Repondering Gold

Fine weekend – of work, I’m sad to report.

But  I made some real progress on three of the biggest economic questions out there.

1.  Is there anything meaningful about the gold withdrawals that took place from the CME on Friday?

2.  If there an adaptation of on-balance volume that would be integrated into our already marvelous Peoplenomics Trading model?

3.  And – is it true that the whole of the accounting profession will die over the next 10 years?

The answers to #’s 2 and 3 will be laid our for Peoplenomics readers on Wednesday of this week.

Which leaves us with coffee and the CME warehouse numbers from last week to ponder.  The most important two banks to consider are HSBC and JP Morgan-Chase.

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So, what does it mean?

Is a bottom in gold likely here yet?  Or, might something else be going on?

Damn fine question, that, but we don’t really have enough data to know but we can speculate in both directions.

First a word about size:  270-thousand ounces is a fair bit of gold – a third of a billion dollars worth, but is it REALLY that big when compared to how much gold there is in the entire world especially when you count government holdings (like Fort Knox) and all that gold Germany has, but which are are politely not giving back to them

The simple answer is no. 

The CME warehouse number as of Friday was  7,572,284.933 ounces.  And if you multiply that by this morning’s spot price, it’s enough to buy something other than a steak and eggs breakfast. 

But does is mean something might be going on under the surface in gold?

Theory #1:  (With credit to my consigliore who also was working on this Sunday):  It is possible that the marginal mine operators are getting nervous about the price of gold.

As you will remember, many of the gold miners sold their gold forward at pretty good prices in order to increase their staying power and lock in long-term profits.  The bad news for them was that many of the junior and marginal players missed out on substantial profits when gold was up around $1,800, but that was long ago and far away…

The reality is than many of the marginal miners are getting to the point where they will have to start shutting down operations if things keep getting worse on the price front.  But, since they have gold mines, their credit it good, interest rates are low, so why not buy up physical gold now to keep it off the market and then parcel it back into the market when prices solidify a bit?

I mean, this is the kind of thing that happens with diamonds, as anyone who follows the gemstone world knows.

Theory #2:  This one is a little different.  This is the one I call “Ure’s Crackpot Low Rates but Screw It Let’s Get Rich Anyway” model.

Here’s how it works.

Let’s say that we have a big hedge fund and we can borrow money for 1/2% interest.  We know that at some point the Fed will be raising rates.  We also know that housing costs are going up 2% now and Food costs are going up 3% and at some point, energy will turn around, too.

So, what we we buy (cheap) and “own” which will go up in value, has relatively limited supply and which could have a price pop?

One answer is gold.

If I can borrow money at 1/2%, a thousand dollars of gold today will likely be worth around $1,030 next year.  My cost for holding the gold for the year would make its cost $1,005.  Which doesn’t make sense.  I mean a little money, sure, but no new airplane, or house in Cuba.

Until we use leverage of 10:1 in the ownership.  In this case, my gold is then $10,000 worth today.  My interest cost is still $5/thousand but let’s say it’s 1% overall…because I have to pay something to borrow more and pledge the asset.   But the gold in a year would be worth $10,300…and about here I wander off into a blue cloud of daydreams.  $100 costs and $300 profits is the stuff to thrive on. 

You’d do deals like that all day long, if you could.

But does 270-thousand ounces mean anything else?  Like someone trying to corner the market?  No.

Buying up 3 1/2% of a market as big as gold isn’t happening, despite what a few bold bugs would love me to write. 

But will gold ever go to zero?  Likely not.

But would these be interesting times to see marginal players getting desperate to keep their mines going when forward contracts expire, or when big hedgy guys are looking for ways to “salt the turd market” a bit?

Yes.

Or maybe, someone with a few brains who has read the US Public Debt to the Penny – which has been artificially paralyzed for a while – would follow the Baron Rothschild axiom to buy when the blood is running in the streets.

Although it won’t be allowed for civilians to play as we recently warned subscribers that there are increasing references in regulations dealing with money laundry/anti-terrorism  rules, to limit this game to only the big players…not scum of the earth sheep with a few coins as a hedge against crooked government.

Times coming when anything outside the system will get you branded with a big T on your forehead.  ‘Specially  if you dare to support candidates other than the Orthodox Corporate Party Put-ups.

Collapsing Oil, Texas Troubles

In theory, anyway, the gold miners have a tremendous leg up on the hapless guys in the oil patch.

Oh, sure, North Houston is still a traffic nightmare, and sure, Shell is still building a big campus and all, but the price of oil is collapsing again today and down into the $46’es.

What that means is simple:  Interest rates are not coming down, so the last of the little guys in the oil patch are likely to have one hell of a time keeping on with operations.  Which means the bigger fish – with deeper pockets – will soon be able to gobble up resources at bargain prices and salt it away for the future when depletion comes along with aggressively.

