Author: david@goldsilverdesk.com

October 01, 2020

Ted Butler

Butler Research

As widely telegraphed over the past week, the US Justice Department and Commodity Futures Trading Commission (along with the SEC) have settled the precious metals spoofing/manipulation case which first came into view in November 2018 with the announcement of a guilty plea by a former JPMorgan trader. The total fine of $920 million was the largest in CFTC history and the settlement included a Deferred Criminal Prosecution Agreement, the third (by my count) such agreement involving precious metals manipulation (BankAmerica and Scotiabank had previously entered into DPA’s involving precious metals manipulation).

https://www.justice.gov/opa/pr/jpmorgan-chase-co-agrees-pay-920-million-connection-schemes-defraud-precious-metals-and-us

As expected, the settlement narrowly focuses on spoofing, the illegal short term trading device and not the much more serious long term suppression of silver (and gold) prices that I claim JPMorgan has been guilty of since 2008.  As such, any claims by victims of JPMorgan’s illegal activities would have to show damage from very short term trading, a difficult and expensive undertaking. As I have explained previously, were the Justice Department and CFTC to have alleged a long term suppression of prices by JPMorgan that would have, effectively, put the bank out of business – period. Accordingly, no such finding was possible.

I’m not going to spend too much time on summarizing the case to this point, as it would be more instructive to look ahead and I believe there is plenty to anticipate as a result of the settlement. As long term subscribers might be aware, I began my focus on JPMorgan’s manipulation of silver and gold a year before I started this subscription service (in August 2009) when I discovered, via the August 2008 Bank Participation Report that JPM became the largest short seller in COMEX silver and gold as result of its takeover of Bear Stearns in March 2008. Subsequently, of the more than 1100 articles I have penned on these pages, almost all have featured and accused JPMorgan of manipulation. (I’ve sent all my articles to JPMorgan and the CFTC, as well as the CME Group).

As a result of a number of my articles around the time of the August 2008 Bank Participation Report and reader petitions, a formal 5 year investigation was initiated by the CFTC into silver manipulation, involving the DOJ and which was later reported to have focused on JPMorgan.  Although that investigation was concluded with no charges, I continued to allege that JPMorgan was manipulating the silver and gold markets.

On April 30, 2018, I called and wrote to the Public Integrity Section of the FBI, complaining that the CFTC was guilty of malfeasance in allowing JPMorgan to amass a perfect trading record in COMEX silver and gold futures, in which it never suffered a trading loss when shorting excessive amounts of metals contracts and then used its ability to suppress prices to accumulate massive amounts of physical silver and gold on the cheap. Based upon the timeline of the case and recent reporting on Bloomberg, I’m convinced my complaint prompted the Justice Department to take a closer look at JPMorgan, the first step of a process that concluded yesterday.

So while the Justice Department took a pass on going after JPMorgan on the much more serious grounds of price suppression and the accumulation of physical silver and gold at the manipulated prices it created by excessive short selling, at least it dinged JPM pretty good and, most importantly, brushed the bank back from hugging the plate (a baseball term for intimidation). While the $920 million monetary penalty is the largest in CFTC history, it’s widely acknowledged that to JPMorgan, it is no more than nickels and dimes.

The same cannot be said of the Deferred Criminal Prosecution Agreement; particularly because this is not JPMorgan’s first DPA. The only thing worse is a straight criminal prosecution, which would, effectively, put a financial institution out of business (think Arthur Anderson).  Although individual traders from JPMorgan still face criminal prosecution, that’s quite different than the bank itself being so charged. More than any amount of a monetary fine, a DPA carries serious ramifications and you can be sure that it has gotten JPM’s attention – just as it did BankAmerica/Merrill Lynch and Scotiabank, which also agreed to DPA’s for precious metals spoofing/manipulation. It’s getting to be easier to name those banks not (yet) agreeing to a DPA for spoofing.

