Saturday, April 4, 2020

Gold and Silver Supply, Jobless Claims Soar, Massive Stimulus

This week we cover gold and silver supply amid the current equities market crisis. 

As jobless claims soar what are the real economic impacts for precious metals investors during this volatile period? 

With more massive government stimulus on the way, we'll explore the real consequences of these injections and how the U.S. Dollar index will react. 

We cover the prices of gold, silver, platinum, palladium, & the U.S. Dollar Index alongside metals miners.

Friday, April 3, 2020

Is the Physical Gold and Silver Supply Chain Empty?

Back by popular demand, Andy Schectman, president of Miles Franklin Precious Metals, returns to Liberty and Finance / Reluctant Preppers to answer your questions about whether it’s still possible to get your hands on physical gold & silver despite an historic rush and collapsing supply chain. 

Andy joins host Dunagun Kaiser to field some of the toughest questions faced by concerned people who’ve been calling in record numbers, troubled about protecting their savings, retirements, investments, IRAs, 401(k)s, pensions, and more. 

Andy also shares his gripping personal experience of what happened to him when he attempted to personally carry a large amount of gold bullion coins through international airport customs. 

Lessons learned for all of us who want to be aware and prepared for possible scenarios in the times ahead.

Leaks Everywhere: Federal Reserve Expands Balance Sheet at Fastest Rate Ever

The situation across the globe is deteriorating rapidly and I am not just talking about the continued spread of COVID-19, but the ramifications that come along with it, that will likely have just as dire consequences in the coming months, to years.

The most serious of these ramifications is the financial collapse that we now living through, which has resulted in a complete and utter gutting of many businesses, resulting in what will come to be in the following weeks, the highest unemployment that the Western world has ever seen.

This means that big government is being looked to more and more to help support and sustain the system in the short term, printing copious amounts of fiat money in the hope that they can plug as many holes as possible, while new leaks continue to spring up all around them.

I don't envy this position and unfortunately they are truly stuck between a rock and a hard place.

Save the economy and keep business open as usual, or shut down the whole globalized world and crash the markets, potentially destroying millions of jobs forever, while saving millions of lives in the short term. These are their choices at the moment.

Clearly, governments have chosen the latter and sprung into action, going into full blown bail-out mode.

This has resulted in a monstrous spike in government debt levels, as they continue to debase their currencies and print money out of thin air.

Dwarfing all others, as would be expected, is the Federal Reserve, who have expanded their balance sheet by ungodly levels in just three short weeks.

As can be seen from the chart above, the Federal Reserve has added a staggering $1.6 trillion to their balance sheet since March 13th, when the bailouts kicked into high gear.

This brings their current total levels to $5.81 trillion, which highlights just how rapidly the Federal Reserve is being forced to intervene in the markets.

Just to put this into perspective, as of the close of the trading session on Friday, April 3rd, in which the Fed's balance sheet is estimated to be approximately $6.0 trillion. The Federal Federal Reserve will of added more than the entirely of QE3, in just three weeks!

This truly is fiat money printing at a level we have never before seen.

Unfortunately, we haven't seen nothing yet, as this crisis is far from over and the Federal Reserve, along with countless other governments around the globe are going to be forced to intervene time and time again, unless they wish to not only being facing one of the greatest health crisis of our times, but also complete anarchy, if the financial system is allowed to fully implode within itself.

Still, I believe they are only slowing the inevitable, as many markets are also currently reflecting, such as the oil markets which have been completely devastated in the matter of just one month.

One example of this devastation was highlighted this week, as numerous media outlets began to point out the fact that you could buy a barrel of Canadian heavy oil, for less than one pint of beer at a pub.

Think about just how absurd that is for a moment. Then think about what it going to take to get the jobs that are centered around getting this oil out of the ground to return. This is a massive part of the Canadian economy.

Meanwhile, one commodity that has continued to hold strong, in the face of just about everything else collapsing, is gold bullion, which is currently trading at $1625.70 USD per oz, despite the historic amount of liquidation that is occurring within the system.

What is even more stunning, is that gold bullion is able to hold these strong levels, while the USD continues to strengthen. 

Historically this is not the case, as a strong dollar, typically results in a weakening gold price.

If the USD ever begins to trend lower again, you can rest assured that gold bullion is going to blow off the charts, rocketing higher at an extreme velocity.

Even if this does not happen however and the USD continues to show strength, I still strongly believe that gold and silver bullion are going to trend higher, as more and more people continue to seek these commodities as safe haven assets, preparing for the eventual day when this historic amount of fiat money begins to flood back into the system.

