Author: david@goldsilverdesk.com

October 6, 2019

As the world edges closer to the next crisis, today the man who has become legendary for his predictions on QE and historic moves in currencies and metals just warned KWN that a worldwide stock market crash is coming.

A Eureka Moment

October 7 (KWN) – Egon von Greyerz:  “There will in the next couple of years be a real Eureka moment in markets. But it is unlikely to be of the same satisfactory nature as in the case of Archimedes. The Greek mathematician and  scientist reportedly said “Eureka, Eureka” (I found it) when he discovered that the volume of water displaced in his bath was equal to his body’s volume.

Interestingly, Archimedes applied this principle to assess the gold content of the crown of King Hiero of Syracuse. A goldsmith had tried to cheat the king by replacing the gold in the crown with the same weight of silver. But since gold has twice the density of silver and therefore weighs considerably more for the same volume, the goldsmith’s deceit was revealed. More about the coming Eureka moment in markets later.

Around the world, there are millions of investors who every year spend billions of hours trying to achieve a decent return on investments. The number of areas people can invest in today is mind-boggling. But when it comes to financial markets, the great majority invests in stocks.  And of those, very few outperform the various stock market indices…

So around the world millions of investors, billions of hours, and billions of dollars worth of computer programs achieve a return which is inferior to an index fund. What a waste of time and resources. Even worse, the individual managers earn a massive amount of money from their investment bank or wealth management business. But instead, a computer could have done all the work and all these big-headed investment managers could have played golf or sailed in the mediterranean all day long. Since just investing in the index would have earned investors more money than managing the funds, the managers could also charge the clients more.

Even better if they also described their model in veiled mystique to make it sound like the most sophisticated model on earth. Many do this already of course! The whole investment industry is just a massive machine of mediocrity, self-interest and navel-gazing. And this is done at the expense of ordinary people and pensioners who lose a major part of their potential return or pension by paying massive fees to an inefficient and poorly performing industry.

So we have a mediocre asset management industry achieving poor returns on average at a time when all asset markets are setting records. What will then happen when stock markets turn down? Even worse, what happens when markets crash, which is extremely likely to happen this year or at the latest in early 2020? And what happens to the asset management industry when we have had a secular bear market for a few years and stocks around the world lose on average 75-95% in real terms? Because that is the most likely scenario in the next few years. In the first year or two, all investors will buy the dips. This has worked for years or even decades, so why wouldn’t it work this time? Well, it will work for a very limited time when central banks around the world print additional 10s of trillions or maybe even 100s of trillions as the derivate bubble implodes.

But what will be different this time is that the market will call the tricksters’ bluff. The Eureka moment for the world will be when the coming “unlimited-money-creation-out-of-nowhere” trick will not work. For decades the central bankers have got away with printing money that they told the world has real value. Gold has of course always revealed the deceit of central bankers by destroying the value of paper money. But since virtually nobody owns gold (less the 0.5% of global financial assets), very few understand that their paper money vs gold has lost around 98-99% since 1971 and 75%-85% since 2000. And governments are doing their utmost to conceal this incompetence in managing a country’s finances. (The prices in the table below are a few weeks old but that doesn’t change the percentages.)

This time, it won’t be someone shouting Eureka. Instead it will be an event that the world will experience in the most unpleasant way. Because it is likely that the sheer weight of the debt will totally crush the global financial system. This is the Eureka moment when people will realize that all the money printed, including all debt, actually has zero value. Because when you issue debt out of thin air, it must have zero value. For some reason no one has ever questioned this for the last few decades. I am sure that Archimedes, the brilliant mathematician would have proven that in a few minutes.

But the problem is much deeper. If the debt and the money printed have no value, neither does the assets that the debt has financed. If you attach a false value to debt or printed money, all the assets that were bought with this debt like stocks, bonds, and property, will also have a  false value. It is pretty straightforward really. If you print money at zero cost, it must have zero value.  And even worse, if you lend it out at zero cost, the assets that this money is invested in must also have zero value. The equation is simple: 0 value in = 0 value out.

