Based on normal accepted industry operation procedures, the company at this time and prior to further engineering and flow testing, would entertain a possible daily flow rate of between 4,100 and 5,600 MCFGPD based on aggregated production from both wells. The Company has compared these wells to the closest established and documented helium production located approximately 35 miles NE in the Pinta Dome Field.  Note: Desert Mountain Energy’s wells have been completed in members of the Pennsylvanian-aged Formations which are lower in depth than the helium productive Permian-aged Coconino Formation found at Pinta Dome (AZOGCC archives).  Production comparisons with a number of wells from the prolific Pinta Dome Field, specifically the Kerr-McGee Barfoot State#1, clearly shows that large artificial formation stimulation was not required to exceed the original projected calculated reserves by over 500%, over a 13-year production life (Olukoga 2016, AZOGCC Barfoot #1 well files).

There have been a number of articles over the last couple of years about the lack of new supply for helium, against a background of continued strong demand growth. Here is a link to an article from Forbes, dated April 2019, making a number of points about supply inelasticity meets rising demand. 

A link to the full report is posted in the Subscriber's Area. 

Value propositions have not been popular among investors who have had the pleasure of instant gratification in growth stocks for much of the last decade. A catalyst is required to spur interest and that is being delivered in the form of anxiety about the ramifications of the response to the coronavirus.

A link to the full report is posted in the Subscriber's Area.

Considering the depth of the pullback on Wall Street yesterday and in the initial weakness today it would have been reasonable to expect a more pronounced impact on industrial resources today. In fact, the sector shrugged off tech sector volatility and a number of the industrial resources closed higher in a dynamic fashion.

Iron Ore
While the state-linked Global Times earlier this year raised the possibility that Australian iron ore supply could be targeted, it’s likely to be low on the list of possibilities. The country dominates China’s iron ore supply, accounting for more than 60% of its imports, with next-biggest supplier Brazil making up less than 20% so far this year.​
​
In fact, the trade is booming, with China importing a record amount of Australian iron ore in July. Still, investors will keep a close eye on any sign of tensions spilling over as even small moves to restrict the movement of Australia’s most valuable commodity -- worth about A$100 billion this fiscal year -- would send a powerful signal.

LNG
Australia has accounted for just less than half of China’s liquefied natural gas imports this year. The proportion has grown in recent years as new Australian projects came online, including two in Queensland in which Chinese oil majors are partners.

Those partnerships, along with long-term contracts that obligate Chinese buyers to purchase millions of tons of LNG a year from Australia well into the 2030s, make the trade flow a
more complicated candidate for disruption.

China’s demand for commodities is likely to remain robust for the foreseeable future but that will not deter the administration from using resources as a bargaining chip in trade talks. The reality, however, is rising living standards create demand growth for products and services. If China is going to succeed in its aims of creating a modestly wealthy society for its billion plus people that is going to entail continued imports. Obviously, it is more dependent on imports for some commodities than others.

“It is pretty obvious that with interest rates near zero and being held stable by central banks, bonds can provide neither returns nor risk reduction,” a team led by Co-Chief Investment Officer Bob Prince wrote in the July report.

Bridgewater’s famous All Weather portfolio has therefore been moving into gold and inflation-linked bonds, diversifying the countries it invests in and finding more stocks with stable cash flow.

The idea is to replicate the long-term positive returns typically generated by bonds while finding alternative ways to hedge a downturn in stocks, especially if higher inflation upends low-yielding nominal debt.

Risky Business
Bridgewater’s conviction that ultra-low yields are a game-changer for risk parity will resonate with many on Wall Street, who have also been fretting over the fate of traditional portfolios that allocate 60% to stocks and 40% to bonds.

According to the firm, about 80% of local-currency government bonds have been trading below 1%, which limits the room for such notes to rise in value during a bout of risk aversion since investors can simply hoard cash instead. That, combined with the potential for losses if yields jump from record lows, means that the world of government debt is potentially losing its function as a safety valve in portfolios.

Risk Parity is based on the correlation between rising stock prices and rising bond yields. The logic is that when investors are worried about stock market returns, they park excess cash in bonds. Over the years multiple strategies have evolved to size positions according to this correlation.

Your ticker UXA1 COMB Comdty has not refreshed for a few days. Could you please look into this? Thanks

Thank you for this question. Here is the response I received from Bloomberg because it was not updating on their system either.

“There is no open interest on the current active contract, UXAU0 Comdty. The exchange only provides a daily settle price if there is open interest. Once there is a trade for the September contract, it will have open interest, and it will receive a daily settlement price.”

Reliable uranium pricing data is difficult to find. The 4th month continuation contract traded two contracts in September so far. I’m not going to change the ticker to address this because it would mess with the back history. The original uranium price ticker from Metals Bulletin, which had history back to 1996, stopped updating in 2017. That’s when I introduced the futures traded price. No other measure is reliable or up to date either because it is an extremely illiquid market.

Demand was strong enough to push rates up, even with cancelled sailings restored and carriers adding temporary and even new permanent services on the lane,” said Freightos CMO Eytan Buchman.

“With reports of rolled shipments and container shortages out of China indicating the extent of the demand rush, carriers will likely introduce another China-US GRI for September, which would be the sixth in just three months,” said Mr Buchman.

In his weekly US import update report, Jon Monroe, president of Jon Monroe Consulting and a representative for Worldwide Logistics, said the big US retailers were “experiencing a major surge in online orders”, and were converting many of their stores to fulfilment centres.

He said, however, that the substantial freight price hikes were taking their toll.

“Importers’ budgets are ballooning and, in some cases, about to explode from having to pay the extremely high cost of transport,” said Mr Monroe. “The record high rates will undoubtedly cause bankruptcies in the worst case, and major budget excesses in the best case, scenarios,” he warned.

There a couple of complimentary trends that have resulted in a significant bump in container shipping rates over the last month. The first is the surge in demand for new furniture as people flee the confined environment of the city for the space of the suburbs. Bigger houses need more tables, chairs, sofas, desks and TVs. These are bulky items so demand for 40ft containers has surged.

Shipping inventory has also declined because of the cost of compliance with IMO2020 regulations. The hit to demand during the lockdowns was likely a significant negative catalyst for what was already a highly pressured sector.

Less than a month after making waves with news of a move into Barrick Gold Corp., Buffett is again rocking the world of commodities. This time, Berkshire Hathaway disclosed stakes in five Japanese trading companies that dominate the nation’s energy and raw materials industries. The quintet are Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp.

Berkshire’s stakes amount to a little more than 5%, but Buffett made clear that they could be increased. The trading houses are known as “sogo shosha” and have roots dating back hundreds of years. While they operate in areas like textiles and machinery, they derive much of their revenue from energy, metals and other commodities, supplying resource-poor Japan with essentials.
 

Following the commodity bust many investment banks closed trading desks. There were a number of leading commodity trading houses which went through very lean years and even today Noble Group is struggling to get out of bankruptcy. Many of the big commodity traders like Trafigura, Mercator, Cargill and Koch Industries are privately held. Picking up Japan’s big trading houses is a tangential way of playing in commodities for Berkshire Hathaway. It also speaks to the company’s familiarity with pricing the balance sheets of banks rather than commodity producers.

“The lack of rain in August - plus extended heat - clipped the top end of soybean production for many areas,” Bob Linneman, broker at Kluis Commodity Advisors said in a research note. “There are many operations that watched a potentially record crop turn to a hopeful average crop.”

The agriculture sector has been plagued by uncertainty over the last few years. Record crops, trade wars, currency devaluations and weather events have conspired to create a great deal of uncertainty. None of that has succeeded in lifting prices for more than a few weeks at a time. I wonder if this time is different.

Shipowners are also lacking the finances to make purchases, according to Ralph Leszczynski, head of research at shipbroker Banchero Costa & Co.

“Most shipping markets are coming from a relatively poor decade, 2009 to 2019, in terms of earnings so most shipowners do not have that much cash in their pockets,” he said. “External finance is also in short supply as banks are now largely steering clear off shipping after the defaults they suffered after 2008.”

Still, fewer orders and slower fleet growth will likely bolster shipping rates. Lines are likely to continue to keep capacity in check into 2021 to minimize the impact from slowing global trade, said IHS Markit’s Kapoor.

That’s already translating to increasing costs for transporting goods by ocean liner, with one benchmark of trans-Pacific container rates more than doubling since late-May to a record. Bulk-carrier costs have also rebounded from a four-year low. Maersk, which idled about 20% of its capacity in April before gradually reinstating it in subsequent months, saw earnings beat estimates in part due to improved freight rates.

When new regulation imposes new costs that are greater than the value of the original asset it raises important questions about the sustainability of businesses. Installing new engines in new ships is an ideal solution but its expensive. Meanwhile the lesser of two evils are scrubbers to the emissions but these often exceed the value of older ships. This is a recipe for a loss of supply from the global shipping fleet.

A link to the full report is posted in the Subscriber's Area.

Royalty streamers offer a solution to the age-old question of how to buy gold at a discount. That of course depends on a willingness and ability to buy when no one else is interested. Whatever about the success of companies in capturing streaming rights over the last few years, the window for closing on new ones is swiftly closing. Miners know they have in-demand assets and there have been an increasing number of stories about private placements being oversubscribed by multiples of the desired amount. That suggests prices for shovel ready projects are rising quickly as investors adapt to the new bull market environment.

I am a pre-subscriber (financial constraints, exacerbated since Covid-19, make it impossible for me to become a full subscriber, I'm afraid, so I may not qualify for a reply. But David did reply to me on more than one occasion;  he was always so kind, and is greatly missed).

I remember your being on the panel at a money show in the conference centre in Westminster Square (I forget the name - possible Westminster Conference Centre) - it must have been about 2009 because I remember asking a question as to whether there were any "good" banks left that might be worth investing in.
  
Anyhow, in response to a question from another attendee about companies drilling for water in Australia, (or possibly into wind power or solar or even lithium miners (if it wasn't too early) - I forget exactly which), I remember you replying that you never favoured chasing these early-stage stories, and in general you have been proved right since.   

I still tend to class hydrogen fuel and battery power for vehicles in the same category, but perhaps you feel that times have changed sufficiently now?    Since I am only a pre-subscriber, and not able to read the full article, I appreciate that you may have said more on this there, or in previous Comments of the Day.
    
It seems to me that since hydrogen when mixed with oxygen is a very explosive mix (although this could also be said to a lesser extent of petrol vapour, I suppose), it would only take one careless mistake or faulty construction to cause a serious explosion.   But perhaps the design features are so tight that this would be impossible.   

At least I would trust an electric vehicle more than a self-driving one! In fact, I am a bit nervous by nature. I would never trust a Toyota now, after that stuck accelerator pedal caused a fatality. What the last minutes of those poor occupants were like I cannot face thinking about.

Whether it is possible to reply to this or not, many thanks Eoin for the comments that I am able to read daily. They give a very sane and reassuring perspective, especially in these difficult times.

David always saw value in conducting a public discourse with subscribers because it helped to educate us as much as the Collective. It also ensures we are covering topics of interest. I agree and one of the things I enjoy most is attempting to provide satisfactory answers to subscriber’ queries. However, as someone who has been familiar with the Service for at least 11 years, might I suggest you at least take a trial subscription?

If that is too much of a financial constraint it may be time to reassess your investment/trading ambitions. Investing involves a degree of risk. If you are uncomfortable with driving a Prius because of a fault corrected more than a decade ago, it might be time to conclude investing is not for you.

The response to this email continues in the Subscriber's Area. 

Once countries have basic housing for the poor and an urban economy has installed the infrastructure to begin to grow, there is an increase in wealth, GDP and income per capita. This allows for a move from public housing to suburbanise into single unit family homes, something witnessed in many developed economies across the world. In the UK, the overall number of ‘housing starts’ has stayed largely flat since the 1970s, but the housing mix has changed from public to private homes. At the same time, timber consumption has increased as, on average, a single-family suburban home uses around three times the timber of a multi-family unit.

And

The result is that even when total new housing starts begin to level off, timber consumption increases again in the mature stage of an economy, leading to a third wave of timber construction. Not only is more timber used in single unit homes, the home improvements sector becomes a significant additional source of timber demand. In the US and developed world it contributes circa 35% of all consumption by the construction industry.