Apparently many people agree with my assessment, as physical bullion remains incredibly hard to get your hands on, with many mines, mints and others in the industry being forced to close their doors due to COVID-19, just as the demand for physical metals hits new highs.

This is why you are seeing such a staggering difference in the price of physical precious metals and the price of paper metals, the two of which have begun to decouple from each other, with silver being the most noticeable of the two.

As previously stated, I don't envy our political leaders in these dire times, as I truly do believe that we have passed the Rubicon, a point I have highlighted many times before.

The debt levels are simply too high and never, ever, will this money be repaid in whole, meaning that the only way out of this is an eventually default.

Remember these words:

"What cannot be repaid, will not be repaid."

This however does not mean that you cannot protect yourself financially for that coming day. Now more than ever, I believe that people need to be moving their money into tangible, hard assets such as gold and silver bullion, as they are able to do so.

For over 10,000 years, precious metals have weathered each and every financial storm and without a doubt, they will weather this one as well, rewarding those who took action early, handsomely for doing so.

Stay safe and keep stacking.

- Source, Nathan McDonald via the Sprott Money Blog

Thursday, April 2, 2020

How the Perfect Prepper Plans Can Still Go Wrong

When a disaster strikes unexpectedly, there’s nearly always some kind of monkey wrench that causes your well-thought-out prepper plans to work less effectively than expected. When describing the situation, the person says sheepishly, “Normally we wouldn’t have had X circumstance going on when it happened, and our preps would have worked just fine.”

Or, in the eloquent words of Mike Tyson, “Everyone’s got a plan ’til they get punched in the mouth.”

But, variables.

That’s just the thing. There is nearly always going to be a variable that doesn’t fall neatly into your imagined scenario. Your ability to roll with that is the truest test of your preps and indeed, your overall level of preparedness. It is more valid than any number of planned practice runs.

Don’t get me wrong. Planned practice runs are great and are a valuable technique to enhance your level of preparedness. But be honest – you nearly always do a little something extra to prepare for a practice run. Perhaps you make an extra trip to the store. Maybe you just got a brand new prep that you want to test out, inspiring the practice run that is a perfect scenario for the use of that prep.

But…disasters do not wait for the perfect time and circumstances. They don’t always indicate their arrival and allow enough time for a trip to the store. (At least not a trip to the store during which everyone else in your geographic vicinity is competing for the same supplies.)

Realizing this can take your preparedness to the next level.

Here’s an example that happened to us one weekend.

On Friday, I spent the afternoon canning. I did a huge batch of tomatoes, and anyone who has ever canned tomatoes can tell you exactly how messy that was. My poor white kitchen looked like a crime scene. I made dinner and stacked the pots, pans, and dishes in the sink. I had a huge mess in the kitchen. I had a load of dirty laundry humming along in the washing machine as I began to tackle the chaos.

Then, I turned on the faucet and nothing came out.

Not a drop.

My well pump had finally given up the ghost.

And my kitchen was a disaster area. And soapy, wet laundry sat in my washer.

On the first day of our family emergency, we went through nearly triple our allotted amount of water, just to get things to the condition in which we could abide by our plan. Fortunately, I had quite a bit of water stored, but it wasn’t going to last nearly as long as I had expected with the giant dent I put in the supply on Day 1.

I pulled out my notebook and began to jot down the things we learned with this unexpected drill and reported it to some prepper folks that I hang out with. One friend said that I normally wouldn’t start out with tomato guts all over the counters and a sink full of dirty dishes and a soapy load of clothes in the washing machine. Initially, I agreed, since this isn’t the usual state of my home.

But then, I thought about it.

There’s nearly always some weird variable.

A few years ago when the Derecho hit the Washington DC area, a local friend there told me it had been laundry day. She had put off doing laundry because the family had been busy, and they had piles and piles of dirty clothes.

The fact that they hardly anything clean left to wear had been the motivating factor in her sorting the large piles of laundry on the kitchen floor as she began to conquer the mountain.

And then the power went out. It went out for days. And there they were with all of that dirty laundry, a load in the washer, a load in the dryer, and hardly a thing to wear. They ended up hanging the stuff in the dryer, hand washing to complete the stuff in the washer, and wearing the same stuff for the next few days during a horrible heat wave with no power.
The lesson here?

When a disaster hits your house, you will probably have some variable too. Very few of us are in a constant state of readiness. Life just doesn’t work like that.

