David’s Commentary (In Blue)

On Friday, July 24th, gold passed $1,900. It was a milestone. It had been almost exactly nine years since gold last saw that number. I can remember my excitement. On Monday, the 27^th, I spent the day with my son Andy and watched him field non-stop incoming phone calls from 8 a.m. until I left around 4:30 that afternoon. For the next two weeks, the phones never stopped ringing and we were fielding so many incoming emails that our brokers were yelling “No Mas.” In the period of one week, gold had not only passed the $1,900 milestone, it had catapulted past $2,000 topping out on August 10^th at $2,067.

Not to be left behind, (it never is) silver, which was range-bound in the $18 area, absolutely exploded to a decade-long high of $29.14.

Gold was up 9%. And silver was up a stunning 58%. In a week. And the Bullion Banks, the big 8 commercial banks who rule the precious metals pit at the Comex, like the Mafia run the docks in NYC, watched in horror as their short positions hemorrhaged nearly $20 billion.

Then the boyz showed up at Comex and hammered gold and silver. Coincidentally, at the same time the “spoofing” was taking place at Comex, the following news release hit the street.

Scotiabank to pay $127M in fines for traders’ price fixing of precious metals

Fines are for failing to detect, stop traders from making fake trades designed to manipulate prices

Pete Evans · CBC News · Posted: Aug 19, 2020 1:04 PM ET | Last Updated: August 19

Bank of Nova Scotia has agreed to pay more than $127 million US in fines for failing to stop some of its traders from engaging in bogus trades to fix the price of precious metals for almost a decade. (Cole Burston/Bloomberg)

The Bank of Nova Scotia has agreed to pay more than $127 million US in fines to settle criminal investigations into a price manipulation scheme in the price of precious metals that some of its traders were engaged in.

The bank has agreed to a deferred prosecution agreement (DPA) to settle separate probes by the Department of Justice and the U.S. commodities regulator, the Commodity Futures Trading Commission (CFTC).

According to an agreed upon statement of facts, between January 2008 and July 2016, four precious metals traders employed by Scotia in New York, London and Hong Kong made bogus trades to try to manipulate the price of gold, silver, platinum and palladium futures contracts.

The traders “attempted to rig precious metals futures prices in their favor by placing thousands of orders they knew they would cancel before the trades were executed,” U.S. Attorney Craig Carpenito said, describing a financial practice known as “spoofing.”

“In this way, they sought to illegally manipulate the market to their own advantage and to the disadvantage of other traders.”

‘Failed to detect’ unlawful trading practices

The bank is being punished because its compliance department “failed to detect or prevent the four traders’ unlawful trading practices,” the Department of Justice said.

“Between August 2013 and February 2016, three Scotiabank compliance officers possessed information regarding unlawful trading by one of the traders … but failed to prevent further unlawful conduct by this same trader,” the Department said.

The fines consist of $60.4 million to the Department of Justice with the remainder going to the CFTC in the form of two monetary penalties of $42 million and $17 million.

Scotiabank was already forced to pay $800,000 US in 2018 for the matter, but the CFTC now says the company made false statements during the organization’s investigation necessitating another $77.4 million in payments.

As part of the DPA, Scotiabank has agreed to continue to co-operate with the department in any ongoing investigations and prosecutions relating to the underlying misconduct, to modify its compliance program where necessary and appropriate and to retain an independent compliance monitor for a period of three years.

“At Scotiabank, we understand that in order to maintain the trust of our stakeholders, we must adhere to trading-related regulatory requirements and compliance policies,” the bank said in a statement Wednesday. “We are committed to adhering to these standards.”

Alas, all good things come to an end. I am writing this at 5:00 a.m. today and gold has been slapped around a bit in the last 24 hours and is quoted at $1,928 and silver is $26.79. Are your emotions screaming, “The bull run is over?

But wait. This is not the end. This is not even the beginning of the beginning of the end. I know it seems like forever, but just three weeks ago you would have said that these prices are impossible. Especially the silver price, which as you recall, was still in the $18s.

To put things into perspective, Inflation adjusted gold’s high is $3000. Silver’s is $100.

“1980 $50 silver equals $600 today.” (David Morgan). Do you think that they are overpriced?

There are a couple of things that we need to keep in mind.

One is that this bull market will be very volatile. They all are. There will be countless big moves to the upside and countless even bigger moves to the downside. The saying on Wall Street is you take the stairs on the way up and the elevator on the way down. Yesterday we rode down a floor or two on the elevator. (See Jeff Clark’s article below)

The second thing is “corrections” like what we experienced yesterday are very common.

