Archive for Opinions

Friday’s falling markets suggest trend acceleration as Gaps get filled

By TheTechnicalTraders 

– My research team and I have identified a series of Gaps and Gap Fills that may become very telling for the markets over the next 30 to 60+ days.  We have highlighted some Gaps in previous markets over the past 12+ months in some of our other research articles, but we believe the current Gap setups in the SPY, Dow Jones, and Transportation Index suggests extreme volatility should be expected from the markets over the next 60+ days.

First, let’s discuss what creates a gap in price and why it is important for Technical Analysis.  A Gap in price occurs when some major price event takes place between bars – causing a complete price void to take place (a Gap) in price.  Typically, this type of price activity is common as volatility expands and/or as price becomes very illiquid in trading.  Generally, Gaps do not occur often in trading as liquidity and price exploration normally provide enough depth to allow price to operate without Gaps.

Large bar Gaps are something we need to pay very close attention to as Technical Traders.  These types of price Gaps happen because of extreme fear or greed with heavy volume while trading.  They are completely different than low volume, low volatility price gaps that are a result of very illiquid market price activity.

SPY GAP ACTIVITY

We can see a number of Gaps fill to the downside on the SPY Daily chart below.  We have highlighted the Upside Gaps with RED Rectangles and the Downside Gaps with GREEN Rectangles.  What I have found interesting is that the recent rotation in the SPY price over the past 60+ days has filled almost all of the recent Gaps in price and has recently closed a big Upside price Gap that originated near the end of September.  If the trend continues lower, downside trending may continue to seek out lower gaps from these levels.

INDU GAP ACTIVITY

The INDU (Dow Jones Industrial Average) Daily chart below highlights the same type of Upside and Downside price Gaps.  You can see how nearly all of the recent Upside price Gaps have been filled by the current downside price move.  Yet, a new Downside price Gap was created by the big breakdown in price on October 28, 2020.  This massive Downside price Gap suggests downward trending was severe as fear drove a huge price void overnight.  Yet it also suggests that, at some point in the future, price will attempt to recover to “fill this gap”.

What is also interesting is that we can see an original gap (RED Upside Price Gap) was also skipped by the October 28, 2020 price gap.  This creates a “Double Gap” setup on this chart which indicates a potential for a very strong downside price trend at the current moment and suggests that these Gaps will be filled by upside price activity at some point in the future.  As long as these gaps stay Open, they represent a very key price level for future price activity and suggest this “Price Void” is a key price trend level.

Additionally, pay attention to how the INDU Daily chart was able to establish a new lower low price level recently compared to the previous low price trough.  When we take into consideration the failure of the recent price peak to break the previous price peak high, this suggests a bearish price trend may be tart to initiate based on simple Fibonacci Price Theory.

TRANSPORTATION INDEX GAP ACTIVITY

The following Daily Transportation Index also shows the same October 28, 2020 price Gap as the INDU chart.  My research team believes the uniformity of these Gaps suggests that price trending has entered a new phase as we head into the November Elections.  The TRAN chart highlights really only one Downside price Gap, which is a critical level on the chart for traders. The 11,420 level will likely become critical resistance at some point in the near future.

Also, pay attention to how the Transportation Index setup a new lower low price recently.  Although it may be difficult to see on this chart, the new lower low price confirms an attempted downside price trend is setting up and confirmed simple Fibonacci Price Theory that suggests the markets may be poised for big trends soon.

We have highlighted the 26,000 level on the Dow Jones as critical support.  It is important that this level continues to act as a floor for price.  This would translate to a level of 315 for the SPY and 10,650 for the TRAN.

Any future price breakdown below these levels would indicate the markets have broken key support levels and are attempting to head lower.  Currently, though, the market price levels are still above these key levels.  This suggests the recent price Gaps will likely be filled as price attempts to find a bottom and resume an upward price trend after the elections.

One thing is certain, this extended volatility and price rotation presents some real opportunities for skilled traders as long as one properly addresses risk and volatility concerns.  To learn how we are tackling these price trends, visit TheTechnicalTraders.com to sign up for your daily pre-market report, walking you through the charts of the major asset classes.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only – read our FULL DISCLAIMER here.

 

Ethereum Has Soared in 2020; Is It Overpriced?

The price of Ethereum has more than doubled since the beginning of the year and shows few signs of slowing. Are we witnessing a bubble or genuinely sustainable growth?

(Image via Pexels)

The crypto market has seen an investment boom this year. That’s especially true of Ethereum, which is sitting at or around $400, a significant increase from its humble beginnings of $130 at the beginning of the year.

According to the analytics firm TokenInsights, trading volume for cryptocurrency derivatives nearly doubled in the second half of 2019, and 2020 was expected to show similar trends. That projection was made before COVID-19 hit and millions of new retail accounts were registered on popular consumer platforms like eToro and Robinhood.

It owes this boom in part to the evolution of the Decentralized Finance (DeFi) sector and the wider crypto market picking up again. ETH “hodlers” will cite this as proof that the currency is set for the moon but there are still many questions surrounding its price sustainability.

Ethereum’s Price Is Driven by DeFi and ETH 2.0 Hype

Setting aside the impact of Bitcoin’s price, there are two primary drivers of ETH’s price: The DeFi sector and the Ethereum 2.0 update, with the former driving hype about the latter.

DeFi is one of the most interesting advances in the crypto sector over the past few years. DeFi apps seek to replicate decentralized versions of many of the financial instruments necessary to a modern economy.

There are many kinds of DeFi apps but by far the most impactful in 2020 were decentralized lending platforms and decentralized exchanges.

Exchanges

Decentralized exchanges like UniSwap are popular because they provide an easy way to exchange tokens without being forced to go through centralized exchanges with high fees, such as Coinbase.

As important as UniSwap is, however, the real driver of growth has been lending platforms.

Lending Platforms

There is currently around $11 billion locked into lending platforms. This rapid growth has been driven by the controversial practice of rate farming.

Lending platforms need both lenders and borrowers. In order to ensure that there is liquidity on the platforms, many offer artificially inflated interest rates. This encourages lenders to lock value into the platform and has helped to fuel the rapid growth of DeFi lending.

DeFi-Strain Highlights the Importance of Ethereum 2.0

The reason that DeFi is such an important price driver for Ethereum is that the majority are built on Ethereum’s ERC20 standard. This means that they rely upon the Ethereum blockchain in order to process transactions. This is good because it increases demand for ETH and gas. But it also increases the load on the network.

During the DeFi boom, the number of transactions on the Ethereum network skyrocketed. As a result, miners made more than $168.7 million in September, a 39% increase over the previous month.

These high fees, and slower transactions, highlighted a key problem with Ethereum. Proof of Work (PoW) consensus is not scalable. Miners require high fees, and if high network usage makes transactions slow or expensive,there will be a ceiling on adoption.

Beacon Chain and Casper

The planned Ethereum 2.0 update is designed to fix this. The first and most important step is the roll-out of a new blockchain network, the beacon chain. This will build the foundation that Ethereum needs to move away from a PoW system to a Proof of Stake (PoS) blockchain called Casper.

This new system will remove the need for miners and enable users to earn rewards for securing the network by locking 32 ETH into a smart contract. An equal amount of ETH will be created on the new blockchain and kept there until the new and old systems are merged.

This means that once the switch happens it will be possible for users to monetize Ethereum without liquidating the currency. This in turn will increase demand for Ethereum as a return-generating asset.