Make no mistake, none of these banks would be so foolhardy as to knowingly violate the terms of their agreements with the Justice Department. And these agreements are not limited to spoofing; they include all manner of activities that can be considered illegal or manipulative. You can be sure that every attempt will be made at JPMorgan and the other banks, even those not charged, to remain on the up and up in precious metals for the foreseeable future. As such, this is not a big inducement to continue the decades-old COMEX manipulation. And that’s the first big takeaway.

I know the popular prevailing opinion is that JPMorgan got a wrist slap and it will soon be back to manipulating silver and gold. I would respectfully disagree. Criminal activity is not well-served when it is under close scrutiny by those capable of putting the criminals in prison or out of business. Suddenly, the landscape for continued price manipulation in silver (and gold) has gotten quite inhospitable. The old way of doing business would appear to have changed. Let me be clear in what I am saying. I think this settlement is far more significant than is widely believed.

I will acknowledge upfront that just because I have been on JPMorgan’s case like white on rice since the fall of 2008 and engaged in attempting to end the COMEX silver manipulation for more than 35 years, does it mean that my take is correct. If I turn out to be wrong, I will admit it, as and when the evidence dictates. But at this point, I believe the settlement is a seminal event in what has been a lifetime journey for me. Not just because of the settlement, but including other important factors as well, I believe the price path ahead for silver will be markedly different from the past.

In addition to confirming (at least to me) that my complaint of April 30, 2018 to the FBI was what tripped off the fresh look by the Justice Department into JPMorgan months later, I learned something important from the Bloomberg article written in advance of the just-announced settlement.

https://www.bloomberg.com/news/articles/2020-09-28/inside-the-jpm-precious-metals-desk-called-a-crime-ring-by-prosecutors

What I learned from the article was that spoofing – the entering of orders immediately canceled and intended to manipulate prices in the very short term – was a trading device developed by JPMorgan and other banks to offset the effects of High Frequency Trading (HFT) – computer to computer operations run by non-bank trading firms. I did know that the banks were the main practitioners of spoofing (due to repeated public charges), but never knew why that was so. Let’s face it, I and most of you aren’t engaged in high-speed computer to computer trading, as it has nothing to do with long term analysis and investment.

Yet, at the same time, as I described just a few days ago in the weekly review, this HFT and high-speed computer to computer trading has come to dominate not just silver and gold, but trading in all markets. I’m not excusing in any way the banks resorting to the illegal practice of spoofing to counterbalance the price-controlling influence of widespread and all-encompassing computer to computer trading, I’m just explaining that I learned something I feel is important from the Bloomberg article.

As a result, it seems to me, at a minimum, that the crackdown by the regulators on spoofing by the banks means that an important counterbalance to the all-pervasive influence of computer to computer trading has just been eliminated, or largely so, making HFT even more of a price influence than otherwise. I can’t imagine this was the Justice Department’s or CFTC’s intent, but the road to (price) perdition is paved with good intentions. It’s hard for me to see how the settlement doesn’t strengthen the influence of high-speed computer to computer trading.  What does this mean for silver and gold?

Well for starters, as I discussed on Saturday, this should increase price volatility and the magnitude of both up and down price moves. There’s little question in my mind that the sharp, near $10 price rise in silver in mid-July, followed by the more recent sharp, near $7 price selloff, reflects the growing influence of high speed computer to computer trading, aided by the forced withdrawal from spoofing by the banks. I am not necessarily putting a value judgement on this development, just trying to analyze the facts as they appear. That said, I think the price discovery process is nuts, but it is what it is.

Therefore, it seems most reasonable to expect sharper up and down moves than we’ve seen until now and position ourselves as appropriately as possible – meaning first to be mentally prepared for big down, but especially big up moves in silver. In fact, I don’t have much difficulty seeing a fairly quick up move in silver, whenever it starts, of $20 or more due to the effect of now-unencumbered high-speed computer to computer trading, coupled with silver’s spectacular fundamentals and the inevitability of an industrial user/investor rush to the physical metal.