We have busy weeks during which we may skip laundry day. We have messy kitchens because we just did a huge project. We have times when our house is messy and disorganized, or when we are waiting for the next paycheck before hitting the grocery store for some staples that are running low. We use up all the BBQ’s propane during a weekend cookout. We discover the kids have been quietly snacking on some of the no-cook goodies we thought were secretly stashed away, but discover it only when we go to pull that food out to feed the family during a power outage.
There’s really never a perfect time.

There’s rarely a warning that comes at a time when we have enough in our bank account to grab anything we’re running short of, and also aligns with our ability to get to the store before everyone else that wants to pick up those vital items.

So, you have to make the best of it. You have to be ready to accept the fact that you’ll find that somewhere in your plans was a gap. You’ll learn that you had prepped for a neat, perfect scenario but that life handed you an asymmetrical mess with a pile of dirty laundry in the kitchen.

That’s when you’ll discover how prepared you really are. That is when you will truly be able to test your adaptability, which is the true key to surviving any crisis...

- Source, Organic Prepper

Mike Maloney: Is This the End of the American Dream?

Is this the end of the American Dream? Or will life return to normal, bouncing back as though nothing has happened? 

What can the average person do to prevent their wealth being erased? 

These are the questions that Mike Maloney tackles in today’s update, you may be surprised by some of the data and evidence that he provides for his case.

- Source, Gold Silver

Wednesday, April 1, 2020

We Are Experiencing the End Game of the Great Debt Super Cycle

With the global economy slipping into recession and many economists estimating second-quarter gross domestic product (GDP) growth in the United States will fall by 15 percent or more, the world is being confronted with the worst downturn since the 1930s.

In the post-Keynesian era, the standard policy solution to a business cycle downturn has been for governments to temporarily offset any decline in demand with increased fiscal stimulus and easy money. This prescription has provided for smaller and less frequent slowdowns. The ultimate consequence is that businesses and households have been carrying larger debt loads and smaller cash reserves, confident that policymakers will restrain the severity of the consequences created by any shock to the economy.

This process of accumulating larger debt balances after each successive downturn is often referred to as the great debt super cycle. Over the past decades, the successful use of Keynesian stabilization policies has increasingly raised the confidence of investors and creditors alike that government can successfully truncate the downside of any recession.

The massive debt accumulation by U.S. households following accommodative monetary policy and easy credit led to the housing bubble. The collapse of this bubble destabilized the global financial system and could only be halted with unorthodox monetary policy and fiscal programs that led to partial or total nationalization of many financial institutions and manufacturers.

In the wake of that crisis governments themselves have become highly indebted, requiring virtually continuous support from central banks to acquire that debt to maintain low interest rates to support growth. The average ratio of government debt to GDP for G-7 economies reached 117 percent in 2019, up from 81 percent in 2007. Any attempt to taper or reverse the accumulation of government debt or other assets is quickly reversed as financial markets become unruly and economies slow.

Now faced with the exogenous shock of the COVID-19 pandemic, policymakers are returning to the same tools employed in the financial crisis a decade ago. They are desperately searching for programs that will fill the demand gap created by massive shutdowns and travel restrictions while simultaneously finding ways to prop up businesses that to a large degree are overly indebted as a result of artificially low interest rates from the past decade.

The ultimate policy goal is to stabilize the economy by salvaging industries that will need to provide employment when the pandemic ends. Given the high level of leverage in these companies, any gaps in cashflow will make it impossible for many companies to service their debt. The total debt of U.S. nonfinancial businesses has grown by about $6 trillion since 2007, while cash on hand has only grown by $1.7 trillion. A big driver of that debt growth has been buying back stock.

Lending these companies more money will only compound the long run problem resulting from over-leverage and make the companies even more vulnerable to failure in the long run.

We are experiencing the end game of the great debt super cycle. As the private sector has become increasingly over-levered, the baton is being passed to the public sector where resources are so strained that the printing press has become the last resort. At 4.6 percent of GDP, the U.S. federal budget deficit in FY 2019 was larger than anything we’ve seen outside of a recession or war.

The truth is that the only policy solution short of socialism is to accomplish a great transfer of wealth from investors to debtors. In the normal course, companies reorganize and creditors haircut debts on a case by case basis. This process, however, is time consuming and expensive. Given the systemic nature of the current crisis, the sheer volume of reorganizations would swamp the financial and legal systems and large defaults would be followed by asset liquidations that would depress the value of collateral backing other loans and likely set off a downward spiral.

