Author: david@goldsilverdesk.com

Neils Christensen 3/5/201

Goldman Sachs is turning lukewarm on the general commodity index but the firm remains positive on gold and silver, increasing its forecast for the precious metal in its latest commodities report.

In a report published Monday, commodity analysts at Goldman Sachs raised their forecast by $25 across the board over the next three, six and 12 months. The analysts now see gold prices pushing to $1,350, $1,400 and $1,450 an ounce, respectively.

“The negative gold-real rates correlation has re-emerged, with the gold rally closely tracking the fall in real rates. In our view, this switch in the gold-rates correlation after the Fed pause reflects why this stage of the rate cycle is the sweet spot for gold,” the analysts said. “Higher rates can lead to more financial-market volatility and recession fears, boosting safe-haven demand for gold, while a rate cut boosts gold demand as it lowers opportunity cost of holding gold.”

Looking at silver, the investment bank raised its short-term and long-term forecasts up 25 cents. Analysts see silver prices rising during the next three, six and 12 months to $16.5, $17 and $17.5 an ounce, respectively.

Although silver’s industrial demand looks anemic going forward, Goldman Sachs is optimistic that silver will continue to rally in line with gold prices.

“At the same time, a high gold/silver price ratio should help incentivize investors to diversify some of their gold holdings into silver,” the analysts said.

The bullish sentiment comes at an important time for gold, which has been hit with a wave of selling pressure as investor optimism in equity markets has weighed on the yellow metal. Gold prices have dropped nearly 5% since hitting a 10-month higher last month. April gold futures last traded at $1,285.20 an ounce, down 0.18% on the day.

The silver market is defying gold’s weakness with the precious metal modestly up on the day. May silver futures last traded at $15.135 an ounce, up 0.20% on the day.

While Goldman is optimistic that gold prices will continue to push higher, analysts are not as optimistic on the overall commodity complex, saying that prices are no longer overvalued and need a new catalyst to push higher.

“From this point, positive returns will need to be justified by further evidence of improving fundamentals. The risk-reward of being outright long commodities is therefore less compelling now compared to a few months ago, and we recommend a neutral portfolio position in commodities,” the analysts said.

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February 5, 2019

Price inflation has been badly misrepresented by CPI figures and have been averaging closer to about 8% annually since gold topped in Sept 2011. Since then the purchasing power of the dollar has declined by about 43%, so that in 2011 dollars the gold price is $740. No one seems to have noticed, leaving gold extremely cheap. – Alasdair Macleod, “Ten Factors To Look For In Gold In 2019”

The following is an excerpt from the latest issue of the Mining Stock Journal, which included an analysis of a  highly undervalued, relatively new and unknown junior mining company advancing a gold-silver project in Mexico.

As I have suggested in the past (in more detail in the Short Seller’s Journal), the Fed is retreating quickly from rate hikes and balance sheet reduction (QT). The Fed deferred on raising rates at its FOMC meeting this week. What I found somewhat shocking, however, was the removal of reference to “further gradual rate increases.”

Perhaps more shocking was the reference to the possibility of re-starting the money printing press:  “…the Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy…” That statement translated means, “we’ll have to print more money eventually.”

This should be extremely bullish for the precious metals sector. The only issue is the timing of the next big move higher. That depends on the degree to which the banks can continue controlling the price with gold and silver derivatives.  No one knows that answer, not even the banks. At some point, as occurred from 2008-2011, the western banks will be unable to suppress the natural price rise of gold/silver. That said, the Chinese and the Russians could pull the rug out from under the western manipulation if and when they want. That will happen eventually as well.

Alasdair Macleod wrote a brief and insightful essay from which I quoted and linked above describing key factors in 2019 that could push the price of gold significantly higher. Most of the factors are familiar, especially for subscribers to my Short Seller’s Journal. First and foremost will be the Fed, along with Central Banks globally,  reverting to easy monetary policy.