Overarching the retreat from spoofing by the banks and the strengthening of HFT, of course, is the likely behavior of the 8 big shorts in COMEX silver and gold. While the Justice Department and CFTC will remain silent on this issue, from fear of attracting attention to the main reason for silver’s long term price suppression, the CFTC’s own data reveal a remarkable change of pattern over the past year or so in gold and more recently in silver. It’s no secret that these big shorts have suffered mightily (despite very recent relief on the latest selloff) for the first time where they have always enjoyed previous consistent success. And the big shorts have certainly appeared to have lost their previous appetite for shorting in near-unlimited quantities on rallies of late.

I am not suggesting the risk of selloffs is a thing of the past. What I am suggesting is that a confluence of forces have aligned that promise to propel silver (and gold) prices far higher than is currently imagined. While it is in the eye of the beholder as to whether the just-announced settlement between the DOJ/CFTC and JPMorgan was a wrist slap or a seminal event, I would suggest it could be both. Lost in the settlement is the fact that JPMorgan still has managed to pull off the double cross of the ages against its former big short partners in crime. In fact, its agreement with the regulators puts it in perfect position to do the one thing that would make the bank the most money possible, namely, nothing.

If JPMorgan abides by the terms of the Deferred Criminal Prosecution Agreement it has just entered into with the Justice Department and ceases to spoof or otherwise engage in manipulative trading practices, it’s hard for me to see how silver (and gold) prices don’t soon soar. In effect, the DOJ and CFTC have given JPMorgan the go-ahead to make a bloody fortune (on top of the bloody fortune it has already amassed). By not adding to shorts or engaging in spoofing to offset HFT high-speed computer to computer trading, there’s no reason prices won’t soar at some point.

I still reckon that JPMorgan or its insiders hold at least 700 million ounces of physical silver and 25 million ounces of physical gold on which more than $20 billion in open profits have accrued (despite the recent selloff). And my estimates may be too low. For instance, I claim that JPMorgan has been accumulating physical metals for some 9 years. In the case of gold, JPM’s holdings would amount to less than one percent of all the gold bullion in the world (less than a half of one percent of all the gold in the world). But seeing how long JPM has been accumulating physical metal and has, effectively, unlimited buying power, is it inconceivable that it could have accumulated, instead of less than one percent of the world’s gold bullion, less than two percent? That would give it 50 million ounces of gold. Just sayin’.

If the settlement does result in JPMorgan sitting on its hands and allowing silver and gold prices to soar, then we are about to enter a new era – quite different than the past several decades. If, however, JPMorgan and the other big shorts quickly resort to past practice, as most widely believe, and add aggressively to short positions on the next rally, then what I just opined will be wrong and I will admit as much. But it has been quite some time – more than six months since either JPM or the other big COMEX shorts have aggressively added to silver and gold shorts on the COMEX and I believe it is no coincidence that the lack of new shorting contributed mightily to what were the greatest price rallies in gold and silver in history. And I see no reason that, if the lack of shorting continues, even greater rallies lie ahead. 

Finally, the fact that the settlement has now been finalized and widely publicized means that more observers, not less, are now at least somewhat aware that JPMorgan and other banks have engaged in illegal trading activities in COMEX silver and gold. With that greater awareness comes a greater sensitivity to suspicions or allegations of additional illegal activities in the future. Certainly, if JPMorgan (or the big 8) adds aggressively to short positions on the next rally, in addition to admitting that my premise about the future was wrong, you can be sure that I will do everything in my power to convince the regulators to get after these sleazy crooks and SOBs. Count on it.

Ted Butler

October 1, 2020

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Anna Golubova
Friday October 02, 2020

There is a lot of confusion in the marketplace after U.S. President Donald Trump tested positive for coronavirus. Still, analysts remain bullish on gold next week, aside from a few caveats to watch out for.

“The Trump news trumps everything else – economic data, the stimulus package, etc.,” said Phoenix Futures and Options LLC president Kevin Grady. “Gold pulled back a bit. But with all the money out there, the yellow metal should be higher. There are a lot of speculators in the gold space right now. They are pushing the market lower.”

For now, gold seems to be stuck as it trades around the $1,900 an ounce mark, Grady told Kitco News on Friday.

