– War “inevitable” if U.S. meddles in South China Sea – Global Times
– Senior NATO official warns that “we’ll probably be at war this summer”
– Soros warns of ‘New World Order’ and war with China
– Soros warns could be “on the threshold of a Third World War”
– Many countries in Pacific lay claim to strategically important and mineral rich islands
– Tensions between U.S. and China and Russia escalating
– War would have many facets including cyber-warfare and currency wars
George Soros
George Soros
The ‘war’ word is being increasingly heard internationally as the U.S., EU, Russia and China adopt provocative postures over various disputes including Ukraine and in the Pacific.
War with the U.S. is “inevitable” if the U.S. involves itself in the dispute which has arisen over the Spratley Islands in the South China Sea according to China’s state controlled newspaper the Global Times.
“If the United States’ bottom line is that China is to halt activities, then a US-China war is inevitable in the South China Sea” according to an editorial in the popular government paper.
China has since last year been taking over a greater part of the long-disputed Spratleys and has begun land reclamation projects to make the archipelago a part of its sovereign territory. The move angered many of its neighbours like the Philippines and Vietnam who also claim the islands.
Geographically, the archipelago is close to the Philippines, Malaysia, Brunei and the Philippines. However, China has maintained a presence in the region on and off for centuries which is the basis for its claim.
The islands are believed to be located over large reserves of undersea oil and are also strategically vital as a shipping corridor through which vast amounts of goods are shipped. The islands also provide a platform from which China could project military power into the afore-mentioned countries.
Tensions between the U.S. and China, while low-key in other regards, have been escalating with China responding angrily to U.S. reconnaissance flights in the region.
goldcore_chart2_28-05-15
The Global Times suggests that China is not daunted by a military conflict with the U.S. – “We do not want a military conflict with the United States, but if it were to come, we have to accept it.”
Indeed, The Wall Street Journal has shown that in terms of conventional warfare China is the undisputed heavyweight in the region with a massive airforce and navy – see infographic.
The Chinese are utterly scathing of U.S. “meddling” in the South China Sea, thousands of miles from its own borders and clearly views itself as the new hegemon in the region. This seemingly innocuous dispute has the potential to rapidly spiral out of control.
There are also simmering tensions between China and Japan.
Both have long held claims to the Japanese-administered islands — known as Diaoyu in China and Senkaku in Japan. Tensions have intensified in recent months, and observers fear that a political or military misstep could rapidly escalate.
In late 2013, China announced an air defense zone over the East China Sea, encompassing the disputed islands. The new policy would require airlines to give Chinese authorities their flight plans before entering the airspace designated by China.
Japan’s Prime Minister Shinzo Abe said the new policy “escalates the situation and could lead to an unexpected occurrence of accidents in the airspace.” The United States called China’s announcement “unnecessarily inflammatory.”
Military posturing is quietly reaching new extremes in Europe, the Mediterranean and the South China Sea and the provocative bluster is reaching new heights.
Separately, it is believed that a senior NATO official has warned that “we’ll probably be at war this summer.”
goldcore_chart3_28-05-15
Former NSA intelligence analyst John Schindler has said that a senior NATO official told him that the world would “probably be at war” sometime this summer. Although the tweet was retweeted over 1,000 times, the comment did not get any media coverage.
Finally, the ‘trumpets of war’ became a triumvirate when one of the most powerful men in the world today – George Soros – warned that we “are on the threshold of a Third World War.”
As China’s economy slows down, this could trigger a global military conflict as might other tensions in the region, Soros warned.
“If the transition runs into roadblocks, then there is a chance, or likelihood in fact, the leadership would foster some external conflict to keep the country united and maintain itself in power,” Soros said in remarks at a Bretton Woods conference at the World Bank.
“If there is a military conflict between China and an alley of the U.S., like Japan, it is not an exaggeration to say we could be on the threshold of a Third World War. It could spread to the Middle East, then Europe and Africa.”
Since Soros made his remarks, tensions between China and the U.S. have further escalated. China has released a new white paper which threatens military action unless the U.S. stops its current actions in the South China Sea.
If China’s efforts to transition to a domestic-demand led economy from an export engine falter, there is a “likelihood” that China’s rulers would foster an external conflict to keep the country together and hold on to power.
To avoid this scenario, Soros called on the U.S. to make a “major concession” and allow China’s currency to join the International Monetary Fund’s basket of currencies. This would make the yuan a potential rival to the dollar as a global reserve currency. In return, China would have to make similar major concessions to reform its economy, such as accepting the rule of law, Soros said.
