Precious Metals


From The Desk Of David Schectman
Happy New Year to all our friends and clients.
“In life what you treasure
Joy and pleasure
It depends on how you measure
Everybody want to live it up year”
David’s Commentary:
The older I get the faster the year’s fly by. I’m writing this early Monday morning, so the markets can change a bit before they shut down for New Years, but the year finished up as well as I could have hoped for. Miles Franklin sold more gold and silver this year than we did in 2017 and that is an accomplishment.
Gold hit a six-month peak this morning, reaching the highest price since June 15 at $1,284.09, but the price is still down 1.5%, or around $20 from this date last year. Still, in the last ten weeks gold rose from $1,180 to $1,285.  That’s a nice finish to 2018.
For the year silver performed much worse, down 8.7% or $1.47, but it is off its mid November low of $13.98 and today’s price of $15.44 is now at a four month high, just coming off its best weekly gain in more than a year. Silver is the most undervalued of all the precious metals.
I was hoping to see $1,300 gold and $15 silver by year’s end. Silver did not disappoint. Gold is close. Silver seems to be pulling ahead of gold ever since the lawsuit against the JPMorgan silver trader happened last month. JPMorgan is no longer short silver. That being the case, silver should continue to outperform gold. The silver to gold ratio is moving down now, from a high of 86 to 1 to the current 83.41 to 1. I expect the downward trend of this ratio to continue in 2019.
Our friends over at BFI in Switzerland, whom we partnered with in the 90s, are bullish on gold and silver. They write, “Precious metals too, look finally like they are building some renewed momentum as they are benefitting from increased uncertainty and higher volatility. We think investors should now also consider investment in precious metals again.” It’s always fun to get the Swiss view of our gold and silver markets.
Managed Money Traders Sold More Gold And Silver Contracts At Times Than They Ever Sold In History. – Ted Butler
The reason that gold and silver had rough sledding in 2018 can be explained by the big managed money selling on the COMEX. In gold, from the high of $1,360 last January to the low of $1,170 in August, managed money traders sold over 300,000 net COMEX gold contracts, (around 30 million ounces). In Silver they sold more than 80,000 net contracts (400 million ounces) TWICE crunching the price from $17.50 to $14 before silver rallied.
What makes me optimistic about silver in 2019 is that JPMorgan is essentially no longer short in silver, having eliminated 100,000 contracts along the way. We have suggested this may well be the result of the Justice Department investigation leading to a criminal guilty plea from a former JPMorgan trader for manipulating COMEX gold and silver futures. They are no doubt concerned that he may be willing to pass the blame up the chain. How important is this event? Ted Butler says, “No market crime is more important than manipulation and you can rest assured this matter is occupying the very highest levels of JPMorgan and the Justice Department.” If JPMorgan truly has relinquished its role of backstopping the commercials as the short seller of last resort silver could take off like a rocket.
For the first time in the last two years, silver is now flirting with its 200-day moving average. It could breach it today, the last day of 2018. That should add some buying interest from the hedge funds.
The whole 2009 to 2018 was essentially a fraud created by the Fed, by doing things that no one in the history of the financial world had ever heard about before: printing money and having zero or negative interest rates. Well here we are. Now we’re doing the opposite. Are we surprised that stocks are going down? Well, we shouldn’t be.” – Craig Hemke
I recently read an article on the Internet that said you should get rid of all of your cash because pretty soon no one will accept it. That is nonsense. There will always be people who will accept US dollars and you can always deposit them in your bank if it comes to that. And in the event of a cyber attack that shuts down computers, you better have cash if you want to buy food, water and gasoline. How much cash you keep on hand is up to you, but a few thousand dollars minimum is a great insurance policy with no downside. Keep some cash, preferably in $5s and $10s and at least one bag of junk silver dimes as your “just in case” core position. You can go heavier on the junk since it is the cheapest way to own silver and the way it looks to me, this is THE time to load up on silver.
A friend of mine, who has been in the business for a long time, just came into some extra money. He purchased $1,000,000 worth of silver on Friday. He split it between silver mining shares, which are very cheap now and more physical silver too. I think he made a smart move. The longest bull market in history is over as the S&P suffered its worst Christmas Eve trading day on record. Yup, December turned out to be a very turbulent month for stocks.
Precious metals were up, down and back up again and the dollar wants to break down, especially with the Fed stepping back and holding steady with interest rates. I would hate to be a trader in this market. The year will end with the dollar trending down, stocks still very overpriced and risky and gold and silver starting to make a move.