The Trump’s coronavirus news should push people towards gold due to increased uncertainty, but since gold is currently trading in tandem with stocks, a lot depends on market reaction to next week’s developments, Grady explained.

“Gold and stocks are trading together. There is going to be a lot of uncertainty, and there is a risk that investors will choose to liquidate their positions just to protect themselves in case something bad happens over the weekend,” he said.

Next week will be all about watching how Trump’s illness develops and whether there is any chance the government can get the additional stimulus approved, said Kitco Metals global trading director Peter Hug.

“If the president gets really sick, you would expect that it would be positive for the metal just because of the uncertainty of the government being able to function without Trump. Offsetting that notion is the equity market, which is likely to continue weaker as people raise cash, which is negative for the metals,” said Hug. “Given what we know about Trump, will the government be able to get the stimulus package together prior to the election? The market needs it. If they don’t get, it is problematic for the equity markets and metals as well.”

It is in the interest of Republicans to get some stimulus out there to help stabilize the markets before the election, noted Hug. “If not, with a second wave coming and the economy slowing, there is going to be a downturn.”

Hug also mentioned worst-case and best-case scenarios for next week.

More serious implications for the president would be the worst-case scenario, he said. “This could potentially include liquidation in the equity market. People are already scared, so the first instinct could be to run to cash, which will hurt commodities and equities. Gold could trade down to $1,850, which is a fairly solid line. If we lose that, we could test into the low $1,800s,” Hug described.

The best-case scenario would be that Trump has symptoms but can still work. Also, if the stimulus package is passed and the equity market stabilizes. “Gold’s upside potential is a close above $1,925 and then $1,975,” Hug added.

Right now, Trump’s positive coronavirus test seems “just a bump in the road,” but the headlines from this week “raised more questions than answers,” said Walsh Trading co-director Sean Lusk.

Seasonality is also starting to play a role here, Lust added, noting that the first two weeks of October are traditionally good for gold. “Seasonally, gold will rally late this summer, sell-off post-Labor Day, re-buy in October and then correct again in November,” Lusk said. “Look for this market to be bought. Investors will come back on dips.”

There is still a lot of money just sitting on the sidelines ahead of the election, and there is a chance that gold attempts to climb back towards $1,980 in the next two weeks, Lusk added.

“We had a decent correction in gold of about $200 from its highs. Form a percentage standpoint, gold at the $1,980 an ounce level is a gain of about 30% since the start fo the year. Those are levels that will need to be recovered,” Lusk noted.

What to watch next week: U.S. VP debate, the stimulus package, and FOMC meeting minutes

With Trump in quarantine for the next two weeks, all eyes will be on the vice-presidential debate on October 7 between Vice President Mike Pence and Joe Biden’s running mate Kamala Harris, according to analysts.

“With Joe Biden riding high in the opinion polls, Kamala Harris’s job will be to prevent Pence from scoring too many points,” said ING FX strategists on Friday. “How will the dollar trade in light of these political developments? The early signs are that a big lead for the Democrats is seen as reducing the risk of a contested election, supporting risk assets and gently weighing on the dollar. Any Republican comeback could reverse this trend.”

The other big item on the agenda is the Federal Reserve’s September meeting minutes, which will also be released on Wednesday.

The message the markets will get is likely to be very similar to what Fed Chair Jerome Powell talked about during the press conference after the September’s rate announcement.

“There is little prospect of an interest rate hike in the next couple of years with officials and the FOMC’ dot plot; diagram suggesting it could be 2024 before we see an interest rate hike,” said ING chief international economist James Knightley.

Any progress on the stimulus package talks will also be carefully monitored by the markets with a potential for significant ripples in stocks and the precious metals market, ING added.

In terms of data, there is the U.S. ISM non-manufacturing PMI on Monday and jobless claims on Thursday.