Notwithstanding official propaganda to the contrary, the U.S./global economy is rapidly slowing down. Many areas are contracting. Government spending deficits will soar as tax revenues fall behind the rate at which Government spending is increasing.

At some point, the Government will plead with the Fed to help finance Treasury issuance (this will occur in the EU, Japan and China as well), creating another acceleration in monetary inflation/currency devaluation. This will act as a transmission mechanism to inflate the dollar price of gold. Smart investors understanding this dynamic, and who have the financial resources, will move dollars out of financial assets and into gold. See 2008-2011 for an example of this process.

Gold has outperformed almost every major asset class since 2000:

Gold has outperformed most other assets since 2000 because Central Banks globally began to implement extreme monetary policies in response to the global stock market crash in 2000 led by tech stocks. As John Hathaway, manager of the Tocqueville gold fund, describes it, “gold has been a winning strategy since monetary policy became unhinged nearly two decades ago.”

In addition to the fiscal and monetary policies implemented globally in response to deteriorating economic and financial conditions, Alasdair identifies four factors directly affecting the price of gold this year.

One factor not widely perceived or understood by the markets is the gradual and methodical shift away from using the U.S. dollar for trade and as a reserve asset by Russia and China. It’s clear that both countries are swapping dollar reserves for gold and conducting an increasing percentage of bi-lateral trade with their trading partners in each country’s sovereign currency.

As an aside, gold has been soaring in most currencies besides the dollar. At some point, this shift away from using the dollar as a reserve currency will remove the “safe haven asset” status of the dollar, causing a considerable decline in the dollar vs global currencies. Concomitantly, the dollar price of gold will soar.

Another factor identified by Macleod is price inflation: “price inflation has been badly misrepresented by CPI figures and has been averaging closer to about 8% annually since gold topped in Sept 2011. Since then the purchasing power of the dollar has declined by about 43%, so that in 2011 dollars the gold price is $740. No one seems to have noticed, leaving gold extremely cheap.”

In my view, the price inflation factor as it affects investor attitudes toward gold will be a “slowly then suddenly” process. Investors and the population in general tend to move in herds. Currently the headline Government CPI is accepted and discussed as reported. At some point,  a large contingent of mainstream institutional investors will decide the Government’s measurement of inflation is wrong and will begin to buy gold and silver. The masses will soon follow. We saw this dynamic leading up to the parabolic move by gold in 1979-1980.

The third factor is “monetary inflation.” Most people think of price when they see the term “inflation.” But the true economic definition of “inflation” is the rate of growth in the money supply in excess of the rate of growth in economic (wealth) output. This in essence reduces the value of each dollar. Think about it terms of an increasing amount of dollars made available to chase a fixed supply of goods and services. That’s the monetary inflation that causes “price” inflation. Rising prices are the manifestation of monetary inflation.

As discussed at the beginning, at some point the Fed will be forced to re-start the printing press or face the consequences of a rapid economic and financial collapse.  Macleod points out that “these are exactly the conditions faced by the German government between 1918 and 1923, and the likely response by the Fed will be the same. Print money to fund government deficits.”  Recall that the policies used by the Weimar Government eventually led to hyper price inflation. The hyperinflation did not occur until the early 1920’s. But the policies leading to this condition began in 1914, when Germany World War 1 started and Germany’s huge war debt began to pile up. This is strikingly similar to the huge U.S. Government debt outstanding currently.

The final factor mentioned by Macleod is simply, “Gold is massively under-owned in the West.” By 1980, institutional investors on average held 5% of their assets in gold. Currently the percentage allocation to gold (or fake gold like GLD) is well under 1%. All it would take for a massive price reset  in gold and silver is for institutions to allocate 1-2% of their assets to gold. I believe eventually that allocation percentage will move back to 3-5%, which will drive the price of gold well over $2000/oz.

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January 29, 2019

With gold punching above $1,310 and silver surging toward $16, today James Turk told KWN“This move is real.”

