicator. And if they are dumping gold coins to buy Bitcoin or stock that is a contrary indicator for Bitcoin and Stocks.

What About Demand?

Actually, demand for gold bottomed in December of 2015.

How do I know? By looking at the price.

Gold Demand

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As noted by the chart, demand for gold peaked in September of 2011. Demand bottomed in December of 2015.

Wait a second, you say, those are prices!

Yes, exactly.

Unlike silver, which is used up industrially, nearly every ounce of gold ever mined is available for sale.

Someone has to own those ounces. The price of gold represents the demand for gold.

Gold Up 31%, Retail Selling

Gold is up 31% but retail investors are selling their coins. That’s a major contrary indicator.

Driver for Gold

The primary driver for the price of gold is faith in central banks. In 2011, there were worries the Eurozone would break up.

In 2012, ECB president Mario Draghi made a famous speech, declaring, “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

Curiously, he did not do a thing at the time. The speech restored faith.

Gold vs. Faith in Central Banks

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Faith on the Wane

Some believe the Fed is way behind the curve. Others thinks a deflationary bust is coming and the Fed will engage in more QE.

Pick your reason, but faith in central banks is on the wane.

Deflationary Bust

Given the amount of global financial leverage, I strongly suggest a deflationary bust is the most likely outcome looking ahead.

If I were trying to create a deflationary bust, I would do exact exactly what the world’s central bankers have been doing the last six years,” said Stanley Druckenmiller.

For details of Druckenmiller’s excellent speech, please see Can We Please Try Capitalism? Just Once?

How will the Fed respond to a deflationary bust?

The obvious answer is more printing and more QE. I expect a move higher in gold similar to the move from 2009-2011.

Silver’s Slide Signals Scary Scenario For Stocks and Economy

Silver is down 1% year-to-date, while the dollar has tumbled 3.5% and gold has surged 4%, sending a possible warning signal to the broader market.

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This dramatic divergence between gold and silver prices has sent the ratio of the two to multi-year highs.

The divergence between the two means prices for gold are 82 times those of silver, which is 27% more than the 10-year average.

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As The Wall Street Journal reports, a higher gold-to-silver ratio is viewed by some investors as a negative economic indicator because money managers tend to favor gold when they think markets might turn rocky and discard silver when they are worried about slower global growth crimping consumption.

“There’s just not many people looking to buy silver at this point in time,” said Walter Pehowich, senior vice president at Dillon Gage Metals.

“There’s a lot of silver that comes out of the refineries, and they can’t find a home for it.”

The precious metals ratio last stayed above 80 in early 2016, when worries about a Chinese economic slowdown roiled markets, and in 2008 during the financial crisis. The ratio’s recent rise comes as speculators have turned the most bearish ever on silver and inventories in warehouses have risen, a sign there could be too much supply.

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While investors have flocked toward gold with equity markets wobbling, money managers seeking safety or alternative assets haven’t favored silver.

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“It’s not seeing great hedge demand because it’s just easy to go to gold,” said Dan Denbow, who manages the USAA Precious Metals and Minerals Fund . “Gold is a bit more predictable.

As WSJ conclude, some analysts think silver’s underperformance is a negative sign for precious metals broadly because it is a less actively traded commodity, making it more vulnerable to bigger price swings on the way up and down.

Source: ZeroHedge

 

Russia, China, India Unveil New Gold Trading Network

One of the most notable events in Russia’s precious metals market calendar is the annual “Russian Bullion Market” conference. Formerly known as the Russian Bullion Awards, this conference, now in its 10th year, took place this year on Friday 24 November in Moscow. Among the speakers lined up, the most notable inclusion was probably Sergey Shvetsov, First Deputy Chairman of Russia’s central bank, the Bank of Russia.

In his speech, Shvetsov provided an update on an important development involving the Russian central bank in the worldwide gold market, and gave further insight into the continued importance of physical gold to the long term economic and strategic interests of the Russian Federation.