As long as the value attributed to the debt is positive, the assets financed by the debt will have a positive value. But when the Eureka moment arrives and the debt implodes due to the sheer volume of worthless credit issued, then the debt becoming worthless will also lead to the assets financed by the debt being worthless. This is such a self-evident concept that everybody should see it. But in a world with illusive debt and illusive assets, people live under the illusion that it is all for real. How disillusioned they will become in the next few years when there will the most massive destruction of asset values and wealth. Only future historians will see this clearly. But it is of course easy when you have the benefit of hindsight.

It is really incredible that so few people can see clearly today what is happening. All they need to do is to measure assets using gold as the yardstick. Gold is the only money which has survived in history and the only money which has maintained its purchasing power for thousands of years. This means that gold is a truth teller and consequently reveals governments’ and central banks’ deceitful actions in creating false money.

I showed above how paper money lost 98-99% of its value since 1971. It is the same with stock markets. We measure stocks in fake or printed money which has illusory value. If we instead measure stocks in gold, we find the truth. And the truth is that stocks look very different if you measure the performance in real money or gold. No yardstick is perfect, not even gold. Especially since gold is manipulated by the BIS in Basel  (Bank of International Settlement) together with the bullion banks. Nevertheless, it is the best measure we have to gauge the performance of most assets including stocks.

The table below shows how some of the major stock markets have performed in real money or gold since 2000. The year 2000 is of course important since it is the turn of the century. The starting date clearly makes a difference for any performance chart. The gold haters always take 1980 as a starting point as it shows gold in its worst light. Gold reached $850 in January 1980 and corrected down for 20 years thereafter. But it is important to understand that gold had come from $35 in August 1971. This is when Nixon abandoned the gold standard.

Anyway, the year 2000 is a logical starting point and gives us almost 20 years of data. The table shows that since 2000, gold has outperformed all stock markets significantly. The best performers are the Dow and the Dax that have lost “only” 58% and 63% respectively against gold. The Nikkei and the FTSE have lost 80% and 85% versus gold which is quite remarkable. Yes, I am aware that dividends are not included except for in the Dax. But this would not make up for the significant underperformance of stocks. It is of course possible to lend the gold and earn a return on it too. But from a wealth preservation perspective, we wouldn’t recommend this.

The conclusion is very simple. There is a vast industry in the world that spends massive amounts of money managing money for pension funds, mutual funds, ETF or a vast offer of stock funds as well as for individuals. This industry earns a fortune for the professionals regardless of their performance. And we can be certain that none of the managers would ever consider making a major investment into gold. They never look at gold, they don’t understand it and even if they did, they wouldn’t make enough money for themselves by just holding gold. Much better to churn commissions by buying and selling stocks regularly. The managers of stocks have added zero, nada, to real returns of investors.

We must remember that it is not gold that has outperformed stocks. Instead, it is stocks that have underperformed massively by not even keeping pace with the value of real money in the form of gold. So measured in real money or gold, stocks have been an awful investment for the last 20 years. But virtually nobody is aware of this. Instead, people are paying billions to reward a totally inefficient asset management industry.

Even worse is that the trend outlined above will now accelerate. Stocks will soon go into free-fall  against gold and lose 75% to 95% from current levels. I do know that the asset management industry will find that forecast totally ridiculous. But since none of them are aware how much they have lost so far in real terms, they are also totally ignorant when it comes to what will happen next.

The acceleration phase of stocks plunging and gold surging is imminent. We could see a stock market crash in October. At the latest it will happen in early 2020. At the same time, gold in all currencies will move up very fast to significantly higher levels. The small minority of wealth preservationists will sleep well with their physical gold and silver whilst the majority of the asset management industry are likely to have nightmares for many years to come…

___________________

By Lorna Nicholas

Jim Rickards

https://youtu.be/Ok73IoKxCss (Click here for Rickards Interview)

Renowned author, lawyer, economist and finance expert James “Jim” Rickards has forecast the US dollar will falter in the wake of a new financial crisis that may be closer to reality than people think.

The expert pointing out central banks still haven’t recovered from the previous crisis, while Russia and China have been buying up gold at unprecedented levels over the past decade.