January 29 (KWN) – James Turk: “This move is real, Eric. We’ve got gold over $1,300 and it’s in a powerful uptrend. Silver is breaking through its resistance at $15.80 and looks ready to head higher along with gold…

Money Flowing Into Mining Stocks
James Turk continues:  “Importantly, money is not only moving into precious metals but into the mining stocks as well. There is some caution and hesitation by many investors.  This caution is understandable in view of what investors in the precious metals sector have gone through in the past several years.  But bull markets always begin this way, Eric.  They are always climbing a ‘Wall of worry,’ so we have to step back from the trees and take a look at the forest.

Expect Upside Surprises In Gold & Silver Bull Markets
In that regard, there are two things to focus on: how undervalued the precious metals are, and secondly, how many bullish factors indicate that 2019 is going to be a great year for gold, silver, and the mining stocks.  For what it’s worth, Eric, the powers that be could not keep the precious metals down during this option expiry week, at least up to now.  And if this bullish trend continues through tomorrow, after the FOMC announcement, that would be an even bigger surprise.  That is very unusual and it’s an important sign when markets trade differently like this. Or said another way, there is a lot of buying pressure in the market, which just goes to show that surprises in bull markets almost always happen on the upside.  Enjoy the ride.”

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Thu, 11/29/2018 – 22:30

Even though interest in precious metals has fallen over the past few years, investment demand is still the largest growth sector in the silver market.  Yes, it may be hard to believe, but physical silver investment has grown the most since the 2008 financial crisis compared to the other sectors.  And while industrial users consume the highest amount of silver in the overall market annually, its total demand has fallen over the past decade.

Furthermore, a new study shows that global PV solar demand will decline by 40% over the next five years.  But, I will get to that later in the article.  However, I wanted to focus on physical silver investment demand because the alternative media community seems to have this idea that SILVER IS DEAD… IT’S NOT.  While it’s true that investment demand has declined significantly from the peak a few years back, it is still much higher than what it was before the 2008 financial crisis.

Interestingly, silver coin bar and coin demand seem to spike the most when prices are falling rather than when they are rising.  This was true in 2015 when total global silver coin and bar demand hit a record high of 292 million oz (Moz) as the silver price fell to a low of $15.68 versus 161 Moz in 2012 when the average price was $31.15:

Now, according to the Silver Institute’s Interim Report, total coin and bar demand will fall to 125 Moz in 2018, down from 142 Moz during the prior year.  So, even though physical silver investment demand is down more than half of what it was at its peak in 2015, it is significantly higher than what it was in 2007, before all hell broke loose in the financial system and economy.

Looking at the data from prior World Silver Surveys (found at the Silver Institute), coin and bar demand ranged from 50-60 Moz during 2000-2007.  However, things got really interesting in the silver market when the priced jumped to $20 in 2008 on the back of a disintegrating banking and housing market.  Silver coin and bar demand more than tripled in 2008 to 192 Moz.

But, in 2017 and 2018, the ongoing low prices saw global silver coin and bar demand fall to lower levels as investors focused on the more volatile broader markets, Bitcoin and the Cryptos.  Nonetheless, I believe life will return back into the precious metals in 2019 as FEAR ENTERS into the market.

As I mentioned, physical silver investment demand is the largest growth sector in the entire market if we use the 2008 financial crisis as a guideline.  Silver coin and bar demand it has increased 123% from 56 Moz in 2007 to 125 Moz forecasted this year (Thomson Reuters GFMS Team).  Now, the only other sector that has shown an overall increase in the same period is silver jewelry demand which grew 8% versus an 11% decline in Industrial usage followed by a drop of 8% in the silverware sec

Now, according to the Silver Institute’s Interim Report, total coin and bar demand will fall to 125 Moz in 2018, down from 142 Moz during the prior year.  So, even though physical silver investment demand is down more than half of what it was at its peak in 2015, it is significantly higher than what it was in 2007, before all hell broke loose in the financial system and economy.