Additionally, as miners are cut out from the system it will remove the scalability problems currently faced by Ethereum and ensure that the DeFi boom benefits the blockchain in the long term, rather than breaking it.

Ethereum Has Strong Fundamentals

The fate of Ethereum is inexorably tied to that of the DeFi sector. This means that the current price might be slightly inflated based on current fundamentals, but is justifiable based on Ethereum’s long term fundamentals.

If Ethereum is able to successfully roll out the 2.0 update then it will likely retain the bulk of new DeFi projects. In the long term, this means that Ethereum is likely set to continue growing.

By Taylor Wilman

Natural Gas Is on the Rise – And Huge Gains Could Be Lurking in This Dead Sector

Independent financial analyst Matt Badiali explains why he expects natural gas to rebound and discusses six potential investments.

Source: Matt Badiali for Streetwise Reports   10/28/2020

The oil price gets all the press. The price of a barrel collapsed during the Covid-19 lock down. Companies went bankrupt in droves. Now, the industry turned to mergers to survive.

Investors fled. The sentiment turned awful. No one cares about oil anymore. The future is electric cars…peak demand is right around the corner.

Right or wrong, the oil industry is deep in a bear market. And that brings opportunity.

For example, one unintended consequence to this collapse is a major decline in natural gas production. According to the Energy Information Administration (EIA) data, we haven’t seen this big a drop in natural gas production since 2008.

From February 2020 to May 2020, U.S. natural gas production fell 8%. That’s the largest three-month decline since 2008.

That’s important, because consumption isn’t falling.

Natural gas is important because it heats nearly half the homes in the U.S. The bulk of U.S. natural gas, about 60%, goes to electric power and homes. The rest goes to industry and commercial users.

If we look at July 2020 consumption data (the latest available) it’s up 4% from July 2019. In general, consumption in 2020 is down just 1% over the same period in 2019, even with the pandemic. That’s a huge contrast to oil demand. U.S. liquid fuel demand fell 23% in the first half of 2020.

And the EIA expects demand to continue to rise into 2021.

That’s driving a rise in natural gas prices, as you can see here:

Natural gas prices

The question is, how do you play it, as an investor?

After a little research, I came up with six potential investments. Natural gas make up at least 40% of their production mix. And they are all profitable over the past 12 months. But there’s a definite division in price to earnings:

Company % Natural Gas Market Cap Free Cash Flow EV to FCF*
Black Stone Minerals (BSM) 73% $1.3 billion $347 million 5.5 times
W&T Offshore (WTI) 46% $230 million $139 million 6.0 times
Dorchester Minerals (DMLP) 47% $361 million $57 million 6.2 times
Par Pacific Holdings (PARR) 83% $395 million $42 million 31 times
EQT Corp (EQT) 95% $4.0 billion $215 million 40 times
Cimarex Energy (XEC) 41% $2.7 billion $105 million 47 times
Data from Bloomberg; *Enterprise Value to Free Cash Flow as a proxy for Price to Earnings Ratio

I sorted the companies based on their enterprise value divided by trailing 12-month free cash flow. That gives us a realistic price to earnings snapshot. The key is that this measure includes debt. That’s important because most of the exploration and production companies carry debt.

For example, Par Pacific Holdings has a $395 million market cap, but holds $1.1 billion in debt. That’s why its enterprise value (EV) is 31 times its free cash flow (FCF). EQT carries $4.7 billion in debt and Cimarex carries $2.2 billion in debt. That’s why their ratios balloon so much higher.

In contrast, Blackstone Minerals has just $323 million in debt. W&T Offshore has $636 million and Dorchester has just $2.3 million.

That’s why those companies are so much cheaper by that price to earnings metric. And here’s the critical part…those companies usually trade at a much higher EV to FCF ratio.

For example, since 2016, Blackstone Minerals’ average EV to FCF ratio was 27. At 27 times free cash flow, its market cap should be over $9 billion right now. That’s 592% above its current price.

Since 2016, W&T Offshore traded for an average 28.5 times free cash flow. That means its market cap should be around $3.3 billion. That’s an incredible 1,335% above its current price.

And based on Dorchester’s average ratio of 11.7, its market cap should be around $664 million. That’s an easy 84% from today.

That’s the kind of set up I like best in natural resources. We have a hated or ignored sector. In this case, natural gas is the baby thrown out with the oily bathwater. And we have a group of companies that are still profitable.

In this case, they are trading well below their average, because of market sentiment.

Sentiment can change quickly. A cold winter, like we are expecting, will continue to drive the natural gas price higher. And the rising price could be the ticket to send these stocks soaring.

–Matt Badiali

Matt Badiali is a geologist and independent financial analyst. He spent fifteen years researching and writing about great investments inside the natural resources sectors. He can be reached at www.mattbadiali.net.

Streetwise Reports Disclosure:
1) Matt Badiali: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in the article are sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
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Frank Holmes: Gold Is the Winner of the U.S. Presidential Election

Source: Streetwise Reports   10/27/2020

Frank Holmes, CEO and chief investment officer of U.S. Global Investors, says it doesn’t matter if the U.S. sees a Red victory or a Blue victory in the presidential election; gold will be the real winner. In this far-ranging interview with Streetwise Reports, he discusses gold’s prospects post-election, inflation, stock market performance, criteria to evaluate mining companies, and companies in U.S. Global funds.

Streetwise Reports: Frank, let’s begin with gold. After a substantial rise in the price of the metal earlier this year, which went as high as $2,036 an ounce in early August, it has since been trading sideways, consolidating roughly around the $1,900 mark. What effect do you think the U.S. presidential election will have on the price of gold? Do you see different scenarios based on which candidate wins?

Frank Holmes: Well, you can hit the red button or the blue button, but I’m hitting the gold button, no matter which one it is. You have to sit back and look at macro forces and macro themes to understand gold and the drivers of gold.

When we go back 30 years ago, as Pierre Lassonde pointed out at the Denver Gold Show a year ago, China and India represented only 10% of gold demandó6% India, 4% China. Today, however, these two countries comprise 53% of all gold demand. Why is that? Because a rising gross domestic product per capita and purchasing power parity are highly correlated with what I call the love trade, that is gold jewelry demand and gifts in gold. So that’s the underlying factor that keeps driving gold demand. The supply side has peaked and outside of recycling, there are no major new discoveries being made and no major deposits coming onstream. So I think this bodes very well for 60% of all gold consumption.

Now we get into the fear trade, and that’s what really accelerates thingsónegative real interest rates and unprecedented money printing. The G20 finance ministers and central bankers started their own cartel 20 or so years ago. At the beginning of the century, they were consumed with global trade, the World Trade Organization, China, and, all of a sudden, there’s a huge global boom. Gold stocks took off. Bullion went from $250 to $800/ounce. We had this incredible cycle. Along comes 2008ñ2009 and we go to synchronized taxation and regulation. Today, we have synchronized money printing to fight COVID-19. There is not one country printing money faster than another. They’re all taking turns at it.

If we take a look at the Federal Reserve’s balance sheet and how it’s exploded under this cycle compared to 2008ñ2009, simple math would suggest in the next three years gold could be $4,000/ounce. The other big part is the inflationary number, because it’s changed several times. If you use the inflationary algorithm, when gold hit $850 and silver $50, inflation was over 18%, today we have inflation running 8% so gold would be valued about $7,000. So I comfortably feel that in the next three years, in this next cycle, we could see gold double from here based on just the U.S. money printing.