Firstly, in his speech Shvetsov confirmed that the BRICS group of countries are now in discussions to establish their own gold trading system. As a reminder, the 5 BRICS countries comprise the Russian Federation, China, India, South Africa and Brazil.

Four of these nations are among the world’s major gold producers, namely, China, Russia, South Africa and Brazil. Furthermore, two of these nations are the world’s two largest importers and consumers of physical gold, namely, China and Russia. So what these economies have in common is that they all major players in the global physical gold market.

Shvetsov envisages the new gold trading system evolving via bilateral connections between the BRICS member countries, and as a first step Shvetsov reaffirmed that the Bank of Russia has now signed a Memorandum of Understanding with China (see below) on developing a joint trading system for gold, and that the first implementation steps in this project will begin in 2018.

Interestingly, the Bank of Russia first deputy chairman also discounted the traditional dominance of London and Switzerland in the gold market, saying that London and the Swiss trading operations are becoming less relevant in today’s world. He also alluded to new gold pricing benchmarks arising out of this BRICS gold trading cooperation.

BRICS cooperation in the gold market, especially between Russia and China, is not exactly a surprise, because it was first announced in April 2016 by Shvetsov himself when he was on a visit to China.

At the time Shvetsov, as reported by TASS in Russian, and translated here, said:

“We (the Central Bank of the Russian Federation and the People’s Bank of China) discussed gold trading. The BRICS countries (Brazil, Russia, India, China and South Africa) are major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal. In China, gold is traded in Shanghai, and in Russia in Moscow. Our idea is to create a link between these cities so as to intensify gold trading between our markets.”

Also as a reminder, earlier this year in March, the Bank of Russia opened its first foreign representative office, choosing the location as Beijing in China. At the time, the Bank of Russia portrayed the move as a step towards greater cooperation between Russia and China on all manner of financial issues, as well as being a strategic partnership between the Bank of Russia and the People’s bank of China.

The Memorandum of Understanding on gold trading between the Bank of Russia and the People’s Bank of China that Shvetsov referred to was actually signed in September of this year when deputy governors of the two central banks jointly chaired an inter-country meeting on financial cooperation in the Russian city of Sochi, location of the 2014 Winter Olympics.

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Deputy Governors of the People’s Bank of China and Bank of Russia sign Memorandum on Gold Trading, Sochi, September 2017. Photo: Bank of Russia

National Security and Financial Terrorism

At the Moscow bullion market conference last week, Shvetsov also explained that the Russian State’s continued accumulation of official gold reserves fulfills the goal of boosting the Russian Federation’s national security. Given this statement, there should really be no doubt that the Russian State views gold as both as an important monetary asset and as a strategic geopolitical asset which provides a source of wealth and monetary power to the Russian Federation independent of external financial markets and systems.

And in what could either be a complete coincidence, or a coordinated update from another branch of the Russian monetary authorities, Russian Finance Minister Anton Siluanov also appeared in public last weekend, this time on Sunday night on a discussion program on Russian TV channel “Russia 1”.

Siluanov’s discussion covered the Russian government budget and sanctions against the Russian Federation, but he also pronounced on what would happen in a situation where a foreign power attempted to seize Russian gold and foreign exchange reserves. According to Interfax, and translated here into English, Siluanov said that:

“If our gold and foreign currency reserves were ever seized, even if it was just an intention to do so, that would amount to financial terrorism. It would amount to a declaration of financial war between Russia and the party attempting to seize the assets.”

As to whether the Bank of Russia holds any of its gold abroad is debatable, because officially two-thirds of Russia’s gold is stored in a vault in Moscow, with the remaining one third stored in St Petersburg. But Silanov’s comment underlines the importance of the official gold reserves to the Russian State, and underscores why the Russian central bank is in the midst of one of the world’s largest gold accumulation exercises.