Looking at the data from prior World Silver Surveys (found at the Silver Institute), coin and bar demand ranged from 50-60 Moz during 2000-2007.  However, things got really interesting in the silver market when the priced jumped to $20 in 2008 on the back of a disintegrating banking and housing market.  Silver coin and bar demand more than tripled in 2008 to 192 Moz.

But, in 2017 and 2018, the ongoing low prices saw global silver coin and bar demand fall to lower levels as investors focused on the more volatile broader markets, Bitcoin and the Cryptos.  Nonetheless, I believe life will return back into the precious metals in 2019 as FEAR ENTERS into the market.

As I mentioned, physical silver investment demand is the largest growth sector in the entire market if we use the 2008 financial crisis as a guideline.  Silver coin and bar demand it has increased 123% from 56 Moz in 2007 to 125 Moz forecasted this year (Thomson Reuters GFMS Team).  Now, the only other sector that has shown an overall increase in the same period is silver jewelry demand which grew 8% versus an 11% decline in Industrial usage followed by a drop of 8% in the silverware sector:

Analysts who continue to brag about rising industrial silver demand don’t seem to pay attention to the figures.  Industrial silver demand peaked in 2011 at 661 Moz and is forecasted to fall another 2% this year to 585 Moz down from 596 Moz in 2017.   I have stated over and over again, that industrial silver demand is not the primary driver of price.  Why?  In 2012, when the silver price was higher at $31 industrial silver demand was less at 600 Moz compared to 634 Moz in 2009 when the price was only $20.

That being said, silver industrial demand is likely to continue contracting as oil production peaks and declines.  Even if we disregard falling oil supply and its impact on the overall market, a new study titled The Role Of Silver In The Green Revolution (for the Silver Institute), states that silver demand in the PV Solar Industry is forecasted to decline by 40% by 2024:

Not only is PV Solar silver demand to fall considerably this year compared to the nearly 90 Moz in 2017, but the CRU Report also forecasts that it will continue to decline to approximately 50 Moz by 2024.  I gather we can now dismiss all the supposed notions of massive increases of Solar PV silver consumption in China and throughout the world.  Actually, I believe Solar PV installations will begin to decline considerably as the market realizes it’s too expensive and its very low EROI – Energy Returned On Investment will not provide the Green Energy future as planned.  One more thing, the more PV Solar Plants that are added to the grid, the more balancing power that needs to be added to offset the huge drop-off at night when the sun isn’t shining.  Very few people realize the huge problems associated with adding Solar to the Electric Grid.

In my ongoing research, I have found out that supply and demand forces are not good primary indicators of the silver price.  Part of the reason that supply and demand fundamentals play less of a role with silver has to do with the 2.5+ billion oz of custodian silver metal stored in vaults across the world.  Moreover, as I stated, the highest demand for physical silver coin and bar demand of 292 Moz in 2015 was due to 50% REDUCED PRICE SALE compared to 2012.  So, there are very complicated factors driving the silver market.

My newest analysis of the Day Trading Markets has brought a new understanding of what GUIDES THE MARKET PRICE of stocks, commodities, metals, etc.  However, the COST OF PRODUCTION is the overriding factor that provides a FLOOR in the price of most things.  I am not saying this is 100%, but production costs are the leading indicators of price when all things are equal.  And by that I mean, when the market is balanced, the cost of production is the normally the floor price upon which supply and demand forces react.

Let me give you an example.  If we look at the financial statements of most companies, they are all making a small percentage of profits once we account for ALL COSTS.  So, if a company like Caterpillar is manufacturing and selling Earth Moving Machines for the market and they are making about a 5% profit (give or take), then the total cost of that machine they sell becomes the 95% of the market price.  It’s really that simple.