By Anna Golubova

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July 10, 2020

Ted Butler

Butler Research

The silver market appears ready to blow its top, much like a pressure cooker whose relief valve stopped functioning even as the heat and pressure continued to build. The gold market is also likely to overheat, but at least in gold, its relief valve – the price of gold – appears to be functioning somewhat and has bled off much of the pressure. After all, the price of gold is up substantially on a year-to-date basis and is not that far from all-time highs. While gold looks poised for further gains, perhaps substantial, its price relief valve has allowed much pressure to be released.

It’s quite different in silver, since prices are barely changed on a year-to-date basis and current prices are still close to 65% below the highs registered, both 40 years ago and again 9 years ago. Nothing could demonstrate the malfunctioning of silver’s price relief valve relative to gold than the recent 5000 year undervaluation of silver to gold.

As for why silver’s price relief valve has ceased to function (and gold’s valve is somewhat sticky), that’s obvious – the release mechanism was gummed up due to concentrated short selling on the COMEX. For years the concentrated short selling was led by JPMorgan, but the bank has recently abandoned the short side, leaving 8 other big shorts to deal with a mess when the lid blows off. 

What are the heat sources causing the pressure to build in the silver market? For the past few months, the main heat source has been the massively insane quantities of physical silver purchased by and deposited into the world’s silver ETFs, led by the largest, SLV. More physical silver (220+ million oz) has been deposited into these investment vehicles over the past few months than at any time in history. Let me repeat that – never in history has so much physical silver been bought and deposited into silver investment vehicles in such a short time.

Common sense would dictate that much more physical silver being bought in less time would exert much greater upside price pressure. To be sure, silver prices are up from the March lows, but are flat from yearend and still down 65% from the peaks of 9 years ago.

This is not complicated math or advanced pricing formulae – more of a commodity being bought in the shortest time ever should result in a sharp price advance, most likely the sharpest in history. Absent such an expected advance, explanations for why this hasn’t occurred should be apparent. But that’s the problem, namely, no good – or at least legitimate explanations come to mind.  Clearly, the price of silver – the release valve on the pressure cooker – is not functioning. Stated differently, this is yet another clear proof that the price of silver is manipulated.

It is because the price of silver has been manipulated – artificially suppressed – for so long, decades in fact, that an unprecedented level of pressure has been created. This pressure for higher prices, more than ever seen in any other commodity  has to blow up at some point and all the signs suggest the explosion may be at hand. What signs?

The first sign is that it has become really difficult not to notice that the price of silver is not functioning as would be expected, given the surge in documented physical buying. Oh sure, there will always be a few who insist silver is priced correctly for what have to be the most nonsensical reasons imaginable, but for every recalcitrant bear, there are multitudes of newly converted silver bulls. In fact, I’ve observed more commentators previously skeptical or wishy-washy on the prospects for silver, turned such avid bulls that I wonder how it is that they made the conversion to bullishness so seamlessly.

It’s not hard to be extremely bullish on silver currently and the reasons for being bullish have never been more compelling. Even the Silver Institute, which to my recollection has never issued price predictions on the metal, is now calling for silver to rise in price due to the obvious explosion in physical investment buying, both on a retail and a wholesale basis. The only thing being left out by the Institute, of course, is why the price of silver is so cheap to start with.  As is the case with many, the issue of price manipulation can never be acknowledged no matter how obvious.

Every day, more are coming into the bullish silver fold and I have yet to observe any defections. Certainly and most likely, the well-informed recent buyers of the 220 million physical ounces don’t appear set to abandon their bullish conversion. Unlike the previous two runs to $50, the buyers at this point are not chasing prices higher, but are accumulating in a highly measured manner – the antithesis of “hot money”.  I’m convinced that the hot money phase lies ahead and when it does kick in, it will further blow the lid off prices.

It’s no secret that JPMorgan has supplied the 220 million ounces bought and deposited into the world’s silver ETFs these past few months, for the simple reason it is the only entity capable of doing so. The question is how much longer it will continue to do so. The moment JPMorgan stops supplying physical silver to the market and refuses to add new COMEX short positions, it does not appear likely that the remaining big shorts can keep the lid on prices. That this is becoming increasingly apparent to more observers and investors daily just adds to the pressure.

