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Death Of The European Union-And The Precious Metal Demand Explosion Hence

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January 10, 2017 - 11:56am

Even on a “quiet” news weekend – now that the PPT-orchestrated, soon-to-be-reversed “Trump-Flation” rally has put what remains of critical media analysis into hibernation – an utterly astounding amount of dramatically “PM bearish, everything-else-bullish” headlines emerged.  To the point that, albeit early, it’s starting to feel a lot like a year ago.

No, the Fed’s minuscule, way-behind-the-curve interest rate hike didn’t catalyze a stock plunge like last January – as after the powers that be were taken by surprise by the “shocking” Trump victory, they raised their level of market “intervention” to all-time high levels.  However, like last year, Precious Metals appear to have “coincidentally” bottomed in late December, as I considered two weeks ago; as evidenced by the “gold sentiment index” hitting a 29-year low, as demonstrated here.

Eric Sprott suggested it has a lot to do with “traders” – like those at Deutsche Bank, Barclays, and others who were recently caught admitting to collusively “smashing” gold and silver prices – aiming to maximize year-end bonuses by closing prices at optimal levels.  Which is another way of saying, as low as possible, given they are always short paper gold and silver – as opposed to their positions in every other commodity market.  However, it’s far more sinister than that, as I have been discussing for years on end – as clearly, the bigger goal is to not only demoralize Precious Metal longs to max effect, but ensure that any mainstream money managers “crazy” enough to invest in “paper PM investments” will generate poor results – in turn, increasing the odds such “gold bugs” will be fired; and for those that aren’t, discouraging them from making further Precious Metal investments.  After all, large mutual and hedge funds have the capability of making large investments in ETFs, closed-end funds, and mining shares; and if their cumulative demand is “neutralized” – or better put, “neutered” – it’s one less source of demand for the Cartel to worry about.

Consider that over the past 30 years – including the past six, featuring vicious year-end Cartel attacks – the fourth quarter (which coincides with the peak of Indian physical buying) has been gold’s (and silver’s) strongest period of price appreciation.

And yet, “coincidentally,” since “dollar-priced gold” hit an all-time high in September 2011 (prompting September 6, 2011’s “Operation PM Annihilation I” attack, mere hours after the violently gold-bullish event of the Swiss National Bank pegging the Franc to the dying Euro), PM prices have declined in every fourth quarter since.

A Cartel “policy change” was clearly made at the time – which I have since deemed the “point of no return” – when said “powers that be” realized that if they didn’t rig all markets, all the time, they’d be overwhelmed by “Economic Mother Nature“ and the “unstoppable tsunami of reality.  In fact, depicting just how blatant said “policy change” was, consider that the ill-fated Franc/Euro peg lasted less than three-and-a-half years before spectacularly collapsing in January 2015, five weeks after the “Save our Swiss Gold” referendum failed, following a vicious propaganda campaign spearheaded by Swiss National Bank Chairman Thomas Jordan, arguing that Switzerland should not be required to re-acquire the gold it sold at the market’s lows because it needed the capital to maintain the Franc/Euro peg!  And what a shock, gold prices were smashed to 2014’s lows the day after the November 30th referendum, only to rebound sharply in early 2015; just as they did in early 2016, after being smashed to 2015’s lows at the time of the December Fed rate hike; and again in 2017, after being smashed to 2016’s lows at the time of yet another meaningless rate hike.

Not that I know prices have bottomed from the lows of the post-Trump Cartel raid, but it certainly feels like it.  And given that the global political, economic, and monetary landscape has NEVER been so “PM bullish, everything-else-bearish” – yielding the “most undervalued metal prices of modern times” – it would certainly make sense fundamentally; particularly in light of ongoing physical tightness in the East; particularly in silver, which has traded at a roughly 10% premium to  “priced” Western silver markets for the past two months.  Not to mention, the global production cliff both metals are plunging off, as demonstrated by what I last month deemed the “most important, and gold-bullish, chart you’ll ever see” – depicting mainstream expectations of a 20% gold production decline over the coming decade.

As for the other, in many cases dramatically so, “PM-bullish, everything-else-bearish” headlines of the weekend, we have the never-ending “hacking saga” – including Trump’s incoming Chief of Staff “acknowledging” the Russians did indeed hack the Democratic National Committees’ servers; whilst the U.S. formally accused China, too, of spying.  I mean, talk about the pot calling the kettle black!

As a (presumably Palestinian-driven) truck rammed into pedestrians in Jerusalem, the Czech President called to legalize the murder of Muslim “terrorists” by ordinary citizens – further inflaming the anti-Islamic fervor that is rapidly consuming the European continent, catalyzing massive, anti-establishment political change.  Heck, German Vice-Chancellor Sigmar Gabriel himself, this weekend espoused “it is no longer unthinkable that the European Union breaks apart”; and equally ominously, “should that happen, our children and grandchildren would curse us, because Germany is the biggest beneficiary of the European community – economically and politically.”

I can only respond with WOW!  I mean, if Germany is the biggest beneficiary, and yet its political landscape is being over-run by the violently anti-EU Alternative for Deutschland, or AFD, party, what does that say for the rest of Europe – which is not “benefitting” so much?  You know, like the Britons who “BrExited”; the Italians, who decidedly voted Matteo Renzi out of office; the Catalonians, who voted to secede from Spain; the Greeks, whose “OXI” vote has (thus far) been ignored; and the French and Dutch, whose leading Presidential candidates desperately want out of both the European Union and Euro currency.

Furthermore, the “most dangerous, destabilizing force on Earth” – i.e., the Chinese government – comically reported that its December capital outflows were “in line with expectations” at $41 billion, taking their currency reserves down to LOL, $3.01 trillion – just above the $3.00 trillion level many analysts deem the “point of no return”; below which, such outflows will only accelerate further.  Empirical evidence suggests such outflows were twice as much; and given the draconian capital controls instituted at year-end, prompting the offshore Yuan to plunge to an all-time low of 6.98/dollar last week – just below the 7.0/dollar level many analyst deem an equally devastating “point of no return” – it’s safe to say anyone who can take money out of China as soon as possible, will.  I mean, do you think it was a “coincidence” that Chinese Bitcoin prices surged to $1,250 last week – before the PBOC blatantly intervened in the currency markets to push the offshore Yuan back up to 6.78/dollar?  A “gain,” I might add, that has already been 50% diluted, based on the current quote of 6.88/dollar – en route to a guaranteed breach of 7.0/dollar in the not-so-distant future.

As my friend Graham Summers of Phoenix Capital surmised this weekend, it’s only a matter of time before “China will stop the Trump rally dead in its tracks.” That, and surging debt (as beautifully described in this must read piece by John Rubino); inexorably rising gasoline and healthcare costs; the dissipation of the Obama Administration’s massive pre-election spending spree; next month’s potentially vicious “debt ceiling” debates; expectations of expanding trade wars; and, for anyone that actually believes the nation’s third longest economic “expansion” will continue, prompting further Fed “hawkishness” – rising interest rates and a surging dollar.  And thus, a matter of time before surging Precious Metal demand swamp the increasingly scarce supply of actual, physical metal; potentially, much sooner than most can imagine, if indeed prices bottomed in late December.  Let alone, if the ‘death of the European Union’ Sigmar Gabriel alluded to, starts to show signs of imminence – which I assure you, 2017 will provide no shortage of potential catalysts for.

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About Andrew Hoffman / Media Director

Andrew C. Hoffman, CFA is the Media Director at Miles Franklin Ltd. Call 877-685-4705 or email ahoffman@milesfranklin.com, visit www.milesfranklin.com

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