Has the tide begun to turn for the precious metals, notably silver and gold? In our view the turn began last year and if pressed to pinpoint one event, it would be following the failure of the Swiss referendum when the SNB de-pegged the franc from the euro. The Swiss National Bank was frustrated with the continued depreciation of the Euro. This had as much to do with sentiment as it did with the SNB clearing seeing the Euro might be going the way of the Rentenmark.
Around this timeframe, investors received a flurry of news regarding worldwide demand for both silver and gold. This news continues to pore in, that multiple factions that are unsure of the longevity of the U.S. dollar continue to buy precious metals. For example, net silver imports into India in November, set an all-time monthly record. This would be followed by a record setting year of net silver imports, amounting to 7,063 tons.
As for gold, a recent publication by Koos Jansen put’s SGE gold withdrawals at a whopping 505 tons year to date. Koos goes onto discuss that netting out mine supply and scrap/recycling, 378 tons of gold were imported. This is meaningful because China is the largest gold producer so having imported 378 tons in just 10 weeks is speaks loudly of the Chinese view about gold. To put in simpler terms, Shanghai Gold Exchange (SGE) withdrawals are on pace to reach 600 tons in the first quarter, importing 450 tons.
In our new book The Silver Manifesto, we highlighted how remarkably accurate money supply growth is as leading economic indicator in a fiat monetary system. Specifically, it is a leading indicator of expansion or contraction, according to GDP growth (even with the countless gimmicks employed in the calculation in order to inflate actual economic growth). Since Nixon closed the gold window in 1971, GDP growth or contraction has been accurately forecast by this metric with a 1-4 year lag. For example, when money supply growth is accelerating, GDP growth turns up shortly after and when growth in the money supply is decelerating, the economy contracts in the not too distant future. Since mid-2011, money supply growth has been decelerating, meaning on or before mid-2015, the U.S. will enter a recession. We saw the wheels start to fall off beginning in December, with the worst holiday shopping season since 2008 (which is of vast importance given the U.S. economy as consumption accounts for 70% of GDP). I have yet to see a single major economic data point so far in Q1 that hasn’t been horrid.
Janet Yellen at the last Federal Open Market Committee meeting implicitly said “no rate hikes until 2016”, which most likely will not happen unless the market itself pushes rates up. Germany recently stated that the renmimbi (RMB) should belong to the special drawing rights (SDR) currency basket. Germany also announced its intention to join the Asia Infrastructure Investment Bank (AIIB), which China welcomed. China and Germany also support the establishment and development of an offshore RMB market and a local RMB clearing bank in Frankfurt. This is yet another albeit small step showing the world that the U.S. dollar as a reserve currency is waning. As the AIIB is now a competitor to the IMF and World Bank, which are dominated by western world economies such as the U.S., we are seeing the erosion of that influence.
Chris Marchese is the Metals, Mining, and Equity analyst for TheMorganReport.com and contributor to many websites and podcasts dealing with precious metals and economic concerns. Chris is the coauthor of The Silver Manifesto a recent publication dealing with nearly every aspect of the silver market.
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