Gold appears to be breaking out to new highs, despite the strength of the dollar and the equity markets. The negativity and fear surrounding gold is helping propel prices higher and it now looks headed to the next level of $1,300.
Silver has suddenly gained strength as well breaking out as it targets $16. After months of consolidation, silver is attracting new money buyers and looks ready to join gold in what looks like the next bull market in metals.
Although both gold and silver look good and appear to be headed to new highs, that doesn’t alleviate the potential for a reversal and some selling pressure. Traders and investors must still watch the support levels. Gold’s support is $1,250 and silver support is $15. As with any trade, the key to success is patience and discipline. – Todd ‘Bubba’ Horwitz
Habits are hard to change and folks in their mid 30’s & younger are still hooked on a stock market where they’ve never seen a real BEAR! When the coffee hits the nervous system metals & miners will fly. And the physicals right along with them.
If asked what my predictions are for 2019 I would have to say, “I really don’t know.” I think things are lined up to fuel a solid rise in gold and silver. I think the dollar will be much lower a year from now and the stock market as well. But there are no free markets and as long as a JPMorgan and PPT lurk in the shadows, it is impossible to know. Given all of that, I am an optimist, at least when it comes to gold and silver. I expect to add to my positions again this year. Unlike the stock market, which threw off consistent gains for the past eight years, when it comes to gold and silver, you make it all at once. When the bull market clicks in, the gains will be huge and worth the wait.
Zero Hedge published an article today by Doug Cass titled, “Don’t Blame Powell For The Mess He’s Left To Clean Up.” He said, “Powell should continue doing the right thing, but slowly and carefully. A garden-variety recession is fine. A move down in equities is fine. Those things are normal and part of a functioning capitalistic economy. It is amazing and unhealthy that market participants seem to forget this cleansing role.”
He praised Fed Chairman Powell for his dovish stance and blamed previous Fed Heads Greenspan, Bernanke and Yellen for the mess that Powell finds himself in now. The Fed, the article stated, must take a longer-term view and it is not their job to keep worry about a pullback in the stock market. That is a valid viewpoint.
A friend of mine, who owns a bank, and is very pro-Trump, had a different take on this, one worth considering. Here are his well thought out comments.
Regarding Powell … he has failed. If Powell’s job as Fed Chair is to foster a healthy, powerful economy and mitigate economic collapse, then he has failed. He should understand that erratic gyrations are not healthy for our economy, or our national security, or our economic (or negotiating) power in the World, or for our middle-class workers, or for our small businesses. These dramatic market gyrations only help scoundrels like George Soros or other who feed on market uncertainty and high volatility. Not surprisingly, such economic gyrations do not impact the Washington elite class who are burrowed in somewhere in the government and collecting their share of “the government dole”. Nope, Powell’s friends in the elite circles of Washington are insulated from his actions.
The results of Powell’s stubbornness, and his dislike of Trump, are fully evident in the economic results of his heralded September and December rate hikes. He did not need to advocate for rate hikes at both junctures, but he did, primarily because Fed Chair Powell was blinded by his dislike for Trump. If it would have been Obama in office or Clinton (God forbid, and God did), it is absolutely curtain that Powell, under the same facts and circumstances, would not have advocated for raising rates in both instances, as he did. Let’s not be naïve, Powell is clearly part of the Washington elite “swamp” that Trump is trying to drain. If Powell can crash the economy and have the media put the blame on Trump, he has succeeded, and he can then hang out at Holiday parties with all of his Washington elite friends and say he got Trump. I am sure he was a hero and the life of those parties.
So, Powell’s “intelligent and sophisticated” plan to raise rates in both September and December has resulted in what? Just what we are seeing … a failed plan, a damaged market and economy in the U.S., resultant damage and problems around the World, a bad environment to negotiate deals, a precipitous drop in consumer confidence (oops, I forgot he doesn’t care about those people -they are not part of his elite group of friends), etc. Now, my 13-year old grandson, Macallan, would likely have raised rates in either September or December, but not at both dates. And some air would have been let out of the economic bubble, but it would not have created the current Bear market or precipitous drop in consumer confidence. Then, Macallan would have carefully considered the next rate hike with the above consequences of erratic economic behavior in mind … and methodically let the air out of the current economic bubble.