1800 Tonnes and Counting

From 2000 until the middle of 2007, the Bank of Russia held around 400 tonnes of gold in its official reserves and these holdings were relatively constant. But beginning in the third quarter 2007, the bank’s gold policy shifted to one of aggressive accumulation. By early 2011, Russian gold reserves had reached over 800 tonnes, by the end of 2014 the central bank held over 1200 tonnes, and by the end of 2016 the Russians claimed to have more than 1600 tonnes of gold.

Although the Russian Federation’s gold reserves are managed by the Bank of Russia, the central bank is under federal ownership, so the gold reserves can be viewed as belonging to the Russian Federation. It can therefore be viewed as strategic policy of the Russian Federation to have  embarked on this gold accumulation strategy from late 2007, a period that coincides with the advent of the global financial market crisis.

According to latest figures, during October 2017 the Bank of Russia added 21.8 tonnes to its official gold reserves, bringing its current total gold holdings to 1801 tonnes. For the year to date, the Russian Federation, through the Bank of Russia, has now announced additions of 186 tonnes of gold to its official reserves, which is close to its target of adding 200 tonnes of gold to the reserves this year.

With the Chinese central bank still officially claiming to hold 1842 tonnes of gold in its national gold reserves, its looks like the Bank of Russia, as soon as the first quarter 2018, will have the distinction of holdings more gold than the Chinese. That is of course if the Chinese sit back and don’t announce any additions to their gold reserves themselves.

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user227218/imageroot/2017/11/29/RussiaReservesTst.pngThe Bank of Russia now has 1801 tonnes of gold in its official reserves

A threat to the London Gold Market

The new gold pricing benchmarks that the Bank of Russia’s Shvetsov signalled may evolve as part of a BRICS gold trading system are particularly interesting. Given that the BRICS members are all either large producers or consumers of gold, or both, it would seem likely that the gold trading system itself will be one of trading physical gold. Therefore the gold pricing benchmarks from such a system would be based on physical gold transactions, which is a departure from how the international gold price is currently discovered.

Currently the international gold price is established (discovered) by a combination of the London Over-the-Counter (OTC) gold market trading and US-centric COMEX gold futures exchange.

However, ‘gold’ trading in London and on COMEX is really trading of  very large quantities of synthetic derivatives on gold, which are completely detached from the physical gold market. In London, the derivative is fractionally-backed unallocated gold positions which are predominantly cash-settled, in New York the derivative is exchange-traded gold future contracts which are predominantly cash-settles and again are backed by very little real gold.

While the London and New York gold markets together trade virtually 24 hours, they interplay with the current status quo gold reference rate in the form of the LBMA Gold Price benchmark. This benchmark is derived twice daily during auctions held in London at 10:30 am and 3:00 pm between a handful of London-based bullion banks. These auctions are also for unallocated gold positions which are only fractionally-backed by real physical gold. Therefore, the de facto world-wide gold price benchmark generated by the LBMA Gold Price auctions has very little to do with physical gold trading.

Conclusion

It seems that slowly and surely, the major gold producing nations of Russia, China and other BRICS nations are becoming tired of the dominance of an international gold price which is determined in a synthetic trading environment which has very little to do with the physical gold market.

The Shanghai Gold Exchange’s Shanghai Gold Price Benchmark which was launched in April 2016 is already a move towards physical gold price discovery, and while it does not yet influence prices in the international market, it has the infrastructure in place to do so.

When the First Deputy Chairman of the Bank of Russia points to London and Switzerland as having less relevance, while spearheading a new BRICS cross-border gold trading system involving China and Russia and other “major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal”, it becomes clear that moves are afoot by Russia, China and others to bring gold price discovery back to the realm of the physical gold markets. The icing on the cake in all this may be gold price benchmarks based on international physical gold trading.

Source: ZeroHedge

Gold, Bitcoin, And Metcalfe’s Law Today

Frank Holmes, CEO of US Global Investors, reported back from the LBMA/LPPM Precious Metals conference that took place in Barcelona last week. Holmes gave the key note address on Day 2 “Quant Investing: From Gold to Cryptocurrencies.”