The big question for timber consumption in the medium-term is whether the trend of migration from cities to the suburbs will continue post COVID-19. The desire to exit population dense regions during the pandemic was understandable and not least because of the widespread public disobedience that characterised the lockdowns. The big question is whether that migration will be sticky. We do not yet know how long people will be happy working from home or whether they will miss the buzz of the city.

According to other technical trading sites GOLD is a strong SELL and Silver is a BUY @ today's prices. You haven't mentioned Silver or Platinum for a number of days. I am tempted to start getting back into Silver ...... Keep up the good work,

Thank you for this insightful email. If all we did was look at short-term trading indicators, there would be no way to get a big picture perspective. I am very hesitant to ever short in a secular bull market. There will be times when taking a partial profit is opportune but the best way to play a big bull market is to be willing to buy on occasional bouts of weakness.

Barrick Gold Corp. advanced the most since March, leading a surge in precious-metals miners after Warren Buffett’s Berkshire Hathaway Inc. added the company to its portfolio.

Barrick, the world’s second-largest miner of the metal, jumped as much as 12% and a Bloomberg Intelligence gauge of senior gold miners climbed after Berkshire on Friday reported a purchase of 20.9 million shares as of the end of the second quarter. Colorado-based Newmont Corp., the largest producer, also gained Monday, along with Kinross Gold Corp. and Harmony Gold Mining Co.

Gold miners are benefiting as near-record bullion prices boost profit margins and help them lure back generalists who fled the sector years ago. In the past, Buffett, the billionaire chairman of Berkshire, cautioned against investing in the metal because it’s not productive like a farm or a company. The filing shows moves made by Buffett or his two investing deputies, Todd Combs or Ted Weschler.

 

When the world’s most storied value/quality investor dumps banks and buys a gold miner it might not make a big difference to Berkshire’s bottom line but it sends an important message about where the company see’s opportunity. Investment in new greenfield mines has not been attractive for much of the last decade. Meanwhile demand is rising for a growing number of reasons, not the explosion in the supply of debt and competitive currency devaluation. That’s a recipe for a bull market.

Automotive demand down only 17% (-132 koz) YoY despite a 24% fall in Q1 light global vehicle sales

Tightening global emissions standards, driving higher pgm loadings, partially counters lower auto sales/production

W. Europe diesel share decline slowed on increased diesel sales

Diesel vehicles still key for automakers to avoid or reduce heavy CO2 fines

German diesel car market share continued to recover (Q1’20 average 35%, up 1.3% over 2019 average)

A link to the full report is posted in the Subscriber's Area.

It’s easy to think that diesel is a dead fuel but sales still continue. The damage to consumer confidence may, however, be impossible to overcome. That is creating a new market for transportation alternatives. 

Why did you not share the fact that you had stop losses at USD 2,000 for gold and USD 27.50 for silver? I consider this just as important as sharing the information on the purchase and sale of your positions. Especially in light of the fact that your mantra has been for a long time that PMs are "potentially due for a consolidation" which leaves your subscribers pretty much in the dark of how you intend to act if and when the "potential consolidation" sets in and what in your personal view is the right way of (re-)acting. Sharing only ex-post the information that you actually had stop losses in place AFTER they are executed feels more like " adding insult to injury".

And

I wondered whether you can communicate in earlier fashion to your subscribers when you are trading. You don’t trade often, but with high conviction when you do. After seemingly having high conviction in a potential decade long bull market in Gold, I was a little surprised to learn you’d had a tight stop on your Gold position, this exiting at $2,000. Only the day before you were talking about Gold having lots of room to consolidate. With the decline moving through $1,900 temporarily at least, it seems you were right to sell, but I wonder how we as investors can access that critical data point in more real time. By the time we learned of it this morning, Gold had already moved through $1,900. Similarly, Silver experienced the same sort of fall, only steeper given its more volatile nature.

Thank you both these emails which offer me an opportunity to clarify some points both with the provision of my personal portfolio trades and my approach to profiting from the unfolding bull market in precious metals.

My personal portfolio is provided as a public service not as a model portfolio or as a recommendation for what you should do. Inevitably some subscribers will follow my trades but these are not recommendations. In fact, we have never made recommendations because who would they be for? The reality is subscribers come from all walks of life and financial means; ranging from private individuals right up to sovereign wealth funds. Advice for one person would in no way be appropriate for another.

Dear Eoin and team, I would like to thank you very much for the big difference you have made to my confidence in advising my clients, since I re-joined the service. If only I could find a way of explaining the benefit to my professional contacts! All the very best

Thank you for your kind words and welcome back. The one thing I would highlight for prospective subscribers is that in the evolving global tapestry of events, some big picture perspective is likely to be beneficial.

The first is that many investors have underestimated the impact of low rates on valuations.  In short, what should the stock market yield?  Not its dividend yield, but its earnings yield: the ratio of earnings to price (that is, p/e inverted).  Simplistically, when Treasurys yield less than 1% and you add in the traditional equity premium, perhaps the earnings yield should be 4%.  That yield of 4/100 suggests a p/e ratio (the inverse) of 100/4, or 25.  Thus the S&P 500 shouldn’t trade at its traditional 16 times earnings, but roughly 50% higher.

Even that, it’s said, understates the case, because it ignores the fact that companies’ earnings grow, while bond interest doesn’t.  Thus the demanded return on stocks shouldn’t be (bond yield + equity premium) as suggested above, but rather (bond yield + equity premium - growth).  If the earnings on the S&P 500 will grow to eternity at 2% per year, for example, the right earnings yield isn’t 4%, but 2% (for a p/e ratio of 50).  And, mathematically, for a company whose growth rate exceeds the sum of the bond yield and the equity premium, the right p/e ratio is infinity.  On that basis, stocks may have a long way to go.

The removal of the discount rate, as a basis for valuing cashflows has an outsized effect on all income producing assets. That implies the persistent threat of deflation which allowed long-bond yields to compress to historically low levels globally will persist indefinitely.

In June, Implats balked at investing about 12 billion rand ($680 million) on building a new mine at Waterberg on the northern limb of the platinum belt. The outlook doesn’t support such spending over the next decade, said spokesman Theron. Anglo American Platinum Ltd. has delayed a decision until the second half of next year on whether to spend as much as $1.5 billion on expanding output at its key Mogalakwena mine.

Vancouver-based Ivanhoe Mines Ltd. said it’s still evaluating finance for its new Platreef project, which could require about $1.5 billion of investment. Still, notwithstanding the investment hiatus, the platinum sector remains in better shape than South Africa’s gold industry. Even without further spending, some deep-level mines have a 30-year lifespan, according to James Wellsted, a
spokesman for Sibanye Stillwater Ltd., the world’s No. 1 platinum miner.

Still, investment decisions are complicated because of an uncertain regulatory and policy environment, among other challenges, Wellsted said.
 

The price of any commodity is dictated by the actions of buyers at the margin. The biggest event to hit the sector in the last decade was the demise of the “clean” diesel market. That removed a major source of demand and the price collapsed to unimaginably low levels relative to the other precious metals. A number of platinum miners went bust because they were in no way prepared for the collapse in prices.

A link to today's video commentary is posted in the Subscriber's Area. 

I have a lot of sympathy with Charlie Morris’ view that gold is best considered a zero- coupon perpetual bond. The strong inverse correlation between inflation-protected bond yields and the gold price suggest investors are increasingly of the same opinion.

God only knows what the historians of the future will make of 2020. A global flu panic that results in countries shutting down entire economies sounds like the pinnacle of craziness – until you discover that Europe between the 15th and 17th centuries was periodically prone to something called the ‘glass delusion’, in which sufferers believed that they were made of glass and at risk of shattering into pieces. The French King Charles VI was one of the higher profile victims of the illness, and he would reportedly wrap himself in blankets to prevent his buttocks from breaking. Because human nature never really changes, we choose to allocate to uncorrelated investment vehicles known as systematic trend-followers, which make no attempt to predict the future, or to avoid seeming overvaluation, but which are simply content to ride such price trends as appear from time to time, both up and down, courtesy of the interests and enthusiasms of the mob.

We also allocate, at present, to precious metals-related companies, provided we can secure robust cash flows in the process from businesses trading on comparatively modest earnings multiples, and with little or no debt. As George Bernard Shaw once remarked,

“You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”

Those gentlemen in government are primed to issue a vast quantity of debt. And why wouldn’t they? Interest rates are at historic lows and investors seem willing to invest in anything with a promise of a cashflow. The US Treasury is now stretching the maturity of outstanding debt which raises some important questions. 

Investors are so concerned about the global outlook that worldwide holdings in gold-backed exchange-traded funds now stand behind only the official U.S. reserves of bullion after they surpassed Germany’s holdings.

Gold has rallied to a record this year as the coronavirus pandemic savaged growth, with gains supported by massive inflows into bullion-backed ETFs. Bulls are fearful that the waves of stimulus to fight the slowdown may debase paper currencies and ignite inflation. They also point to simmering geopolitical tensions, rising government debt burdens, and lofty equity valuations.

Worldwide holdings in gold-backed ETFs rose to 3,365.6 tons on Monday, up 30.5% this year, according to preliminary data compiled by Bloomberg. That’s a couple of tons ahead of Germany’s stash. U.S. reserves exceed 8,000 tons.

Even after futures topped $2,000 an ounce, there are plenty of forecasts for further, substantial gains. Among them, Goldman Sachs Group Inc. says gold may climb to $2,300 as investors are “in search of a new reserve currency,” while RBC Capital Markets puts the odds of a rally to $3,000 at 40%.

China and India have historically been the biggest consumers of gold. However, prices are set by the marginal buyer. Right now, that is investment demand from ETFs which has jumped by more than 50% in the last 12 months. This is a totally fresh phenomenon. ETFs did not exist in prior cycles so it was impossible to estimate how much gold was owned by investors. It is reasonable to conclude that before this bull market has climaxed ETF holding will be the largest gold stockpile in the world.

Emrod currently has a working prototype of its device, but will build another for Powerco, with plans to deliver by October, then spend several months in lab testing before moving to a field trial. The prototype device will be capable of delivering "only a few kilowatts" of power, but can easily be scaled up. "We can use the exact same technology to transmit 100 times more power over much longer distances," said Emrod founder and serial entrepreneur Greg Kushnir. "Wireless systems using Emrod technology can transmit any amount of power current wired solutions transmit."

The system uses a transmitting antenna, a series of relays and a receiving rectenna (a rectifying antenna capable of converting microwave energy into electricity). Each of these components appear in these images to simply look like big ol' squares on poles. Its beams use the non-ionizing Industrial, Scientific and Medical band of the radio spectrum, including frequencies commonly used in Wi-Fi and Bluetooth.

Unlike Tesla's globally-accessible free power dream, the power here is beamed directly between specific points, with no radiation around the beam, and a "low power laser safety curtain" immediately shuts down power transmission before any object, like a bird, drone, power thief or helicopter, can touch the main beam. There will be no difficulties this time working out where to place the meter.

The potential for wireless power transmission is a significant potential gamechanger for the energy sector because it represents an elegant solution to the question of how to connect very remote generating locations to points of consumption. While still in its infancy this is exactly the kind of technology that would benefit from venture funding and could succeed in boosting productivity.

Robusta coffee futures have surged about 16% in London this month, the biggest gain for a most-active contract since June 2010 amid a shift toward home coffee consumption. Worldwide lockdowns that shuttered cafes, restaurants and offices have supported demand for robusta beans, typically favored to brew instant coffee at homes.

“Nestle results provide confirmation at-home sales is doing very well,” said Carlos Mera, an analyst at Rabobank in London. “It was priced in to some extent, based on IRI data from the U.S., but this is more global.”

Robusta spreads have firmed up and its certified stockpiles have fallen to the lowest since the start of last year. Speculators covering their negative positions has also helped prices rally in recent weeks. Smaller robusta crops expected in Brazil and Vietnam in the 2020-21 season are also bullish for prices, Rabobank said.

I’ve been working from home for 13 years and even I am drinking more coffee than normal lately. Many people have probably discovered that with the help of capsules of home espresso machines it is possible to get better tasting coffee than what is available from Starbucks. Arguably, that wouldn’t be difficult.