Another answer is negative interest rates, where creditors accept a slow erosion of value. The hurdle to successfully implement this solution expeditiously seems completely unrealistic. To reach levels of negative interest rates that would effect a solution would require a rapid shift to a cashless global society and an overhaul of regulation around pension funds and the insurance industry, not to mention the logistical challenges of immediately implementing the systems throughout the financial industry.

Of course, there remains a tried and true method to achieve this policy: debasement. The process of inflating prices would result in shifting wealth from investors to creditors. Many believe inflation is dead and such a policy would not work. The question of how to succeed in raising the price level is more a degree of commitment than ability.

By quickly turning up the printing presses, global central banks would need to provide reserves at a faster rate than the collapse in the velocity of money. This is a delicate exercise and one that would be difficult to execute successfully.

The risks on both sides is not moving quickly enough and overdoing it. If there is too little money made available, the prices of assets used as collateral backing loans will spiral downward. If there is too much, inflation will spiral out of control.

Almost eight years ago I wrote of the Faustian bargain in which policy makers had engaged to solve the financial crisis. The awful consequence of these policies is that the bill may now be coming due.

Mine Closures, What Will this Mean to Metal Prices Moving Forward?

While ounces produced may be down in 2020, the margins for gold miners may be better. A number of precious metal producers are reducing production due to government restrictions in response to concerns around the pandemic. 

"The seniors may produce less ounces, but I think the potential for them to generate more margin on each ounce is pretty good," said Mazumdar.

- Source, Kitco News

Monday, March 30, 2020

The Race To Debase the World's Currencies is On

Would you like to know why Mike Maloney gets so frustrated when people incorrectly refer to currency as money? It has a lot to do with what he calls 'The Race To Debase'. 

Join Mike in his latest update where he covers the huge change to the Federal Reserve’s balance sheet, reads a segment from his new book, and answers viewer questions.

- Source, Gold Silver

Sunday, March 29, 2020

Golden Rule Radio: QE to Infinity and Beyond!

To QE Infinity & Beyond! Gold mines & refineries send workers home for safety - Where will the new gold come from? Bonds are telling us that the system is cracking apart. Figure out what you want to own (gold?) & get it now.

Saturday, March 28, 2020

Egon von Greyerz: Major Silver Shortage Right Now, Physical Bullion is Virtually Impossible to Find

The Swiss Canton of Ticino, in the Italian part of Switzerland, has just ordered the gold refiners based there to close, initially to March 29th but this is expected to be extended. Three of the world’s largest refiners – Argor, Valcambi and PAMP are based in Ticino. We are likely to see major pressure on the gold and silver paper market. More later in this article.


The world will now see massive handouts to individuals and corporations, rescues of over-leveraged banks and hedge funds plus rapidly surging government deficits. But Who is going to pay for it? The printing press – stupid! Who else. The printing press has got the world into this financial disaster in the first place and all that is needed now is to speed it up 100x or more.

But who is controlling the printing press? That is an irresponsible elite of central bankers, the Deep State and governments who have all benefitted from the biggest financial bubble in history.

The first signals of the latest crisis in the financial system was clear in Aug-Sep when first the ECB said they will take whatever measures necessary and the Fed started desperate money printing that one Fed governor called plumbing and not QE. Of course it was plumbing since the system was leaking like a sieve. I wrote at the time that what will happen next will be as momentous for the world as Nixon closing the gold window in 1971. And here we are 6 months later with the Fed’s balance sheet having expanded by almost $1 trillion. In addition all central banks and governments are now committing trillions to prop up failing economies and a collapsing financial system.


Most European economies are now at a standstill. Shops, hotels, restaurants, bars, most offices and many factories now closed. Virtually all European car manufacturing has come to a halt. The airline and tourist industry is collapsing and most small businesses haven’t got cash flow for more than a couple of weeks.

It is an unbelievably tragic catastrophe which is now hitting the world. I have talked about the coming collapse of the world economy for many years and done my best to tell people to protect themselves. Sadly, most people believe that good times will go on forever. Therefore the coming economic downturn will shock the world.

Although, there is always a catalyst for a downturn, the world could not have been hit by a worse trigger. The biggest economic downturn in history was due anyway.

Global money printing will increase to $10s and $100s of trillions and when the derivative bubble blows up, it will reach $ quadrillions. There can be no other outcome.


