Canada Has Sold Off All Its Gold Reserves

As of today, Canada has no more gold reserves.

This is a process that has been going on since the 1960s, when Canada had 1,000 tons of gold reserves.

Now they have zero.

gold gone

These Charts Give a Clue About Where the Gold Price is Headed

The price of gold has been going through an anxious bottoming period and now seems resolutely back above $1300. But what’s next?

Look at the following chart:

Basically, this chart shows the difference between commercial long and short positions. The green dots are positioned at intermediate low-points in the price of gold, which are also points where commercial net longs are at relative highs. This is no coincidence. The commercials are major players in the market. They hedge against price fluctuations rather than speculate. They reduce their short positions near significant price bottoms. If you could go back in time, the green dots would be your buy signals. This chart shows commercial short positions at the lowest point in a very long time — more than ten years. Where do you think the newest green dot will appear?

Now look at this chart, which is a little different.

This also illustrates how the falling price and increase in commercial long positions generally foreshadows a meaningful rally for gold. If I were to judge from this chart, I’d say we should expect a significant expansion of commercial longs. The price of gold should correspondingly rise. Here, the red dots are the buy signals. Where do you think the newest red dot would go?

As a conservative estimate, if we saw a rally comparable 2005 and 2008’s moves, the next phase of the gold bull market would approach $2000/oz.

This process is likely to unfold as the current business cycle matures, over the next one or two years  Then when another panic hits, gold will sell-off until central banks accelerate their monetary interventions. They will do this to fight the onset of a crushing economic depression.

— Read more at King World News

Chinese Demand for Gold Is the Real Deal, Long Term

You have to see these images from China.

During the Dragon Boat Festival, ten thousand Chinese demonstrated the depth of their gold fever by lining up to buy that “stupid” investment. This is despite the relative respite from inflation, according to official Chinese statistics.

All these people want gold:

Gold Line 1_0

Gold Line 2_0

Gold Line 3_0

Gold Line 5_0

Gold Line 6_0

Gold Line 4_0

China is a source of demand for gold that will be significant in the long term.

Read more at Mises.ca

Are Chinese Women Smarter Than Warren Buffett?

Warren Buffett is one of the world’s most successful investors. He is also a well-known critic of gold as an investment. He believes buying gold is “stupid.”

Middle-aged Chinese women did not get university economics or finance degrees. They do not understand the difference between economic schools of thought. But they have lived under brutal Communism. They have suffered extreme poverty. They understand what it takes to preserve wealth under tyranny.

These Chinese women are buying gold. More than Indian fathers. From a recent report:

On Sunday afternoon, a microblogger in Beijing logged into Sina Weibo, China’s leading social media platform, to gossip about the “auntie” next door. It’s a broad term of respect for an older woman, and his followers understood precisely what he meant when he tweeted, “The auntie next door used all of her retirement savings to buy gold. When asked what she’d do if prices keep dropping, she replied that if everyone kept buying gold, the price wouldn’t drop…”

This might strike a conservative investor as reckless. But in China, where gold has long been a national obsession, a mid-April record crash in global gold prices has been seen as an unprecedented buying opportunity. According to reports in China, Chinese have purchased 300 tons of gold worth more than $16 billion since the crash.

These people are not trading gold futures on margin. They are allocating their savings to precious metals.

Photos of crowds packing jewelry shops and emptying their shelves are now regular features in the news media. On Monday, a police officer in Shanxi province tweeted, in regard to his actual aunt: “My aunt’s family has a gold store, and my colleague who’s in the market for some gold for his mother asked if I could get him a cheap price. I asked, and my aunt said first come and take a look to see if anything catches your eye. But at the moment the display cases are empty, and they are unable to get new inventory. All I can say is that the power of the Chinese is frightening.”

China’s voracious appetite for gold is long-standing. At Chinese jewelry stores, the spot price for gold is always prominently displayed. Calculators and scales are never out of a customer’s reach. Gold jewelry is desirable, but so are gold bars, and any jewelry store that considers itself full-service will stock ingots of various weights. (In April, an investor in Guangzhou bought 44 pounds of the bars, according to a local newspaper.) Special commemorative bars in various weights and designs were issued for the 2008 Beijing Olympics and the 2010 World Expo in Shanghai.

The current rush is unusual in two ways. The first is its epic scale. The second is that, according to both traditional and social media, aunties are doing most of the buying.

This activity is widespread in China. When something is widespread in a country with 1.35 billion people, it’s a real phenomenon.