Speaking with Small Caps, Mr Rickards said the global economy is still wading through the 2008 global financial crisis, with interest rates remaining low and central banks unable to boost their books to previous levels.

He pointed out the world was completely “unprepared for the next crisis”, which will be far worse than the previous two.

Previous crises

According to Mr Rickards, the 1997-1998 Asian financial crisis could’ve brought the world to its knees if Wall Street banks hadn’t pulled together to bail out US hedge fund Long-Term Capital, which was about to collapse.

The crisis spread throughout the world and hit the US causing Dow Jones industrial average to record its biggest point fall in history by October 1997 – triggering a trading suspension.

However, disaster was averted after Long-Term Capital received a US$3.75 billion bail-out.

Had it not been bailed-out, a cascade of secondary bank bankruptcies would’ve ensued with numerous majors around the world including Deutsche Bank, UBS, and HSBC reporting they had either contributed to the bail-out or written off hundreds of millions in losses.

The following 2007-2008 global financial crisis was triggered by the US subprime mortgage market and excessive risk taking by banks with their lending practices.

Falling prey to the crisis was Lehman Brothers which went bankrupt and caused the Dow Jones to topple to its lowest in seven years.

In this bail-out, it was left to central banks to prevent financial Armageddon, with the US Federal Reserve taking its balance sheet from US$800 billion to over US$4.2 trillion.

The US Government took over flailing banks Fannie Mae and Freddie Mac, while others including Merrill Lynch, Wells Fargo, and Bank of America received hundreds of billions in US government bailouts.

Who’s going to bail out the central banks?

With another financial crisis imminent, Mr Rickards posed the question: who is going to bail out the central banks?

“Your only alternatives are turn to the International Monetary Fund (IMF) to basically bail out the world although that is a slow and difficult process.”

If the IMF did bail out the central banks, the process could take six months to a year.

Additionally, Mr Rickards said there were numerous other challenges to an IMF bail-out.

Rickards believes the next financial crisis will dwarf 2008.
For an IMF bail-out to occur, it would require 85% approval from all member countries.

“If you have a 15% plus 1% blocking power vote then it doesn’t happen.”

He added that the US was the only country in the world with a 16% voting power.

However, he pointed out a small coalition such as BRICS (Brazil, Russia, India, China and South Africa) nations and Venezuela could collectively block any bail out action or put conditions on it.

And that condition may well be that the US dollar is no longer the global reserve currency.

Mr Rickards said some people expect the US Federal Reserve to jump to the rescue again in the next financial crisis.

“What are they going to do if a crisis hit tomorrow? Go to US$5 trillion, US$6 trillion?”

Mr Rickards said the other alternative was to shut down the banks.

“And that’s what I expect will happen. They’ll close exchanges, close banks, close ATMs, freeze accounts.”

When people say that will “never happen”, Mr Rickards explained it has happened many times before including Cypress, Greece and Argentina.

He added it also happened in the US in 1933, when US President Franklin D Roosevelt ordered every bank to close.

The bank shutdown lasted eight days, but Mr Rickards said no-one knew how long the closure would be and it could easily have been a month-to-two months.

He pointed out another financial shutdown occurred in the US in 1914 when World War One broke out.

“The New York Stock Exchange was closed for five months – from July 1914 to December 1914.”

What does the future look like in the next crisis?

Mr Rickards was quick to point out he doesn’t foresee a dystopian future or an end of the world scenario.

However, he said he did expect the crisis will begin with “enormous social unrest”.

Elaborating on this statement, Mr Rickards noted the veneer of civilisation is “paper thin”.

“We saw this in August 2005 with Hurricane Katrina in the US where the city of New Orleans was cut off and order broke down within days.”

“By the second day, people were becoming desperate for food and water. By the third day, violence had broken out. You have vigilantes, looters, and the national guard moving in.”

“Civilized behavior only lasts about three days in the absence of reliable water, food, electricity and all the things we take for granted.”

In a situation where banks are closed and people can’t access their money, Mr Rickards said social disorder will break out “quite quickly”.

This will be followed by a breakdown of internal systems.

“This is how complex civilizations collapse.”