An agreement along these lines will be difficult to achieve, Soros said, but the alternative is a brutal war.
“Without it, there is a real danger that China will align itself with Russia politically and militarily, and then the threat of third world war becomes real, so it is worth trying.”
The warning comes as Europe engages in some of its biggest ever war games — right on Russia’s front door. It’s a deliberate ploy, intended to warn regarding Ukraine but could be seen by Russia as a provocation.
War, if it comes, will be multi faceted and poses risks to markets. Modern warfare would involve many facets including cyber warfare and currency wars.
Geopolitical risk continues to be seriously underestimated by investors and will likely impact markets in the coming months.
Must Read Guide: 7 Key Bullion Storage Must Haves
MARKET UPDATE
Today’s AM LBMA Gold Price was USD 1,189.45, EUR 1,087.08 and GBP 775.94 per ounce.
Yesterday’s AM LBMA Gold Price was USD 1,187.85, EUR 1,088.07 and GBP 770.64 per ounce.
Gold fell $0.20 or 0.2 percent yesterday to $1,187.50 an ounce. Silver slipped $0.05 or 0.3 percent to $16.69 an ounce.
Gold in Singapore for immediate delivery was steady at $1,188.55 an ounce while gold in Zurich also flatlined in lack lustre directionless trading as gold continues to be capped below $1,200 per ounce.
Gold bullion seems to be taking trading direction from the U.S. dollar with no major economic data on the horizon. The dollar has continued its strength since Fed Chair Janet Yellen once again suggested last week that the U.S. Fed is set to raise interest rates later this year.
Although safe haven demand has waned for the yellow metal, the Greek debt crisis is still not solved and may bolster bullion demand once again. June 5th is Greece’s next payment due to the IMF.
European markets are mostly lower this morning although the FTSE is marginally higher, as talks on Greece continue to bear little fruit.
Yesterday, the new government met its international creditors in Brussels to discuss a possible reform deal to unlock its last tranche of bailout money. It desperately needs this money to make repayments to the IMF and ECB over the coming months.
While the Greek government hinted a deal was on the way, saying it was in the process of drafting an agreement, others were less optimistic. Hawkish German Finance Minister Wolfgang Schaeuble said he was “surprised” by Greece’s positive outlook, while European Commission Vice President Valdis Dombrovskis said the two sides still had “some way to go”.
Greece is one of the main topics on the agenda at the G7 meeting of finance ministers and central bank chiefs this week and there could come interesting developments from this.
In late morning European trading gold is up 0.07 percent at $1,188.35 an ounce. Silver is off 0.07 percent at $16.67 an ounce, while platinum is up 0.17 percent at $1,121.78 an ounce.
In Today: War on Cash. Tomorrow: War on Gold? he discusses the scenario that foresees central banks ban or punitively tax cash deposits. A number of commentators believe this would be positive for gold, arguing people will buy the precious metal instead of holding bank deposits, and/or use gold transactionally, which will increase demand for gold and its price.
But Bron is not quite so convinced.
If you’ve ever thought that forecasting the gold price was more luck than judgement, then check out Gold Price Forecasting, the Hard Core Academic Way. Odds are you’ve never seen a prediction that uses the following formula to compute the gold’s next moves!
The long and the short of this article is that it’s incredibly difficult to take into account all the “underlying variables” involved. And therein lies a warning about the next talking head you see on TV explaining gold will go up or down because of their view about one single variable they think explains all.
Last week, gold prices gained an impressive $37 an ounce of 3.1%. And, on Monday prices hit a three month high and were trading just above the $1225 an ounce level.
Gold prices hit their highest level since mid-February as the dollar’s decline increased investors’ appetite for the precious metal. Much of golds rise was attributed to disappointing U.S economic data including sluggish U.S. retail sales data.
There is a growing perception that the Federal Reserve is likely to hold off hiking interest rates until September or December to ensure the economy is strong enough to withstand an increase in borrowing costs, and this is supporting gold prices at the moment.
Retail sales were flat for April, raising questions about how quickly the Federal Reserve will begin hiking U.S. interest rates. Against this backdrop, the dollar index, a measure of the greenback against major currencies, including the euro and yen, was down 0.15% at 93.22 and on track to fall for a fifth straight week, the longest such stretch in four years.