Under “the cover of a rising dollar” (the boyz need a cover to justify their spoofing and blatant price raids) the boyz went to work and hammered gold and silver. My friend Bill Murphy, at LeMetropole Café, has always maintained that gold and silver’s performance has nothing to do with the dollar. It has everything to do with the shorting of the metals at Comex. I think Ted Butler would be in complete agreement with that statement. I mean, the dollar was up just over 1% and gold was down 3.5%. Silver was down even more. If you are looking for a correlation, sorry – you won’t find one here.

The first thing that I do when a “correction” like the one we saw yesterday happens, is I ask myself, “What changed?” Actually, nothing changed, nothing fundamental and nothing particularly positive. Has the economy recovered? No. There is no “V” shaped recovery in sight. Has the Pandemic gone away? No. The number of new cases of Covid-19 and the number of deaths are horrific. Has the Fed reversed their policy of infinite money creation? No. Has the Fed abandoned their Zero Interest Rate Policy? No. So, what changed? Absolutely nothing, nothing on a fundamental level. And you should be focused on the major trends, not a one day or one-week price move.

It’s just more of the wash, rinse, repeat cycle that the bullion banks have been using for a decade or more.

I watched a Kitco interview yesterday. Jim Rogers, the legendary billionaire investor said he doesn’t care about the short-term. He looks ahead months or years and what he sees is the destruction of the dollar (and all fiat-based currencies) and he sees gold as the last man standing. Like me, he said he never wants to sell his gold, he wants to leave it for his kids. Here are a few excerpts from his interview with David Lin at Kitco.

Jim Rogers gives the best investing advice you’ll hear, talks next big market crash

Jim Rogers, chairman of Rogers Holdings and co-founder of the legendary Quantum Fund, said that the next financial crash could be even worse than what we saw this year.

“This certainly has been the worst in my lifetime. We’ve had a huge rally because governments everywhere have printed and spent staggering amounts of money, but it just means that the next time it’s going to be worse still,” Rogers told Kitco News.

While monetary stimulus may have provided short-term relief to the financial markets, the enormous amount of debt created as a result will create negative consequences for the economy in the long-term, Rogers said.

Rogers’ comments come as the S&P 500 climbed to new all-time highs on Wednesday, with gold prices falling on the trading day.

The S&P 500 last traded at 3,398.34 while spot gold traded at $1,966 an ounce.

The rally in equities since March was largely due to the debt build-up from quantitative easing, Rogers said.

“Six months ago, the United States was the largest debtor nation in the history of the world. Never has anybody been so deep in debt. Since then the U.S. has increased its debt by trillions more. If you give me a few trillion dollars, I will show you a very, very good time,” he said.

On gold, prices still have a lot of room left to climb, Rogers said, adding that Warren Buffett did not enter the gold market too late with his recent purchase of Barrick Gold shares.

“If I’m right, gold is going to go much, much, much higher before this is over. Gold may well turn into a bubble. I hope it doesn’t, because if it turns into a bubble, I’ll have to sell it and I never want to sell it. I want my children to have my gold and silver someday,” he said.

It seems that I got side-tracked. I was talking about how gold and silver experience multiple corrections during a bull market. Well, Jeff Clark did a wonderful job of explain this and I think you should pay very close attention to what he has to say.

Here’s Every Gold & Silver Correction in Their Two Biggest Runs, vs. Today

Jeff Clark, Senior Analyst, GoldSilver.com

AUG 14, 2020

If you’re familiar with Mike Maloney, you probably know he (and I) actually like it when gold and silver prices correct. It gives us an opportunity to add more ounces at a better price.

But not every investor likes corrections. For some it’s worrisome. Others want to know why the price is falling. Still others wonder if the correction is over and a good time to buy.

The recent drop in gold and silver brought up these concerns again. So, I thought it was time to examine that abrupt selloff and compare it to other corrections during similar periods. By viewing corrections in context, and through the lens of history, I think you’ll see that yes indeed, corrections are nothing buy buying opportunities in bull markets.

Let’s look at the two biggest gold and silver bull markets and compare them to today, starting with the granddaddy of them all, the late 1970s…

1979-1980

Most of the gains from the 1970s bull market occurred in the final year. And yet during that runaway surge, there were numerous corrections in a relatively short time frame.

Here were gold’s corrections of greater than 3%, along with the total percentage gain made during that final 13 month-period.

The gold price fell more than 3% a total of 11 times during that final year. That’s almost once a month. Two were double-digit declines. All this while the price shot up 274.5%.