The deformation occurred last Saturday when the flood from western provinces including Sichuan and Chongqing along the upper reaches of the Yangtze River peaked at a record-setting 61,000 cubic meters per second, according to China Three Gorges Corporation, a state-owned enterprise that manages the dam and the sprawling power plant underneath it.

The company noted that parts of the dam had “deformed slightly,” displacing some external structures, and seepage into the main outlet walls had also been reported throughout the 18 hours on Saturday and Sunday when water was discharged though its outlets.

But the problem of water seeping out did not last long, as the dam reportedly deployed floodgates to hold as much water as possible in its 39.3 billion-cubic-meter reservoir to shield the cities downstream from the biggest Yangtze deluge so far this year.

And

Meanwhile, Wang Hao, a member of the Chinese Academy of Engineering and an authority on hydraulics who sits on the Ministry of Water Resources’ Yangtze River Administration Commission, has also assured that the dam is sound enough to withstand the impact from floods twice the mass flow rate recorded on Saturday.

It is still raining in southwest China and that means the dam will be letting out more water to control the level behind the wall. Therefore, it is unlikely to be able to curtail the risk of flooding downriver.

The escalation in tensions comes at a particularly volatile time for China’s stocks, with the government taking steps to manage a debt-fueled frenzy that had pushed equities to their highest since 2015. Bullish traders have pushed leverage to an almost five-year high.

“Worries over China-U.S. relations will dominate the market,” said Raymond Chen, a portfolio manager with Keywise Capital Management (HK) Ltd. “People will be closely watching how the U.S. reacts to the closure of Chengdu consulate. I expect more panic selling in the near term.”

China’s yuan fell as much as 0.28% to 7.0238 versus the greenback, the weakest since July 8. China’s government bonds extended gains, with futures contracts on 10-year notes climbing as much as 0.36% to the highest since July 3. The yield on debt due in a decade dropped 5 basis points to 2.86%, the lowest since July 1.

Overseas investors sold 16.4 billion yuan of China stocks Friday, the most since a record 17.4 billion yuan was dumped on July 14. Turnover rose to 1.3 trillion yuan, the 17th session over the 1 trillion yuan mark.

The Chinese government has been trying its best to paper over the cracks in the economy. The boom in IPOs and the efforts to repatriate foreign listings of its tech champions are all aimed at creating a façade of capital market strength and stability. It fulfills the secondary purpose of trying to protect Hong Kong’s status as a major financial hub despite the destruction of its legal freedoms.

How far could the "Robinhooder's" distort the precious metal markets?

So far today the GDX/GDXJ do not seem to be confirming the upward movement in gold prices.

Thank you for this question which may be of interest to the Collective. There is a tendency among precious metals investors to expect a full bull market to unfold in a short period of time. That is because the price tends to range for lengthy periods before experiencing explosive breakouts. These tend to go faster and farther than anyone has been conditioned to expect during the range.

But junior miners are now starting to benefit. Take the case of American Pacific Mining Corp., an exploration and gold-mining firm with market capitalization of less than $20 million. The company raised $3 million in the second quarter, six times more than it had initially planned. Interest was so big that it had to turn away offers for more, said CEO Warwick Smith.

“The big boys play first, and then that money trickles down to the smaller companies, exploration companies,” he said. Revival Gold Inc., a Toronto-based exploration company, said Tuesday it was increasing its previously-announced public offering by C$3 million ($2.2 million) amid “strong demand” from investors. Spot gold prices rose 1.3% Tuesday to $1,841.94 an ounce, trading near the highest level in almost nine years.

The reasons that boosted the appeal of gold miners are the very same pushing investors away from companies digging for metals like copper or lithium, which are more dependent on economic growth. Base and industrial metals firms raised just $34 million in the second quarter, data compiled by Bloomberg showed. That’s a 40% decrease from the same period a year earlier.

Free cash flow became the bane of miners during the latter stages of the last gold bull market. They were borrowing money at such a prodigious rate and were so eager to build new production that any hope of profitability fell by the wayside. That contributed to significant underperformance relative to the gold price.

Recently there has been discussion about yield curve control (YCC), and whether the FED will introduce a new policy on managing interest rates. Do not be fooled - this is a rather large red herring, as the debt is now too large in the US (as it is in most major economies) to raise rates without the increased interest cost having a debilitating effect on annual government budget figures.

There is no longer $ 1trn of outstanding US federal Bills - in June the outstanding amount surpassed $ 5trn. If rates rise from 0.2% to 2%, the ANNUAL interest cost just on that segment of the outstanding $19trn debt would rise from ~$ 8.5bn to ~$ 102bn. Naturally you would also need to also factor in the impact of higher interest rate costs on leveraged households and corporates.

This is the red herring - the size of the debt will force monetary policy. To think that the central bank can raise rates means ignoring the consequence from the debt stock. And this is the root of my lower for longer view, which is obviously influenced from years of studying Japan, and which is now almost completely priced in to rates markets. Remember that the YCC in Japan led to a severe reduction of the BOJ buying of JGBs - it just did not have to.

The Japanification of the developed world represents a massive challenge for investors in search of yield. 90% of all sovereign bonds have yields below 1% and the total of bonds with negative yields is back at $14 trillion and climbing.

“Silver is currently trading at close to a record discount to gold, which should attract demand,” Goldman Sachs Group Inc. said in a note this month. “Silver often tends to lag gold at the beginning of a precious rally, and catch up to it as the rally continues and investors look for ways to diversify.”

During the week through Tuesday, hedge funds and other money managers added to their bullish bets on silver, boosting net-long positions to the highest since late February, according to government data Friday. That amounted to “a larger-than-usual” US$638 million bullish flow spurred by the trifecta of rising haven demand, recovering industrial activity, particularly in China, and South American supply disruptions, according to Societe Generale SA analysts including Michael Haigh.

Green Stimulus
Unlike gold, silver’s price is largely driven by a host of manufacturing applications. Morgan Stanley estimated that industrial demand makes up 85 per cent of silver demand. The metal may be poised to benefit from a push toward less-polluting energy technologies such as solar power, according to BMO Capital Markets.

With eyes on recovering industrial demand in countries including China, the world’s largest consumer of industrial commodities, some investors may be buying silver as a bet on new technology. U.S. Democratic presidential nominee Joe Biden outlined a goal last week of “a carbon pollution-free power sector by 2035” -- a move that would require rapid acceleration in the deployment of renewable wind and solar power as well as electricity storage, while continuing to rely on emission-free nuclear power.

“Silver-intensive areas such as 5G and solar technology could well benefit from any fiscal impulse,” BMO analysts including Colin Hamilton said in a research note. “More than US$50 billion of green stimulus has been approved by governments thus far this year, over which roughly three-quarters has been in Europe. But perhaps more impactful has been the recent Biden campaign Clean Energy plan, most notably a zero-carbon power grid by 2035 which would see new wind and solar capacity built to displace thermal generation.”

The price of any asset is influenced by the actions of marginal buyers. Therefore, new sources of demand and limitations on supply tend to have an outsized influence on the prevailing trend. Silver is used in solar panels, electronics and communications equipment. It also has healthcare applications as an antibacterial.

Physical deficits forecast in 2020 and 2021. We have updated our supply-demand forecasts for silver, which now see physical deficits in 2020 and 2021, from modest surpluses previously. This primarily reflects a stronger rebound in economic activity than we had expected and we now forecast demand in 2020 down -4% vs. -17% previously. We have also incorporated a material ETF inventory build, resulting in even larger net deficits. Our near-term supply forecasts were relatively unchanged.

Underlying industrial & commercial demand more robust. In the initial stages of the COVID-19 pandemic, Industrial Production (IP) on a period-over-period basis went to a highly negative level, driving a sharp move lower in silver prices. While we continue to assume YoY declines in global GDP and IP, we now think there could be a better outcome than previously expected, reflecting recent strength across industrial sectors in China, supportive global central bank stimulus and apparent rebounds in global PMIs. As such, our forecasts for industrial and commercial demand have improved.

Investment demand accelerating. Silver offers many of the same investment qualities as gold even with 50-55% of demand coming from industrial use. This means it is similarly attractive in the current supportive gold macro environment. Notably, physically backed silver ETF holdings have risen +140 Moz over the past 3 months and this appears to have continued to support prices in recent weeks. We now add significant ETF build into our demand forecast to reflect likely further investment interest.

A link to the full report is posted in the Subscriber's Area.

Silver is high beta gold but it takes time for investors to get the message that a new gold bull market is in the offing. Therefore, it is quite normal for silver to underperform, often by a wide margin, until investors begin to think about how they can gain leverage to the gold price. Therefore, the return to outperformance of silver relative to gold is a significant transition in the psychological make-up of the market.

Gold is a monetary metal because it has been viewed as a store of value for millennia. The question therefore is how do we best measure its performance as a store of value? Afterall, the simply looking at its value in different currencies gives us an historical perspective but it does not illustrate how much the purchasing power of currencies has been degraded over time. In order to do that we need to create charts of gold adjusted for the purchasing power parity of various currencies.

A combined Aphria and Aurora Cannabis entity would suggest a company with over C$1 billion in sales in 2021, with over C$600 million in net cannabis sales, Stifel analyst W. Andrew Carter wrote in note.
 

* Stifel says “headset market share data suggests” a combination would produce a leader in Canada’s adult-use market, with 30% share
* Stifel questions whether a potential deal would garner regulatory scrutiny
* Separately, Scotiabank analyst Adam Buckham wrote in note a potential deal makes sense
** Positives for Aurora holders would be annual cost savings and improved credit position
** Could spark pot sector M&A
* Aurora shares in Toronto rose as much as 6.3% intraday; Aphria rose 7.7%
* NOTE: Earlier, Aurora-Aphria Merger Talks Are Not Just Smoke: React (BI)
* NOTE: July 14, Aphria and Aurora Explored Merger, Talks Failed: BNN Bloomberg

The legalisation of cannabis in Canada was a buy the rumour, sell the news phenomenon. The prices of related shares surged ahead of the transition but did not improve on that performance subsequently and have since declined meaningfully.

A link to the full report is posted in the Subscriber's Area. 

Governments are engaged in a massive nationalization of private assets. Whether its buying sovereign, corporate or mortgage bonds, equities, repos and commercial paper it all represents an accumulation of private assets. Indirectly, property taxes and rising payments to public sector workers represent an additional confiscation and redirection of private property to sustaining the status quo. 

Political scientist Joseph Nye believes that the key trigger in the Thucydides trap is an excessive reaction to the fear of losing one’s power status and prospects for future development. In the case of Washington and Beijing, the relative decline of America’s power and the rapid rise of China’s power destabilizes their relationship and makes it difficult to manage. Gen. Martin Dempsey, then-chairman of the Joint Chiefs of Staff of the U.S. Armed Forces, even admitted in May 2012 that his primary task was to ensure that the United States did not fall into the Thucydides trap.

As a result of the slow but noticeable erosion of the U.S. position in the Western Pacific, it is highly conceivable that a scenario could emerge in which the current hegemon is tempted to conduct a strategic counteroffensive in response to an incident, even a trivial one, in the South China Sea or East China Sea, believing falsely that it has the edge over its inferior rival. This would trigger a modern Thucydides trap.

An in-depth reading of Thucydides’ work reveals a second trap, even more complex and dangerous than the first. Thucydides clearly warned that neither Sparta nor Athens wanted war. But their allies and vassal states managed to convince them that war was inevitable anyway, which meant that both city-states would need to gain a decisive advantage at an early stage of the escalating confrontation. Thus, they decided to enter the war after being urged to do so by their vassal states.

The discussions of the Great Game between China and the USA and many interlinkages across the global economy has been fodder for analysts for much of the last five years. I believe a much greater intensification of the competition between the USA and China is likely. Arguably it is already underway. However, for outright war to take place a number of additional conditions would need to be met.

However, looking only when the gold-oil ratio has exceeded 30:1 (i.e., oil is cheap relative to gold), crude has returned 32% on average over the next twelve months (over four times its long-term average), while gold has returned 4% on average. Oil was lower only 13% of the time (70% less often). On average, oil outperformed gold by 28% during these periods compared with 2% normally.