In their latest Gold Demand Trends report covering the first quarter this year, now provided by the Metals Focus consultancy rather than by GFMS which has provided them in the past, the World Gold Council (WGC) reports that Chinese consumption (excluding Hong Kong) fell by 7% in Q1 this year to 272.9 tons compared with Q1 2014, while India’s grew by 15% to 191.7 tons – which still leaves China as the number one global consumer.
The report also points out that together, the two countries account for 54% of total global gold consumer demand. In terms of percentage of new mined supply – put at 729 tons for Q1 2015 – the two countries accounted for 64%.
However, according to certain analysts, in the case of China, these figures are still not accurate as they do not include withdrawals from the Shanghai Gold Exchange (SGE) which reached around 623 tons in the first quarter– 10.5% higher than in Q1 2014.
According to the WGC’s report, global gold demand slipped marginally by 1% in Q1 to 1079.3 tons. Demand was down by a mere 11 tons this year compared with a year ago
Jewellery demand dropped by 3% in the first quarter to just above 600 tons.
However, the official figures of Indian gold imports do not tell the complete story. Illegal imports which are impossible to quantify have sky-rocketed.
The WGC estimates that last year, 175 tons of gold (which is worth around US$7bn) was brought illegally into the territory of India.
In Mumbai, in the financial year 2012-13, 64 Kgs of gold was seized at the Chhatrapati Shivaji airport which increased to around 345 Kgs in 2013-14 and then exploded to 943 Kgs in 2014-15.And, in Delhi at the Indira Gandhi International airport, custom officials seized around 575 Kgs of gold last year. In 2013-2014 the quantity was 378 Kgs, and in 2012-2013 it was an insignificant 6 Kgs.
According to an Indian Express report, gold amounting to a value of around US$150 million was seized in just first ten months of 2014-15.
It doesn’t take a genius to see that this huge increase in gold smuggling coincides with the imposition of governments’ restrictions. Once again, another government blunder. Sometimes, the stupidity of government policy makes one wonder!
Vipul Shah, chairman of Gems and Jewellery Export Promotion Council, said the industry has been “constantly urging the government to lower the import duty on gold”. The government should bring down the import duty and probably look at other ways of curtailing imports,” said Shah. However, the government have not acted and so, I expect the high level of smuggling to continue.
In the meantime, demand for gold bars and coins in Europe increased by 16%. Much of this came from German investors who are reported to be purchasing at massive rates, with the demand for total gold bar and coins jumping 20% in the first quarter of 2015.
For Germany, it is unusual for gold to be a hot commodity, especially right now since the economy of Germany is really strong right now. Even Europe has regained economic momentum within the last few months, which is outpacing the United States economy currently.
The gold sales are rising dramatically because the European Central Bank is going to be purchasing $1.3 trillion in bonds, which is driving inflation fears. Citizens consider this to be central bank money printing, and the fear of higher prices is of concern to individuals. A number of geopolitical issues also seem to be of concern to individuals. There are increasing concerns about Greece and the never-ending crisis there, and the tensions between Russia and Ukraine also are sparking worries.
Global debt is now in the region of $200 trillion. The McKinsey Global Institute recently published a report highlighting the bloated, unsustainable levels of debt that have been accumulated globally and the huge risks when interest rates begin to rise again.
McKinsey concluded that total global debt was $199 trillion and the little covered report was released in February – 3 months ago – meaning that the figure is likely over $200 trillion. With a global population of 7.3 billion this works out at over $27,200 of debt for every man, woman and child alive in the world today.
Almost 29% of that debt – $57 trillion – has been accumulated in the relative short period since the financial crisis erupted in 2007 – just 8 years.
This has increased the total debt-to-GDP ratio by 17% and “poses new risks to financial stability and may undermine global economic growth.”
The report, entitled “Debt and (not much) deleveraging”, analyses the debt situation in 47 different countries – 22 of which have advanced economies and 25 with developing economies.
Of the 22 advanced economies every country was found to have higher debt-to-GDP ratios today than they did in 2007. For many, the ratio had grown by more than 50%.
The three major areas for concern according to the report are rising government debt, rising household debt and rising total debt in China – which has increased a staggering four-fold since 2007.
The McKinsey report states bluntly that “government debt is unsustainably high in some countries.”
Government debt has expanded by 25% since the crisis began and much of it stems directly from the crisis.