There is no question the price lid will be blown off the silver pressure cooker at some point, so even though it’s admittedly impossible to predict exactly when that will be, more relevant is what to expect as the lid comes off. Simply put, this will be something never seen. Even in the two previous silver price runs to $50, the short sellers never fully capitulated and managed to then rig prices sharply lower in a fraction of the time it took for prices to rise. Since so much silver has been acquired before prices have climbed much on this go-around, the prospects for massive downside liquidation appears rather limited.

My definition of the lid being blown off of the silver pressure cooker includes the big short sellers collectively throwing in the towel and moving to buy back shorts. That has never occurred, but it will at some point. In fact, we have yet to ever witness any real concentrated silver short covering on higher prices and this is probably the clearest proof that silver has been manipulated for all these decades.

The big shorts have always been able to ride out price rallies in silver over the decades, no matter how large, without ever collectively rushing to buy back short positions, in complete defiance of short selling norms in every other market (except gold).  It’s frequently (and erroneously) said that all markets are manipulated, as a way of downplaying and dismissing the silver manipulation. But that ignores the fact that in COMEX silver (and gold) the big shorts have never collectively bought back shorts on higher prices. But that day is coming and may now be at hand.

Since we’ve never witnessed a collective short covering of the concentrated short position in silver, we can’t draw on actual experience to gauge what effect that would have on prices – all we can do is imagine. At the very least, such an unprecedented occurrence should be a shock to the price system. A true attempt at collective short covering by the big shorts should cause the price to vault upwards like never before. Where silver prices have jumped by dimes in the past, think dollars instead, and within almost impossible to imagine short time frames. In a genuine attempt at collective short covering by the big shorts, price jumps of dollars at a clip would have to occur.

The key is to look at the underlying mechanical aspects of what a collective covering of the concentrated short position means to the price and not the price itself. By mechanical, I mean how quickly the 8 big shorts can close out and cover a significant portion of the 70,000 contracts (350 million oz) they were short as of last Tuesday (to say nothing of the 200 million oz held short if JPM has leased the metal that has found its way into the silver ETFs). Only a small portion is capable of being covered on any given day. The good news is that future COT reports will provide the evidence (or lack thereof) of short covering as it occurs.

One reason I believe there is more of a pressure cooker analogy in silver than in gold, other than price pressure being relieved in gold as gold prices have risen much more than silver, is the dimension of the concentrated short positions in each. Over the past few months, an amount of physical gold roughly equal to the concentrated short position of the 8 largest shorts, close to 25 million oz, has been deposited into the COMEX gold warehouses. In fact, I believe the reason for the large physical inflows and large deliveries to date is related to the concentrated gold short position. Certainly, no one can claim 25 million oz of gold is impossible for the big shorts to come up with. After all, 25 million ounces of gold, while a very sizable $45 billion in dollar terms, is less than 1% of all the gold bullion in the world.

It’s different in silver, where the 350 million oz concentrated COMEX short position (to say nothing of an additional 200 million oz short position if my claims of leasing are accurate) seems to preclude that amount of physical silver being available to the big shorts. This is what separates silver from gold, namely, it is conceivable for the concentrated short position in gold to be offset by physical metal, where that would seem to be impossible in silver. The big silver shorts coming up with the equivalent amount of physical metal at close to current prices is about as likely as me discovering the vaccine for Covid-19 or becoming the new hairdresser to the stars.  So, we sit and wait for the inevitable short covering and silver price explosion.

Ted Butler

Authored by James Rickards via The Daily Reckonig,

Is gold a commodity, an investment, or money?

The answer is…

Gold is a chameleon. It changes in response to the environment. At times, gold behaves like a commodity. The gold price tracks the ups and downs of commodity indices. At other times, gold is viewed as a safe haven investment. It competes with stocks and bonds for investor attention. And on occasion, gold assumes its role as the most stable long-term form of money the world has ever known.

A real chameleon changes color based on the background on which it rests. When sitting on a dark green leaf, the chameleon appears dark green to hide from predators. When the chameleon hops from the leaf to a tree trunk, it will change from green to brown to maintain its defenses.