At the other extreme, when the gold-oil ratio was less than 10:1 (i.e., oil was expensive relative to gold), crude lost 7% on average over the next twelve months and was negative nearly 60% of the time. Gold returned 18% on average during these periods, outperforming oil by 25%. Since 80% of all observations occur when the ratio is between 10 and 30 you should expect the relative returns of both gold and oil to be like their long-run averages and that is exactly what occurred. When the ratio was between 10 and 30, oil returned 5% on average in the following 12 months, and was lower 41% of the time while gold returned 4% and was lower 33% of the time, roughly in line with long-term averages.

We last used this analysis in early 2016 to justify our investments in oil-related securities. At that point, the gold-oil ratio hit a then-record 47:1. We argued that oil prices were set to surge and invested in oil-weighted E&P securities as a result. Over the next 30-months, oil rallied by 191% from $26 per barrel to $76 per barrel by October 2018. Gold on the other hand fell by 4% over the same period. Oil stocks (as measured by the XLE ETF) advanced by 56%, well in excess of gold stocks (as measured by the GDX) which rose only 3% but lagging the S&P 500 which advanced 69%.

The gold/oil ratio spent much of the last couple of decades ranging mostly between 10 and 30. On the small number of occasions is veered outside of those bands the move was quickly reversed. It has therefore been reliable indicator of where value was present on repeated occasions. However, the current reading questions that conclusion. 

In 2012, the last time corn supply dropped that much, the U.S. crop was hit by a combination of heat and drought, sending Chicago futures to their all-time peak of over $8 a bushel. The weather isn’t quite as drastic this year and grain prices are starting from a much lower level. But U.S. Department of Agriculture data last week made things more interesting, showing American farmers planted 3 million fewer acres with corn than expected.

The surprise drop in acreage makes any decline in yields due to record-high temperatures this week more acute -- and a potential turning point in a corn market that has suffered from a massive glut. The USDA in a monthly report on Friday is expected to shave off 600 million bushels from its supply
forecast, the biggest change since 2012, according to analysts polled by Bloomberg.

“One of the things we’ve talked about for a number of years is that supply has overtaken demand,” said Stephen Nicholson, senior grains and oilseeds analyst at agriculture lender Rabobank. “To rectify that imbalance, we have two things: some sort of weather event or produce less.”

The knock-on effects of the lockdowns and reduced economic activity has yet to be full seen. Whether that is in less demand for fuel additives, greater demand for snack foods, fewer acres planted or inclement weather affecting yields. The one thing we know for certain is that commodity prices are low. Therefore, supply disruptions have the capacity to shift the balance in favour of the bulls.

Yet the book that has done the most to educate me about how China views America and the world today is, as I said, not a political text, but a work of science fiction. "The Dark Forest" was Liu Cixin’s 2008 sequel to the hugely successful "Three-Body Problem." It would be hard to overstate Liu’s influence in contemporary China: He is revered by the Shenzhen and Hangzhou tech companies, and was officially endorsed as one of the faces of 21st-century Chinese creativity by none other than … Wang Huning.

"The Dark Forest," which continues the story of the invasion of Earth by the ruthless and technologically superior Trisolarans, introduces Liu’s three axioms of “cosmic sociology.”

First, “Survival is the primary need of civilization.” Second, “Civilization continuously grows and expands, but the total matter in the universe remains constant.” Third, “chains of suspicion” and the risk of a “technological explosion” in another civilization mean that in space there can only be the law of the jungle. In the words of the book’s hero, Luo Ji: The universe is a dark forest. Every civilization is an armed hunter stalking through the trees like a ghost … trying to tread without sound … The hunter has to be careful, because everywhere in the forest are stealthy hunters like him. If he finds other life — another hunter, an angel or a demon, a delicate infant or a tottering old man, a fairy or a demigod — there’s only one thing he can do: open fire and eliminate them.

In this forest, hell is other people … any life that exposes its own existence will be swiftly wiped out. Kissinger is often thought of (in my view, wrongly) as the supreme American exponent of Realpolitik. But this is something much harsher than realism. This is intergalactic Darwinism.

Of course, you may say, it’s just sci-fi. Yes, but "The Dark Forest" gives us an insight into something we think too little about: how Xi’s China thinks. It’s not up to us whether or not we have a Cold War with China, if China has already declared Cold War on us. 

The Three Body Problem is an excellent read and The Dark Forest follows on well from where it left off. The third book in the series, Death’s End, was too meandering for me and I did not finish reading it. For a non-Chinese reader, the names can be a bit of an obstacle but the story is compelling.

Quantitative Easing Is Strong Gold Tailwind. Gold is in the early days of resuming the bull market that started about 20 years ago, in our view. The financial crisis and inception of central-bank quantitative easing (QE) accelerated the metal's upward trajectory then, and we see parallels that are likely more enduring this time. Our graphic depicts the potential upside in spot gold toward $3,000 an ounce vs. about $1,770 on June 26, if simply following the trajectory of the G4 central-bank balance sheet as a percent of GDP. Central banks essentially printing money to spur inflation is a solid foundation for the benchmark store of value.

Gold bottomed at about $700 in 2008 and peaked near $1,900 in 2011. A similar-velocity 2.7x advance from this year's low-close near $1,470 would approach $4,000 by 2023. Rising Stock-Market Volatility a Gold Launchpad. If gold's relationship with equity volatility that's mean-reverting higher and the financial crisis is a guide, the metal has plenty more upside potential vs. downside risks. Our graphic depicts the 100-week moving average of the CBOE Volatility Index (VIX) bottoming from the life-of-index low in 2018, like it did in 2007 before the financial crisis and which accelerated gold's rally. There are potential parallels to about a decade ago. A key difference is the metal has had a substantial correction and appears to be in the early days of resuming a bull market.

A link to the full report is posted in the Subscriber's Area.

Gold does best with negative real interest rates. That occurs when interest rates are held down because of fears of deflation, like now, and it also occurs when inflation advances quicker than central banks are willing to raise interest rates. That’s a scenario that could easily unfold in future considering the long-term repercussions of massive civil unrest and debt monetisation.  

Chris Taylor, President and CEO of Great Bear said, "The most recent drilling along 650 metres of strike length of the multi-kilometre LP Fault gold system has shown mineralization typically expands at depth. As the system broadens, we generally observe an increasing number of high-grade gold intervals within broader halos of moderate gold grades.  Gold mineralization continues to show excellent continuity within and between drill sections in all locations tested to date.  A new gold zone adjacent to the LP Fault zone was also discovered at approximately 750 metres vertical depth, consistent with our model of a greater than one kilometre wide structural zone at Dixie that has the potential to host additional new gold discoveries."

The Company has completed 120 of approximately 300 planned drill holes into the LP Fault target, as part of its 5 kilometre long by 500 metre deep grid drill program.  Current drill hole locations and results are provided in Figure 1, and in Table 1, respectively.

Great Bear’s resource base is next door to the historic Red Lake mine in Ontario. However, the company’s marketing department is almost as valuable as the resource they are proving up. Every time the results of a new drill hole are found, they issue a press release. Those eye-catching results continue to spur interest in the share as a high probability project that will eventually deliver on gold to the market.

Your comment on psychological perception stages. I find it most interesting that in the financial press in the UK at this point in time, the "g" word is very rarely mentioned by any of the financial journalists I follow, let alone recommending any gold mining companies. I wonder if this could be a sign that we are still in the latter stages of the "disbelief" phase regarding gold as an investment despite all the signs that a bull market is now underway.

Thank you for this question. There is a ‘stealth’ bull market underway in gold and a number of miners have posted impressive returns over the last 18 months. That is being overshadowed, right now, by the continued outperformance of large cap technology companies which are now accelerating higher.

At The Chart Seminar we discuss the progression of investor psychology through disbelief, acceptance and into mania as bull markets develop, evolve and eventually end.  John Templeton’s quote “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.” Is relevant to that discussion.

The story broke after a Beijing-based website investigated complaints and then posted the news under the headline: “The mystery of [US]$2 billion of loans backed by fake gold”.

Kingold is denying it lodged fake bars with Chinese lenders such as China Minsheng Trust, Hengfeng Bank, Dongguan Trust and Bank of Zhangjiakou. The trust companies involved are largely what are known as “shadow banks”.

The alleged scam came to light earlier this year when Kingold defaulted on loans to Dongguan Trust. The gold bars pledged as collateral turned out to be gilded copper alloy. Minsheng Trust’s “gold” bars have also turned out to be copper alloy under the gilded surface.

 

Veteran gold watchers will remember the case of gold-plated tungsten bars which began to turn up in New York a few years ago. 82 tonnes of gold is a substantial total and highlights the lack of governance in China’s financial system.

“The lesson learned by now is that TSLA shares tend to ‘work’ when something new has launched,” Jeffrey Osborne, a Cowen Inc. analyst with the equivalent of a sell rating on the stock, said in a report Tuesday. “At this point both the Model Y and China built cars are ramping up.”

Musk, 49, suggested to Tesla employees early this week that the company could manage to avoid a quarterly loss.

“Breaking even is looking super tight,” the CEO wrote to staff in an email seen by Bloomberg. “Really makes a difference for every car you build and deliver. Please go all out to ensure victory!”

Tesla has done an admirable job of keeping production on line globally even as sporadic shutdowns at home impaired manufacturing. The decision by California to mandate emission free trucking by 2040 is an additional tailwind for the battery producer. 

Goldman Sachs Group Inc. said gold could climb to a record $2,000 an ounce over the next 12 months, while JPMorgan Chase & Co. recommended investors stick with bullion.

“The Fed is being extremely accommodative and because these shutdowns are starting to reoccur globally, more central bank measures are probably going to be initiated,” Phil Streible, chief market strategist at Blue Line Futures in Chicago, said by phone.

Gold’s front month futures traded above $1800 today while the spot price has yet to achieve that goal. The difference between the short-term patterns may give us some insight into what is animating the market in the short term.

The secret service, best known as ASIO, confirmed in a statement that “search warrant activity occurred in Sydney on Friday as part of an ongoing investigation,” but would not comment on Moselmane or its involvement.

Less than two weeks ago, Morrison said that a “sophisticated state-based cyber actor” was targeting Australia in an escalating cyber campaign that was threatening all levels of government, businesses, essential services and critical infrastructure.

Most analysts said Morrison was referring to China, but the prime minister would not name the country.

Already high tensions between Australia and China have been raised by the pandemic.

China in recent weeks has banned beef exports from Australia’s largest abattoirs, ended trade in Australian barley with a tariff wall and warned its citizens against visiting Australia. The measures have been interpreted by many as punishment for Australia’s advocacy of an independent probe into the origins and spread of the coronavirus.

Australia’s foreign minister has accused China of using the anxiety around the pandemic to undermine Western democracies by spreading disinformation online, prompting China to accuse Australia of disinformation.

Australia depends on China’s demand for many of its exports. That’s represents a difficulty for the country in attempting to assert independence from China. For its part, China has a clear interest in securing its supply chains. That means ensuring Australia is at least amenable if not fully subservient to its wishes.

A link to today's video commentary is posted in the Subcsriber's Area. 

The extent to which mine supply has been impacted by the spread of COVID-19 in Latin America is something that had more of an effect on iron ore prices than silver. The bigger question is how much of an impact a return to production will have on prices. The supply deficit may have at least supported prices without contributing to an outsized gain. The return of supply could create a surfeit.

The settlement is more comprehensive than expected, since it includes the dicamba and PCB cases, and the price will be reasonable for most investors, Sebastian Bray, an analyst at Berenberg, said by email.

It’s a “big relief,” Bray said, and “should allow investors to draw a line under the saga of the last two years.”

The Roundup agreements will resolve 75% of about 125,000 filed claims and those that were unfiled, the company said Wednesday in a statement. Bayer said it will pay $10.1 billion to $10.9 billion to resolve all lawsuits over the popular herbicide, including $1.25 billion for future claims handled as a class action.

Bayer pretty much bet the value of the entire firm on the speculation they would be better able to settle the Roundup claims than Monsanto. It’s looking increasingly likely that they were correct.

Gold and longer-maturity bonds are getting outsized inflows. Protective equity options are outdrawing speculative contracts, while volatility markets are positioning for fresh disruptions.