The report states that for the six of the most highly indebted nations deleveraging has become impossible – at least without “implausibly large increases in real-GDP growth or extremely deep fiscal adjustments.”
As I have mentioned on many occasions, the current debt levels are totally unsustainable and without any real economic growth, there is no way that this will be resolved without a major monetary collapse or reset of the current fiat system. However, many people have no idea of what is really going on.
Meanwhile, for the foreseeable future these markets will continue to be driven by economic data.
When you have a fortune at your disposal (like Li Ka-Shing or Bill Gates) buying up physical commodities is completely unrealistic. They might be able to buy a few pallets of gold, but then what? With the next commodity boom, the smart money is going to flood into the businesses that own these assets; it will go into those that own minerals in the ground by the ton.
The dollar has rallied greatly as of late, but that’s not because anything has improved with the U.S. In fact, it’s just the opposite; the national debt for the U.S. is nearing $20 trillion! What has benefited the U.S. dollar is global uncertainty. Essentially, the dollar is the tallest midget in the room when it comes to paper money. This is why I see hard assets like gold, silver, oil, uranium, and copper soaring against the dollar one day.
crisis-creates-opportunities
Gold Is Rallying Worldwide, Even to All-Time Highs
What has gone largely unnoticed, is a big rally in most major currencies. Also, with the strength in the dollar, several other currencies have suffered largely, resulting in much higher gold prices in those currencies. Take for instance the following trends since last summer:
The Russian ruble collapsed, and gold soared.
At the same time the euro was almost in a free fall earlier this year, gold rallied big!
And when the Swiss central bank decided to devalue their currency with negative rates, gold spiked in francs.
Another great example is Brazil which has seen gold in its local currency rally to near all-time highs.
Gold is the only true hedge against these central bankers, and it is responding to the fiat currency war.
Gold tends to have a direct response for central banks who give their local citizens discomfort in the value of their currency, but
What happens when the central bank is managing the currency of choice for the entire world?
What happens when the entire world wants to exchange their U.S. dollars for gold?
It could be either because of an action the Federal Reserve takes or because the U.S. debt passes a key psychological number with the markets, like $20 trillion which is likely to happen in 2017. China and Russia are piling up gold for several years now. China, by the way, is both the world’s largest gold producer and biggest importer, so not only are they accumulating gold by the truck load, not one ounce produced is leaving their shore.
It is clear that China is preparing for something big in the currency markets. Last year, China partnered with Brazil, Russia, and South Africa to form a competing bank to the World Bank, which is controlled by the west. Since 2008, half a trillion has been agreed to in currency swaps with nearly 30 countries. The world has an unease about the dollar system, with Russian President Vladimir Putin going as far as saying the dollar monopoly is damaging to the Russian economy. President Hu, of China, said last year that the “dollar is a product of the past.”
China’s Secular Gold Accumulation Strategy
For 7,000 years, man has mined gold deposits, making it possibly one of the oldest and most reliable businesses in human history. And it’s one of the smartest, because unlike accumulating gold in the retail market, owning a gold mine allows you to keep producing the gold after your return of investment.
All the gold that was ever mined fits into one large cube with an edge of just 70 feet! Think about it… for all of human history, gold is so precious and so rare that if you took all the Egyptians mined, the Romans, and everything since, we would only have 3 Olympic-sized swimming pools full of gold.
The headlines for gold these past few years have all focused on physical gold accumulation by China, Russia, and eastern central banks, but what they have missed is a 7,000-year-old strategy that China is doubling down on. According to data compiled by Bloomberg, in 2013, asset purchasers by Hong Kong and mainland miners increased to a record $2.2 billion! China is buying gold mines at a record pace, something completely missed by both the mainstream investor and even the gold analysts who tend to only focus on the bullion sales.
With $2.2 billion invested, China knows it could spark an event in the physical gold market if it was reporting this to the IMF, which is why it’s not and it doesn’t have to. China is only revealing physical bullion purchases, but very little is reported or said about its gold land and mine acquisitions. And who knows how much gold is behind this $2.2 billion, because unlike bullion purchased at a retail price, a gold deposit can be purchased for a lot less than gold out of the ground.
Mimicing China’s Gold Strategy
This strategy that China has taken can also be implemented by individual investors, by focusing on specific gold companies who – in the midst of a commodities bear market and global currency war – are out acquiring already-established gold assets.