“It isn’t a barbarian invasion, but an internal collapse, because of too much bureaucracy, too much taxation, and complexity.”

He said the social disorder will be most acute in major metropolitan areas.

To survive this new system, Mr Rickards anticipates communities will shift to a semi-barter system where skills are traded and silver, or gold if you have it, can be used to buy food and other essentials.

Fall of the US dollar and rise of gold

As the crisis unfolds, the US dollar is expected to become worthless – with gold the primary valuable commodity.

Even then, Mr Rickards said, in his opinion, it was safer to own mostly physical bullion rather than gold futures, options, un-allocated gold contracts and ETFs etc.

He pointed out there is not enough physical gold in warehouses to meet these paper claims.

Slightly different was owning shares in gold mining stocks. “There is gold there, but it doesn’t belong to you, it belongs to the miner.”

When looking at investing in gold mining companies and explorers, Mr Rickards said just as important as the geology, location, costs, grade and processing methods is the management team.

“Some gold companies have great management. They know exactly what they are doing and they have a track record of controlling costs etc.

“Other gold companies – some of them are frauds. Some may not be frauds but have poor management. So, obviously you don’t want to be involved in those.”

Gold looks to new future

Speaking with Small Caps on his prediction gold will exceed US$10,000/oz, Mr Rickards said people may look at him like he is crazy, but the forecast is based on “rigorous analysis”.

The number has been arrived at via several scenarios including returning the international monetary system to some form of gold standard.

He said there is definitely enough gold to underpin the global monetary system.

“It’s just a question of price.”

“At US$1,500/oz where it is today – there isn’t enough gold, the gold we have at US$1,500/oz, you would drastically have to reduce the money supply by over 50% to maintain that parity of gold to money.”

“But you could take the same amount of gold and reprice it at US$10,000/oz and now suddenly the same gold supports a much larger money supply.”

He pointed out China, the US, Japan and Europe account for more than 80% of global gross domestic product (GDP).

Combined, these countries’ money supply is about US$24 trillion.

“If you said we want 40% gold backing (and historically that’s a pretty high number), 40% of US$24 trillion is US$9.63 trillion.”

There is about 33,000t of gold in the world – not counting private ownership.

“If you take 33,000t and divide it by US$9.6 trillion, which is how much you have to back, the gold price comes to about US$10,000/oz.”

“So, when I say that number, it is not pulled out of thin air, it is actually the implied non deflationary price of gold to have any kind of gold standard,” he explained.

Another way of reaching the US$10,000/oz price is by looking at gold’s previous performance.

There have been two previous great bull markets for gold.

The first started in 1971 and continued through to 1980 where the gold price ran up more than 2,000% from about US$35/oz to around US$900/oz.

In the second bull market, gold ran up almost 700% between 1999 and 2011 – rising from US$250/oz to US$1,900/oz.

According to Mr Rickards, we are in the third bull market which started on 16 December 2015 when it was at a low of US$1,050/oz.

Rickards sees the gold price reaching US$10,000 per ounce in the next bull run. He said the current price is up about 50% from this low.

When looking at the huge percentage leaps of previous bull runs, Mr Rickards said the current one had a long way to go.

“This will run for years.”

If you apply the previous percentage runs to the current bull market, Mr Rickards said you’d exceed US$14,000/oz.

“These are very simple calculations that are historically rooted.”

“Numbers like US$10,000/oz and US$15,000/oz are not pie in the sky.”

Mr Rickards added if the upcoming financial crisis tips us into a world where there is a complete currency collapse, then gold won’t even have a price.

“It will just be a case of can you get it.”

Axis of gold

In anticipation of such a scenario, many countries have been scooping up gold at rapid rates – with central banks buying record amounts of the precious metal in the first half of 2019 alone.

Since 2009, Russia has tripled its gold reserves from about 600t to almost 2,300t.

“China has more than tripled its gold reserves also from 600t to 2,000t. They probably have more off the books, we don’t know how much, but could just say they’ve tripled it and you are on safe ground.

“Iran has acquired well over 100t. They are not transparent. We don’t know the exact amount but that’s a good estimate.

Collectively, central banks have been hoarding gold since 2010, with buy ups increasing even more in recent years and even months.