It comes as signs of froth are emerging. The S&P 500 Index is on the cusp of its best quarter in more than 80 years even as fears of a second coronavirus wave grow. Speculative mania reigns among retail investors, while the likes of JPMorgan Chase & Co. are turning bullish on U.S. stocks.

But for all the fears that Wall Street is running headlong into risk in one of the fastest rebounds ever, hedging demand shows the frenzy is being met with some vigilance.

When equities yield 4% and a 10% correction is normal, then hedging with bonds that yield 6% and have less volatility makes sense. It is the relationship risk parity strategies were based on even though the original numbers were different. However today we have equities that yield 2% with 30% drawdown risk. Bonds yield 0.7% but volatility hit decade highs, more than double current levels, just a couple of months ago.

Switzerland never normally exports gold to the US. In fact, the US usually exports gold to Switzerland gold to Switzerland – to be refined. Why was 153.3 tonnes rushed into New York during late March and April. Were these COMEX deliveries known about in advance?

Another coincidence is that the amount of gold that has flowed into COMEX since early April that is reported as eligible for the new COMEX 400 oz gold futures contract totals 155.67 tonnes of gold. Very similar to the total amount of gold ready to be delivered for the June 100 oz contract.

The next article will look at the flows into the COMEX gold vaults since 23 March, which have totaled a huge 694 tonnes, comprising 363 tonnes in eligible and 331 tonnes in registered. This has brought registered stocks up to 387 tonnes and eligible stocks to 578 tonnes, for a combined total of 965 tonnes.

Could it be that the entity or entities that were looking for gold in London on 23-24 March and didn’t get it, switched their attention back to the COMEX and demanded delivery through futures, the delivery of which is now panning out? A trans-Atlantic shock that left bullion banks scrambling.

Ensuring there is enough gold on hand to supply a newer larger contract size is just part of doing business as a commodities exchange. The spike in the spread between London and New York gold prices witnessed in March and April was probably a result of trying to source this supply during the lockdowns. The bigger questions will be if investors are now willing to take delivery, rather than roll their contracts, will that reduce supply in the physical market and where will those tons of gold be stored?

After the recovery from the 23rd March lows (supreme irony: the very date that many countries went into social and economic “lockdown”) and the -6% mini-crash last Thursday, we see stock markets as being in a redistribution phase as “shareholder regret” kicks in. Nervous Nellies who regret holding equities will either exit altogether (“phew, I’m out!”), or switch money into “cheaper”, lagging sectors like banks, oils, real estate, airlines. Optimists will do something similar except that they’ll be more inclined to hold onto the quality (tech, healthcare, FMCG) that has stood them in good stead. These bulls will regret not holding lower quality sectors if their relative outperformance starts to slip. So lower quality could out-perform higher quality for a while. But….Caution!

A man-made Frankenstein (Modern Monetary Theory, which means hiring monetary policy to do the job of fiscal policy) is ringing an early bell for “stagflation” (low growth plus inflation). There may not be enough global demand or monetary velocity to revive stagflation…..yet. But survivors of the 1970s know what this implies for portfolios at the end of the day: inflation-proof growth equities, index linked bonds, real assets and……gold.

We are at a very interesting point in the market. There are completely different ways of looking at the market. For those who are long, the clearest rationale is $10 trillion has been thrown into the global market and more is on the way. One way or another that is going to inflate asset prices.

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.

 

“We’re not even thinking about thinking about raising rates,” he told a video press conference Wednesday. “We are strongly committed to using our tools to do whatever we can for as long as it takes.”

The Federal Open Market Committee earlier said it would increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities “at least at the current pace” to sustain smooth market functioning.

A related statement from the New York Fed specified that the pace of the increase would be about $80 billion a month for purchases of Treasuries and about $40 billion of mortgage-backed securities.

“Acting on mortgage-backed securities and Treasuries underscores their belief that more support is needed,” said Diane Swonk, chief economist with Grant Thornton in Chicago. “The Fed does not see a victory in the employment bounce-back. The risk of deflation is still high and the economy needs more support to heal more fully.”
 

$120 billion a month for the next two years will add nearly $3 trillion to the size of the Fed’s balance sheet. It sounds like a lot but the Fed added nearly $500 billion to its balance sheet in May, so $120 billion is a significant deceleration of support.

By March this year, he was stuck holding video calls with clients and colleagues from his home in Geneva. With the world on lockdown, the outlook for most industrial metals looked bleak. Yet even then, Bintas says there were early signs copper could emerge from the crisis even stronger.

If anything, he’s even more bullish today. Demand is bouncing back in China and stimulus packages being unleashed across the developed world promise to transform the long-term outlook -- particularly with spending on copper-intensive green energy infrastructure. The coronavirus has also disrupted mines and delayed new builds, throttling current and future supply.

“Copper is coming out of this crisis differently,” Bintas said by phone from Geneva. “When lockdowns were eased and people started to return to work, we were surprised to see our customers not only taking deliveries of volumes they’d already bought, but requesting more to cover themselves in case there were any further disruptions to supply.”

With the Federal Reserve talking about leaving rates on hold for more than two years, amid considerable economic uncertainty, the demand for stimulative measures is likely to increase. Infrastructure development provides jobs during the construction phase but also creates a lasting group of assets that foster economic growth in future. Of course, that latter point depends on what stimulus money is spent on but the commodity demand during construction is likely to be the same.

First of all, thanks for the excellent service, I have been a subscriber since 1987. One thing that confuses me is the obsession with carbon emission in the world. This has become a political issue, and media deny to debate it. Could you please elaborate a bit on this theme, and let me know what you rely on these days, where do you get your information on this matter, or is it simply follow the money?

Thank you for your kind words and support over the years. When I think about carbon credits, I am reminded of Ronald Reagan’s quip If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

At the heart of the speculative activity are smaller investors, according to Sundial. Small trader call buying made up more than 50% of total volume last week, the highest since 2000, it said.

Past instances when bullish small trader positions made up 45% or more of volume preceded a median loss for U.S. stocks of about 3% in two months time and 15% in a year, according to the note.

“Small traders are pushing their luck in a major way,” said Goepfert. “It seems increasingly risky to try to chase this rally along with traders who have traditionally been extremely reliable contrary indicators.”

Regardless of any mitigating argument, chasing the rally has been the right decision. The major Wall Street indices blazed through potential areas of resistance in short order. The Nasdaq Composite is now at a new all-time high and the worst performing, most at risk of bankruptcy companies, have staged spectacular rallies. The determination of retail investors to ride the coattails of the Fed while institutional investors stepped aside is a clear example of speculative fervour.

Greetings Eoin. Firstly, thank you for the daily commentary and Big Picture Long Term view. They remain the highlight of my weekend and are greatly appreciated. I’m interested in your comments regarding future expectations of inflation.

I hope I’m summarising you accurately, but in essence the thinking runs that the provision of vast amounts of monetary liquidity from Central Banks, combined with Government fiscal spending will at some point come home to roost, and drive up inflation.

If so, why then did we not see an inflation spike following the 2007/08 GFC, where massive (at the time) injections of liquidity and fiscal spending should have delivered the same result?

One view is that we did get inflation following the GFC, just that it showed up in asset prices, not in consumer prices. Equities, bonds, property, luxury goods, art and even later on precious metal prices all benefited from the increased liquidity following 2008. As you have previously highlighted, massive advances in technology, changes to the way we work and live, outsourcing of jobs to lower wage economies, and historically low interest rates have all combined to keep consumer inflation in check over the same period.

Are we to assume that this time is different, and we should expect consumer price inflation at some point, or is it safer to expect history to rhyme and that inflation will again show up in asset prices? If so, should we presume the liquidity will chase better returns and lower P/E multiples of Europe and Emerging Economies this time around? And finally, when investing I’m always conscious of the wise words from the famous British Economist, John Maynard Keynes “The market can stay irrational longer than you can stay solvent”. Spoken nearly a century ago, and never more relevant than today! Many thanks for your time

Thank you for this important email and your kind words. The global response to the 2008 global financial crisis was to bailout the sinners, and pass the bill on to savers. The massive liquidity provided and increases in government debt loads the bailout entailed, saved the global economy. However, it also exacerbated inequality, because, as you highlight the inflation benefitted the holders of financial and physical assets. The coronavirus has laid bare that divergence and it is fanning the flames of left-wing populism.

 

Due to the Covid-19 crisis, monetary and fiscal policy-makers around the world are feverishly seeking new ways to stimulate the economy. Conventional quantitative easing is still part of the standard repertoire of central banks. Deflationary tendencies are once again hitting the economy with full force in the current recession. In the past, deflation could be only partially warded off by central bank purchases of securities. Spurred by the zero interest rate policy that is now widespread throughout the world, discussions have been ongoing for years as to what the next stage of stimulus will look like. Leading the race are proposals such as deeply negative interest rates, yield curve control, or the implementation of

For the global reserve currency, the US dollar, the introduction of negative interest rates would be a sacrilege. But even this breach of taboo can no longer be ruled out. Most recently, the federal funds futures have been pricing in negative interest rates for the first time. Yet, Jerome Powell has spoken out against such a move. However, many market participants have not forgotten his 2019 monetary policy U-turn. The rapid change of course at that time towards a further expansion of the Federal Reserve’s balance sheet now makes it much more difficult for him to convince the market that the next taboo could not be broken. Ultimately, the expectations of market participants could also contribute to the implementation of such a decision, because in the current fragile market environment the Federal Reserve is afraid of disappointing participants and thus triggering further financial market distortions.

In the case of longer-term yields, a so-called yield curve control based on the Japanese model would be one of the options. This is nothing more than a planned-economy price setting in the bond market in order to fix a slightly rising yield curve. This is intended to promote the creation of credit through maturity transactions and to stimulate investment through low long-term interest rates. The increasing sclerotization of the economy would be the inevitable consequence. Modern Monetary Theory (MMT).

For more and more decision-makers the ideas of Modern Monetary Theory (MMT), aka Mugabe Maduro Theory, are becoming as enticing as the apple in the Garden of Eden. We have already subjected this theory to an extensive and critical examination in several issues of our In Gold We Trust report, 453 as well as this year. The recently published book by one of the MMT’s main representatives, Stephanie Kelton, summarizes in its title the great temptation to incur debt without atonement: The Deficit Myth.

The USA embarked on a raft of procyclical fiscal policies following President Trump’s electoral success in 2016. The question that has been overhanging the market for the last few years was what would happen in a recession when so much fiscal assistance had already been expended. Now we have our answer. Open-ended massive fiscal stimulus, exceeding wartime spending is the solution to any problem.

Can you add DRD Gold (ADR) to the library. It is priced just under 10 $. There is overhead resistance from the early 2000s; is this still relevant 20 years on? Can you do a comparative review of the N. American, Australian and South African gold mining sector?

Thank you for this question which may be of interest. DRD’s South African and US listing are already in the library just search for DRD. The company has focused on processing South African mining tailings for the last couple of decades. It did have a brief foray into mining in Papua New Guinea but to the best of my knowledge it fell foul of resource nationalism, along with a number of other large international companies. As you point out the share has been ranging mostly below $10 for twelve years.

Hello Eoin, if "liquidity trumps everything else" and assuming that governments worldwide will continue New Monetary Theory with massive deficit spending financed by monetization by central banks at essential cero or negative real interest rates, then this wall of liquidity should further propel the ongoing general "melt up" of stock and debt markets allowing a prolonged, demand driven risk-on rally.

In this case precious metals would lose their supposed unique "safe haven" status/advantage until such time that serious inflation or stagflation or a likely collapse or reset of the monetary system becomes visible to a large part of investors - if at all.

Until such (far-off?) day of reckoning, precious metals would neither be needed as protection against systemic crisis as "NMT would be working beautifully" nor for return purposes as stocks and other assets will be pushed up by abundant liquidity. For investors in precious metals/mining stocks the critical questions therefore is:

How long will stocks and other financial assets outperform and "unneeded" precious metals correct or even collapse? Looking back at 2011 and onwards, precious metals collapsed and stayed low until mid-2019 whilst continuing QE1- QEn (the predecessor for NMT) around the world made stock and debt markets boom for the next 9(!) years.