It’s a plan for low-risk growth through acquisition, setting the stage for millions of ounces of gold, purchased for less than a nickel on the dollar…
In some cases, millions of dollars have been spent in exploration; but today, distressed sellers are looking for a buyer, oftentimes at fire-sale prices.
Supercharge Your Portfolio With Ounces in the Ground
FutureMoneyTrends.com is about to reveal all the details on a tiny gold stock that has a huge upside potential. The last time an opportunity like this presented itself for this tiny gold stock’s founder, investors saw gains of 2,800%, turning a $10,000 investment into over a quarter million dollars in about 2 years. Even investors who bought his last stock with just a thousand dollars could have potentially cashed out for $28,000!
Going from zero to 4 million ounces of gold in the ground, with what are potentially 3 elephant-sized gold projects, according to Marin Katusa, and even a potential uranium spinoff project that they picked up while acquiring an entire company for pennies on the dollar at the end of 2013. It’s a project that according to Casey Research’s top energy expert and New York Times best-selling author, Marin Katusa, has a real value that justifies the entire market cap of this tiny gold stock, without any consideration of their other properties.
Last year, legendary investor Rick Rule stood before an audience of high-net worth investors, introducing them to this very company. A company that he not only had a stake in, but through a private fund he manages with his own dollars, is the single largest shareholder of this gold stock.
Growth Through Acquisition
With a $50 million market cap, Brazil Resources Inc. (TSXV: BRI & OTCQX BRIZF) is a gold accumulator! Since its start in the spring of 2011, BRI has acquired four projects with NI 43-101 resource estimates. Management owns 25% of the company, with institutional support at approximately 30%. But what I think every BRI shareholder can appreciate is that the 2nd largest single shareholder in BRI is the Founder and Chairman, Amir Adnani. In my opinion, this shows a strong alignment with management and shareholders, specifically at the highest level in the company.
The top holders of BRI are Rick Rule and Doug Casey, through their fund, Casey Capital Strategies. Rick Rule is legendary for these private funds, taking one such fund in the early 2000s from $15 million to $445 million.
Marin Katusa is also part of the management of this fund, and is a rising star in the resource sector, with more than a dozen 1,000%+ returns for his stock recommendations – recommendations of which he owns.
Focusing primarily in South America, Brazil Resources has one of the most influential people in Brazil on their board of directors. Mario Garnero may not be a household name here in the U.S., but in Brazil, his name is like hearing Gates, Jobs or Buffet. He is a successful entrepreneur who has delivered billions of dollars into his country while becoming influential in Brazilian politics and close friends with many U.S. leaders, like President Bush and Clinton. Currently, he is the chairman of Brasilinvest, the oldest merchant bank in Brazil, who is also one of BRI’s top shareholders.
BRI’s political influence doesn’t stop with Mr. Garnero. Former Canadian Minister of Natural Resources, Herb Dhaliwal, is also a director in the company. Amir Adnani, BRI’s chairman and founder, has been featured in Fortune magazine, is #2 on Casey’s NexTen list, and has already proven to the industry that he can deliver, by taking his first public company from conception to production in 5 years!
In both of BRI’s last two financings, they received strong demand, with an oversubscription, even at the height of the bear market in gold from 2013 to the end of 2014. A time where many companies were trying to raise money to keep the lights on, Brazil Resources raised $11 million.
No Hype – Just the Facts
BRI has acquired four projects with NI 43-101 compliant gold resources in Brazil.
Sao Jorge
Boa Vista
Cachoeira
Surubim
Sao Jorge and Cachoeira make up the bulk of these assets, with both being acquired by BRI at significant discounts from the previous owners. Cachoeira was purchased in 2012 from Luna Gold Corp. Luna Gold took BRI shares valued at $1.40 for this transaction. At the time, shares of BRI were trading for less than $1, so this speaks volumes about Amir Adnani and his team’s ability to deliver real value for shareholders with the capturing of equity in assets purchased at severe discounts.
Sao Jorge was acquired in late 2013 when Brazil Resources Inc. took over Brazilian Gold Corp. This transaction doubled BRI’s gold resources. BRI’s management closed this deal at an 88% discount from where J.P. Morgan management acquired shares and at a 50% discount from what another group out of Hong Kong (released in a letter of intent) had offered to buy the same company.