SWR: You’ve looked at broad stock market performance in presidential election years. What have you found?

FH: Well, historically, the first two years of a presidential election cycle are very sloppy, some are modestly up. But it’s in the last two years that the market usually is on a tear. If it’s not, then it usually derails the political party in power, such as we saw with President Obama’s election in 2008. During President George W. Bush’s last term, his last quarter, we had Lehman Bros. go bankrupt, and then there was just incredible turmoil in stocks and the economy.

S&P 500

This is a very different world. Even though we have COVID, the U.S. Purchasing Managers’ Index (PMI) is the highest in the world, and that means six months from now, we’re going to see higher energy, copper and iron prices. This has been trending up all through the summer. So that remains very bullish.

We also track the airline industry very carefully. We have the only airlines exchange-traded fund (ETF) available to investors: the U.S. Global Jets ETF (JETS:NYSE). The Transportation Security Administration used to clear 2.7 million people a day; in April it fell to fewer than 90,000 people a day. Just last week, we went through 1 million, so we’re climbing. This is very positive for the travel industry and for JETS, and it’s a reflection of the PMI and the stock market being stronger.

When you have negative real interest rates, what we’re seeing is that it’s not just Americans buying stocks because of low yieldsóand dividend yields are more attractive than what you’re going to get from a money fund or a bankóbut also you’re seeing central banks like Switzerland print negative money. No one’s going to buy it, so it buys it itself, and then goes and buys real assets like Apple Inc. When you take a look at what we see now in Japanóthis is where capital formation morphed dramaticallyó15% of the stock market is owned by the government, the central bank. So this is a very different world.

What we saw in this cycle, in the past six months, is the Federal Reserve starting to buy bond funds. It dropped the interest rates to zero, but the real cost of capital was running at 14%. So what did it do? It came in and started buying muni bonds. That helped get the pressure off a trillion dollar muni market when bonds are being rolled over. Then it came in and bought corporate bonds to get corporate yields down so it didn’t put a burden on corporations. Now, one of the largest bond holders of ETFs is the Federal Reserve. So we’re seeing things change in that formation of capital.

SWR: Going back to gold, it is often touted as a hedge against inflation. What’s the situation with inflation in the United States currently and looking ahead?

FH: If we look at what the inflationary number is today, and if we look at 10-year, 5-year and 2-year bonds, they all have negative real interest rates. That says that gold is a very attractive class. For me, gold stocks with rising dividends and free cash flow are even more attractive. I think that’s one reason why Warren Buffett all of a sudden bought Barrick Gold Corp. (ABX:TSX; GOLD:NYSE). It has strong leadership. Newmont Corp. (NEM:NYSE) also looks attractive for many fundamental factors. Both have free cash flow. I think the free cash flow allows for rising dividends, so it’s much higher than what you’re going to earn with the negative real interest rates.

I can’t see interest rates rising dramatically. John Williams has a newsletter called Shadowstats. He looks at the old algorithms used to determine the Purchasing Power Index, Consumer Price Index, etc. And if you use his factors, inflation really is 8% today. So that says back up the truck and buy as many physical assets as you can. That’s why real estate is up 10% in this bearish crisis. It’s amazing.

SWR: One thing that’s happened this year is that investors have flocked to physical gold ETFs. Is this a good way to invest in gold bullion?

FH: I’ve always advocated having a 10% weighting in goldó5% in either the SPDR Gold Shares ETF (GLD:NYSE) or 24-karat gold jewelry and another 5% in quality gold stocks. In particular, I’ve always loved the royalty companies.

I think there’s a big push for GLD because if you look at data for the past 20 years, bullion has outperformed the S&P 500 by almost 3:1. Bullion has been up 80% of the time. The largest hedge fund in the world, Ray Dalio’s Bridgewater Associates, has always had exposure to gold, from 7ñ15%. I think this has led to other institutions looking at gold as an asset class.

Gold-Backed ETFs

But I think the real charm here is because great investors like Warren Buffett all of a sudden buying a gold stock is going to change the paradigm during this quarter. Our data suggest that when we look back on the past 20 years at pre-cash flow yields, and we track 88 global gold producers and 200 explorers, under those 88 global producersóI’m talking about ones with market caps more than $50 million ($50M)ówhat I find interesting is that this will be the third quarter in over 15 years that they have a free cash flow yield. Even a year ago, they did not have an overall average free cash flow yield, and the S&P 500 had a free cash flow yield of 2.5%. In March, because of the crisis, the S&P 500 went negative on free cash flow yield as a whole, but gold just exploded.

I think we’re going to see record free cash flow yields from North American gold producers, and that will be a pivot point for many institutions to start buying gold as an asset class. This summer, in Investors Business Daily’s Top 50 stocks to buy, all of a sudden, like back in 2005, gold producers were added to this list of growth stocks. We’re now seeing Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) on there, we’re seeing Kirkland Lake Gold Inc. (KL:TSX; KL:NYSE) on there. So I think gold will slowly climb. It’s been in a bull cycle since January 2019 when the 50-day moving average went above the 200-day moving average. It has accelerated this summer and then corrected perfectly. In the next big wave, I think we’re going to see gold stocks really outperform.

SWR: U.S. Global Funds manages a number of mining funds. Could you talk a little about what you look for in a company when making the decision to invest? Is there any one type of company investors should focus on right now for the greatest upside potentialósenior, midtier, junior, royalty companies?

FH: We look at what is called “The Five Ms of Mining”ómine lifecycle, market cap, management, money and minerals. Basically when we go down the food chain, for explorers, management is key, as is where they are in the lifecycle of a mine. The early explorers can give you tenbaggers, twentybaggersó20 times your moneyóbut, in time, they can fizzle out early and quickly, so you can lose your money. In that lifecycle, you want to have proven management track records in a well-known area and companies that are well funded and have good daily trading liquidity.

When we go up the food chain, we want to look at the producers that have expanding production or have a free cash flow yield, which means with rising gold they’re going to be able to pay higher dividends. We think that those stocks outperform.

The most superior model is the royalty companies. They’re like a technology stock, a software-as-a-service (SaaS) stock. They have recurring revenue and cash flow every month. They have high gross margins. If you look at financial accounting from streaming, etc., royalty companies push 45% gross margins, where the average gold mining company is at 15%. Royalty companies are in a very advantageous position, and we’re seeing more new junior royalty companies trying to capitalize on that model.

In fact, we’re going to be doing a broadcast program with Streetwise on Thursday, November 12, at 1pm EST on 10 junior stocks that we like and we’ve invested in. You can register here. These companies will be telling their story “PechaKucha” style, which is 20 slides, at 20 seconds per slide, comprehensive but concise, in 6.4 minutes total. The presenting companies are Magna Gold Corp. (MGR:TSX.V; MGLQF:OTCQB), TriStar Gold Inc. (TSG:TSX.V), Barksdale Resources Corp. (BRO:TSX.V; BRKCF:OTCQB), Allegiant Gold Ltd. (AUAU:TSX.V; AUXXF:OTCQX), Revival Gold Inc. (RVG:TSX.V; RVLGF:OTCQB), Silver Viper Minerals Corp. (VIPR:TSX.V; VIPRF:OTCQB), Orex Minerals Inc. (REX:TSX.V), Barsele Minerals Corp. (BME:TSX.V), Brixton Metals Corp. (BBB:TSX.V) and Gran Colombia Gold Corp. (GCM:TSX).