Now check out silver’s corrections during the same period, in this case those of 5% or greater.

The silver price corrected 12 times before it reached its all-time high of $50. Three of those declines were double-digits. This much selling while the price was on its way to a 480% gain.

The message from gold and silver’s biggest one-year gain in modern history is this: corrections always occur, and sometimes they can be big. And in this bull market they were indeed buying opportunities.

2009-2011

After the 2008 meltdown in all assets, gold and silver began an earnest climb. From January 2009 to its high in September 2011, the gold price more than doubled.

And yet during this relentless march upward, there were 17 corrections of greater than 3%.

Corrections averaged one every two months during this period. Only one was over 10%, but the selloffs didn’t signal the end of the bull market; they were ultimately just a healthy breather.

Here are silver’s corrections of greater than 5%—check out all the red during this monster run-up.

While silver was in the process of climbing nearly 340%, there were a whopping 23 selloffs of more than 5%. Eight were bigger than 10%.

The message here is similar to the one from the late 1970s: bull markets experience lots of corrections, and some of them are big. Huge run-ups don’t last forever, but if it’s a bull market you can’t let the bull shake you off.

With that historical context, now let’s look at our current market…

2019-2020

Gold has risen every year since 2016, but things really started heating up last year. From when we popped the champagne cork on New Year’s Ever 2018, gold has risen has much as 61.3% (through August 6).

The gold price has seen 13 pullbacks of greater than 3%. The one last week that had some investors worried wasn’t even the biggest. And it wasn’t exactly surprising, since the price had risen 15 consecutive trading days, a rare feat.

Check out silver’s corrections of 5% or more in the same timeframe…

The price has had a dozen declines in the past 20 months. Like gold, the recent one was big, but not the biggest.

Corrections Are Normal, Healthy—& Buying Opportunities

History shows that corrections are normal, even during huge run-ups in price. They’re actually a healthy market phenomenon. They shake off the weak investors, and give the market a chance to catch its breath.

And for those of us who see the same big picture as Mike, corrections are also buying opportunities. They’re an invitation, regardless of how you might feel about them.

Yes, corrections are buying opportunities and they are commonplace and to be expected.

Why Brinks?

Today I received an email with revised safe deposit info from Wells Fargo bank effective 6/24/2020. While reading the fine print I found….

Limitation of Box Contents’ Value: It is our expectation that you will not place items of significant value in the Box. Accordingly, you agree you will not place items with an aggregate value in excess of $10,000 in the Box at any time.

This defeats the whole purpose of having a bank safe deposit box for many, if not all of our clients.

Any reasonable amount of metals will be in violation of these terms.

If you decide to store your gold and silver, we have several options here in the U.S. and in Canada with Brinks. Your metals will be safe, insured, and outside of the banking industry. If you want more information on how this works, contact Joel Kravitz at (877) – 375-1365, or you can call 1 (800) 822-8080 and ask for Joel. Joel set up our unique storage program with Brinks and he has all the answers for you.

What we need is more jobs, not more short-term stimulus.

We are turning America into a welfare state. We are becoming dependent on the government. The answer is not giving people more free money. The answer is more job creation.

Compare the rise in the stock market to the rise in gold over the past couple of years. Gold can double from here. Can the stock market? Gold isn’t rising, it takes more dollars to buy the same ounce with each dollar. In spite of yesterday’s spike in the dollar, the long-term trend of the dollar is down. Way down.

How will our government deal with the trillions and trillions of new debt creation that is the result of the economic collapse caused by the Covid-19 shut downs? They will inflate it away. That is usually accomplished by the “hidden tax” of inflation. The debt is inflated away. Governments don’t default, they create currencies that are of little value. So, your $100,000 bond is not defaulted on, but the $100,000 you have in the bank buys what $50,000 or $5,000 used to.

Argentina and Venezuela have currencies that are collapsing against the dollar. Now the Argentina Peso is worth .014 cents. Five years ago, it was worth 0.10. In the last five years, It has lost 90% of its purchasing power.

One year ago, the Venezuelan Bolar was 10,000 to the dollar. Today it takes 294,000 to buy one dollar. What happened? They printed their currency to buy their bonds. So, do we – and at a rate that is greater than any of the previous banana republics. The average wage in Venezuela is $100/week. It cost $10 to buy a McDonalds and a coke.

This is our future. Not a default, but a deflating currency.

Don’t be led astray by the temporary “rise” in the dollar. At some point, most likely later this year, the dollar will start its big move down. It will lose its “safe haven” status and investors from around the globe will panic into gold and silver and the only remaining island of safety.