Serendipity for Brazil Resource Investors
What has been referred to as a potential lottery ticket by Marin Katusa is BRI’s hidden project. It’s not a secret, but unknown to even many of Brazil Resources’ own shareholders. It’s a joint venture with a billion-dollar mining giant, where this tiny little gold stock is the majority owner, split between 75% Brazil Resources and 25% Areva. The Rea project is less known since BRI is viewed as a gold company by most investors, but its uranium project is in the Athabasca Basin, an area that is responsible for 25% of all uranium production.
Here’s the kicker: Amir Adnani had taken a small junior mining stock from idea to production in 5 years, a company that put him quickly in the 10-bagger club for many investors? Well, that company was a uranium play!
So not only did BRI in one fell swoop acquire over a million ounces of gold resources when they took over Brazilian Gold Corp., but they also gained ownership in a uranium property, surrounded by the majors, monster discoveries, and with an already-established joint venture with a major.
With only 6 U.S. publicly listed uranium producers, BRI shareholders now have 1 of these uranium producing CEOs in charge of advancing the Rea project.
Strategic Partnership
Just as China and others are accumulating hard assets through resource companies, individual investors have the same opportunity. Whether we have inflation or not, gold boom or gold bust, the people at Brazil Resources are doing their best to deliver real value to shareholders, by backing each share with physical assets – resources in the ground that one day can be exploited for profits.
Shares for BRI currently trade for less than a buck, but each share represents ownership in the assets mentioned above.
The recent market downturn in commodities has created an environment where Amir Adnani is thriving, and he’s using BRI to do it. When it comes to investing, a truly diversified portfolio of hard assets must include a growth strategy. Which is why it is an excellent opportunity to research Brazil Resources.
To learn more about BRI or read their technical reports, visit BrazilResources.com.
Before taking any decision, always speak with a licensed professional.
“Am I diversified?”
It’s a question every investor should ask. It’s a question that CNBC’s bombastic stock guru Jim Cramer encourages his followers to pose. Unfortunately, Cramer’s answers are one-dimensional – he looks at diversification only in terms of stock holdings.
Having a stock portfolio that is diversified among different sectors and styles is just one aspect of diversification. During a stock market crash, any broadly diversified stock portfolio can be expected to go down with the market.
Only a gambler would be positioned 100% in stocks. And at today’s dangerously lofty valuations, which are back near 2007 and 2000 levels by some metrics, going all-in on stocks would be a gamble with elevated risk.
Nearly all financial advisors recommend allocations to bonds and cash to avoid overexposure to equities. Modern Portfolio Theory tells them that the greater the allocation to bonds and cash, the less risk. That’s mostly held true over the past 30 years, because interest rates have been on the decline. Falling rates mean a rising bond market. That’s the only paradigm with which most financial advisors today are familiar.
30y_bonds_May_2015
What happens when inflation starts taking off? What happens when rates start rising from today’s historically low levels and bond values trend down for months, then years? In a rising rates environment, all dollar-denominated financial assets could be at risk – stocks, bonds, whole life insurance, fixed annuities, etc.
That’s where precious metals come in.
Gold and silver are uncorrelated to conventional financial assets. The metals can gain (or at least retain) value during times when other asset classes are in bear markets. In fact, gold prices tend to move inversely to investor confidence. During the late 1970s stagflation, the 2000-2002 tech wreck, and the 2008 financial crisis, gold performed far better than portfolios containing only conventional financial assets.
Despite the obvious advantages of including gold in a diversified portfolio, the financial industry is institutionally biased against precious metals. Bankers, stock brokers, insurance agents, and financial planners don’t benefit when investors diversify into hard assets. The interests of the financial establishment aren’t aligned with those of individual investors. If they were, then financial advisors everywhere would advocate a sizeable allocation to physical precious metals.
A study by Ibbotson Associates found that investors who put 7.1% to 15.7% of their portfolios in precious metals enjoy superior risk-adjusted returns. Yet the average investor has less than 1% of his assets in bullion!
If the average investor started allocating around 10% of his portfolio to precious metals, imagine the shock to the system! Prices for gold and silver would necessarily skyrocket.
How much you allocate to precious metals is ultimately an individual decision that depends on your own life circumstances, goals, risk tolerance, and expectations for the future. If you expect a currency crisis within your lifetime, then you might want to boost your metals allocation to 20% – 25%. Or more if you want to be more aggressive.
Your current allocation to bullion may not be as big as you think. Consider all your financial assets, from brokerage and bank accounts to savings bonds and life insurance policies. In the event of a currency collapse, your investments with these counterparties could all be at risk. Do you own enough hard money in the form of bullion to offset that risk?