Gold also changes its nature depending on the background.

Let’s first look at gold a commodity…

Gold does trade on commodity exchanges, and it tends to be included in commodity industries. The common understanding here is that gold is a commodity. But I don’t think that’s correct.

The reason is that because a commodity is a generic substance. It could be agricultural or a mineral or come from various sources, but it’s a substance that’s input into something else. Copper is a commodity, we use it for pipes. Lumber is a commodity, we use it for construction. Iron ore is a commodity, we use it for making steel.

Gold actually isn’t good for anything except money. People don’t dig up gold because they want to coat space helmets on astronauts or make ultra-thin wires. Gold is used for those purposes, but that’s a very small portion of its application.

So I don’t really think of gold as a commodity. But nevertheless we have to understand that it does sometimes trade like a commodity.

As far as being an investment, that’s probably gold’s most common usage.

People say, “I’m investing in gold,” or, “I’m putting part of my investment toward bullion gold.”

But I don’t really think of gold as an investment either. I understand that it’s priced in dollars, and its dollar value can go up. That will give you some return, but to me that’s more a function of the dollar than it is a function of gold.

In other words, if the dollar gets weaker, sure the dollar price of gold is going to go up. If the dollar gets stronger, then the dollar price of gold may go down.

So if you’re using the dollar as the measure of all things, then it looks like gold is going up or down. But I think of gold by weight. An ounce of gold is an ounce of gold. If I have an ounce of gold today, and I put it in a drawer, and I come back a year from now and take it out, I still have an ounce of gold. In other words, it didn’t go up or down.

The dollar price may have changed, but to me that’s the function of the dollar, not a function of gold. So again, I don’t really think of it as an investment.

One of the criticisms of gold is that it has no yield. You hear it from Warren Buffet, you hear it from others, and that’s true. But gold is not supposed to have a yield because it’s money. Just reach into your wallet or your purse and pull out a dollar bill and hold it up in front of you, and ask yourself what’s the yield? There is no yield. The dollar bill doesn’t have any yield. It’s just a dollar bill, the way a gold coin is a gold coin.

If you want yield, you have to take some risks. You can put that dollar in the bank, and the bank might pay you a little bit of interest, but now it’s not money anymore. People think of their money in a bank deposit as money, but it really isn’t money. It’s an unsecured liability of an occasionally insolvent financial institution. The risk may be low, but there’s some risk, and that’s why you get a return.

Of course, you can take more risk in the stock market or the bonds market and get higher returns (or losses, as the stock market is currently proving). The point is, to get a return you have to take risk. Gold doesn’t have any risk. It’s just gold, and it doesn’t have any return. But again, it’s not supposed to.

Gold’s role as money is difficult for investors to grasp because gold hasn’t been used as money for decades. But gold in recent years has been behaving more like money than a commodity or investment. It is competing with central bank fiat money for asset allocations by global investors.

That’s a big deal because it shows that citizens around the world are starting to lose confidence in other forms of money such as dollars, yuan, yen, euros and sterling.

When you understand that gold is money and competes with other forms of money in a jumble of cross-rates with no anchor, you’ll know why the monetary system is going wobbly.

It’s important to take off your dollar blinders to see that the dollar is just one form of money. And not necessarily the best for all investors in all circumstances. Gold is a strong competitor in the horse race among various forms of money.

Despite the recent price action, which is far more a function of the stock market rather than gold itself, this is great news for those with price exposure to gold. The price of gold in many currencies has been going up as confidence in those other currencies goes down. Confidence in currencies is dropping because investors are losing confidence in the central banks that print them.

For the first time since 2008, it looks like central banks are losing control of the global financial system. Gold does not have a central bank. Gold always inspires confidence because it is scarce, tested by time and has no credit risk.

Lost confidence in fiat money starts slowly then builds rapidly to a crescendo. The end result is panic buying of gold and a price super-spike.

We saw this behavior in the late 1970s. Gold moved from $35 per ounce in August 1971 to $800 per ounce in January 1980.