For producers, Gran Colombia Gold Corp. is the least expensive of the whole universe of gold producers we follow. It also has an interesting gold note, which we own. Caldas Gold Corp. (CGC:TSX.V; ALLXF:OTCQX) is a spinout, which has been funded by Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) and the capital markets. But it will go from producing 24,000 ounces a year to 180,000 over the next three years, so I think it has probably the biggest ramp-up of a higher grade deposit that we see. There are very few gold mining companies that can increase their production sixfold over the next three years.

They are the companies that we like, and we remain bullish in this sector.

Now, I think what everyone wants to hear about is a takeover. With Ivanhoe Mines Ltd. (IVN:TSX; IVPAF:OTCQX), its richest deposit is copper, and it is funded by the Chinese. I think you’re slowly going to see a change in management where the Chinese have more control. They own a big part of the deposit. I think they take this company out, and probably at double the price of what it is now. It’s interesting to watch how this is going to unfold, but the deposit is coming into production earlier than expected.

So those type of catalysts and interesting stories are what we find investors like to hear about, and we own that.

SWR: Are there other companies that you want to talk about that you think offer investors good upside potential?

FH: I’m very biased when it comes to our U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU) trading on the New York Stock Exchange. GOAU is 30% royalty companies, 70% gold producers. It’s a quant approach to picking gold stocks, from big cap down to small cap. Once they do anything to destroy their revenue per share growth, their cash flow per share growth or their reserves per share, with a merger or a silly financing, etc., they get kicked out of the model. Each quarter we recalibrate that and only look for the superstar companies that offer the biggest bang for the buck on those metrics. In that universe, the royalty companies are Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX), Wheaton Precious and Franco-Nevada Corp. (FNV:TSX; FNV:NYSE). After that, it’s other very attractive gold stocks.

SWR: Do you have explorers in the ETF too, or is it only producers?

FH: No, only producers, and they have to have a $200 million market cap for liquidity. When you rebalance something and you have to move around $2 million at a minimum, you can have a big impact on the stock price up or down, so we want to have at least a $200 million market cap.

SWR: Is there anything else you’d like our readers to know?

FH: Yes. Go to USFunds.com, and you can learn more about the ETFs and our research. We publish a lot. We’re on YouTube as well, with many educational videos. We, also, every Friday write the Investor Alert, which goes out to 60,000 people in 180 countries. We really try to help people be educated on various sectors of the market in this publication. We have won 90 awards now for educational information in the investment management world.

SWR: Thanks, Frank, for your insights.

Frank Holmes is CEO and chief investment officer at U.S. Global Investors, which manages a diversified family of funds specializing in natural resources, emerging markets and gold and precious metals. In 2016, Holmes and portfolio manager Ralph Aldis received the award for Best Americas Based Fund Manager from the Mining Journal. In 2011 Holmes was named a U.S. Metals and Mining “TopGun” by Brendan Wood International, and in 2006, he was selected mining fund manager of the year by the Mining Journal. He is also the co-author of The Goldwatcher: Demystifying Gold Investing. More than 30,000 subscribers follow his weekly commentary in the award-winning Investor Alert newsletter, which is read in over 180 countries. Holmes is a much sought-after keynote speaker at national and international investment conferences. He is also a regular commentator on the financial television networks CNBC, Bloomberg, BNN and Fox Business, and has been profiled by Fortune, Barron’s, The Financial Times and other publications.

 

Disclosure:
1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this interview are billboard sponsors of Streetwise Reports: Revival Gold and Silver Viper. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Frank Holmes: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: N/A. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: N/A My company has a financial relationship with the following companies mentioned in this interview: N/A. Funds controlled by U.S. Global Investors hold securities of the following companies mentioned in this article: Barrick Gold, Newmont, Wheaton Precious Metals, Ivanhoe Mines, Royal Gold, Franco-Nevada Corp., Allegiant Gold, Barksdale Resources, Barsele Minerals, Brixton Metals, Gran Colombia, Magna Gold, Orex, Revival Gold, Silver Viper and Tristar Gold. I determined which companies would be included in this article based on my research and understanding of the sector. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
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Precious Metals Prepare For Another Price Advance

By TheTechnicalTraders 

– As we continue to near the November 3rd election day, Precious Metals have continued to trade within a narrow range suggesting price support is staying strong. It is my belief that potential downside risks for Gold and Silver will be relatively short-lived after the election.  We believe the broad market decline witnessed on October 26, 2020, where the Dow Jones fell over 700 points, coupled with the fact Gold and Silver barely budged throughout the selloff, suggests support for Precious Metals has reached a “battle line”.

My research team has highlighted the current support and resistance price levels for both Gold and Silver on the charts below.  We believe the initial support levels will hold up well throughout the pending election and that an upside breakout in both Gold and Silver are likely outcomes after the elections.  Global traders and investors have already likely hedged their portfolios accordingly to attempt to eliminate risks, yet the fear of what is not known is one of the main drivers of appreciation in Precious Metals.

When the global markets become unsettled and traders/investors are unable to see clearly and identify a forward perspective, then Precious Metals start to shine. We explored this relationship last month in our article entitled Gold & Silver Follow Up & Future Predictions For 2020 &2021 Part I and Part II.

GOLD SUPPORT NEAR $1885 MAY LAUNCH NEW WAVE OF APPRECIATION

The Daily Gold Futures chart below highlights the current Support and Resistance areas.  We believe the current Support level is rather solid and that Resistance will be tested and broken on or after the November 3rd election day. If this were to occur, we would expect this to prompt a rally back above $2050 or beyond.  Ultimately, the recent lows near $1850 will attempt to act as a hard price floor for Gold, yet we believe the current price activity suggests major support near $1885 is quite strong and may propel an upward price advance soon.

SILVER SUPPORT NEAR $22.50 MAY PROMPT STRONG RALLY

The following Daily Silver Futures chart also highlights the Support and Resistance levels we’ve identified for Silver.  They are very similar to the levels on the Gold chart, yet the Silver chart has also set up an upward sloping lower price channel that suggests price appreciation is already taking place in Silver.  It is important to understand how the relative price change between both Gold and Silver creates a “ratio” that is followed by many traders (see the last chart in this article).  We believe the Gold to Silver ratio will likely fall below 60 fairly quickly after the elections in November – prompting both Gold and Silver to rise substantially.

GOLD-TO-SILVER RATIO SHOWS UPSIDE POTENTIAL

This Weekly Gold-to-Silver Ratio chart highlights our expectations related to the advance of both Gold-to-Silver near and after the US elections.  Check out our previous research on the Gold-to-Silver ratio that explains this important indicator in more detail. Pay attention to how the peak in Gold-to-Silver in 2011 drove the ratio level to a bottom near 43.  We don’t believe that type of move is setting up quite yet, but we do believe a move below 60 in the ratio is likely after the November elections.  This suggests that a $650+ rally in gold and a $16+ rally in Silver are very strong potentials if our modeling is accurate.

My team and I have already identified the trigger confirmation setups that we need to see before initiating any new trades in Precious Metals.  We believe we already know how these future rallies will take place and the setups with the best entry points.  The opportunities for traders after the elections are forming now if you know where to look for them. Join the Technical Trader research service today to get the pre-market video report delivered to your inbox every day, which will walk you through the charts of gold, silver, and other assets as well as potential trade setups.