Here’s Why You Should Also Diversify within Your Precious Metals Holdings
Consider also the importance of diversifying within your bullion holdings. If all you have are large bars stored in a third-party vault, your practical ability to access and spend your bullion during a crisis will be limited.
You should have at least something of an emergency stash hidden away at home where you can get your hands on it anytime, day or night. It should consist of several different sizes and forms of gold and silver for maximum flexibility and barterability. You’ll want .999 pure silver one-ouncers as well as fractional sizes, with pre-1965 quarters and dimes being a practical, low-premium option. One-ounce gold coins are useful for storing more significant amounts of wealth. But adding half-ounce, quarter-ounce, and tenth-ounce gold pieces will give you greater flexibility for bartering, trading, and gifting.
Consider diversifying beyond gold and silver and into the platinum group metals (PGMs). Though platinum and palladium bullion products aren’t as widely recognized or as liquid as gold and silver, there are advantages to having exposure to the PGMs. As scarce industrial metals that are used primarily by the automotive industry, they have their own unique supply/demand fundamentals. Even during times when gold and silver are slumping, the PGMs can be appreciating.
This is especially the case with palladium, which in recent years has regularly decoupled from the price trends of the other precious metals. From a portfolio diversification standpoint, that’s an advantage. It means you can own a precious metal that has the privacy and portability attributes of gold but with the price-performance attributes of a separate asset class.
Are you diversified? Perhaps the better question is: Can you become more fully diversified? The vast majority of investors can and should.
Even if you are among the minority of investors who holds a sizable allocation to physical precious metals, you can probably take steps to become a more fully diversified precious metals investor. Whether it’s acquiring tenth-ounce gold coins or one-ounce palladium bullion bars, by becoming more broadly diversified within the precious metals space, you’ll become financially more resilient.
About the author: Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.
As I’ve mention previously JPMorgan is still stopping (taking) silver deliveries in its own house account. In the May COMEX futures contract, they’ve taken over three million ounces so far. It still looks like JPM will take another million ounces or so before the delivery period is over. This is in addition to the 7.5 million ounces the bank took in the March delivery period.
Another standout development in recent weeks has been the withdrawal of 5 million ounces from the big silver ETF, SLV. This large withdrawal would appear to be a big buyer converting shares into metal for the purpose of acquiring physical silver and avoiding the 5% ownership reporting requirement. I believe this is the work of JPMorgan and represents the mechanism by which the bank has amassed the bulk of the 350 million ounces I claim it has acquired over the past four years.
The U.S. Mint sold 783,500 Silver Eagles in just two days after going 4 or 5 days with no sales. Then the Mint reported a scant 50,000 additional coins sold over the next two days. This is precisely the erratic level of sales that indicates the presence of a big buyer. I can’t certify that the big buyer is JPMorgan, but everything I look at points to them.
The Canadian Royal Mint reported sales last week its 2014 sales of Silver Maple Leafs and the same pattern that has characterized the U.S. Mint was clearly revealed. Sales of silver coins hit a new record, with more than 29 million Silver Maple Leafs sold. The big buyer of Silver Eagles has also been accumulating Silver Maple Leafs. Over the past four years the big buyer has bought, at least 30 million ounces of Canadian Maple Leafs and 75 million U.S. Silver Eagles totaling more than 100 million ounces of silver in bullion coin sales alone. I’m convinced JPMorgan is the big buyer.
How in the world can JPMorgan eventually sell hundreds of millions of ounces of silver without flooding the market and causing prices to crash? This is what JPMorgan does as a regular part of their business – accumulate and then liquidate massive market positions before most people get out of bed every morning. It is second nature to them. In my opinion, this silver will be sold before most people realize they bought it in the first place. Buying 350 million ounces of silver was the hard part, selling it will be a snap.
The big buyer is exploiting a loophole in the law that requires the Mint to produce to whatever the demand might be. So JPMorgan artificially depresses prices via short sales on the COMEX and then requests that the US Mint sell it all the Silver Eagles it can produce. It doesn’t care if it is paying $2 over the spot price, JPM wants all the silver it can get its hands on. But what about selling the coins I claim JPMorgan has acquired? The coins will not be sold as coins, but melted into 1,000 ounces bars. In fact, some of the 100 million+ ounces of coins may have already been melted and cast into good delivery bars. Considering that the coins are the same purity as 1,000 ounces bars, melting is a simple and a low cost process.
