Solid Support for Gold at $1200
Gold established solid support above $1200 this week to close the week on Friday at $1203, substantially higher than the previous support level at $1180. For the last several weeks, the $1200 level has been an attractor. Each time gold has dipped below this key level, buyers have bid the price up and each time gold has surged above resistance at $1220 gold has settled back to support above $1200. This price action is a healthy consolidation for a move to higher prices.
Switzerland produces no gold internally so imports and exports of Swiss gold should roughly balance out as the Swiss import gold to fill orders for export buyers. Swiss gold exports for the first quarter of 2015 total 485 tonnes which annualizes to just under 2000 tonnes. This would be the second highest year of Swiss gold exports when compared to the all time record of 2083 tonnes exported in 2013.
This shows that the demand for physical gold is strong and is providing significant price support for gold prices despite pressure from the paper traders. At some point, there will be a disconnect in price between paper god and physical gold as the demand for physical gold overwhelms the paper price. As Jim Rickards, author of The Death of Money: The Coming Collapse of the International Monetary System has said in the recent past- “it will not be a matter of what the gold price is, but of availability.”. We will continue to track the flow of physical gold in world markets for you and as always, keep you informed.
Silver Follows Suit
After bottoming at $15.34 in March of this year, silver has steadily climbed to close Friday at $17.08 on heavy volume. Price rallies in both silver and gold have been driven by exceptionally high volume since the beginning of April.
Is a Whale Accumulating Silver?
Silver imports to the US have increased dramatically by 44% YTD this year as indicated by the chart below:
US Geological Survey numbers show that the US imported a total of 4,960 metric tonnes of silver in 2014. If the current 2015 rate of silver imports continues, the US will import over 6,200 metric tonnes of silver in 2015. Fundamental market indicators including industrial demand, US Silver Eagle sales and Comex inventories are flat or declining. What is the source of this surging demand for silver? Is a large player or players attempting a corner on the market? This is very doable since the estimated stock of above ground commercial investment grade silver is roughly 2 billion ounces. This is “only” about $34 billion.
At this point is impossible to say, but we will monitor this market activity and as always, keep you informed.
The Collapse in the Velocity of Money
The velocity of money peaked in 1998. The repeal of the Glass- Steagall Act in 1999 has created a banking system that is oriented to the structuring of products for transactions based on short term trading profit. (The Glass–Steagall Act refers to the U.S. Banking Act of 1933 that limited commercial bank securities activities and affiliations within commercial banks and securities firms. This prevented banks from engaging securities transactions and owning securities firms.)
Our banks have abandoned the traditional banking model of relationship banking and capital formation for business. This has had the effect of depleting the cash flow of money out of the general economy and is a cause of the rising unemployment we have seen since this time. This national catastrophe is clearly illustrated in the chart below:
The mild economic recovery in the US has been shallow at best. The Federal Reserve has been unable to raise interest rates to demonstrate any meaningful recovery. The stimulation of Quantitative Easing (QE) has failed. This leads to a lose-lose proposition for risk assets, ie. stocks and bonds).
In other words, either the economy improves and the Fed hikes rates, which will cause market volatility, or the economy does not recover and earnings per share drop, dragging stock prices down.
With US stock prices at record highs, US equity funds are experiencing net outflows of investment capital in 2015, on the order of $100 billion. You must ask yourself, “Why?”
Bank of America Warns Investors and Recommends Gold
Perhaps, as they say, “The worm has turned.”. On Tuesday morning, Bank of America Merrill Lynch issued a warning to investors:
“Investors remain trapped in “The Twilight Zone”, the transition period between the end of QE and the first rate hike by the Fed, the start of policy normalization…until (a) the US economy is unambiguously robust enough to allow the Fed to hike and (b) the Fed’s exit from zero rates is seen not to cause either a market or macro shock (as it infamously did in 1936-7), the investment backdrop will likely continue to be cursed by mediocre returns, volatile trading rotation, correlation breakdowns and flash crashes… extremities of liquidity, profits, technological disruption, regulation, income inequality…potential for a cleansing drop in asset prices cannot be dismissed.”
“For this reason we continue to advocate higher than normal levels of cash, adding gold …”
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