Other countries making big gold purchases include Poland, Turkey, Kazakhstan, Vietnam, Mexico and the Philippines.

He has called this movement the new “Axis of Gold”.

Looking at what most of these countries have in common is they are also targets of US sanctions.

“Russia has been sanctioned for its operations in Ukraine and Crimea; China has been sanctioned for theft of intellectual property, limits on foreign investment and unfair trade practices, etcetera; North Korea has been sanctioned for weapons; and Iran has been sanctioned for its nuclear enrichment program etcetera.”

According to Mr Rickards, the US’ financial war on these countries effectively suffocates their economies.

Mr Rickards said this form of warfare works “but the question is how long a country is going to sit there and take it”.

“And the answer is not much longer.”

He said China and Russia could feasibly implement a permissioned digital currency system that is backed by gold and based on blockchain technology.

Being a permissioned system, countries would need approval to join.

“If the permissions committee doesn’t let you in, then you’re on the sidewalk.”

He said digital coin tokens would be used to keep track of transactions and the balance settled with physical gold once or twice a year.

“What’s missing from that? The US dollar. There is no dollar at all.”

And if you think this is a fictitious scenario. Think again.

Mr Rickards pointed out it was already underway.

“The gold is being acquired – this is a foundational step. The technology is out there, it isn’t that difficult to do.”

“This could come quite quickly and unexpectedly.”

___________________

September 4, 2019

With the price of gold surging above $1,550 and silver getting ready to assault $20, could we really see $1,000 silver? Also, history is being made, China’s banking system is leveraged nearly 50-1, plus look at what just hit the highest level in 40 years.

Greenspan & Gold

September 4 – Peter Schiff:  “Alan Greenspan said people are buying gold because they want to own something that will still have value 20 or 30 years in the future. This means Greenspan likely believes that long-terms Treasuries and U.S. dollars will not have much value 20 or 30 years from now. He’s right!”

History Is Being Made

Holger Zschaepitz:  “History is made on the bond markets: The 2020s will begin with the lowest interest rates in 5000 years, BofAML says. (See below).

2020 Will Kickoff With The Lowest Interest Rates In 5,000 Years

China’s Banking System Leveraged Nearly 50-1

Lawrence McDonald, Former Head of Macro Strategy Societe Generale:  “A five-year-old can tell you, China is financing US deficits, an absurd perspective. Their banking system is $40T is size, levered nearly 50-1, China desperately needs US pensions, ETFs, mutual funds to buy their stocks and bonds. *American households hold over $100T of wealth.”…

Another Contrarian Indicator

Otavio Costa:  “Another contrarian indicator at its highest level in 40 years! Consumer confidence-to-sentiment ratio at a cyclical high? Happened prior to every recession. Now spiking after sentiment had its worst monthly drop in 7 years. Stocks never looked so toppy. (See below).

Consumer Confidence Just Hit The Highest Level In 40 Years!

10 Years Later…

Sven Henrich:  “10 years after the financial crisis there is zero evidence that markets can make or sustain new highs without artificial intervention or stimulus of some sort. A giant subsidy program that has not produced above trend growth, but record debt expansion & wealth inequality.”

A World Of Hurt

Liz Ann Sonders, Chief Investment Strategist, Charles Schwab & Co.:  “Manufacturing exports’ world of hurt (see below).

A WORLD OF HURT: Manufacturing Collapse Continues

$1,000 Silver?

Graddhy out of Sweden:  “Put some TA (Trend Analysis) on this chart. One could also maybe see a non-perfect inverse head & shoulders. Value adjusted in 1998 dollars. Chart confirms that silver once traded upwards of 1,000 USD, which means it would not be unfamiliar for it to go there again, which I think it will. (See below).

600 YEARS OF SILVER: Is Silver Headed Back To $1,000 (Inflation-Adjusted)?

___________________

By Peter Grandich
August 27, 2019

Back in late summer of 2018, I made a decision that gold, and related investment vehicles, was a much better choice for capital gains opportunity than both general equities and the overall U.S. stock market going forward. I chose to hold just one general equity and to instead own gold, numerous gold ETFs and one individual mining stocks as my personal portfolio. Gold was on either side of $1,200 during that timeframe.