In 1929, it took the Dow 2 1/2 years to go down by 90% and the depression lasted for many years. This time because of Coronavirus (CV), the collapse will be very fast. It could all happen in 9-18 months. By that time the financial system will be unrecognisable or nonexistent. All the printed money will be valued at its intrinsic value of zero. And so will all the assets that were bought or created by this printed money. Stocks will be down 99% and most bonds down by 100%.

But even if markets will collapse very quickly, the world economy will go along the bottom for years and maybe decades.

Investors in property live under the false impression that bricks and mortar will always have a value. Sadly that won’t be the case. If there are no tenants or if they don’t pay the rent, the properties will be almost worthless. I have already heard from friends in the property business who say that the tenants can’t pay the rent. Governments in some countries have promised to help out with rent. But that help will consist of worthless printed money and therefore only have a very short term effect as its value declines daily. If printed money was wealth, we could all stop working.

So we are now entering the end of a 100 year phase of fake money, fake valuations, fake markets and unlimited debt, all leading to the biggest bubble in history. This has also led to false ethical and moral values and the breakup of family values. Too many people have been chasing the golden calf or material values.

What makes the coming period particularly difficult is the combination of CV hitting many people combined with severe financial pressures. A very big percentage of the population will experience extremely hard times both physically and financially.

As we have seen in many European countries, there are not enough intensive care units or ventilators even for a fraction of the patients who need it. Doctors and medical staff, in for example Italy or the UK, are fighting a desperate but losing battle and still working around the clock. Many elderly and severely ill people are not even admitted since there is no room and they are left to die.

The situation is made even worse because most governments have waited far too long to take strong action. If you listened to most leaders of state in Europe and the US, everyone thought that they had it under control and their country wouldn’t be severely affected. And then for every day that passed, they gradually changed the tone as they realised that their country would be hit badly too. All a country needed to do is to look at Italy where CV started only a few weeks ago but sadly is still growing exponentially. Just Saturday there were 800 fatalities making almost 5,000 total deaths. Other countries can just with some delay extrapolate Italy’s figures to forecast what will hit them. Also, in many countries the population is not taking the advice or instructions seriously and openly mixing with other people.

No one can tell how long this will last. Observers on the ground in China are saying that CV is still growing there as opposed to official government information. Some people are saying that it could last for 6 months or more and this doesn’t seem unlikely.

If the economy closed for more than 6 months with most people not working and major parts of the manufacturing sector closed, then both the economy and the financial system will disappear in a black hole. Governments will have some very difficult choices in the next few weeks and months – the survival of people against the survival of the economy.

Looking at markets, the bull market is over and whatever outcome we will see of CV and government actions, the world is now entering a severe secular bear market which will be long lasting. All bubble assets, stocks, bonds and property will decline by 90% or more.

All major countries led by the Fed, the ECB, the IMF, BOJ, PBOC etc will print unlimited amounts of money. All currencies will decline by 100% as they finish the race to the bottom to their intrinsic value of ZERO. We will soon see high inflation, quickly leading to hyperinflation.


Gold and other precious metals will maintain their purchasing power and most likely much more than that as the huge and manipulated paper market in gold and silver collapses. Comex and other futures exchanges will default combined with the whole LBMA system of bullion banks.

There is very strong demand for gold and especially silver currently. Small dealers are out of stock of most items. Bigger buyers like ourselves can still get hold of gold from the refiners but for silver there is a delay of a couple of weeks currently.

So there are many factors which will be extremely favourable for the precious metals:
  • Fear and loss of confidence in economy
  • Financial system collapsing
  • Failure of paper market
  • Debasing of currencies and hyperinflation
  • Exponential increase in demand
  • All current gold production absorbed annually so no surplus
  • We have reached peak gold and production will decrease

It is still possible to buy physical gold and silver at a very low price based on the fake paper market. This will not last long as shortages will soon develop and repricing of the metals is imminent. The previous sentence was written on March 24. Gold is up $100 since then. This is just the beginning of a major long term repricing of gold.

Please remember that the principal reason to hold physical metals is for insurance and wealth preservation and not for short term gains.

Finally please remember to look after yourselves and families and in particular the older generation.

- Source, Egon von Greyerz via Gold Switzerland

Friday, March 27, 2020

Alasdair Macleod: Will Financial Cancer Plus COVID-19 End Fiat Currencies?

Alasdair Macleod believes the dollar-based global fiat monetary system is doomed to fail given the cancerous growth of debt from the fiat monetary system.

How long can the ponzi scheme continue on? Is this crisis what will finally bring the entirety of the system to its knees, sending physical precious metals to astronomical new highs?