Social media tends to take a less critical, and more personal, view of the aunties. Depictions involving mother-daughter interactions, in particular, are very common. On Saturday, Zhongxiao Fang Fang Fang, the handle for a microblogger in Shenzhen, tweeted: “Yesterday my mother called me to say the price of gold has fallen, and to ask me to go to Hong Kong to buy gold. I said I didn’t want any. She very calmly said it would be good to prepare a dowry so I can get married!”

Reported elsewhere:

Perhaps the majority of Americans cannot comprehend the unusual feelings Chinese people have toward gold and silver. They’ve never considered that rather than being afraid to invest in gold, the Chinese are more afraid that they won’t possess gold. Maybe what Chinese aunties care about is not the price of gold tomorrow, their desire is perhaps nothing more than to buy gold, to delight in gold, to hold it. Chinese aunties’ gold investment strategies are simple and unsophisticated, they just “buy what they want.”

What do the Chinese aunties know that Warren Buffett doesn’t?

Read more at Bloomberg

Insider Buying of Junior Mining Stocks at Record Levels

Owning stocks in the junior mining sector is like holding a stick of soggy dynamite. With a good trade, your portfolio gets a growth explosion. With a bad trade, you explode.

These shares have taken a beating in 2013, creating huge opportunities for value. Insiders have no compunctions about scooping up shares at these low prices.

The INK Research Venture indicator was at 715% on April 30. This means that in the past 60 days, more than seven stocks on the TSX:V have insider buying for every stock with insider selling. Historically, this tends to foreshadow a rally in those prices.

In early March, this indicator was ‘only’ at 400%, so there has been a large increase. The current number is very close to its all time peak of 735% back on October 27, 2008. This preceded the bottoming-out of the Venture market in December 2008 by about six weeks. You may recall how that was a time when many people thought the world was going to end.

But wait. There is also a shorter-term 30-day Venture indicator. It hit 1229% on April 30.

Then there is the INK Gold Stock Indicator. This tracks insider buying on Canadian-listed gold stocks. There are more than 10 stocks with insider buying for every stock with insider selling. This indicator hit an all-time high of 1046% on April 26.

To be a successful investor, you have to be gutsy and buy when prices are low. Maybe insider buying patterns give some encouragement to acquire more soggy dynamite for your portfolio.

Read more in INK’s report

Gold Delivery Denied! Paper Gold Is a House of Cards

A rich American man had gold in a segregated account in a Swiss bank. Or so he thought.

When he tried to get delivery of his gold, the bank refused. It said the central bank wouldn’t let them do it, because it was more than 200,000 euros worth of gold. So instead, the bank would settle with cash.

What’s going on here?

I don’t think it’s anti-terrorism and anti-money laundering regulations, as the bank says.

Over the years, banks have borrowed non-interest-bearing gold from gold owners, including central banks, at 1% or so, then sold it to buy higher-yielding bonds. It was a reliable trade for a long time. But as the banks have refinanced those loans, gold prices have climbed and many of those debt instruments have fallen in value. They cannot buy back the gold on the market at today’s prices, and the bonds in which they invested have suffered and cannot be sold without a loss.

The day of reckoning comes when these gold shorts cannot pay back the gold owners. This means many investors, including central banks that lent out their gold, will not get their gold back. Like our American friend who tried to take delivery from the Swiss bank.

Imagine the fallout when this spreads. The paper gold market is like a stick of dynamite. When it blows up, you don’t want to be holding it. Yet when this happens, the holders of actual physical gold will be very happy.

— Read more about this story at King World News — 

Mini-Review: CBC Documentary “The Secret World of Gold”

On April 18, CBC aired a documentary called “The Secret World of Gold.” Though flawed, the program was interesting and covered many issues.

Here are some things talked about in the documentary:

  • The Bank of Canada has sold almost all our country’s gold over the last 30 years.
  • Underwater treasure hunts for gold.
  • Secret government deals to control gold.
  • Futures market manipulation (this was by far the weakest part of the show — the futures market is not explained and the case made for manipulation is very thin).
  • Buildings with gold windows.
  • Wars for gold.
  • How Chavez got all Venezuela’s gold back from the US and Europe
  • Gold shifting to the East from the West
  • Death gold from Nazi extermination camps (some of which was used to fill Hitler’s teeth — WTF).
  • Allocation of central bank gold holdings — who owns the gold? Is the gold even there?

Think about taking 45 minutes out of your weekend to check it out. You can watch it here for free, the only drawback is there are a few dumb CBC ads.