The following article by Egon von Greyerz explains why you should not own gold in an ETF. If you want to own gold, buy the physical metal and take possession.

Egon von Greyerz

Buyer Beware: Gold ETFs Own No Gold

Two major asset classes are major beneficiaries of the unlimited money printing and credit creation that is now taking place globally. One of them will end in tears and the other one has just started a major secular bull market.

As the world economy and financial system is disintegrating, investors are under the illusion that all is well with many stock markets still not far from their all-time bubble highs.

THE DISCONNECT BETWEEN STOCK AND THE REAL ECONOMY CONTINUES

Gold ETF Buyers See Metal as Long-Term Investment: ETFGI

Many companies and services are hemorrhaging cash and are not going to recover for years and some never. As very few people are travelling, many airlines, cruise lines,

hotels and restaurants for example will not survive. This is a global industry that employs 330 million people and represents 10% of global GDP. International tourism could fall as much as 60-80% in 2020 according to some estimates. The car industry is 3% of global GDP and is expected to drop 25% in 2020.

Real and hidden unemployment is a major problem and if furlough or social benefits are stopped many people will not survive. As many can’t pay their rents they will also become homeless.

Currently 31 million Americans are on some kind of unemployment benefits. That is 20% of all workers.

But if we include workers who are not receiving any benefits the total unemployment is 30% according to Shadow Government Statistics. This is worse than in the 1930s depression.

DREAMLAND STOCK INVESTORS IGNORE DEFICITS

Stocks market investors still live in dreamland and translate all the bad news to good news as the continuous flood of printed money and credit inject liquidity. This has always worked before so why won’t it this time? No one knows what the US deficit will be at the end of calendar 2020 but it could easily be $10 trillion as the debt grows to over $30t and on to $40 trillion within a year or two.

How wonderful for stock investors. More liquidity means higher share prices. Very few understand that all this money has zero value as it has been created out of thin air. Also, none of the money goes to productive investments but instead just to give a dying economy some temporary artificial respiration. So, the worthless money will go to individuals and businesses just to survive. It will also in ever bigger quantities go to an extremely fragile financial system. In the end $100s of trillions and later quadrillions of worthless money will have been spent on non-productive survival aid.

It is possible that the stock mania continues based on the fake trillions created. But at some point soon, stock markets will wake up to the nightmare the world is experiencing.

GOLD REVEALS THE DESTRUCTION OF PAPER MONEY

There is at least one asset class which reacts sensibly to the problems in the world and the continued destruction of paper money. Gold is up $200 in the last two weeks and $500 or 33% in 2020. Since the Maginot line at $1,350 was broken in June 2019, gold has gone up by more than 50% as I discussed already back in February 2019.

The Tweet was timely as silver started to move up the following day and surged $10 in the last three weeks to just under $30. Silver bottomed at $11.60 on March 18th and has gone up 2.5x since then.

The gold silver ratio duly crashed from 109 on May 14th to 72 today, a 35% fall. Since the peak in March at 128, the gold silver ratio has come down 45%.

SILVER IS EXPLODING

Silver is now in an explosive phase on the way too much, much higher levels. But the corrections will also be vicious like the one we have just seen. With such high volatility we have always advised investors not to hold more than 25% in silver and 75% in gold. Sleeping well at night is an important part of your investment strategy.

The moves we have seen in the last few weeks in gold and silver is just the beginning.

The long-term bull market is well established and will go to heights that no one can imagine today. And we will see much bigger daily and weekly moves than we have just experienced as the market panics due to dire financial news combined with major shortages in physical gold and silver. I would not be surprised to see gold move by $100s and silver by $10s in a single day.

GOLD ETFS ARE JUST PAPER GOLD AND MUST BE AVOIDED

The gold market has this year not just been booming in price but also in volume. For lazy investors, gold ETFs are the most convenient instrument. But buying a gold ETF is in most cases just an investment in paper gold. The holder of the paper has no security in the physical gold.

The total investment into gold ETFs and gold funds is today $316 billion or 4,878 tonnes, which is a record. The increase in 2020 in the total value has been considerable and amounts to $160 billion which is a 100% increase since the end of 2019.

So. all gold ETFs and Funds are today valued at $319 billion. If we compare that to the S&P 500 total market cap of $27 trillion, it is totally insignificant. The top 5 companies in the S&P index are worth $6 trillion. Just take Apple that with their $200 billion cash pile and some stock could easily acquire all the gold funds and ETFs. This tells us how small the gold market is. In the next few years as stock markets crash and gold surges, the relative sizes of stocks versus gold will look very different.