- Source, Jay Taylor Media

The New Zeitgeist: Massive Demand for Physical Precious Metals, Tangible Assets, Here to Stay

Wall Street has finally found its footing, after the Federal Reserve gave the green light to investors, indicating that endless amounts of quantitative easing was about to be unleashed upon the markets, using whatever tools they have available to them to achieve their goal of "supporting the economy".

Additionally, the G7, after facing extreme criticism for their lack of united effort thus far, released the following joint statement;

“We will do whatever is necessary to restore confidence and economic growth and to protect jobs, businesses, and the resilience of the financial system.”

This statement, in addition to the measures put forward by the Federal Reserve earlier in the week was all that was needed for many investors to start feverishly buying stocks hand over fist, sending indexes shooting higher and posting monstrous gains.

(Chart source,

Meanwhile, and quite ironically, this had the opposite affect on precious metals, as both gold and silver bullion "paper" prices nose dived lower.

(Chart source,

This move lower occurred because people once again felt secure in purchasing paper assets, knowing that the Federal Reserve and other Central Bankers would simply do "whatever it takes" to keep prices sustained at higher levels. 

Essentially, they believe that safe haven assets are no longer required. 

Obviously, this is going to be a drastic miscalculation in the coming days, months and yes, even years, as this crisis is far from over.

If anything, it is gold and silver bullion that should be soaring higher, as governments around the world just told us that they are going to be printing an endless supply of money, out of thin air.

Already the physical bullion market has caught on to this fact, as the premiums to get your hands on REAL, PHYSICAL, metals has exploded higher, leaving the artificial paper bullion prices in the dust.

Every physical bullion dealer across the market is reporting a surge higher in sales, with many of their most popular products simply being sold out completely, with long delays in shipping times, due to the tremendous demand that is occurring in the physical metals markets.

Finally, after so many years of stating the obvious, the general public is finally catching on to the harsh reality that so many of us in the precious metals markets have been stating for years, "if you don't hold it, you don't own it".

As a rule of thumb, you are much better off with ability to access, hold, sell and use your precious metals, then have your money tied up in an ETF that has zero accountability, or even the option to take possession of your metals if need be.

However, their are phenomenal funds out there, such as Sprotts Physical Bullion Trusts, which does offer accountability and the option to redeem for physical product, but they are the exception, not the rule.

Regardless, you should always have a portion of your gold and silver bullion saving in your possession first, with access to it at a moments notice if need be.

Heading forward, I believe that even the paper gold and silver markets are going to surge higher, as institutional money begins to understand the new endless fiat money reality we now live in. Coming to the realization that bullion prices are going to have to move higher, accounting for the tidal wave of money entering into the system.

Additionally, stocks are going to continue to gyrate wildly, as the coronavirus crisis is far from over, leading to the shedding of more and more "weaker hands", as people continue to seeks safer alternatives.

(Chart source,

Many experts are indicating that we could easily be facing this problem well into next year.

This means that more money is going to need to be printed, more companies are going to need to be bailed out, more government intervention is going to occur. The economic fall out is going to be one for the history books.

In the end, I truly do believe that a change in the zeitgeist is going to occur. People are going to return to a "hold it, own it", mentality.

Tangible assets are going to continue to trend higher in price, while paper assets are going to become increasingly worthless, possibly leading to one of the greatest wealth transfers that this world has ever seen.

I believe that this new mentality is not only for the duration of this crisis, but is going to be deeply ingrained into peoples minds for many years to come.

In my opinion, physical precious metals, if you can even still get your hands on them, are a screaming buy, that are going to make you tremendous gains over the course of the next 12-24 months.

Keep stacking.

- Nathan McDonald, via the Sprott Money Blog

Wednesday, March 25, 2020

Fiat Failure: Japan's QE On Verge Of Failure As Nobody Wants To Sell To The BOJ

Over a decade since central bankers started a stealthy nationalization of capital markets by purchasing a wide range of securities from Trasuries, to MBS, to corporate bonds, to ETFs and single stocks, their actions are finally catching up to them, and in the process breaking the very markets central bankers have worked so hard to prop up. And nowhere is this more obvious than in Japan, where the shrinking universe of Japanese government bonds (as a reminder the BOJ now owns more than 100% of Japanese GDP in JGBs) is "causing havoc" in Japanese money markets as the Bank of Japan continues to buy while dealers refuse to sell.