Stay safe and healthy,

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only and is not intended to be acted upon.  Please see your financial advisor before making any trading or investment decisions. Read our FULL DISCLAIMER here.

China Sets Its Sights On Global EV Dominance

By OilPrice.com

– The world’s largest automotive market, China, is looking to become a dominant player in the rising global electric vehicle market. Chinese EV manufacturers are expected to start expanding overseas, while Beijing already controls a large part of the global EV supply chain, beginning with critical minerals processing.

The United States has started to realize that China could dominate the future of transportation—electric transportation—if it does not counter the current Chinese influence over critical parts of the EV supply chain, from battery metals sourcing and processing to battery manufacturing.

China is the world’s top EV market, and the government is looking to have new energy vehicle (NEV) sales at up to 25 percent of all sales by 2025, although it is not looking to ban sales of new gasoline-powered vehicles anytime soon.

Having supported EV manufacturers and sales over the past few years, Beijing now looks to expand its presence outside China.

“Over the next five years we anticipate Chinese players across the EV supply chain to aggressively enter the overseas market,” UBS said in a note last week, as carried by CNBC. “We believe China materials costs are lower than the overseas market. If this advantage can sustain, China could realize a cost advantage over ex-China players,” according to UBS analysts.

Chinese EV brands are set to challenge Tesla and the western automakers outside China, while Beijing’s dominance in the supply chain is of great concern for U.S. energy security policy experts, as well as to the White House.

U.S. President Donald Trump declared last month a national emergency to deal with the threat that America’s dependence on critical minerals, especially on China, poses to national security and the U.S. economy.

“Our dependence on one country, the People’s Republic of China (China), for multiple critical minerals is particularly concerning. The United States now imports 80 percent of its rare earth elements directly from China, with portions of the remainder indirectly sourced from China through other countries,” President Trump’s executive order said.

China controls a large part of the EV supply chain, analysts say. It is a common misconception that China holds most of the natural resources—in fact, 23 percent of global supply of all battery raw materials comes from China, according to Benchmark Mineral Intelligence. However, China dominates chemical production of battery-grade raw materials with a whopping 80 percent of total global production. China will host a total of 101 lithium-ion battery plants currently planned or under construction to 2029 out of all 136 plants planned globally by that date, Benchmark Mineral Intelligence said.

China controls 80 percent of the world’s raw material refining in the lithium-ion battery supply chain, 77 percent of the world’s cell capacity, and 60 percent of the world’s component manufacturing, BNEF said in a report last month.

“The next decade will be particularly interesting as Europe and the U.S. try to create their own battery champions to challenge Asian incumbents who are already building capacity in both places. While Europe is launching initiatives to capture more of the raw material value chain, the U.S. is slower to react on this,” said James Frith, BNEF’s head of energy storage.

China’s push to adopt EVs and support its electric car manufacturing and supply chain industries is not only the result of clean air policies.

“By committing to adopt EVs that reduce its dependence on oil, Beijing would make itself less vulnerable if tensions between the United States and China were to increase. In addition, EVs create opportunities for Chinese companies to benefit from a growing EV industry, and gain global recognition and credibility by developing sophisticated technology at a low cost,” U.S. advocacy group Securing America’s Future Energy (SAFE) said in a report in September.

The U.S. and its partners need to develop a supply chain of critical minerals less dependent on China to counter Beijing’s dominance, General James Conway and Peter Ackerman, members of SAFE’s Energy Security Leadership Council, wrote in an op-ed in the Financial Times last week.

“We risk a scenario in which we swap our dependence on a chaotic oil market dominated by Opec countries that do not share our strategic goals, for a reliance on China for our future transportation needs,” the authors wrote.

Link to original article: https://oilprice.com/Energy/Energy-General/China-Sets-Its-Sights-On-Global-EV-Dominance.html

By Tsvetana Paraskova for Oilprice.com

 

Is a Gold-Backed Fed Digital Coin in the Offing?

Source: Maurice Jackson for Streetwise Reports   10/26/2020

Maurice Jackson of Proven and Probable speaks with Andy Schectman of Miles Franklin Precious Metals Investments about the new Bretton Woods movement and the possible transition to a digital currency.

Gold bars

Maurice Jackson: Joining us for a conversation to discuss a new Bretton Woods movement, the United States transition into a digital currency, and the opportunity before us as precious metals investors is Andy Schectman, the president of Miles Franklin Precious Metals Investments.

Thank you for taking time out of your busy schedule and coming on such short notice to address the significance of the proposed economic and monetary events that are taking shape right before our eyes. Before we delve further into today’s discussion, Andy, would you please introduce the IMF and the BIS as they are germane for today’s discussion?

Andy Schectman: The Bank of International Settlements (BIS) is more or less the central bankers’ central bank, and it’s located in Basel, Switzerland, and it sets the rules, so to speak, to all of the major banks in the world, whereas the International Monetary Fund (IMF) is, I guess you could call it an international organization. And this is an organization that’s located in Washington D.C. And last time I checked, there was somewhere I think north of 190 maybe almost 200 countries that comprise the International Monetary Fund and its mission statement talks about securing financial stability and facilitating international trade and what have you, the conspiratorialist will tell you they are interested in lending money to the world, and indebting everyone, the third world countries notwithstanding.

And they are an organization that more or less finances the world in many respects, finances countries to facilitate trade. So two distinct organizations, one located in Switzerland, one located in the United States. The Bank of International Settlements is more along the lines of working with the banks. And the International Monetary Fund is a little bit more diverse, works with countries, and is more concerned with trade and the balance thereof.

Maurice Jackson: Speaking of the BIS, it passed a significant milestone last year that is known as Basel III. Why is Basel III paramount for all precious metals investors to fully comprehend?

Andy Schectman: I believe Basel III is the most important event of my 30-year career. If we go back to 1944, the end of World War II, the Bretton Woods agreement anointed the dollar as the world reserve currency, the petrodollar, and even backed it by gold at that point. And from that point forward until recently, the U.S. Treasury market was the only tier-one asset in the world. Now, you could argue that an escrow dollar account would also have been tier one. And it was as far as the central banks were concerned. In other words, if the Bank of England was trading with the Bank of Switzerland, it would not have been pounds or francs used as collateral. It would have either been United States Treasuries, the only tier one asset, or a fully escrowed and funded dollar account with dollar bills in it that also would have been considered tier one.

The definition of tier one is riskless, meaning the central banks viewed for the last nearly 80 years, the U.S. Treasury market as riskless. And gold had always been a tier-three asset, which meant only 50% of the value was calculated on a balance sheet. And that in it of itself on top of the volatility in the gold market, the fact that it cost money to store and the fact that it paid no interest were reason enough for people or central banks rather than to not accumulate gold. It incentivized the central banks to send all of their gold to New York City, to Fort Knox or to New York City, the Federal Reserve, where we would keep it for them on the account and pay them money for it.

Of course, the dollar bills that they would take back at that time were fully backed by gold. So, it was a good deal for them because they could take those dollar bills, and then they could buy treasuries with it. And the treasuries would pay interest, which was a tier-one asset, and all of it could be redeemed for gold at any point. So, the central banks of the world gave us their gold and we held it until of course 1971, one when Nixon closed the gold window. But I digress.