As this time round central banks and governments "shot before asking" by IMMEDIATELY providing unlimited liquidity and fiscal deficits instead of slowly finding and providing relief to financial markets as they did in 2008-2012 and onwards, the best part of the run-up in precious metals may be behind us and the place to invest is in stock markets without much regard to old fashioned valuation discipline.

Most of the performance of the past 10 years has been by way of a multiple expansion - why not have the S&P 500 trade at 25+ trailing earnings if real interest rates are negative and there is a worldwide "Powell/central bank put" as a guarantee against any serious losses?

My questions to you: 1. Why stay invested in PMs NOW and risk a serious corrections/collapse in PMs? 2. When will investors at large recognize - if at all (?!) - that NMT is and will be seriously debasing the currency and nominal values of all assets and that PMs are relatively better or at least, competitive investments/stores of value than say quality stocks (which pay at least a small dividend)?

Thank you for reflecting on the above and sharing your views with the collective. All the best, B

Thank you for this summary of the questions many investors are asking. The rationale behind any bubble is valuations don’t matter. The evolution of ETFs as trackers of indices is the clearest evidence anyone might wish for that this trend is already well underway. Market cap weighted indices are closet momentum strategies so tracking them turns everyone into a momentum investor.

Thank you for your great service and your prescient commentaries.

I am interested in a non-leveraged silver fund structured along the lines of the PMGOLD ETF.

I would very much appreciate your views/suggestions.

Many thanks. R

Thank you for this email, your kind words and I am delighted you are enjoying the service. PM GOLD is an Australia listed covered call-backed exchange traded note. The closest thing I could find to it is the ETFS Physical Silver ETN (ETPMAG AU) which is denominated in Australian Dollars.

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.

Gold prices are well above their long-term inflation-adjusted averages. Over time gold has barely outperformed inflation with a real return of 1.0% before cost of storage and insurance, compared to 2.7% for 10-year US Treasuries.

The fascination with gold has existed since the Egyptians first used gold bars as money as early as 4000 BC. The opening paragraph of the late Peter Bernstein’s book, The Power of Gold: The History of an Obsession, captures the sentiment: At the end of the 19th Century, John Ruskin told the story of a man who boarded a ship carrying his entire wealth in a large bag of gold coins. A terrible storm came up a few days into the voyage and the alarm went off to abandon ship. Strapping the bag around his waist, the man went up on deck, jumped overboard, and promptly sank to the bottom of the sea. Asks Ruskin: ‘Now, as he was sinking, had he the gold? Or had the gold him?’

And

Even during shorter windows when inflation has been above 6%, gold only outperformed equities between January 1970 and June 1970, and then again between August 1973 and July 1982.

In other periods, when inflation has been less than 6%, equities have outperformed gold.

This report recaps some of the most common negative arguments for investing in gold and they are relevant at some points in the broad market cycle. However, there is a cyclicality to gold’s turns at outperformance and the broad machinations of the global economy are currently at least as bullish as they were in the early 2000s.

A link to the full report is posted in the Subscriber's Area. 

The resources sector has been somewhat challenged by the decline in some commodity prices, particularly oil, over the last months. However, they represent a hedge against potential future inflation. They also have growth opportunities from an inevitable infrastructure global growth cycle; fuelled by a desire to support growth in the aftermath of the coronavirus.

The seeds of the current glut were sown when the coronavirus shut down commercial flights earlier this year and forced some gold refineries to close. The shutdowns strangled the supply routes that allow physical bullion to move around the globe, and prompted banks to step back from arbitraging between the London and New York markets. At the same time, demand for gold as a haven grew amid fears of the pandemic’s economic toll.

The premium for New York futures over London surged as traders rushed to avoid delivering in April, instead buying back contracts they had sold short.

Traders trying to capture that premium were able to arrange physical delivery, swelling inventories. Key refining hub Switzerland shipped a record amount of gold to the U.S. in April, according to figures dating back to 2012. Australia’s Perth mint also ramped up production last month and shipped bars to the Comex.

“It is a seller’s market because of the premium and the buyers are stuck right now,” Peter Thomas, a senior vice president at Chicago-based broker Zaner Group, said in a telephone interview. “Do you want to deliver now, or do you want to deliver into the back, where the premium is high?”

There was an acute shortage of physical gold in New York for a few weeks in April. That resulted in the spread between the London spot rate and Comex futures surging to $70. That encouraged suppliers from around the world to charter planes to ship inventory to New York to capture the arbitrage. Now that the supply deficit has been eliminated the spread has come back down to more normal levels. However, there is now also a surfeit of physical gold in New York looking for a home.

And FMG had a pretty good week this week: its share price hit a record high of $13.28 amid growth in Chinese production, an inflated iron ore price of about US$90, and a supply shock in Brazil, which is in the grip of the coronavirus and still recovering from that deadly Brumadinho dam disaster in January last year.

Nor did the decision later in the week by China to tighten inspections on iron ore imports dampen sentiment. Will FMG’s price continue to soar? It has a steely balance sheet, good projects in train, a healthy dividend payout, and chief executive Elizabeth Gaines is adamant Chinese demand for imports remains despite the Middle Kingdom’s ore stockpiles.

But can the iron ore price keep going? Morningstar director Mathew Hodge isn’t so sure. In fact, he expects it to halve over the next few years as China’s demand moderates and Brazil recovers. His fair value estimate for FMG is $6.80, which means it’s overvalued by about 100 per cent.

“Fortescue now trades at a premium to our $12.00 bull-case valuation,” Hodge says. “Our bull case incorporates an average iron ore price to 2024 of US$74 per tonne and US$60 per tonne from 2025 onwards. This compares with our base case assumptions of US$58 to end 2024 and US$43 from 2025 onwards.”

China is ramping up its steel production because they know the only way to reinvigorate the economy is through infrastructure development. That is going to have a major technology component which is likely to require significantly more power generation capacity which is positive for steel and cement demand.

“Looking at the U.S. weekly jobless claim data, it is clear that things are not dire as they were but the upward movement in the gold price confirms that investors are wary about the continuous claim data,” Naeem Aslam, chief market analyst at Ava Trade, says in an email

“There is no doubt we have seen a bottom in the macro data”

“Many appear keen to start taking profit on gold as it heads toward $1,750,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “We have not seen any inclinations on interest rates to move significantly lower, while the dollar looks to have broadly stabilized”

The gold market is long and is taking some profits ahead of a long weekend, according to David Govett, head of precious metals trading at Marex Spectron Investors are “probably a bit disappointed that it couldn’t make new highs yesterday”

The Monday holiday in the USA and UK ensures two of the world’s largest capital markets are closed for business. It is not all that surprising that some money is being taken off the table in overextended markets ahead of that event.

The potential for a change in battery chemistry from lithium-ion to lithium-sulfur could help.  A massive switch does not appear to be underway.  The big change in EV battery technology – a move to solid state lithium batteries – appears to have been pushed out to 2030 or beyond, versus the prior expectation that it would arrive in the early 2020s.  Now, battery research firms are focusing on how EV manufacturers may need to become involved in the procurement of battery raw materials, as well as completely revamping their supply chains to lower their cost.  

 The real challenge will be in the battery raw material procurement.  A chart from Benchmark’s webinar shows what the limitation is for EVs.  It is raw materials.  In the firm’s forecast for 34 million EVs in 2030, it is expected that there will be sufficient lithium-ion battery manufacturing capacity to produce 43 million EVs.  The challenge is that lithium supply will only meet the needs of 19 million EVs, while cobalt will only be able to supply 17.9 million EVs.  Those limitations equate to roughly a 45% supply shortage.  

One can certainly ask many questions about how investors will perceive EV manufacturers getting involved in mining operations to ensure adequate availability of raw materials for batteries.  Or, will the EV manufacturers figure they will just leave this endeavor to battery suppliers?  Who has the capital available for such new ventures?  What are the geopolitical risks, depending on where new supply sources are found?  Will the new supplies improve, or complicate the existing raw materials supply chains?  Will we be held hostage to foreign suppliers?  What are the ESG issues associated with mining rare earth minerals?  There is the possibility of another potential supply source, that being recycling old EV batteries, although such efforts are currently uneconomic.  

A link to the full report is posted in the Subscriber's Area.

A number of the newest battery chemistries do not use cobalt. That is particularly true of the batteries Tesla is producing for its Chinese manufactured cars. The bubble in cobalt prices which peaked in 2018 alerted all manufacturers to the risk represented by supply inelasticity. The technological edge they have since developed means the metal will no longer be required to manufacture batteries or the use case will be substantially reduced. It’s a great example of the adage from the commodity markets that “the cure for high prices is high prices”.

Silver also got a stronger bid, rallying to the highest in two months. The two precious metals have been lifted after U.S. Federal Reserve Chairman Jerome Powell warned earlier this week that the pandemic will take a heavy toll on the economy. Fears intensified on gloomy American unemployment data Thursday, and as President Donald Trump said he doesn’t want to talk to his Chinese counterpart right now.

Nations that enjoyed success quelling the virus, including South Korea and China, now face a rising number of infections. In the U.S., Texas saw its deadliest day and its biggest jump in new cases since the start of the outbreak. That comes two weeks after controversial moves to reopen the state’s economy.

“There are fears over everything from political leadership through the health outlook overall and associated economic financial and political risk,” said Rhona O’Connell, head of market analysis for EMEA and Asia at INTL FCStone. Prices are having a long-awaited breakout moment as market anxiety mounts, she said.

The Nasdaq-100 has had a V-shaped recovery. The Russell 2000, just about all of Europe, Japan and emerging markets have not. There is a lot of discussion in the media about the mismatch between Wall Street and Main Street. The fact that it doesn’t matter what governments tries to do, all they seem to succeed in is inflating asset prices and devaluing the purchasing power of their currencies.

Thanks again for the very useful audios and comment of the days. Is there a way in the chart library to compare various commodities and/or stocks to purchasing power parity like you did for gold today? If so could you please advise how. Thanks in advance.

Thank you for this question which comes up from time to time. It is possible to adjust any US dollar denominated asset for purchasing power parity by multiplying it by the PPP Index. Here is a link to a video I created a couple of years ago illustrating how to do it. 

Is the contagious selling of gold and goldminers we saw march 9-22 a phenomenon only occurring in the beginning of a crash or is there a chance it could occur again if we saw a rapid further correction to the march lows on stocks? P.S. looking forward to tomorrows long term video

Thank you for this question and I am delighted you are enjoying the audios. The big question most people is whether we have seen the lows. The answer depends on what assets you are talking about.

Thank you for the excellent commentary at the moment. Please could you tell me how much further the Gold Miners could appreciate, in your opinion. They have already come quite a long way this year but money still seems to be going in to the big miners such as Barrick and Newmont. Yet when the stock market suffers big pull-backs- the Gold Miners can often be whipsawed

Thank for this question which may be of interest to the Collective. The lesson commodity investors quickly learn is they are much more volatile that regular stocks. The gold mining sector went through a crushing bear market and is only now recovering. Sentiment towards miners is still fragile and has contributed to volatility.

A link to the full report is posted in the Subscriber's Area. 

Gold’s relative strength over the last year, coupled with a tight labour market were already starting to raise interest in inflation hedges a year ago. Then came the truce in the trade war, the halting of the Fed’s rate hikes, the repo liquidity crisis and finally the coronavirus recession. That has once again raised the spectre of deflation.

Then came World War I when warring countries ran enormous deficits that were funded by central banks’ printing and lending of money.  During the war years gold was international money as international credit was lacking because trust was lacking.  Then the war ended, and a new monetary order was created with gold and the winning countries’ currencies, which were tied to it, at the center of that new monetary order. 

Still, in 1919-22 the printing of money and devaluations of several European currencies were required as an extension of the debt crises of those most indebted, especially those that lost World War I.  As shown this led to the total extinction of the German mark and German mark debt in the 1920-23 period and big devaluations in other countries’ currencies including the winners of the war that also had debts that had to be devalued to create a new start.

With the debt, domestic political, and international geopolitical restructurings done, the 1920s was a boom period, which became a bubble that burst in 1929.

In 1930-45, 1) when the debt bubble burst that required central banks to print money and devalue it, and then 2) when the war debts had to increase to fund the war that required more printing of money and more devaluations. 