UPDATE: You no longer need to watch it at CBC. The copyright police got to “The Secret World of Gold” on YouTube, so it looks like you have to watch on CBC…

Gold Is Better Protection than Silver

On March 6, I wrote about how gold holds up far better than silver when a panic hits.

Recent events seem to provide confirmation of this.

Silver at its peak was $48.70 in 2011. It is now at $23.29. This is a 52% loss — ouch. That is very painful for someone who bought near the top.

Gold has weathered the panic with much more success. In 2011, gold hit $1913 and it now is trading at $1391. This is only a 27% loss. Harsh, but not so harsh that you would want to throw yourself off a cliff.

As a speculative play, you could see big profits if you buy silver near the bottom. That’s because, relative to gold, silver is tremendously volatile. But you need to be careful: you may recall that during October 2008, silver traded below $9. Panics hits silver hard. Unless we enter Great Depression 2, I doubt silver will fall that low again — but I think it could certainly drop below $20 before this shake-up is resolved.

Is Now the Time to Get Out of the Stock Market?

Last week gold and silver got killed, especially after the rumor hit that Cyprus would sell gold to get a big fat bailout (honestly I doubt that will happen).

The slaughter continued today. I am writing this with gold at $1365. Margin calls are probably dropping left and right.

Other commodities have fallen, including oil. Bonds have rallied recently. The 30-year Treasury offers less than 3%, which is pretty much completely crazy. Meanwhile, Canada lost 54,000 jobs in March — the worst employment update in four years.

To me, these are pieces of data which imply an economic correction trying to work itself out, rather than a rippin’ recovery. If these developments justify concerns about a slowing economy, then you want to be careful about the mainstream coverage about this gold panic, and their general frenzy about  buying stocks.

US stocks, which are the hot ticket these days, seem to me dangerously high. Corporate earnings in the US are 70% above their historical average due to massive fiscal profligacy by government and citizenry, and aggressive cost-cutting post-2008. Periods of strong corporate profits are never permanent and eventually regress towards the mean. Therefore it should be expected that future earnings and dividends will disappoint.

The Fed is struggling to perpetuate the error cycle and keep the ‘recovery’ going.

Meanwhile, the TSX is not performing well this year, after being one of the world’s worst stock markets in 2012. And the TSX-V — which is where all the most exciting action is — is going to get smaller. The average level of cash held by TSX-V-listed stocks has fallen from $4.3 million in mid-2011 to about $2.8 million now. This might not sound too bad because it is still several times higher than pre-2008 levels, but on a per-share basis, it is terrible. TSX-V companies have only about 2.8 cents per share as of last quarter, a drop of more than 50% in two years. Remember, these companies don’t usually generate their own cash flows from any operations, and cash is frequently their only good asset. All the while, TSX-V companies have doubled their liabilities per share — so when the nearly 2.6 cents per share is paid off, they are basically broke. So while this says nothing about any individual companies, it suggests the junior resource sector is going to come up on some hard times.

I absolutely expect Canada and the US to join the other developed nations suffering from recession.

If you hold stocks at this time, you should seriously think about just selling most or all of them. Be ruthless about keeping only the absolute best ones. Keep the balance in cash and patiently await buying opportunities as prices fall.

If you are a long-term believer in gold, this is clearly a huge buying opportunity. Gold could still fall another 10-15% before hitting a bottom, and it could take a 6-12 months to recover. I would like to point out that during the previous gold market, there was a 20% price drop in late 1978.  We know how that turned out. Yet, if the fundamental argument for gold is still sound, then today’s prices are a godsend.

TSX Loses All Gains for 2013

The Canadian stock market was hit pretty hard as oil fell and gold got hammered. At the close, gold was down nearly $75 USD. The TSX lost all of its 2013 gains over the last few days.

I have predicted that North America will face recession this year, so a falling TSX is consistent with that. An economic correction is especially hard on capital goods industries and raw materials.

I also believe it is a reasonable expectation for gold to fall to $1200-$1300/oz as the economic error cycle matures. Then, when a panic hits, and Fed and other central banks will respond with further inflation, and the gold price will rise in response to that.

A commodity broker says: “the argument for gold as a safe haven or protection against inflation just isn’t there . . . It doesn’t look too good for gold.” This assumes there another crisis will not occur, and central banks will not inflate in response. At some point central banks will have to stop inflating to prevent currency collapse and preserve their nations’ banks, yes. Yet, I do not think that time is nigh because we have not yet seen massive consumer price inflation result from the monetary expansion since the ’08 financial crisis.

Read more at Financial Post.

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