According to a thrilled Holmes, his presentation was voted the best – no doubt helped by the topical subject matter – and he was the recipient of an ounce of gold. He went on to relate the views of the conference attendees regarding the relative performance of gold and cryptos should there be (heaven forbid but sadly topical) a conflict involving nuclear weapons.

“Speaking of gold and cryptocurrencies, the LBMA conducted several interesting polls on which of the two assets would benefit the most in certain scenarios. In one such poll, attendees overwhelmingly said the gold price would skyrocket in the event of a conflict involving nuclear weapons. Bitcoin, meanwhile, would plummet, according to participants—which makes some sense. As I pointed out before, trading bitcoin and other cryptos is dependent on electricity and WiFi, both of which could easily be knocked out by a nuclear strike. Gold, however, would still be available to convert into cash.”

Unsurprisngly, the conference attendees gold voted gold as the superior store of value – a view which echoed the recent Goldman Sachs primer on precious metals. Goldman asked whether cryptos are the new gold and concluded “We think not, gold wins out over cryptocurrencies in a majority of the key characteristics of money…(precious metals) are still the best long-term store of value out of the known elements.

However, there is obviously a difference between a superior store of value and shorter-term upside…and Holmes is far from bearish on bitcoin and other virtual currencies.

One of his observations is, alas, only too relevant for many gold investors that “Because they’re decentralized and therefore less prone to manipulation by governments and banks – unlike paper money and even gold – I think they could also have a place in portfolios. He goes on to aim a couple of blows on Bitcoin’s biggest recent detractors “Even those who criticize cryptocurrencies the loudest seem to agree. JPMorgan Chase CEO Jaime Dimon, if you remember, called bitcoin ‘stupid’ and a ‘fraud,’ and yet his firm is a member of the pro-blockchain Enterprise Ethereum Alliance (EEA). Russian president Vladimir Putin publicly said cryptocurrencies had ‘serious risks,’ and yet he just called for the development of a new digital currency, the ‘cryptoruble,’ which will be used as legal tender throughout the federation.”

It was Holmes observation on Bitcoin and Metcalfe’s Law that we particularly enjoyed …

Most people are probably (at least vaguely) familiar with Metcalfe’s Law on the economics of network effects. Wikipedia notes “Metcalfe’s law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n2). First formulated in this form by George Gilder in 1993, and attributed to Robert Metcalfe in regard to Ethernet, Metcalfe’s law was originally presented, c. 1980, not in terms of users, but rather of ‘compatible communicating devices’ (for example, fax machines, telephones, etc.). Only later with the globalization of the Internet did this law carry over to users and networks as its original intent was to describe Ethernet purchases and connections.[The law is also very much related to economics and business management, especially with competitive companies looking to merge with one another.”

This was Holmes’ take:

“Metcalfe’s law states that the bigger the network of users, the greater that network’s value becomes.

Robert Metcalfe, distinguished electrical engineer, was speaking specifically about Ethernet, but it also applies to cryptos. Bitcoin might look like a bubble on a simple price chart, but when we place it on a logarithmic scale, we see that a peak has not been reached yet.

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Holmes is not the first to link Bitcoin with Metcalfe’s Law. For example, the Journal of Electronic Commerce Research published a study earlier this year. As TrustNodes reported