At the end of the war, in 1944-45, the new monetary system that linked the dollar to gold and other currencies to the dollar was created, and the currencies and debts of Germany, Japan, Italy, and China (and a number of other countries) were quickly and totally destroyed while those of most winners of the war were slowly but still substantially depreciated.  That monetary system stayed in place until the late 1960s. 

The purchasing power of fiat currencies is rapidly being debased. That is helping to support the nominal prices of stocks, property, gold and bonds. The $4 trillion surge in the total assets of central banks over the last couple of months has supported prices for just about all asset classes. The best performing assets have been those that have historically benefitted from deploying free abundant capital to fuel growth since 2009.

Eurostat reports that there was roughly €2 trillion of outstanding German government debt at year end 2019. ALL German government bills (Bubills) and bonds (Bunds) have a negative yield, which simply means that bondholders are prepared to pay the German government an annual fee to lend their money to the German Government, be it at -0.65% for very short term debt to -0.52% for 10yr debt to -0.13% for 30 year debt.
Did the yesterday’s German Constitutional Court ruling just change the risk/reward for investors in European government bonds?
 
The current 10 year Bund yield of -0.52% can be broken down into two components:

+ 0.48% Inflation Breakeven Rate.
- 1.00% Real Yield. 

The German constitutional court’s ruling that central bank purchases are potentially illegal is mostly an internal affair. The extent to which the ECB is subject to German law is highly debatable but pressing that point has political consequences for any country. There remains ample room for legal two-stepping to avoid any official censure which is why the bond market has brushed away any concerns.

Paul Singer’s Elliott Management, Andrew Law’s Caxton Associates and Danny Yong’s Dymon Asia Capital are all bullish on the yellow metal, which has risen about 12 per cent this year. They are wagering that moves to loosen monetary policy and even directly finance government spending, intended to limit the economic damage from the virus, will debase fiat currencies and provide a further boost to gold.

“Gold is a hedge against unfettered fiat currency printing,” said Mr Yong, founding partner at Dymon Asia, which is up 36 per cent this year, helped by its bet on the gold price.

New York-based Elliott, which manages about $40bn in assets, told its investors last month that gold was “one of the most undervalued” assets available and that its fair value was “multiples of its current price”.

In a letter, Elliott cited the “fanatical debasement of money by all of the world’s central banks” as well as low interest rates and disruption to mining caused by coronavirus. Profits from gold positions helped the hedge fund to a gain of about 2 per cent in the first quarter.

Central banks are acting like the proverbial Dutch boy with his finger in the dyke. The assistance provided to date is a stop gap measure but is open ended. This might not be the most convenient time to think about deficits and how all this is going to be paid for, but gold investors are not hanging around. 

Like you, I follow the PMs, particularly gold and silver. I noticed a remarkably consistent pattern in spot gold trading volume. Going back 10 years, the volume has picked up and dropped back on alternate months. During the summer doldrums there is a hiatus, as one would expect. The alternating pattern then resumes around the end of October each year. I am very interested to hear your explanation for this.

Thanks for this question which others may have an interest in. Spot gold does not have volume data because it is an indicative price rather than a traded price. Volume data is available on futures contracts.

Is there any chance you can add Market Vectors Junior Gold Miners (GDXJ) LONDON quote to the chart library please? It seems to trade at a $5-$6 difference to the US quote. I assume this is the same underlying fund - I hope it’s not too dumb a question to ask why the difference? However, it looks like an interesting ETF but I can only by the London listed entity in my fund and therefore I'd like to be able to track it in your superb chart library. Thanks so much.

Thank you for this question and it is certainly not a dumb question. The fund is now available in the Chart Library and I will make a guess at the answer. Both funds do track the same index which is the MVIS Global Junior Gold Miners Total Return Index.

Eric Basmajian has much to say about the dominant deflationary forces of the past 40 years and how the recent monetary and fiscal policies are more likely to add to that problem by suppressing the velocity of money.  Most of us, more or less, understand that argument.  He then, surprisingly, includes gold in his recommended portfolio because of falling real interest rates in either deflation or inflation.  All very difficult for average investors to comprehend. Your view would be appreciated.

Thank you for this question which may be of interest to subscribers. It’s a common misconception that gold only does well during bouts of inflation or deflation. Instead, it’s really all about negative real interest rates.

Real interest rates are nominal interest rates adjusted for inflation.

In Xiangcheng, a district in the eastern city of Suzhou, the government will start paying civil servants half of their transport subsidy in the digital currency next month as part of the city’s test run, according to a government worker with direct knowledge of the matter.

Government workers were told to begin installing an app on their smartphones this month into which the digital currency would be transferred, the worker said.

Civil servants were told that the new currency could be transferred into their existing bank accounts, or used directly for transactions at some designated merchants, the person said.

China is ahead of many other countries in preparing the launch of an official digital currency. In recent years, the use of traditional paper bills and cash has declined sharply, and smartphone payments have become so ubiquitous that many Chinese people, particularly younger urban dwellers, no longer carry their wallets or cash for shopping. Instead, they use Tencent Holdings Ltd. ’s WeChat Pay and Alipay, operated by Ant Financial Services Group, an affiliate of Alibaba Group Holding Ltd.

Parallel currencies are an oddity which highlight a government’s desire to fully control the ability of consumers to spend their own cash. The ultimate aim of these kinds of moves is to separate the use case for money so different units can be used for different purposes. The façade of wishing to curtail money laundering or terror financing is ubiquitous to all governments and this is a trend which has global appeal for heavily indebted countries.

The coronavirus has sometimes been called an equalizer because it has sickened both rich and poor, but when it comes to food, the commonality ends. It is poor people, including large segments of poorer nations, who are now going hungry and facing the prospect of starving.

“The coronavirus has been anything but a great equalizer,” said Asha Jaffar, a volunteer who brought food to families in the Nairobi slum of Kibera after the fatal stampede. “It’s been the great revealer, pulling the curtain back on the class divide and exposing how deeply unequal this country is.”

Already, 135 million people had been facing acute food shortages, but now with the pandemic, 130 million more could go hungry in 2020, said Arif Husain, chief economist at the World Food Program, a United Nations agency. Altogether, an estimated 265 million people could be pushed to the brink of starvation by year’s end.

While the system of food distribution and retailing in rich nations is organized and automated, he said, systems in developing countries are “labor intensive,” making “these supply chains much more vulnerable to Covid-19 and social distancing regulations.”

Transportation networks have been severely impacted by the coronavirus lockdowns and that is having a significant knock-on effect for vulnerable communities all over the world. There is no shortage of food globally, but the uncertainty the lockdowns introduced have disrupted harvest and slaughter schedules. That is putting upward pressure on some commodities prices while depressing others. The international challenge will be in ensuring commodities get to where they are needed in time to protect the lives of people in the emerging markets.

A link to the full report is posted in the Subscriber's Area.

It is probably true that Australia is about to have a technical recession. The fires, lockdowns and collapse in Chinese demand are all contributing factors. However, it is also worth remembering that the medium-term response to the coronavirus is likely to be an epic infrastructure development spending spree which will be global in nature. For commodity exporters like Australia that is likely to be good news.

Mr. Treacy has mentioned in one of his previous articles:

http://www.fullertreacymoney.com/general/gundlach-sounds-alarm-on-paper-gold-etfs-raking-in-billions-/    

...There are 1145 precious metals miners listed on Bloomberg and 123 of those pay dividends. Some of the largest miners have tied the size of their dividend to the gold price and almost all have All-In-Sustaining-Costs significantly below prevailing gold prices....

I searched Bloomberg for the 123 metal miners that pay dividends but could not find the list.

Would Mr. Treacy be able to point me to the list?

That you for this question which may be of interest to subscribers. If you have access to a Bloomberg try the EQS fundamentals search function. Filter for precious metals miners and then add a filter for dividend per share >0.

The quicker the printing of money to fill the debt holes, the quicker the closing of the deflationary depression and the sooner the worrying about the value of money begins.  In the 1930s US case, the stock market and the economy bottomed the day that newly elected President Roosevelt announced that he would default on the government’s promise to let people turn in their money for gold, and that the government would create enough money and credit so that people could get their money out of banks and others could get money and credit to buy things and invest. 

This latest book by Ray Dalio is well worth taking the time to read. Chapters are being released weekly via LinkedIn. His focus on governance, hard money and the credit cycle will be familiar to veteran subscribers but it is always refreshing to hear an additional perspective and not least because of the study of long-term cycles which he throws fresh light on.

Australia has announced they are increasing petroleum reserve stocks. Small steps in the global oil market. We have lots of gas not much Oil. Government argument oil prices are low. Think I can see political / defense US / Australian ambitions in this move.

The Governor of the RBA made a speech a few months back the RBA will support all local banks. That investors should feel confident about the security of their bank deposits and securities. Can I trust these comments? I almost fell out of my chair when Glenn Stevens made this statement

Thank you for this email which may be of interest to other subscribers. It makes sense that Australia should build up an oil reserve when prices are cheap. It certainly beats doing it when prices are high and a significant reserve is a geopolitical imperative during a time when stress between the great powers of our day is only likely to increase.

Consider now the potential for a diametrically opposite situation in COMEX gold. Why and how could this unfold?

COMEX gold also has "delivery month" contracts that serve as the "front month" for trading purposes until they go off the board and into delivery—at which time the trading volume rolls into the next scheduled month.
In delivery, anyone still long the contract can stand for delivery through the COMEX vaults in New York. (And now might also stand for fractional ownership of bullion bars in London, too.)
But global demand for physical gold outstrips supply at present, as many refineries, mines, and mints are closed worldwide due to Covid-19.
Thus, we are seeing a growing need/demand to hold COMEX contracts into delivery. For the current month of Apr20, total gold deliveries on COMEX exceed 3,000,000 ounces. This is more than 3X the usual demand for a "delivery month".
If an extreme shortage develops—or if any sort of "run" on the bullion bank fractional reserve system begins—demand for delivery through the COMEX and LBMA will soar.
Demand for the front/delivery month contract will surge. However, to buy a contract, you will also need a seller—someone interested in adding a short or selling an existing long.
And in this case, there may be NO SELLERS. Thus, what you may see is a true offerless market.
The potential result? The exact opposite of what you witnessed Monday in NYMEX crude oil.

Could this opposite scenario actually play out in COMEX gold? You may be reluctant to say yes, as this type of situation would seem unlikely and unprecedented. However, prior to Monday, April 20, the idea of negative pricing for the world's most important commodity was similarly unlikely and unprecedented.

The US Oil Fund ETF’s predictable roll schedule which has been gamed by hedge funds for years is the primary reason the April WTI crude oil contract hit -$40 this week. To the best of my knowledge there is no corresponding fund that is rolling over futures contracts in gold on a predictable basis. The vast majority of ETFs investors buy for gold exposure hold physical metal rather than futures.

As George Friedman discussed in his The Storm Before The Calm, the U.S. operates on two long cycles – the socioeconomic cycle and the institutional cycle.  The first works on a 50-year time frame, while the other is about 80-years long.  The socioeconomic cycle’s last shift “happened around 1980, when the economic and social dysfunction that began in the late 1960s culminated with a fundamental shift in how the economic and social systems functioned.”  This is referred to as the Reagan Revolution, which brought lower tax rates that addressed a crucial issue facing the U.S., which was a lack of capital.  Today, we suffer from too much capital and a lack of investment opportunities, which Mr. Friedman attributes to a decline in productivity growth as we experience a falloff in innovation.  There have been a number of studies and books written about why the nation’s productivity has declined.  

The institutional cycle deals with how the federal government’s operation and relationship to society changes.  It’s first 80-year cycle began with the Revolutionary War and the drafting of the Constitution and ended with the Civil War in 1865.  The second cycle extended to World War II.  The current cycle will end around 2025, about the same time the current socioeconomic cycle will end, leading, in Mr. Friedman’s view, to extreme chaos that will force changes on the nation that will bring social calm and economic prosperity in the 2030s, and thereafter.   

Mr. Friedman makes a compelling case in studying how our economy, government, society and geopolitical role in the world have evolved and changed since the arrival of the first colonists in the late 1500s and early 1600s.  Without expounding on his discussion, the nature of cycles, something we pay attention to in the business, investment and energy worlds, has driven us to think about how the future may evolve.  