The bottom line is simply this: Since 1944, Maurice, there’s only been one tier-one asset, U.S. Treasuries. In 2017, at the end of it, if we would have looked at a recap of that year, we would have said that central banks were net sellers of gold and had been up to 2017 if I were going to generalize. In 2018, nothing had been announced yet. And the central banks as a group bought more gold together than they did in the 60 years combined previously. In 2019, that trend was up over 90% and continues today in 2020.

In April of 2019, the BIS had the Basel III decision to reclassify gold as the world’s only other tier-one asset. Now, the central banks were voraciously accumulating it, as I mentioned, almost a year and a half before this decision. They were front running it. And they continue to do so today. And again, if you look at what the definition is of a tier-one asset, it’s riskless. So, you have the most influential traders on the globe telling you that gold is a riskless asset, and they’ve been accumulating it for the last two years. To me, that is the most significant event of my career, because if you think about it, institutions like the BIS that have followed a set of guidelines for nearly 80 years do not make decisions like that in a vacuum. I think it tells us where the long game is or what the long game is for gold and how gold fits into the future monetary system. To me, it is without question, the most important decision in my 30-year career.

Maurice Jackson: Basel III incentivizes the world central banks to procure gold. Now, let’s bring the IMF into the discussion as it’s proposing a new Bretton Woods movement. And you alluded to Bretton Woods. Let’s just go back to 1944 and introduce us to the original Bretton Woods. And then let’s segue that into the new Bretton Woods movement.

Andy Schectman: The original Bretton Woods agreement was a meeting was among all the Allies involved in World War II. And they agreed to the dollar being the world reserve currency and the petrodollar and classified treasuries as the tier-one asset. And it was a good deal for the world. They would give us their gold and take our dollars and buy treasuries with it. They could then earn interest for their gold and the dollars that they would get back were redeemable for that gold at any time. It was a really good deal for the United States and the rest of the world, that financing of, if you will, of our treasury market helped us grow our country and our economy. And the rest of the world knew that the dollars that they had from us were as good as gold and redeemable in gold.

And the fact that gold paid no interest and cost money to store alleviated two of the biggest problems they had with their gold. Now, they would earn interest for it and have it stored for them courtesy of the U.S. government. Of course, all of that changed in 1971, but in essence, Bretton Woods laid the foundation for the United States to live well above its means for the last 75 years as the world reserve currency and the petrodollar.

Maurice Jackson: What is the IMF referring to when it announced a new Bretton Woods movement?

Andy Schectman: Well, they were somewhat cryptic about it. It was just announced. In watching the release, I watched it from the actual IMF release on its website, which it’s front and center. I guess what I look at is all the pieces of the puzzle that fit into place. You have the reclassification of gold as the only other tier-one asset. You have the banks voraciously accumulating the gold and de-dollarizing. You have the governments around the world’s reaction to COVID that has more or less blown up Keynesian experiments, and currencies are being devalued. These currencies are being devalued so aggressively right now that I think it’s time for a new system is more or less what they’re saying. They’re saying it’s time for a new system of world reserve.

Now, they weren’t specific, but each little piece that we keep seeing, like the talk of a digital currency, I think is indoctrinating us into a new reality. And that new reality is of a new monetary system that’s common. And when you have the BIS, which is the central bankers’ central bank, the most influential people in the world, and then a conglomerate of nearly 200 countries who have all used the U.S. dollar as the world reserve currency for the last 80 years now saying it’s time for a new Bretton Woods agreement. They weren’t definitive, but I think we can all agree that change is coming. And I think that’s really what 2020 has been for so many of us, learning to adapt to a tremendous amount of change. And I think the world’s monetary system won’t be immune from that change. I think it’s coming. And that’s really what they’re saying. They’re telling us that a new system is on the horizon.

Maurice Jackson: It’s interesting. I’m going to digress here, speak on the politics regarding this. As I’m watching the presidential debates, I’m just shaking my head as the moderators are not asking any questions regarding this subject matter. And it involves every single living person, not just the United States, and it’s a conversation, let alone, you don’t hear any reference to the Constitution made either, but this is not being discussed on the world’s biggest platform. And I’m just shaking my head here. I can’t fathom how this is not being discussed. Now, we’re talking about the monetary system and currency. You referenced it. Let’s now switch to the Federal Reserve. It is proposing a new digital currency.

Andy Schectman: One of the things that people in this industry like to talk about is the inflationary effects of what the Federal Reserve is doing. And on one hand, I understand where that comes from. The Fed has created, I don’t know, $9 trillion worth of wealth in the last year, starting with the repo market crisis of last September. It took this country 300 years to create $800 billion. And the Federal Reserve has created $9 trillion in a year. The Federal Reserve, when they buy bonds, they call it quantitative easing, many people believe that that is hyperinflationary. When in reality, it’s deflationary.

I’ll try to be as brief and succinct as I can on a complicated issue. The Federal Reserve have two ways of making policy. One is that they can buy assets. That’s why you’re seeing many people believe through unison with BlackRock and the treasury, they’re buying up assets. And those assets go on the balance sheet. They can buy assets on their balance sheet, and they can also deal with the federal funds rate, they can lower interest rates. And so what they can’t do is create inflation.

When the central bank buys bonds from the commercial banks, the treasury bonds, the money that is paid for those bonds does not go to the commercial bank’s balance sheet. It goes to a reserve account at a member federal reserve bank in that bank’s name, the only way the bank can access that money is through lending. So now, the banks have all of this money on reserve that can only be and utilized for lending. Money creation centers around lending and borrowing and spending, of course, but if no one is borrowing and no one is lending, the velocity grinds to a halt.

Now, you go back to September and you see the commercial banks were all reeling from the repo market crisis. And you look at what’s happened since you have an economy that’s been decimated by COVID. And many businesses that are hanging on by a thread will be gone by year’s end. So you have banks that have lent money to so many of these companies and corporations that are now dead, dying, or almost gone, which is making a tenuous balance sheet even worse, a fragile balance sheet even worse. So the banks are not lending. And when the Federal Reserve buys the bonds out of the system, it contracts. It’s pulling liquidity out of the system. Under normal times, in normal times, the banks would be lending. People would be buying.

If you look at the velocity of money, it’s the lowest it’s been, maybe ever, in a very, very, very long time. Lots of people trying to take out refinance, mortgages, or loans or or buy homes with a mortgage. A lot of these applications are being turned down, and most of them. The banks have no interest in expanding their balance sheet. So what that means to you and me is that we’re not witnessing inflation yet. The only people that are taking these loans are the hedge funds let’s say who has a beautiful balance sheet that can borrow the money at next to nothing and then put it into the stock market along with the Fed buying inflated assets that will continue to go higher because that is what one of the barometers of the health of the country as measured in asset prices, people feel rich. The Fed certainly does not want to let the asset prices tank. That is one of their primary objectives is to keep asset prices up high, make people feel rich, but it’s a problem if the banks aren’t lending.

