vrijdag 28 april 2017

Gold Production Vs. Gold Price

It is very obvious, but when the gold price drops, it 's probably because production is going up. And when the gold price drops too much, production will start to decrease as gold mines will have to shut down their unprofitable plants. Then the cycle turns. Because of lower gold production, the price of gold will go up due to the demand and supply equation.

So we have a negative correlation between gold production and gold price.


Now where do we stand in 2017?

It is said that it will take 20 years on average to get reserves and resources to a producing mine.


So that peak in discovery in 1995 is coinciding with the peak of production in 2015.


So what are the gold production numbers today? We see that gold mine production is starting to fall after 2015. So our correlation theory discovery/production is correct. 2015 is supposed to be the peak production year. If no new technologies appear, we will see a decline in production.



Conclusion: As gold production will fall, the gold price will rise. It's that easy.

woensdag 26 april 2017

dinsdag 25 april 2017

JP Morgan Suppressing Silver Price

I wonder who is suppressing the silver price with short silver open interest. Yes, JP Morgan.


Registered silver stock is low, while open interest is soaring.


Of course this cannot go indefinitely as silver leverage is starting to spike.

And we all know what happened in 2016 when gold had that leverage spike? Gold soared from $1100 to $1300 per ounce. The same will happen with silver.


woensdag 5 april 2017

Market Outlook

Stock market investors have had a good return since Trump won the election in November 2016. In this article I'll give a quick view on what to expect going forward.

Following the debt ceiling holiday expiration in March 2017, cash in the U.S. treasury plunged to almost zero (blue chart below from FRED). The red chart shows how the Federal Reserve balance sheet was basically flat since 2015 when QE3 ended. The little blip in 2017 managed to push the stock market to all time highs by adding bank reserve liquidity.


This boost in bank reserves is also visible in the increase in the monetary base in 2017.


So while we haven't heard anything on QE4, we actually had an increase in monetary base due to the depletion of cash at the U.S. treasury to prop up the stock market one last time before the debt ceiling holiday expired in March 2017. Now that this cash is fully used, there is nothing that will stop the stock market from declining.

U.S. Treasury Cash Balance

Following the debt ceiling deadline of March 2017, cash in the U.S. treasury plunged to almost zero to push up bank reserves and that subsequently pushed up the stock market.


This is also seen in the increase in the monetary base.

So while we haven't heard anything on QE4, we actually had an increase in monetary base due to the depletion of cash at the U.S. treasury to prop up the stock market one last time before the debt ceiling holiday expired in March 2017. Now that that cash is fully used, there is nothing that will stop the stock market from declining.

vrijdag 24 maart 2017

China's Growth Explodes in February 2017

China's February 2017 power consumption exploded. I have never seen such a large spike.
This means that there is a high probability that China's GDP growth will accelerate and this will bode well for commodities. We'll keep monitoring this trend.


This trend is confirmed by the record high Shanghai gold withdrawals in February 2017. 
Something happened in February...

woensdag 15 maart 2017

FOMC Meeting: Gold Rises During Q&A Session With Janet Yellen

Today, the Fed raised interest rates to 0.75%-1% with longer term goal of 3%.



There are several issues with that. Why does Janet think that 3% interest rates will not crash the economy? Everyone knows that the 10 year bond yield will need to be higher than the fed funds rate, which means 10 year bond yields need to be higher than 3% in a few years.

When that happens, P/E ratios will go down as the following chart suggests. When earnings don't go up, this means that the price of stocks will need to go down. This will lead to a market crash.



We know that GDP only went up 0.9% yoy in the last quarter. So that says that growth is minimal and I don't expect bond yields will rise dramatically. So we will end up with flattening yield curves when the Fed keeps raising interest rates.Moreover, if the Fed knows GDP will only be at 2%, then why does the Fed want to raise interest rates to 3% in the first place? Doesn't make sense.

A recession is near. And we could even see an inverted yield curve soon. You do not want to see an inverted yield curve, because that means certain recession. The problem is, we already see that LIBOR is touching the 10 year bond yield.

 

So Janet, either you don't raise rates and let inflation spiral out of control. Or you raise interest rates to LIBOR rate and you'll trigger a recession.