A link to the full report is posted in the Subscriber's Area.

There is a lot of talk in financial blogs about the prospect of a debt jubilee where governments get together and decide that the liabilities have become so large that the totals will be reduced in an abrupt manner and a new money will be created. 

Good afternoon Eoin, I am enjoying the daily video and the written commentaries. Regarding your medium and long-term view that the price of gold is and will be reflecting the increasing and competitive debasement of currencies, but that presently gold is in an overbought phase, please explain what you would consider the maximum drawdown in gold to undo the overbought situation.

Would that imply that gold should e.g., give up about $170 (10%) and reach approximately $1530 which I believe is the 200 SMA? Same question for silver. In what time frame do you expect the undoing of the overbought situation for gold (and silver) to happen? Days, weeks, months? How quickly would the bull market resume?

It seems that the script of the last financial crisis is happening at 4-5 times the speed of 2008/2009...) What likelihood do you see that governments and central banks in the end will intervene (on an international scale) to either confiscate or prohibit the private holding of gold and silver and/or otherwise make sure that the nuisance of gold and silver as uncontrolled non-fiat money disappears? Roosevelt and others like Hitler, Soviet Union already proved that this can be successfully implemented ...Second addition to my first message/questions: To what extent did the rally in stocks trigger yesterday's and today's downdraft in the PM sector? Thank you!

Thank you for this series of questions which may be of interest to subscribers. The mantra that delivers the best returns is “don’t pay up for commodities” and that applies even in a bull market. Gold and the precious metals generally are prone to volatility and often posted failed upside breaks. Chasing the market higher will only work on the relatively rare occasions when the trend accelerates; whereas more often than not precious metals trends adopt a sawtooth profile.

Hi Eoin, could you please comment on the pricing discrepancies between Comex and spot? It is playing havoc with the Gold ETFs which are not reflecting the underlying as well as they should be.

Thank you for this question which may be of interest to other subscribers. Speculation about what exactly is causing this arbitrage is running hot in the media. The lack of liquidity among market makers, the shortage of refined gold, the break in shipping schedules for the metal and fears about counterparty risk among London bullion banks are all contributing to the historically wide spread.

Thanks for the insightful video, as always, Eoin. Have you had a look at the uranium sector lately? The spot price has jumped along with the miners, including Cameco and Denison which jumped 26% yesterday. Is the long-awaited supply crunch coming into play and how long will the uptrend last? Your thoughts on this will be appreciated.

Thanks for this question which may be of interest to subscribers. The shutting down of both transportation and some mining operations has created a short-term supply shortage which is supporting the outperformance of uranium. It’s the number one best performing commodity this year but the supply shortage is unlikely to last beyond the lockdown phase of the virus-induced recession.

It goes beyond even this though, and the Fed now has powers to buy the actual junk rated ETFs, direct from the market. So yes, they can directly buy the debt of the fallen angels like Ford and Macy’s but pre-existing junk bond issuers also stand to benefit. There really does seem to be no end to the rescue packages served up by Governments across the world.

The question remains though as to who will ultimately pay for this? In the U.K. we have only just exited an era of deeply unpopular austerity. Do we delve straight into more of the same? With a post-election promise of massive equalisation between North and South, I can’t see how that sticks. Or are we looking at increased taxes on the wealthy through direct asset-based taxes? Someone has to pick up the tab after all.

Thank you for this question which I believe many people are asking and not just in the UK. I agree there is no appetite for higher taxes. The populist wave that has swept the status quo aside in many countries, was powered by disaffection with globalisation, austerity and the hollowing out of the middle class.

As we wrote in our March 24 industry note, we see extreme monetary and fiscal stimulus leading to dollar deflation. In this environment, similar to the set up in 2008, we expect gold price to trade materially higher and we have raised our gold price forecast to $2,500/oz. With higher prices, gold miners stand to benefit from substantial margin growth, assuming that industry-specific cost inflation remains low. In our opinion, investors should be looking to build positions in gold-related equities that give them exposure to gold. In our experience, investors will gravitate to large-cap producers and select those with the largest annual production of gold. Investors will also look to published gold reserves (and resources) in the ground, and selecting those equities with the largest accumulation. While neither of these section methods is without its flaws, we have reviewed our coverage and aggregated this data. As we indicated in our January 30 gold industry note (“Strategies for Outperforming the Gold Miner ETFs”), we continue to recommend investors build a concentrated portfolio of our favorite names that offer gold leverage, but also minimize exposure to production interruptions and provide exposure to the M&A cycle that historically accompanies a gold bull market.

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This is not the time to worry about deficits” are likely to prove fateful words 18 months from now. The measures being adopted by the world’s governments, in tandem with their respective central banks, are sowing the seeds for future inflation.

That’s not a short-term risk because the velocity of money is at an unprecedented low but stimulus often proves sticky and any improvement in economic conditions is going to result in a surfeit of money sloshing around.

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Let’s set aside for the moment questions of timing and think about what changes we can expect to be durable from the virus-induced recession.

The first thing that springs to mind is a loss of income which will take a while to recover. For some that will be quite soon, for others who need to find a new job it will take longer. As we go from full employment in many countries to something less that necessarily represents lower growth overall and by extension lower corporate earnings.

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The idea of Modern Monetary Theory scandalised investors a year ago but very much the reality today as central banks fall over themselves to accommodate the efforts of governments to spend their way out of the trouble. My contention since early this year was the coronavirus will be temporary but the monetary and fiscal effects will be very long lasting.

The process of swapping GLD shares for physical gold sits “outside of normal dealings,” according to State Street Global Advisors head of ETF research Matthew Bartolini. Bank of New York Mellon, the fund’s trustee, doesn’t interact with the public but only with middlemen known as authorized participants -- traders who channel assets in and out of the fund. An investor would have to work with one of GLD’s APs to acquire gold, he said.

“An individual investor wishing to exchange the Trust’s shares for physical gold would have to come to the appropriate arrangements with his or her broker and an authorized participant to receive the gold bars,” Bartolini wrote in an email.

Gundlach said earlier in March that while he was neutral on gold mining companies, the metal would ultimately go higher. The $51 billion DoubleLine Total Return Bond Fund, Gundlach’s mortgage-focused flagship fund, lost 1.3% this year through Monday and returned an annual average 2.6% over five years.

For Bloomberg Intelligence’s Eric Balchunas, that process isn’t necessarily a problem. Most investors buying gold ETFs are doing so to get exposure to bullion’s price movement, rather than to acquire physical gold, he said.

“The problem with getting physical gold is you’ve got to insure it or keep it in a safe spot,” Balchunas said. “Generally speaking, most people don’t want gold. They want the return stream that gold gives.”

There is no way to hold physical gold in a fund without incurring some form of risk. However, there is also no way of holding physical gold personally without also incurring some form of risk. Most people are satisfied to receive the diversification and potential for appreciation gold represents. However, it is inaccurate to describe gold as offering a return stream. It does not pay dividends. For that you need gold miners.

Copper climbed as a strong rebound in Chinese manufacturing bolstered the outlook for demand, trimming the industrial metal’s biggest quarterly drop since 2011.

China’s official purchasing managers’ index rose this month, up from a record low in February, signaling the world’s second-largest economy is restarting. While the outlook remains uncertain as the country faces a growing threat from slumping external demand, production cuts at major mines around the world are shoring up sentiment for copper.

The metal extended gains after President Donald Trump called on Congress to provide $2 trillion for infrastructure spending in the U.S.

On a day when Wall Street pulled back on book squaring at the end of the quarter copper prices were quite firm. China’s reported economic activity has been strengthening as the economy starts back up and commodity investors are expecting significant infrastructure development as some of the more traditional levers of growth are leaned on.

JG: Yes, yes. Patience is absolutely in order and also gold is … you know, I confess I’m a gold bug and I blurted it out — gold — before you even asked the question. Yes, but it’s not to the end of emulating Scrooge McDuck. That’s not the point.

The point is to have liquid wealth available when opportunity presents itself. Gold is many things but it’s not regenerative. And there’s nothing as an investment like a well-priced, successful, profitable well-financed business. So, what you want is gold for opportunities. You also want it, not so much as a hedge against monetary disorder because we have that, you want it as an investment in monetary disorder. That’s a second reason. So, I guess that’s a little bit of Scrooge McDuck reason but I hold it for those two reasons. I think that it’s going to be helpful for both.

I look forward to liquidating some of my gold bullion, as modest as that stack of coins is. I look forward to, at some point, liquidating that, if I have the nerve and the opportunity to accumulate something that is going to be yielding dividends and cash flow. But the other portion, well I think, I hope, I’ll never sell — that’s the bottom dollar: an investment in the evident tendency of monetary affairs. The arc of monetary evolution points to greater and greater interventions, more radical policy which begets still more radical policy, financial repression and more of that. We got more QE this week than they did under the Bernanke Fed.

So, to me the arc of this is very clear and you want gold, both for the inevitable spills in the market for financial assets as well as for the seemingly inevitable destruction, or certainly impairment, of the government-issued money. Those are my reasons.

Governments the world over are telling us this is not the time to worry about deficits. That begs the question, when is the best time? The Velocity of Money is cratering because of the shutting down of economic activity and the reduced number of transactions required to fulfil an online sale. That removes the inflationary bias from massive monetary and fiscal stimulus in the short term.

The coronavirus crisis has transformed the fiscal landscape at a stroke. Britain was on course for a budget deficit of 55 billion pounds in the fiscal year starting April. Now, according to the Institute for Fiscal Studies, borrowing could be as much as 200 billion pounds as an economy on course to shrink at least 5% this year hammers tax revenue and drives up spending on welfare.

That could leave the deficit just below the 10% reached in the aftermath of the financial crisis and push up already elevated debt levels.

The chancellor announced his first economic package to deal with the outbreak when delivering the budget on March 11, unveiling 12 billion pounds of measures to mitigate the effects of the outbreak on the economy.

As evidence mounted that the crisis was snowballing, he followed up with a 350-billion pound stimulus package comprising government-backed loans as well as 20 billion pounds of grants and tax cuts for struggling companies.

Then, last Friday, he announced 7 billion pounds of extra welfare spending and said the government would pay 80% of salaried employees’ wages up to a maximum of 2,500 pounds a month -- a plan Bloomberg Economics estimates will cost 17.5 billion pounds.

Announcing further details of the job-retention program today, the Treasury said the government will also cover employers for the National Insurance and minimum auto-enrolment pension contributions of furloughed workers, saving firms 300 pounds a month per employee on average.

The trouble with the coronavirus is not so much in the mortality rate but in the speed with which it is spreading. Overloading hospitals with scarce resources and scary reports of tens of thousands dying has put a great deal of pressure on the economy. However, it is also worth considering that despite the scale of the challenge faced in Italy, they have seen the peak in the infection growth rate. That suggests the problem is unlikely to get worse.

With some US$111 million in investment from major companies, including LG, Samsung, Mitsubishi, Renault and Nissan, Enevate now says its cells are ready for the big time. In an interview with Charged EVs, Park said Enevate is designing packs for the 2024 and 2025 model years to get its cells into consumer products with major manufacturers. There are no announcements around who or what exactly they're making packs for, but the list of companies above may be instructive.

As far as we're aware, though, the infrastructure to support blast-charging at the kinds of rates we're talking about here simply doesn't yet exist. Tesla's V3 superchargers are currently capable of blast-charging a Model 3 at 250 kilowatts, which would give you around 133 km (83 mi) of range in five minutes.

These batteries would charge three times faster, at around 0.75 megawatts, which is a huge power draw. An alternative method might involve trickle-charging massive supercapacitors all day at slower rates so they've got enough energy to supply the cars super-quickly when they need it, but we're yet to see anything like that in action, and the size of those supercapacitors might end up being prohibitive.

It is almost as if I see a new story about advancements in battery technology every day. They all come with caveats but the one thing we can be sure of is the quantity of capital now devoted to solving the issue of energy density and range anxiety is growing persistently. Producing a doubling of energy density with a low charging time is the hold grail of the sector today and it is reasonable there will be a solution in the market within five years.