Now, of course, Caterpillar isn’t going to manufacture and sell ten times more machines in a given year than the market demands as that could depress prices.  Furthermore, their financial constraints (small annual profits) KEEPS them from manufacturing too many machines because they just don’t have the extra money or available low-cost credit to do so.  So, the market is kind of self-regulating when we consider supply and demand forces.

Once we understand this self-regulating market, the most significant factor that is impacting market prices… is the TOTAL COST OF PRODUCTION.  Please know that I am talking about a “Typical balanced market,” not some poor slob out in the desert who would exchange his gold watch for a gallon of water.  That is not a typical market.

According to my analysis, the main driver of the silver price, OVER A LONG PERIOD OF TIME, has been the oil price:

As we can see, the silver price has trended nicely along with the oil price since 1900.  Silver spiked higher in the 1970s versus oil because there was much higher “consumer price inflation” while the 2000s experienced a great deal more “asset price inflation” (stocks, bonds, and real estate).  Also, physical silver demand had more of an impact on silver price in the 1970s while the paper markets have been the leading driver for at least the past two decades.

Thus, when the oil price shot up from $19 in 2000 to $110 in 2011, this had a tremendous impact on the cost to produce silver.  Here is a chart that I have posted before on my estimated Pan American Silver mining production cost (one of the largest primary silver producers in the world) versus the market price:

Here we can see that for the most part, Pan American’s total mining costs were slightly below or above the market price.  Only during the highly speculative silver years of 2011 and 2012 did Pan American Silver enjoy much higher profits.  In my most recent update, Pan American Silver’s AISC – All-In Sustaining Cost in Q3 2018 was $13.73, not much lower than the current market price of $14.15.

So, with all the global supply and demand forces over the past century, I find it quite amazing that the silver price has trended up and down with the oil price.  Why?  Because the oil price is the main driver of the economy and it sets the INFLATION RATE and PRODUCTION COSTS of most things.  I don’t care if the market or individuals create the demand for silver and the miners produce the supply… they cannot determine the PRODUCTION COST… that is based on the thermodynamics of a highly complex system.

Yes, it is true that if no one on the planet wanted silver, then common sense would dictate that its value would be ZERO.  However, if people desire goods and services, they are going to have to pay the price to cover the COST OF PRODUCTION.  It is that simple.

I will be writing more articles and publishing new videos on what is and what will be the NEW DRIVER of the silver price in the future.  I get a lot of questions from people who ask me that if I believe the oil price will fall, then how can I see much higher silver prices in the future.  WELL, THERE LIES THE TRILLION DOLLAR QUESTION.

But, to put it quite simply, the massive $247 trillion in global debt has provided a temporary illusion of high STOCK, BOND, and REAL ESTATE asset prices.  Basically, the debt has blown up these asset values.  However, GOLD & SILVER are not being propped up by debt.  When the debt implodes, most asset prices are going to deflate into the cesspool.  And with falling U.S. and global oil production, it will make a bad situation worse.  Growing global oil production has allowed the debt to increase, but this will head the other way when the oil supply turns south.

When investors watch as their assets continue to go from BAD, to WORSE to AWFUL, they will move into gold and silver to protect wealth.  This will be the time when precious metals SUPPLY & DEMAND forces finally kick in a big way.

Lastly, the next market phase we will enter into is WEALTH PRESERVATION.  So, when the investors become reacquainted with precious metals during this phase, we will no longer have to worry about whether or not SILVER IS DEAD.

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Jan 2, 2019

As 2018 drew to a close, the prices of Comex gold and silver began to move higher. This was just as expected and we wrote about these pending year-end rallies on several occasions. Before going further, perhaps you should take time to review these links.

• This from early November: https://www.sprottmoney.com/Blog/into-year-end-wit…
• This from mid-December: https://www.sprottmoney.com/Blog/gold-and-silver-p…

The rallies have proceeded almost entirely as projected and, as the new year begins, several of our short-term price goals have been achieved. In Comex gold, we anticipated that a break of the 200-day moving average would serve to accelerate price toward the psychologically-important $1300 level. This is occurring as I type and, once $1300 falls, the final short-term objective becomes $1310. 

