Gold and silver prices rallied early last week to hit three-week highs after the morning release of a very downbeat U.S. ISM non-manufacturing report for August. The gains extended Friday’s price advances after the release of the latest employment report in the US.
The weaker-than-expected ISM report comes on the heels of a slightly downbeat U.S. jobs report for August, which was released last Friday that showed that non-farm employment in the U.S. grew by lower-than-expected 151,000 during August. Expectations were for nonfarm payrolls to rise by 175,000 to 185,000, with a jobless rate of 4.8%.
The U.S. non-manufacturing purchasing managers index reading for August was 51.4 versus July’s 55.5. A reading of 55.5 was expected for August. That was the lowest reading in six years. Other indicators in the ISM report also missed to the downside of market expectations. The ISM data put very strong downside price pressure on the U.S. dollar index, which in turn gave support to the precious metals markets.
This recent U.S. economic data plays right into the hands of the U.S. monetary policy doves, who do not want to see the Federal Reserve raise interest rates any time soon. Such a scenario would also be bullish for the precious metals markets.
Market watchers are now awaiting Thursday’s meeting of the European Central Bank. The ECB will issue fresh economic forecasts and assessments at this meeting. The consensus for this meeting is that the ECB will make no significant moves on EU monetary policy.
While Western main stream media talk of an economic recovery in the US as unemployment falls, some forty million people in the US are living in poverty, surviving on food stamps… and this number is growing daily. And, as infrastructure gradually deteriorates, money that could be used to rebuild the infrastructure is squandered on military intervention, war and the spreading of mayhem.
Meanwhile, as countries such as China and India focus on creating a productive economy, the Western world influenced by the US focuses on money supply, forex futures, interest rates, equity and bond markets.
Currently, yields on US 10-year government bonds are at their lowest level in American history, British bonds were at a 322 year old low three weeks ago, Japanese bonds are at a record low, German bonds are a record low and so are Italian bonds. The real return on most government bonds today is negative, even in a low inflationary environment. And, bonds from emerging markets that offer a slightly higher return are not worth buying due to the currency risks involved.
The total value of all government and corporate bonds in the world as of July 2016 was US$87.69 trillion. The value of negative-yielding bonds swelled to $13.4trillion by the middle of August, as negative interest rates and central bank bond buying rippled through the debt market.
One of the main objections to holding gold is that it pays no interest. But, the current yields offered by government bonds are negative. So why would any investor want to put his money into negative yielding bonds. You have to be insane to buy these bonds.
Gold and silver on the other hand are at their infancy of another bull market. And, they are the ultimate hedge against a financial collapse. And, this collapse in the global financial markets is inevitable as the growing bubble in government bonds becomes more precarious each day.
When it comes to gold, the total amount of physical gold, outside of central bank holdings, is estimated at only US$1.16 trillion, even though most of this gold is not available for sale at any price. This represents a global portfolio allocation of only 0.51% to gold.
In the likely event of a global bond collapse, you can be certain that there will a rush into gold and silver. However, as these markets are small in comparison to the bond market just a small percentage of money flowing out of bonds into gold and silver will have an enormous impact on prices. And since, you cannot simply print more gold, and new mine supply is already declining, there will be an enormous supply/demand imbalance. When the attractiveness of gold becomes obvious to everyone, it will be too late to acquire large quantities of gold. Precious metals will be revalued at many times today’s price.
In addition to the looming collapse in bonds, geopolitical risks are escalating around the world. These always loom large in our modern day society and could emerge from many points on the globe. Gold has proven time and time again to be a safe-haven amid military, political and economic duress.
Gold investors turn to the time honoured investment vehicle as a traditional store of value and wealth. Physical gold buyers know and understand the owning the yellow metal has advantages over stocks and bonds. It has tangible value. You can own it and store it in your home. You can take it with you if you need to.
When it comes to gold, please note that I am referring to the ownership of physical gold, not exchange traded products (ETP’s). As I have mentioned numerous times, ETP’s do not guarantee you the right to physical ownership, and recently I was shocked to read an article about Deutsche Bank… well not so surprised as this one of the criminal banks together with JP Morgan, HSBC, Barclays etc., that has gotten away with lying and cheating for years.
Recently, clients of Deutsche who invested in the exchange-traded commodity Xetra-Gold are facing problems when they want to obtain physical gold, according to German website Godmode-Trader.de.
Xetra-Gold is a bond on the Deutsche Börse commodities market, and Deutsche Bank is a designated sponsor. On the website, Xetra-Gold says its clients have the right for physical delivery of gold.
“Physically backed: The issuer uses the proceeds from the issue of Xetra-Gold to purchase gold. The physical gold is held in custody for the issuer in the Frankfurt vaults of Clearstream Banking AG, a wholly-owned subsidiary of Deutsche Börse. In order to facilitate the delivery of physical gold, the issuer holds a further limited amount of gold on an unallocated weight account with Umicore AG & Co.,” says Xetra-Gold.
However, despite claims that every virtual gram of gold is backed by the same amount of physical gold, clients have been refused the precious metal upon demand.
According to Godmode Trader, its reader “sought physical delivery of his holdings of Xetra-Gold. For this he approached, as instructed by the German Börse document, his principal bank, Deutsche Bank.” However, he was told that “the service” was no longer available for “reasons of business policy”.
Thus, troubles with delivering even small gold amounts to retail clients by Deutsche Bank may indicate that a global physical gold shortage is only growing.
Gold and silver prices have been consolidating in a sideways-to-lower pattern, and according to some technical analysts, this correction is nearing an end, and prices should resume their upward trend.
While traders continue to anticipate the decision of the Fed regarding a potential interest rate hike, the bond market looks more precarious each day.
Central bank expansionary monetary policy has clearly failed to stimulate economic growth, and negative interest rates will not do much in this regard either. Despite this, central banks continue with the same old policies which will ultimately destroy the value of their respective currencies. In the long run this will push prices of gold and silver much higher as people all around the world lose confidence in the current financial system.
This article originally appeared on Mountain Vision