“The study measured the value of the network based on the price of relevant digital currencies and compared it to the number of unique addresses that engage in transactions on the network each day, according to the abstract. The results show that ‘the networks were fairly well modeled by Metcalfe’s Law, which identifies the value of a network as proportional to the square of the number of its nodes, or end users,’ the study says…The application of Metcalfe’s law towards transaction numbers specifically has long been suggested, with a fairly strong correlation between the price of digital currencies and their transaction numbers observed over many years. Ethereum, for example, was barely handling 20,000 transactions at the beginning of the year. Now it manages nearly 300,000 a day. Likewise, price has risen some 10x during the same time period. The reason for this relationship is fairly intuitive. As more projects build on ethereum, more users find it useful as there are more things they can do with it, which in turn makes ethereum more useful for new projects as it allows them to tap into more users. The same can be said about merchants. As more of them accept eth for payments, more think Ethereum can be useful for everyday things, which means more merchants want to accept it to tap into the increased number of users, so forming a virtuous cycle. Metcalfe’s law of network effects can be applied to developers too, or investors, including speculators. The more that use it, the more useful it becomes, with the reverse applying too. The fewer individuals that use it or the more that stop using it, the less useful it becomes.”

If that was his killer chart, however, this was perhaps his killer comment.

Bitcoin adoption could multiply the more people become aware of how much of their wealth is controlled by governments and the big banks.

This was among the hallway chatter I overheard at the Precious Metals Conference, with one person commenting that what’s said in private during International Monetary Fund (IMF) meetings is far more important than what’s said officially. We have a similar view of the G20, whose mission was once to keep global trade strong. Since at least 2008, though, the G20 has been all about synchronized taxation to grow not the economy but the role government plays in our lives. Trading virtual currencies is one significant way to get around that.

Source: ZeroHedge

Confused About Gold?

QUESTION #1: [_____] says that the dollar will collapse because with the debt ceiling gone – no more buyers of Treasuries in the markets and only the Fed Reserve buying – inflation goes to the wazoo. All over USA. care to comment?

ANSWER: Total nonsense. The USA debt of $20 trillion is a tiny fraction of global debt at $160 trillion. This entire theory does not hold up. Just where is all the money going to run? Gold? Institutions do not buy gold and cannot function with gold, which is not legal tender for even paying your taxes. The only thing that matters is the general public confidence. When the average person on the street no longer trusts government, that is the tipping point.

There is a whole series of people given a choice between a bar of chocolate and a bar of silver. They take the chocolate. Kids line up in Starbucks and pay with their phone – not even cash. Not until you shake the confidence of these people will you see the explosion in markets. That is what took place in the late 1970s. I was there. OPEC created the image of wholesale inflation. People were hoarding toilet paper.

QUESTION #2: What will Fed Balance Sheet Shrinkage do to Gold?

ANSWER: The opposite of what people think. Shrinking the Balance Sheet will be anti-inflationary to the standard reasoning and thus gold should collapse with deflation. However, the Fed has turned away from QE because pension funds are at serious risk. They have run off to emerging markets and bought very long-term paper desperately trying to get their yields up. As the stock market rises because there is no alternative, the Fed politically will be forced to raise rates. They will end up creating inflation with rising rates that will blow interest expenditure through the roof.

QUESTION #3: Since we bounced off the reversal again, obviously this still does not negate a break of $1k and then the slingshot up. But it just seems as if gold is on its deathbed. If nuclear war could not get it to exceed last year’s high, is there anything left in this bag of fundamentals we have been hearing about forever?

ANSWER: I understand. This is what the Reversal System is good at. We stopped within a dime of that number. What will be will be. We are running out of fundamentals to keep buying gold. It’s like the fake news about the storm in Florida that a 15 foot wall of water would destroy the coast. It never came and many people are really angry at the media. How many times can they do this before people no longer listen. Gold is a confidence game – plain and simple. This number is just incredibly important far more than most people dare to consider. I will be doing the gold report soon. It is very critical at this point.

GCNYNF-GMW 9-16-2017

CLOSING COMMENT: The number of long positions verse net shorts in gold reached about 5:1 and you saw what happened – it simply bounced off of the reversal and did not exceed last year’s high. I am always amazed at how people get so bullish and say I am wrong and then within 2 days they lose their shirt. As they say, you can lead a horse to water, but you cannot make him drink. Some people judge the next 10 years by a few days of price movement. That is how the market separates traders from fools.

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