Since then, I continued to suggest gold, and those related items, as my personal choice over the U.S. stock market. As of now, it has proven to be a much better choice with gold up 30% and with gold-related vehicles up an average 100% or more. This contrasts, in the same period, with the flat-to-down general stock market. Gold and gold-related items have even outperformed general equities just in 2019.

While many of the remaining ‘gold bears’ and those who claim that “gold’s rise is basically behind us”, they are mostly the same folks who said the same at $1,200 and who also claimed that gold was going under a $1,000 too. Words like “relic” were common in their description of gold, and many of them even claimed that bitcoin and cryptocurrencies were the ‘new gold’. How’s that working out for them?

While I had a bias in favor of gold for the first 30 or so years of my career in and around the financial arena, I have had no such bias now for the last 5+ years. I neither promote investment vehicles that benefit from my stance nor am I employed by anyone who would benefit from my bullish talk on gold. My motivation has simply been 100% for personal profit motives that have led my viewpoints.

When I was in the ‘soothsayer racket’, we were mainly as good as our last call. Having learned to eat a lot of broken glass from my days of carrying around a crystal ball, I hope to remain fairly humble despite having one heck of a year over these past 12 months or so. And, I also have come to learn, sometimes the hard way, that resting on one’s laurels may stroke the ego, but it does nothing for the pocketbook going forward.

So, with that in mind, here’s my latest observations of gold and gold-related vehicles, keeping in mind that I, too, put my pants on one leg at a time.

It’s been my opinion that gold would have 3 stages to go through:

• Phase 1 was to break
  and stay above a resistance area that had lasted for years between $1,350 –
  $1,400.
• Once it achieved that,
  I felt that Phase 2 would see gold pop to around $1,500. After a period of
  time, I felt that area would become ‘a line in the sand’ for the many gold
  bears and for the “Don’t Worry Be Happy Crowd”, who view gold
  as ‘kryptonite’ to their punch bowl that has maintained
  financial assets as the only perceived game in town.
• Once these bears and
  weak-kneed bulls had run their course, gold would begin a Phase 3, which would
  be its longest and most-volatile. However, this phase is where gold makes its
  biggest move to a new, nominal all-time high within 3 years or less.

Given Friday’s run-up and this week’s follow-through, it appears that Phase 3 has begun despite gold being very overbought on some technical charts. One of the very few traders that made money trading markets over the years (and I’m not one of them), told me late Friday that I should not to be too concerned how overbought gold was technically. He advised me that, in the early stages of a mega bull market, it’s not uncommon for much-longer periods of being overbought. He noted that it is this phase that leads many, who never got on board early, to remain waiting for a major pullback, or correction, and either miss the play entirely or enter near the end of the run.

He’s got something there as I was considering putting some trades back on that had been most profitable to me multiple times during the last year, but felt the overbought condition could lead to a test of at least the $1,480 support area and therefore I should wait. It appears that “he who hesitates is lost” when it comes to gold now. I do still have a very large core position that I will not consider selling until we’re well into the third phase.

So, you may be thinking, “Okay former whiz kid, what’s next for gold?”

Having first grudgingly accepting, and now gracefully recognizing, that the only person who has any real idea of the future is Almighty God, please understand, at my very best, I’m simply making an educated guess.

Let’s begin by remembering gold is hated and/or ignored by most of the financial services industry as it’s like ‘kryptonite’ to financial assets. So, you’ re just never going to hear the financial media, or those who make a living from selling financial assets, expound on the merits of gold ownership – period.  This alone will keep many investors from ever owning gold at any time, since most novice investors, and sadly, many so-called ‘professionals’ are crowd-followers and they are unable to act unless it seems that’s what the majority is doing. I had found that most, who attended the conferences around the world where I had spoken, came, not to learn, but to get confirmation of what they already believed.

But also, be aware that there’s always going to be a group of pro-gold believers, who have been bullish on it for years – if not decades. Many times because gold is what they sell or what they do is influenced by the price of gold. That group, once known as the ‘hard asset crowd’ has been decimated by many factors, and at best, is a shell of their former selves.