As noted in the post linked above that was written on December 12, the key event was the bullish cross of the 50-day moving up and through the 100-day. This has led to significant Spec HFT algo buying pressure and though The Banks have responded by issuing nearly 50,000 new contracts since this this crossover occurred, price has rallied over $60 and will continue to move higher with, again, the current short-term goal being $1310. See the chart below: 

And now Comex silver is following the same pattern. In that December post, we told you that once silver moved through $15, the target would become its own 200-day and it reached that level today, January 2. Though stiff Bank resistance is to be expected at this level, silver will win the fight and begin a move toward its own short-term target of $16.40 and the 200-week moving average. Heavy resistance has been enforced at this level since mid-2016 so you must expect that out initial silver rally of 2019 will end near there. See the charts below: 

But this is just the beginning of what promises to be a very exciting year for precious metals investors. And why will 2019 bring the best performance since 2010? Because the conditions which sparked the rallies in 2010-2011 are presenting themselves again in the new year.

Back in early 2010, the US economy was perceived to be recovering from The Great Financial Crisis debacle of 2008. The mainstream media was endlessly telling us about “green shoots” of growth and The Fed’s policy of Quantitative Easing was perceived to be a one-off that would never need to be repeated. However, by mid-2010, it became clear that the U.S. economy was slowing and, in November of that year, The Fed capitulated and announced the $6ooB program dubbed “QE2”. The subsequent loss of faith in central bankers, their policies and the dollar led to this: 

Comex gold began 2010 at $1096. It was $1192 by the end of July 2010 and it finished the year at $1421 for a gain of 29.6%. It then went on to peak at $1920 in early September of 2011 following a true crisis of confidence in US solvency and the dollar in August.

Comex silver began 2010 at $16.85 and it was still at just $18.01 by the end of July of that year. However, the pending announcement of QE2 sparked a rally that carried all the way through the epic Bank short squeeze of April 2011. This rally totaled an incredible 170% over just those ten months.

So, will 2019 mirror 2010 in price gains? As stated above, the conditions are similar. To wit: 

The U.S. economy is demonstrably slowing due to higher interest rates and a nearly-inverted yield curve.

Political Risk in the US is high as the year begins with a government shutdown and a Democrat party takeover of the U.S. House of Representatives. Soon there will be about 20 new investigations of President Trump from 20, different congressional committees. All of this will foster more economic uncertainty and, for the first time since 2011, some real concern about U.S. fiscal policy and accumulated debt.

And, from a forecast of 3-4 Fed Funds rate hikes in 2019, expectations have rapidly shifted in the past two months to 0-1 rate hikes. Many economists now expect even rate cuts in 2019, as you can on the chart below.

So, as you can likely discern for yourself, conditions are eerily similar to 2010. Thus, why would we not expect precious metal prices to rally? These “markets” are already beginning to figure this out and the result is the year-end rallies discussed earlier in this post and displayed on the charts above. 

What’s next will be a continued rally. It won’t be straight up and it certainly won’t be without Bank resistance every step of the way: https://www.sprottmoney.com/Blog/the-endless-war-o… 

However, prices will rallyover the balance of the year and annual performance will resemble 2010. A similar, 30% rally in Comex gold in 2019 would take price to near $1700. If silver were to replicate 2010, we would see a move to $25+. Thus, the time is now to peer over the horizon and take steps in anticipation of these events. 

And what is your best and most prudent step in preparation? Buying physical precious metal, of course! Acquiring real, physical gold and silver is easy. It can be held at a trusted gold bullion storage company or in your own, personal safe. You can hold it in gold bullion coins or silver bullion bars. Take your pick. Just be sure you own some before confidence collapses, the dollar declines and The Fed begins its next course of rate cuts and quantitative easing.

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