GLD STATE STREET GOLD ETF – AN INVESTMENT IN PAPER GOLD

The biggest gold ETF is GLD or State Street. GLD holds a total 1,258 tonnes with a value of $82 billion. This makes GLD the 7th biggest holder of gold in the world.

GLD’s value has gone from $42 billion at the beginning of 2020 to $82b today as both inflow and the gold price have increased. This ETF is the primary investment vehicle that investors use when they want exposure to gold.

What most investors don’t understand is that to own a gold ETF like GLD is no better than to have a futures contract in gold.

An ETF is a tracking vehicle and doesn’t own the gold. The gold is not bought outright by GLD but is instead borrowed. The holder of an GLD share has no claim on the borrowed gold and therefore does not own anything tangible. Thus, all he holds is a piece of paper with no underlying security in the form of gold in case of insolvency. The gold is borrowed or leased from a central bank and not bought with clear title. So, a shareholder in GLD is just a holder of a piece of paper that doesn’t entitle him to physical gold. A paper claim on gold is very different from owning real physical gold. The gold price could surge but the ETF could still go bankrupt

As I have often pointed out, when an ETF like GLD buys gold, it doesn’t come from the Swiss refiners. Instead it comes from the bullion banks who borrows the gold from a central bank. The GLD ETF has an official audit with bar lists and numbers. But since central banks never publish a full physical audit, there is no way of knowing if the same gold has been rehypothecated several times by the central bank.

So firstly, the GLD doesn’t own the gold and secondly the gold that it doesn’t own might have been lent multiple times by central banks.

GLD IS SUBJECT TO MULTIPLE COUNTERPARTY RISK

One of the major advantages with owning physical gold is that it is the only asset which is not someone else’s liability. But buying a gold ETF like GLD involves multiple counterparty risk with no ownership of the underlying metal.

Investors in GLD buy shares in the fund’s trustee, SPDR Gold Trust. The custodian, HSBC sources and stores the gold for the Trust. This obviously makes HSBC a major counterparty risk.

But HSBC also uses sub-custodians, other bullion banks and even the Bank of England to source and store the gold. This means that investors have multiple sub-custodian risk.

NEVER MISS THE NEWS THAT MATTERS MOST EROHEDGE DIRECTLY TO YOUR INBOX

There are no contractual agreements between the Trustee and the sub-custodians or the custodian. This means that the ability of the trustees or the custodian to take legal action against the sub-custodians is limited. The Trustee is not insured. That is left to the custodians. Gold held in the Trust’s unallocated gold account is not segregated from the custodian’s assets. If a custodian becomes insolvent, its assets may not be adequate to satisfy the claim of the trust.

GLD INVESTORS DON’T UNDERSTAND WHAT THEY ARE ACTUALLY HOLDING

The above relatively detailed explanation how a gold ETF like GLD functions is intended to enlighten the investors of $82 billion in GLD what they are actually holding.

For wealth preservation investors, GLD doesn’t satisfy any of the criteria of holding a reserve asset like gold totally risk free.

The main problems with buying gold through GLD, as outlined above, are the following:

·      It is a paper security held within the financial system

·      It has multiple counterparty risk

·      The gold holdings are not segregated from custodians’ assets

·      It owns no gold directly

·      The gold is stored within the banking system

·      The gold held is probably rehypothecated

·      The gold is not fully insured

·      Investors have no access to their gold

Thus, holding gold through GLD is no better than holding gold futures. For wealth preservation purposes, gold must be held outside the banking system in the safest private vaults in the world. The gold must be controlled directly by the investor with direct access to his gold in the vault. No other party must be allowed to touch his gold without his authorization.

The gold must be held in the safest jurisdictions like Switzerland and possibly Singapore.

For major investors above $ 5 million we offer the largest private gold vault in the world in the Swiss Alps. It is also the safest gold vault in the world with a security level which doesn’t exist anywhere else. The vault is nuclear bomb proof, earthquake proof and gas attack proof. We also have vaults for investors below $5 million.

This video clip gives an idea of the mountain vault but obviously doesn’t reveal any of the major security aspects.

What it does show is how major investors must store their gold rather than holding it in extremely unsafe form like GLD. Holding physical gold in this mountain vault costs about the same as GLD and is fully insured. Buying and selling is instantaneous. Investors have full access.

Holding physical gold as described above is far superior to any gold ETF with none of the negatives. It is really surprising that major gold investors can even consider an inferior method like a gold ETF.