Gold itself was in a trading range for years, and during that time, the industry that looks for it, mines it and also sells it in different ways, all fell on some pretty tough times. This is actually a bullish factor now but try telling that to those who went from gold to pot to cryptocurrencies, trying to make a living. But again, as it always does, adversity creates opportunity. The lack of finding numerous major new gold deposits for several years now, and even with $1,500+ gold you’re not going to see a bunch of new supply come into the market overnight, and gives credence to the argument of “Peak Gold”.

So, the supply side of gold, is not expected to become a negative anywhere on the horizon. But just like it takes two to tango, one also needs a bullish demand side to go along with a bullish supply argument.

While I’ve been absent from the metals and mining industry since 2014, I still kept an eye on it and, of course, with both my hands holding onto my wallet. While watching that which can now only be described as a highly-driven technology casino, the U.S. stock market was once was a place where people actually bought stock to be part-owners of a company.  But now, many playing that market don’t even know what the company does or even cares. Today, investment decisions are made for quick profits generated from anything that seems to be moving with momentum. And boy, does gold now have that going for it. So, whether it’s a headline-driven algorithmic computer program or some 29-year-old day trader who thinks that mathematics will make him rich, neither can regularly beat the stock market and will learn like the rest of us “old-timers”,  that only dishonesty or a tremendous amount of luck ever allowed it to be beaten on a regular basis.

Believe it or not, the easy part is now over. While gold still has hundreds of dollars more of upside potential, it’s going to be more volatile and harder to hold on to, then it was the last 12 months.

One of the key factors, that I anticipate will drive gold in the coming weeks and months, is something, quite frankly, that I still can’t get my hands around – negative interest rates. Forgive me, but when I started in this business 35 years ago, I was given 10-year CDs at 15% to use as a door opener to build new clients. Very few investors were interested because it wasn’t too long ago that rates hit 20% and many felt 15% wasn’t high enough. Mind you, at banks, they also threw in a toaster with their CDs.While I can’t imagine that we will need to pay a bank soon just to hold our money, which I wonder will the roles be reversed and we get to ask them for a credit check and references now, I do know the gold bears argument of the cost of holding gold has disappeared – not that it was a stirring one for starters.

Another bullish factor for gold is the inevitable return to some form of QE-slash printing funny moneyhere and abroad. If QE 1 two and three didn’t work, maybe QE 29 will end up doing the trick.

Throw in currency interventions, nut jobs in North Korea, and Iran and numerous geopolitical issues hereand abroad, and of course, my belief that we won’t see another major equity bull market in my lifetime,and one has lots of good reasons to think gold still has a way to go.

I’d like to wrap-up by noting two things related to gold and my past history in the metals and mining industry.

First off, for years, I, and a small minority of folks, including the good people at GATA, had argued that gold was being manipulated. We were mocked, ridiculed and cast off as kooks. No one did it more than a man named Jon Nadler, as a person with whom I personally had battled. Nadler, who forgive me Lord, was, and likely still is, a nincompoop. Well, a series of charges and convictions for gold manipulation has occurred recently and I have yet to receive any “I guess you were right, Grandich” emails. I assume that neither did GATA, who were on the absolute frontlines in this battle. I’ll take satisfaction that we saw something critical most others didn’t recognize or refused to recognize.

Finally, I had given some thought about getting my feet wet again by doing some work in the metals and mining game. Thankfully, the good Lord made it clear where I’m supposed to be. But there were two videos that I have below in this posting, which are not only just hysterically funny, but also a good portrayal of what much of the promotion arm of junior resources was like when I was in it. These videos, and the old Mark Twain saying that “a gold mine is a hole in the ground with a liar standing over it”, should forever keep me from seriously entertaining going backwards in my life again.

In summary, I would like to say to those who did what I did a year ago, “congrats”. I do think gold is now in its most volatile phase now and, while no longer cheap, has enough momentum now to get to my ultimate target of a new, nominal new high within in 3 years or less. But the fact that the public is finally awakening to gold, suggests we’re likely to see some significant setbacks along the way.