At the end of 2007, when the price of silver was less than $15, but close to the highest price it had been in 25 years Bear Stearns, assumed the role of the biggest silver and gold short when these positions were transferred from AIG. From the end of 2007 to March 2008, the price of silver rose to $21 and gold rose from $800 to $1,000. Based upon the size of the short positions that Bear Stearns held the investment bank had to come up with more than $2 billion in margin money. Bear was unable to do so and the U.S. Government arranged for JPMorgan to take over Bear Stearns and its massive COMEX short positions in silver and gold.
With the cooperation from the federal government, JPMorgan was able to turn silver (and gold) prices sharply lower into year end 2008 and made well over one billion dollars as a result of falling metals prices. Thus, they were able to greatly reduce the short positions inherited from Bear Stearns. JPMorgan then repeated the process of selling short great additional quantities of COMEX short contracts on metals price rallies buying back those short positions when prices fell. JPMorgan’s profits from the short side of COMEX silver and gold, amounted to hundreds of millions and even billions.
This process was repeated by JPMorgan in COMEX silver until the fall of 2010, when silver began to rise in earnest due to a developing physical shortage that drove prices to nearly $50 by the end of April 2011. On the run up, it must have become clear to JPMorgan that a physical silver shortage was developing and for the bank to try to fight it with additional paper short sales would be futile. Therefore, two decisions were made; one, it would be necessary to create such a large break in silver prices so as to crush the momentum of the price rise and two, the developing physical shortage proved that silver was destined to blow sky high in time and JPMorgan should position itself accordingly. The big break in prices started on May 1, 2011 and broke the back of the silver price. Less visible is the evidence that JPMorgan began to acquire the biggest physical silver stockpile in history.
- In little more than a month, as a result of the big break in silver prices staring on May 1, 2011, some 60 million ounces were liquidated from the big silver ETF, SLV, as a result of plain vanilla selling by investors who sold their shares in reaction to plunging prices. When net selling occurs in SLV, metal is automatically redeemed from the trust on a mechanical basis. The shares were sold and the metal was withdrawn from the trust as prescribed by the prospectus. That doesn’t mean the metal was dumped on the streets of London or ceased to exist. The metal fell into the ownership of someone and the most likely candidate was the entity that arranged for the selloff in the first place. The entity which stood to gain the most by the selloff was JPMorgan. They picked up their first 50-60 million ounces as a result of the May 2011 silver smack down.
- Pressed for space to store the silver it planned to acquire, JPM opened its own COMEX warehouse in April 2011 and from zero ounces in 2011, that warehouse has turned into the biggest COMEX silver warehouse of all with nearly 55 million ounces on deposit. The start date proves intent by JPMorgan to acquire silver.
- In 2012, JPMorgan physically transferred 100 million ounces of silver from its own custodial warehouse for SLV to the Brinks warehouse in London, leaving ample space in the former SLV warehouse to store 100 to 200 million ounces of silver that would come to be owned by JPMorgan and that would never require public disclosure. This is the most plausible explanation for why JPMorgan would move the silver to the Brinks warehouse. All the movements of metal out of SLV over the years, reeks of JPMorgan converting SLV shares to metal to be stored in its own warehouse in London on an undisclosed basis. An easy 200 million ounces can be accounted for in this manner.
- The unusual and unprecedented turnover of physical silver in the COMEX-approved silver warehouses that began in April 2011 suggests to me that JPMorgan has been causing the movement in its quest to acquire physical silver. An easy 100 million ounces acquired by JPMorgan can be deduced from the more than 750 million ounces turned over in the COMEX warehouses over the past four years. How hard would it be for JPMorgan to “skim” 100 million ounces off a turnover of 750 million ounces?
- The recent acceptance of more than 10 million ounces on COMEX futures deliveries and the physical movement of most of that metal into the JPM COMEX warehouse is a mere fraction of the total amount of silver JPMorgan has acquired over the past four years, but it is clearly the most transparent and may point to JPMorgan reaching the maximum amount of physical silver it intends to acquire, indicating we may be close to when the bank decides to let silver prices rise.
I’m using the number of 350 million ounces as what JPMorgan has acquired, but the real amount may be in excess of 500 million ounces. I’m being somewhat conservative in saying 350 million ounces because I’m worried that those who deny that JPM has acquired any physical silver heads might explode if the number is closer to half a billion ounces. I’m not looking for anyone to lose their minds, but to understand what these facts mean.