And so what you have is the rich getting richer and the poor getting poor. It’s a K-shaped recovery you’ll hear very often where the upper 45% or 50% are going up and getting wealthier and the bottom 50 or 55% are getting crushed. And that’s exactly what has happened. So, the Federal Reserve is trying to make a workaround. Remember, they can buy the bonds, pay for it in money, held in a reserve account in the bank’s name, the other banks that are selling the bonds to the Fed. Those banks need to lend money into existence. If the banks aren’t cooperating and refuse to lend, no inflation. That’s where the Fed comes in and says, “Ha, how about we give everyone a Fed wallet and we do a workaround, a flow-through, a pass-through? Go right around the commercial banks that aren’t cooperating with our lending programs and we will deposit money right up to modern monetary theory, right into everyone’s account. Even if they’re not working, we’ll give them money right into their Fed wallet.”

Now, if the Fed wanted to create inflation, they would put a period on that money. They could say, “We’re going to give everyone $5,000 of new digital Fed coin, but you have to spend it within 60 days or it disappears.” And now everyone would run out and spend it. The bottom line is simply this. If the Fed creates a Fed wallet like this for every man, woman, and child in this country, they now can create massive inflation with a click of a mouse, because they’re usurping the lending process, they’re usurping the banks who are refusing to lend and give money directly ala modern monetary theory, right to the public.

And what that would do is ignite, many people believe, the fuse of hyperinflation, because what we’re facing right now is hyperdeflation. Assets are deflating and assets are defaulting and businesses are going under, and people are saving instead of spending. No one is going out and spending frivolously any longer. They are battening down the hatches and paying off debt. And that is exactly contrary to the playbook that the Fed wants. So, they talk about a wallet that will enable them to go right to the public, which could very well quickly ignite massive inflation.

Maurice Jackson: When one looks at the pernicious acts of the Federal Reserve, you would think they’d want the best for our nation, but they are causing devastation. It’s going to cause so much turmoil for families. And the Fed will never take the blame. There’s always a scapegoat, such as the speculators, the precious metals investors, but in reality, we’re making the prudent moves and decisions that anyone should make. You should save a portion of what you make, and the Fed doesn’t want that. You’re exactly correct. They want you to spend, and they don’t like our actions. So, let’s recap here. We have Basel III, a new Bretton Woods movement and a new digital currency being proposed. What does that suggest to precious metals investors?

Andy Schectman: Well, I think that if you put it all together, you have a digital currency backed by gold, because who the heck would drink the Kool-Aid ever again when you see that governments since the beginning of time, destroy currencies? Dr. Franz Pick once said all paper currencies inherently are meant to die. They all go to zero. They all go worthless because the governments that control them destroy them. And if you do not have a peg, a tether to some form of a governor if you will as to how much spending and money creation is created, then the currencies will always die and no one would ever drink that ever again. So, I think if I had to guess, if I were put on the spot, I would say this, that they will back a new currency. And I think this is going to come first, if not first, very close, I think you’ll see this coming out of China, by the way.

I think the Brazil, Russia, India, China, and South Africa (BRICS) nations are going to be a step ahead of us. And they’re going to try to do the same thing. I believe China just launched its first digital currency last week. I think it’s the opening shot across the bow. And when these countries peg it to gold, whichever one does it first, it’ll be the beginning of the end of the United States dollar as we know it. And I think that what they will do is it will not be convertible, meaning you can’t go into the bank and trade a dollar for a piece of gold. But what you will see, if I had to guess, would be maybe a 10% backing. So every new Fed coin is backed, 10% of it is backed, maybe 15% backed by gold. And the gold will be immutably guaranteed on a distributed ledger.

Now, who going to house it and who’s going to audit it, that’s another question altogether. But if I had to guess, that’s exactly what they will do. They will issue a gold-backed digital currency with custody of that gold denoted on a distributed ledger. And it will be a digital currency where they will be able to track everything that you do, everything and anything. We’ll probably have six months to turn in all our currency because COVID can live on the paper currency they tell us. So, everyone will be forced to turn in their currency. Most people will comply happily to help eradicate COVID of course, and you will have a cashless society with a new currency backed by gold. And I think you’ll see something almost identical or very similar coming out of the BRICS nations and China. And I think this is almost here. I think it’s coming. It’s coming quicker than people think. I started talking about this in March when right after all hell broke loose in this country.

Nancy Pelosi came out with her House subcommittee finance bill and called for a digital currency because COVID could live on supposedly on paper currency. She called for it. Now, it was voted down. But the minute I saw that knowing what I already knew about the reclassification of gold, it just a light went off. Since I started in this industry in 1990, everyone would always talk about a cashless society. I could never see how they would do it, ever. Well, they figured out a way to do it. I’m not saying that COVID was man-made and this was done to reset the system, but I’ll tell you one thing, you take a step back and look at this and put your conspiratorial eyeglasses on.

And it’s pretty hard to not at least have it flit through your mind because what this has done is blown up all of the Western economies at the same time with no scapegoat. Well, China, I guess you could blame, but you have a situation where now countries will be willing to start over because their economies blew up, the debt is not serviceable and it wasn’t anybody’s fault. So, let’s start over. And I think that’s what you’re going to see. And I think it will be a digital currency. I think it’ll be tied to gold some way. And I think the dollar bills in our wallet will be hanging from a frame in the Smithsonian before too long. I do believe that.

Maurice Jackson: I don’t even think we even have to introduce the word conspiracy here. You’ve laid out the economic generals. They have laid out for us the strategic moves they’re going to be making. Basel III was the first move. And so it makes sense for China to continue to add to its position to gold, then it should be the first one probably to make the move towards a digital currency backed by gold. And now we’re reverting to history. You have the new Bretton Woods movement, and it almost sounds like a quasi-gold exchange standard if you have a 15% backing because it was before it was 40% backing.

Andy Schectman: Yes, that’s exactly right. I think that’s exactly what will happen. And I think that’s exactly what they’ll do. And at 40% doesn’t give them enough latitude, but I think that 15% would. You have to be able to create money and be able to still have aspirations of a world reserve currency status. And if you’re tied too closely to gold, either that or you have to raise gold to a much higher price will never come back down because it will be pegged to a new world reserve currency. Those numbers become realistic when you look at it that way. Quite frankly, I’ve never been a proponent of picking numbers out of the air, but I think it’s coming. I think it is very, very soon and it is coming. And I think we all need to prepare.

Maurice Jackson: We often discuss the ratios as a proven strategy for building wealth. Andy, can you explain the strategy, and what do the numbers suggest to purchase right now?

Andy Schectman: I think silver and platinum are still very undervalued. Ridiculously so, but I think there will come a time when we move to gold. Not yet. I mean, I’m still a big advocate of gold, and I don’t think that it is wise to bet against gold right now. When you have the most influential traders in the world telling you it is part of a next system, I would be accumulating it, but it does not have anywhere near the same level of value that silver and platinum markets do. I think the silver and platinum markets are unusually cheap and offer values that you could argue are once in a generation opportunity.

Maurice Jackson: What is Andy Schectman buying right now?

Andy Schectman: I am buying silver almost exclusively, have been for the last year. I typically buy on a scale of 1 to 10, I’d put about 80% of my money into silver and 20% into gold. I have plenty of platinum, I’ve been buying it the whole way up over the last several years. I think people should own platinum. I don’t mean to ignore that question, but to me, platinum is a tertiary investment. It does not have the monetary history that gold and silver do. Now, some people will say it was used in Russia a few hundred years ago as monetary this and that. It does not have the same monetary history as gold and silver.