As for Powell, from this point forward expect that he will be steering left-then-right-then-left-then-right for the balance of Trump’s tenure in office, and then in about two years he will settle back down to normalized accommodative policy for the next democrat/socialist president, under whose administration, Powell’s elite swamp buddies will again be safe. And, he will burrowed into some safe government position or pension again.
If you are interested in your precious metal portfolio’s performance, what Powel and the Fed do, going forward, is very important to you. Jim Rickards makes it very clear: “Gold is “defying headwinds right now but watch what happens when headwinds turn into tailwinds.”
Ed Steer
The President’s Working Group on Financial Markets garnered even more attention yesterday. In the Friday edition of the King Report, Bill King had this to say…
“Blatant ESH manipulation occurred during the final ninety minutes of trading on Thursday. It marks the second consecutive day of palpable stock market manipulation. The only question is: Who is doing the ESH and stock manipulation? Where are the Wall Street advocates for ‘freely traded markets’?”
“Today [Friday] – The U.S. stock market has been under blatant and extreme manipulation since Christmas. While many will cheer the artificial rally, the action is detrimental to U.S. capital markets in the longer run. The upward manipulation could be setting up stocks for a decline that is worse than what transpired from early October to Christmas — and vicious swings can demoralize the investing public.”
“There is no way to reliable gauge the probabilities of stock movements in the short term now, because stocks are beholden to manipulation.”
As Chris Powell stated back in April of 2008…”There are no markets anymore…only interventions”…which was the headline to my Friday missive.
Of course this manipulation has been going on in form or another in the stock markets since the crash of 1987 — and in the aftermath of that, President Ronald Reagan gave birth to the PPT that Bill King alludes to. And in the precious metals…gold and silver in particular…for at least a couple of generations — and I’m talking forty-five years.
Back in April of 2001, British economist Peter Warburton spelled it out chapter and verse in his landmark essay “The debasement of world currency: It’s inflation but not as we know it“…when he said this…
“What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, they seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.
It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil, and commodity markets? Probably, no more than $200 billion, using derivatives.
Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world’s large investment banks have over-traded their capital [bases] so flagrantly that if the central banks were to lose the fight on the first front, then the stock of the investment banks would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil, and commodity prices.
Central banks, and particularly the U.S. Federal Reserve, are deploying their heavy artillery in the battle against a systemic collapse. This has been their primary concern for at least seven years…[that’s 1994 – Ed]. Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open is absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity index on an even keel is essential to protect the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the U.S. dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade.”
That essay is almost 18-years old — and is even more true now than it was back then. It is so obvious beyond any shadow of a doubt that all things paper want to burn…including the currencies — and things physical would soar in price, if it were not for the 24/7 interventions by the powers-that-be. That’s why the PPT has been at obvious battle stations in December — and as Bill King pointed out further up…even more blatantly obvious since Christmas.
One can only image what the prices of a whole raft of physical commodities would be if their respective prices weren’t being managed…especially the following Big 6.
As I quoted in today’s headline title…”There are no markets anymore…only interventions”…now applies across the board — and it’s obvious to anyone with more than two synapse to rub together. Even the mainstream media has a complete grasp of the obvious now — and saying so. How long this will last is anyone’s guess, but The President’s Working Group on Financial Markets…a.k.a…the Plunge Protection Team, has been hard at it lately…with the last couple of days being the poster children for that.
Of course these interventions have always been around in the precious metal market — and that obvious in the daily charts from Kitco at the top of today’s column — and in the 6-month charts posted below.
You have probably read about this by now, but the reason the stock market made a miraculous recovery last week was because of one massive multi-billion dollar buy order.
Today’s post-Christmas rally is brought to you not by the PPT, but by pensions funds which waited until the very last minute to buy up to $64 billion in stocks as part of their quarter-end rebalancing.
Despite the dollar weakness, crude prices collapsed further as PMs rallied…
Gold soared (in dollars) on the day…
Breaking above its 200DMA…
And gold in yuan broke out of its channel…
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About Miles Franklin
Miles Franklin was founded in January, 1990 by David MILES Schectman. David’s son, Andy Schectman, our CEO, joined Miles Franklin in 1991. Miles Franklin’s primary focus from 1990 through 1998 was the Swiss Annuity and we were one of the two top firms in the industry. In November, 2000, we decided to de-emphasize our focus on off-shore investing and moved primarily into gold and silver, which we felt were about to enter into a long-term bull market cycle. Our timing and our new direction proved to be the right thing to do.
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