The result is that rates in Japan's repo market, which traditionally connects holders of bonds with investors looking to borrow them, jumped to a record Tuesday (although they since retreated on Wednesday) because as Bloomberg notes, "the introduction of cheaper, more regular dollar-swap auctions has generated huge demand from U.S. currency-starved dealers who are keeping their JGBs to put them down as collateral."

So here is what the math looks like now that the Fed has launched enhanced swap lines with central banks such as the BOJ, allowing local entities to obtain dollar funding at much lower rates: in last week’s first round of the Fed’s revamped dollar-swap auctions, banks borrowed greenbacks for about 3-months at 0.37%, a massive discount to the near 2% it would cost them in the currency swap market. $32 billion was alloted in the first operation.

This huge difference in available borrowing costs, highlighted in yellow in the chart above, means JGB holders who still haven't offloaded to Kuroda are now unwilling to participate in the BOJ’s bond purchases.

This was readily apparent in Monday’s Rinban operation (i.e., Japan's POMO) across 5-to10-year bonds which saw the lowest offer-to-cover ratio on record, as dealers refused to sell to the BOJ! Other tenors also saw a sharp drop in the amount of bonds offered to sell.

"Demand for JGBs as collateral and its importance now is heightening." SMBC Nikko rates strategist Souichi Takeyama told Bloomberg. And here is the big problem that is now facing the BOJ: "There is little incentive to sell to the BOJ because there are more effective ways to make use of JGBs."

In other words, unless the BOJ provides dealers with a substantial "pick up" in principal relative to market prices, dealers will simply hold on their bonds as they can earn far more by simply renting the bonds out than purchasing any comparable securities. However, that would be frowned upon as it would constitute a clear subsidy to the local banks which, ironically, have been crushed in recent decades by the lack of net interest margin with the entire Japanese yield curve trading flat.

Making matters worse, the surge in demand comes at a time when the Bank of Japan is stepping up its own JGB purchases, in its bid to provide liquidity to financial markets grappling with the worsening coronavirus outbreak. However, with banks now openly refusing to sell to the BOJ, either the Japanese QE will fail, or bond prices will have to rise much more, pushing yields even lower, and further impairing bank interest margin calculations. On net, as Bloomberg notes, "that means less supply available for Japanese banks who have so far tapped over $150 billion in ultra-cheap dollar funding."

The bottom line, according to Takeyama, is that "there is risk that the BOJ offers may not get sufficient bids."

In other words, we may have finally hit a point where the market becomes self-stabilizing, as the very mechanism that central banks used to nationalize capital markets results in so much distortion that market participants no longer have an incentive to use it. In short, QE in Japan, which was first among the developed nations to hit the zero bound (and drop below it) and the first to exponentially ramp up bond purchases, is now on the verge of failure.

- Source, Zero Hedge

Tuesday, March 24, 2020

Goldman Sachs On Gold Bullion: It's Time To Buy The Currency Of Last Resort

A month ago, Goldman Sachs suggested there is more to come for precious metals as with rates getting closer to their lower bound, gold looks increasingly like the safest haven.

At the start of March, Goldman's head of commodity strategy said there is one commodity that will be safe: gold "which - unlike people and our economies - is immune to the virus."

And now, Jeffrey Currie and Mikhail Sprogis are saying The Fed's "open ended" QE reverses funding stresses and will offset the negative impact from lower EM demand:

"We are likely at an inflection point [for gold] where 'fear'-driven purchases will begin to dominate liquidity-driven selling pressure as it did in November 2008."

As such, Goldman raises both the near and long-term gold outlook, saying they are “far more constructive,” reaffirming their 12-month target of $1,800/oz.

In 2008, the turning point for bullion was the announcement of $600b QE in November, after which gold began to climb despite further weakness in equities and commodities.

A similar pattern is emerging as gold prices stabilized over the past week and rallied as the Fed introduced new liquidity injection facilities.

A similar pattern is emerging as gold prices stabilized over the past week and rallied as the Fed introduced new liquidity injection facilities.

Goldman's full note below:

1) We have long argued that gold is the currency of last resort, acting as a hedge against currency debasement when policy-makers act to accommodate shocks such as the one being experienced now.

So why has the gold price fallen? The answer is the world is short dollars.

First, both physical and financial market participants face severe funding constraints; they have been forced to sell liquid positions which include gold and other commodities to generate dollars for other funding needs (see Exhibit 1).

Second, large falls in the price of oil have created dollar shortages for emerging market (EM) economies. This has become particularly apparent with the Russian central bank in the past several weeks as the oil price decline shifted Russia from a net buyer of gold to a possible net seller.