Regarding mining shares, please keep in mind even if gold stops here and just stays between $1,500 – $1,600, there are going to be a lot of happy gold mining CEOs, who were looking at living off $1,250 gold but now have $300 or so more heading mostly to their bottom line.

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August 21, 2019

Reporting by Nupur Anand and Rajendra Jadhav

AURANGABAD/MUMBAI, India (Reuters) – Refused a loan by a state-run lender and desperate for funds to buy cotton seeds before the summer sowing season window closed, Indian farmer Babasaheb Mandlik ran out of choices – he pawned his wife’s gold jewelry.

Mandlik, who owns an 8-acre cotton farm in western India, pledged 70 grams of gold, almost all of his wife’s precious trinkets, in June in return for 150,000 rupees ($2,105).

“Pawning the jewelry was a difficult decision as my wife likes to wear it at festivals and weddings,” 50-year-old Mandlik told Reuters. “I convinced her that we didn’t have any other option.”

Mandlik is not alone. While pawning gold has long been an option for quick funds in a country that is the world’s second-biggest consumer of the yellow metal, several lenders told Reuters of unprecedented demand as people struggle to secure loans from banks grappling with bad debt and a shadow lending industry stung by a liquidity crunch.

The trend, which has prompted some lenders to impose restrictions as risks and borrowing costs rise, has been accelerated by record gold prices.

Indians’ penchant for gold spans centuries and is rooted in the Hindu religion. Households own an estimated collective 25,000 tonnes of gold, which passes from one generation to the next.

Domestic gold prices MAUc1 have risen more than a fifth this calendar year, hitting a record high of 38,666 rupees per 10 grams earlier this month amid a global rise.

(Graphic: Indians pawn jewelry as gold prices rally to record highs amid credit crunch link:)

“As a lot of NBFCs (non-bank financial companies) have become cautious of giving unsecured or even secured loans, we are seeing more customers opting for gold loans instead,” said Sumit Bali, chief executive officer of IIFL Finance. “One can obtain a gold loan and walk out of the branch in just thirty minutes.”

IIFL’s gold loan portfolio stood at 65.83 billion rupees ($922 million) at the end of the June quarter, up 46% compared to a year earlier.

Those pawning their precious possessions are most often independent workers, including farmers and small shop owners.

Muthoot Finance (MUTT.NS), a leading gold financing shadow bank, said its gold loans rose 6.6% between April 1 and July 24 this year to 358 billion rupees.

“Pledging gold is becoming more lucrative with rising prices. We have seen healthy demand for gold loans in the last few months,” said George Muthoot, director at Muthoot Fincorp, which has 2.98 million customers.

Ashutosh Khajuria, the chief financial officer of Federal Bank Ltd (FED.NS), a private lender headquartered in south India, said its gold loan portfolio was at an all-time high of around 80 billion rupees and is expected to grow further.

CREDIT CRUNCH

Indian shadow banks began to face a liquidity crunch following the collapse late last year of Infrastructure Leasing & Financial Services, a major player in the non-banking financial companies space. That led to a surge in borrowing costs, forcing NBFCs to freeze, or tighten lending practices.

Some gold lenders who are also NBFCs have not been immune, despite their increased popularity with borrowers and the solid commodity backing their loans.

Manappuram Finance (MNFL.NS), which has 2.5 million gold loan accounts, last week revealed its cost of funds in the April-June quarter rose to 9.34% from 8.77% a year earlier.

Muthoot has independently decided to trim the maximum loan amount of 75% of gold value imposed by India’s central bank to 70%, citing higher borrowing costs and the need to shield itself from any future volatility in gold prices.

“We are still expecting growth of 15% to 20% in gold loans in 2019/20,” said George Muthoot.

Mandlik, meanwhile, is hoping to be able to buy back his pawned gold, which includes pieces gifted to his wife by her parents, after the cotton harvest in October. But the success of his crop – and the future of his wife’s jewels – is at the mercy of India’s monsoon rainfall.Slideshow (2 Images)

“You can sow the seeds, but yield depends on monsoon rains,” said Mandlik, who lost his 2018 crop to drought.

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