That’s a 2,200% gain in less than nine years.
We’re in the early stages of a similar super-spike that could take gold to $10,000 per ounce or higher. When that happens there will be one important difference between the new super-spike and what happened in 1980.

Back then, you could buy gold at $100, $200, or $500 per ounce and enjoy the ride. In the new super-spike, you may not be able to get any gold at all. You’ll be watching the price go up on TV, but unable to buy any for yourself.

Gold will be in such short supply that only the central banks, giant hedge funds and billionaires will be able to get their hands on any. The mint and your local dealer will be sold out. That physical scarcity will make the price super-spike even more extreme than in 1980.

The time to buy gold is now, before the price spikes and before supplies dry up. The current price decline gives you an ideal opportunity to buy gold at a bargain basement price. It won’t last long.

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Business

Gold Bars Fight Covid Kits for Space on the Plane

Before the health crisis, gold typically traveled around the world on commercial flights.

By Elena Mazneva, Justina Vasquez,
and Ranjeetha Pakiam May 2, 2020

Swiss refiner Valcambi SA tried for five straight days last month to move a shipment of gold out of Hong Kong. Twice the metal was packed carefully onto a plane, only to be offloaded again.

After daily attempts and numerous arguments, the gold suddenly arrived in Switzerland without warning, said Chief Executive Officer Michael Mesaric. “We had not even asked for a slot.”

The coronavirus crisis has shone a light on a corner of precious metals markets that usually draws little attention: the logistics of transporting gold, silver and other metals across the world. The business is dominated by companies including Brink’s Co., G4S Plc, Loomis AB and Malca-Amit, which link miners and refiners with gold trading and consumption hubs around the world.

In normal times, gold bars worth millions of dollars travel the world in the cargo holds of commercial planes, just a few meters from the feet of passengers, before being whisked in armored trucks to refineries and vaults. But the grounding of flights has had a chaotic effect on an industry that’s used to relying on instantaneous delivery: prices in key markets have diverged dramatically, and the London gold market has even started talking about allowing delivery in other cities around the world.

Now, with global travel at a standstill, the precious metals industry is scrambling for alternative ways to keep the market moving. It’s a world of logistical headaches: even when space can be found on a plane, packages are often turned away if essentials like medical supplies need to travel instead.

“The limited commercial flights, charters or freighters we are using must prioritize personal protection equipment, medical, food and other essential products over our requirements to move bullion,” said Baskaran Narayanan, vice president at Brink’s Asia Pacific Ltd.

Another big name in the business, Malca-Amit could deliver within 24 hours before the health crisis, said managing director of Malta-Amit Singapore Pte. Ariel Kohelet. Now it’s more like 48 to 72 hours, and costs have risen.

“We’ve widened our use of cargo-only aircraft that are not dependent on passengers to fly and we’ve also chartered aircraft,” he said.

Some in the market say they’re managing to keep operating without delays. However, it’s been particularly difficult to get metal in and out of Asia, said Robert Mish, president of precious-metals dealer Mish International Monetary Inc.

“Some customers understand it and some don’t,” said Mish. “Some customers will pay more now, and others will say, ‘I understand,’ and take delivery in two weeks.”

It’s even getting more expensive to move gold that doesn’t typically travel by airplane.

German refiner C. Hafner GmbH + Co. KG used to send gold bars to neighboring Poland in security trucks. After road borders closed and its contractor stopped operating, the company has started flying the metal with FedEx Corp., said Torsten Schlindwein, deputy head of precious metals trading. Transportation costs have surged about 60% as a result.

Lockdown regulations and red tape have contributed to the delays, said Peter Thomas, a senior vice president at Chicago-based broker Zaner Group. When he tried to fly some silver out of Peru in early April, authorities initially refused to approve loading documents or allow union workers to load the plane. The metal was eventually moved on private aircraft, he said.

“It was expensive but it got done,” he said. “I think that as the virus subsides and as we get rolling again, we’re going to see a lot of product that has been sitting around, especially in smaller refineries, hit the market.”

— With assistance by Jack Farchy

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