We believe that yesterday’s announcement from the Fed for ‘open ended’ QE reverses these funding stresses and offsets the negative impact to EM wealth and are recommending buying December 2020 gold.

2) Gold has been severely impacted by liquidity issues, correcting by $120 (-7%) from its peak.

The situation resembles 2008, when gold also failed to act as safe-haven asset initially, falling by around 20% due to dollar strength and a run into cash. In 2008, the turning point was the announcement of $600bn QE in November, following which gold began to climb despite further weakness in equities and commodities (see Exhibit 2).

We are beginning to see a similar pattern emerge as gold prices stabilized over the past week and rallied the last two days as the Fed introduced new liquidity injection facilities with this morning’s announcement.

3) We analyze gold through the prism of our ‘Fear and Wealth’ framework, where ‘Fear’ of currency debasement is the primary driver of developed market (DM) investment demand while ‘Wealth’ is the primary driver of EM purchases.

Debasement ‘Fear’ is often, but not al ways, correlated with US long-term real rates (see Exhibit 3).

With funding stresses likely eased, focus will likely shift to the large size of the Fed balance sheet expansion, increase in fiscal deficits in DM economies as well as issues around the sustainability of the European monetary union.

We believe this will likely lead to debasement concerns similar to the post GFC period. Accordingly, we are likely at an inflection point where ‘Fear’-driven purchases will begin to dominate liquidity-driven selling pressure as it did in November 2008. As such, both the near-term and long-term gold outlook are looking far more constructive, and we are increasingly confident in our 12-month target of $1800/toz.

4) While ‘Wealth’ is likely to continue to be a headwind for gold, particularly in the near term as oil prices, EM growth and EM currencies remain under pressure, China and other parts of Asia are showing reassuring signs of recovery.

Last week we reduced our 6-month gold price target by $50/toz to $1700/toz to reflect the impact of lower EM ‘Wealth’, and we believe this has already been reflected in current gold pricing. Continuing to draw on the 2008 parallel, we believe that the increase in ‘Fear’-driven investment demand is likely to trump the negative ‘Wealth’ shock in the near term (see Exhibit 4).

As gold demand can be deferred as opposed to permanently lost like energy demand, we expect as Asian EM economies stabilize, EM gold demand will rebound strongly as consumers make up for missed purchases, particularly for speculative purposes as they have done in the past when chasing a trending market (see Exhibit 5).

5) However, the wealth outlook for commodity-rich EMs is not as optimistic in the near term, but their demand for gold is not as large as that from the Asian EMs.

So while we are comfortable being long gold, it doesn’t mean that our FX strategists believe that the dollar shortages are behind us or that we would want to be long other commodities. As we have argued in the past, given the size of the global oil market, a drop in the oil price of recent magnitudes accentuates dollar shortages as oil and commodity prices are highly correlated with the accumulation and dissipation of EM excess savings (see Exhibit 7).

Financial markets normally transform these excess savings into greater global liquidity, supporting asset valuations and improving credit conditions globally. Hence, when weak commodity prices create a draw on EM savings they act as a drag on financial conditions and a headwind on gold prices as dollars become more scarce. Accordingly, the negative oil-dollar price correlation has been re-established (see Exhibit 8).

6) Ultimately, once their GDP stabilizes, EM consumers should help prolong the current ‘Fear’-driven bull market in gold.

Drawing one last parallel to 2008, while EM wealth continues to be under pressure due to the reasons cited above, once the COVID-19 crisis abates, we see potential for sequential improvement in Asian EM growth to lead DM out of the crisis as it did in 2008/09. This China-driven growth will likely give rise to inflationary concerns given the sharp expected contraction in oil and other commodity supply like agriculture and livestock. Combined with the fiscal nature of the current policy response to COVID-19, we believe physical inflationary concerns with the dollar starting near an all-time high will for once dominate financial asset inflation that was a feature of the past decade. Such inflationary concerns should further support gold prices as the currency of last resort.

* * *

So, Gold, which a WSJ "expert" idiotically called a "pet rock" back in 2015...

... is according to Goldman the last thing and only thing that might store value, namely "the currency of last resort and avoids the concern that paper currencies could be a medium of transfer for the virus. 

As a result, gold has outperformed other safe haven assets like the Japanese Yen or Swiss Franc" a trend Goldman sees continuing as long as uncertainty around the full impact of COVID-19 remains, which will be the case for a long time, and is also why gold is currently the best performing asset class YTD, a "once in a decade event" as the last time this happened was back in 2010.

- Source, Zero Hedge