There’s a story in the Tyler, Texas paper about how oil production could be about to reach an all time high.  But remember that the peak in production will be followed by a bust when comes to jobs and Texas is known for a cyclical economy.

The reason for mentioning this is that it has taken a new generation of technology – and we are just now coming back to production levels set in 1972.  As Oilman2 is constantly reminding me, you can jack up production short-term, but long term, the rolling peak is likely here.  And my work in the Manufacturer’s Resource War scenario backs it up.

It’s just going to be a matter of what the fighting breaks out over:  Real estate, food, religion, oil, foreign exchange rates, made-up money, repudiated debt…  it’s all going on the table and it’s all contentious.

For Texas, the downside is rearing its head and all the happy-talk in the world won’t keep the juniors from being eaten by the majors, as happens with each cycle.

Personal Incomes and Fairytales

Not that it shows up yet in the Personal Income data just out:

“Personal income increased $68.1 billion, or 0.4 percent, and disposable personal income (DPI) increased $60.6 billion, or 0.5 percent, in June, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $25.9 billion, or 0.2 percent. In May, personal income increased $66.3 billion, or 0.4 percent, DPI increased $53.8 billion, or 0.4 percent, and PCE increased $90.8 billion, or 0.7 percent, based on revised estimates. Real DPI increased 0.2 percent in June, compared with an increase of 0.1 percent in May. Real PCE decreased less than 0.1 percent, in contrast to an increase of 0.4 percent.

And the really Grimm part?

Personal saving — DPI less personal outlays — was $646.3 billion in June, compared with $616.2 billion in May. The personal saving rate — personal saving as a percentage of disposable personal income — was 4.8 percent in June, compared with 4.6 percent

Yeah, sure…you betcha.

Dow futures are up 17.  Think there’s Monday drug testing on Wall St?

Oh, THAT Drought

Still making a mess with wildfires in California.

Let’s Hate Trump Department

Let’s see if we can figure out why 75% of Latinos polled don’t like Donald Trump, shall we?

Think it’s because he wants a real border?

On the other hand, at 20.8% Trump is leading all other GOP wannabes again.  The Aristocracy fellow (YAB) is 12.5% in the same poll).  The other Aristo (YAC) is 58% but Bernie Sanders has come up which means an honest socialist rather than one who (ahem…didn’t have classified emails, yada, yada) is gaining ground.

Still, she of whom we don’t write is spending $2-mill in TV advertising Iowa, which, when you think about it is pretty damn stupid financially.  A fine indication of how she’d squander tax money.  (Again.)

If I had a 58% lead, I’d through a party and invite some rock groups and screw being obvious about buying the election.  Elaine can throw a hell of a party for $2-million.

We live in a first world country with third-rate media.  When someone says they have no classified emails on a computer – and then they are later found to have classified, someone is lying.  And yet no one in corporate-controlled in media calls them out on it.  Calls ‘em a liar in prime time.

Instead, we wishy-washy and mumblef*ck.  We can’t think straight because we can’t talk straight.  We can’t live truth because we can’t speak it. We can’t speak it because the media can report truth.  Mumble-effers and suckeruppers.  Rating whores deluxe.  The Fourth Estate is a slum.

If you want to be a revolutionary in America, all you need to do is doggedly pursue the truth.  It won’t make you popular,  But it will result revolutionary change.

The role of a good journalist is be be the umpire and call ‘em like you see ‘em.  Thing is, is baseball you’re either out or safe.

In the crooked world of politics, you always have a PR firm and you’re always leading in a poll….some poll….hell, any poll.  The mumbler-effers will cower and the spinsters will triumph.

And in the end, time spent watching baseball is better than time spent watching politics.

Comments

Repondering Gold — 5 Comments

  1. To Ride, Shoot Straight, And Speak The Truth – Jeff Cooper along with the rest of is books and No Second Place Winner – Bill Jordan. If you don’t have them they would make excellent additions.

  2. Real estate, food, religion, oil, foreign exchange rates, made-up money, repudiated debt… you say the next reasons for war.

    Water. The next war will be fought over water. Legal wars already begun. Shooting wars not far behind, IMHO.

  3. why oh why do americans have such a fascination with gold .. you all know , American gurus, that gold is the enemy .. you will see other problems , maybe a war or 2 or 3 , anarchy, and the end of the 4th reich .. relax, hate gold, it hates americans .. one day you americans will wish you hadn’t treated it like cow manure . yeah

  4. That savings number you always choke on is simply the increase in wealth\assets of the top 1%, and has been for about as long as I have been using the term “too small to save”. In a double entry accounting system, all that wealth being sucked out of the 99% has to go on somebody’s books.

    It’s called a business model because to the 1%, it is used to give the peons the business (end if the stick).