I think that gold and silver are where we want to be for now. Platinum is a good value, but I think when the world gets frightened, they run to gold and silver. Silver to me is the best choice because not only does it have a huge industrial aspect component, but it also is the only item that has a monetary history too. You look at a metal like copper that is all industrial and a metal like gold that is almost all investment. Silver is the best of both worlds, industrial and monetary. And I think people will realize that and they will start running in that direction. I do believe that’s coming.

Maurice Jackson: And just for the record, because I know I get this asked as well. So, let’s address it now. I’m a very big buyer of platinum and recently I’ve added a little bit of semi-numismatic gold to my portfolio. And before we close, sir, what keeps you up at night that we don’t know about?

Andy Schectman: I think these are scary times, Maurice. And I think that we have to learn to adapt, to change. Things are going to change an awful lot. And I’m less concerned about what we’re talking about financially. I have been buying gold every two weeks for 30 years and I’ve never missed it. And when I say gold, that means something gold, silver, platinum. I’ve never missed two weeks. To me, that is wealth. I’m less concerned about that and more concerned about the world my children are growing up in. More concerned about what comes next in this crazy world. And so to me, it’s more about the social aspects than it is the economic aspects. I think we’ll all be fine. Owning gold and silver will be a life raft, but the world that we live in right now is a shell of what it was just a few months ago.

And I’m concerned, especially here in Minnesota, it’s a snowstorm here in Minnesota, today, five inches of snow on the ground the earliest I can ever remember. Just icing on top of a 2020 cake. And when you talk about what that means to a place like Minnesota or any of the northern cities, it’s devastation for any of the hospitality that’s been hanging on by a thread. All the restaurants that have had outdoor seating, all of that stuff, it’s over. And I’m very, very, very frightened for what the world looks like now, after the election, over the next several months, how does it play out? And I think that to me the finances should come in secondary to the greater picture, what we’re seeing in the world. So, that’s what keeps me up at night, what the world looks like that we find ourselves living in and what happens as time passes especially here in the winter.

So, that’s what keeps me up at night, It’s just living in the epicenter of craziness here in Minnesota. And now that there’s snow on the ground, the golf courses are closed. The restaurants that have been hanging on by a threat are going to close. The hotels are going to close. The Uber drivers are going to have no job. Go down the list and things that once made up the things that we find enjoyable about life are few and far between right now. That’s what’s keeping me up at night more than anything.

Maurice Jackson: You said something so important there that I noticed, and you do all the time, is your concern of the social and human component at stake here. Not the financial component, is human because, in the end, we’re all human beings, and life matters. And we care about you, the reader. We want you to prosper financially, but we want you to also be alive and healthy. That’s more important than anything. Mr. Schectman, before we close, for someone listening and wants to contact you, please share the contact details.

Andy Schectman: I can be reached at (800) 255-1129, my direct dial, or [email protected].

Maurice Jackson: Mr. Schectman, it’s always a pleasure speaking with you. Wishing you the absolute best, sir.

And as a reminder, I am licensed representative to buy and sell precious metals through Miles Franklin Precious Metals Investments, where have several options to expand your precious metals portfolio, from physical delivery of gold, silver, platinum, palladium, and rhodium, to offshore depositories, and precious metals IRAs. Give me a call at 855.505.1900 or you may email: [email protected]. Finally, please subscribe to www.provenandprobable.com, where we provide Mining Insights and Bullion Sales, subscription is free.

Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.

Disclosure:
1) Statements and opinions expressed are the opinions of Maurice Jackson and not of Streetwise Reports or its officers. Maurice Jackson is wholly responsible for the validity of the statements. Streetwise Reports was not involved in the content preparation. Maurice Jackson was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

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Is Silver the Next Bitcoin?

Peter Krauth compares silver and bitcoin and explains why he believes investors should own both.

Source: Peter Krauth for Streetwise Reports   10/26/2020 

At the risk of offending bitcoin or silver investors, I think this is a question worth asking.

I have been researching and following these assets for some time.

In my view, it’s not an either-or dilemma. You should simply own both.

I believe silver and bitcoin remain massively undervalued, and that the market fundamentals of both these assets look extremely bullish.

The point is, like bitcoin, silver goes through massive rallies. Participating in them can be very lucrative.

So let’s review the outlook for bitcoin, then draw the parallels to better understand what may lie in store for silver.

The Case for Bitcoin

Born from its modest 2009 origins in the wake of the 2008–2009 financial crisis, bitcoin has come a long way, rising dramatically in value from its early days.

Today, its influence is not only undeniable, it’s inevitable.

Consider that U.S. Fed Chair Jerome Powell recently told an IMF-hosted digital payments panel that 80% of central banks globally are exploring the issuance of a central bank digital currency (CBDC). He also said, “We do think it’s more important to get it right than to be first and getting it right means that we not only look at the potential benefits of a CBDC, but also the potential risks, and also recognize the important trade-offs that have to be thought through carefully.”

As for being first, Powell was likely responding to China’s head start, where it is already testing in select cities, and plans to launch its own digital currency later this year.

European Central Bank president Christine Lagarde also said the ECB is very seriously reviewing the creation of a digital euro.

Digital versions of traditional currencies not only mean it will be easier to create more, but also to control them more. It inevitably lends further credibility to bitcoin. As investors come to realize it can’t be inflated or controlled, and has a finite total number of units (21 million) to be mined, they will gravitate toward the highly superior alternative.

That’s why bitcoin is increasingly seen as a safe haven. It has become more accessible through a growing number of cryptocurrency exchanges, and it has gained distribution through payment processors like Square (which recently bought $50 million worth of Bitcoin) and Paypal. It’s accepted by big name retailers Microsoft, Starbucks, and Whole Foods, while the list keeps growing.

And bitcoin ownership is soaring. The number of bitcoin addresses with a balance of $1,000 or more has just hit a new all-time high. JPMorgan recently said it expects over time bitcoin will grow in popularity with millennials, and Kanye West just reiterated his support for alternative currencies like Bitcoin.

Bitcoin-Silver Parallels

Much of what’s I’ve said about bitcoin is also true for silver.

It’s not easily produced, there’s a limited supply, it’s seen by many as money, and it’s a safe haven. And it can’t be inflated.

Bitcoin US dollar

Like bitcoin, silver also goes through huge rallies which can lead to huge payoffs for investors.

Silver price

But a couple of things are different between silver and bitcoin.

For one, the “elites” don’t pay much attention to silver. It’s there, it’s relatively cheap, and it’s a small market.

Also unlike bitcoin, the supply of silver is not finite. And as I’ve pointed out previously, just 28.7% of new silver supply comes from primary silver mines. 71% of newly mined silver is only produced as a by-product of other metals like gold, copper, lead and zinc. So a large portion of newly mined silver is not driven by its price. If silver prices rise dramatically, that doesn’t imply more production.

Here’s perhaps one of the most interesting comparisons. According to Steve St. Angelo of the SRSrocco Report (at $1,300 gold and $20 silver), all the investment gold worldwide is worth $2.93 trillion, all mined bitcoin so far is worth $240 billion, and the total investment silver market is worth $52 billion.

My main takeaway is obviously not to pit silver against bitcoin. Rather, it’s to point out their similarities, and the opportunities they offer going forward.

Investors should not look see these options as mutually exclusive. Instead, they should simply own silver and bitcoin.

Yes, they are likely to be volatile. But they also both have wild secular bull markets ahead of them.

And that’s way more important than any differences.

–Peter Krauth

Peter Krauth is a former portfolio adviser and a 20-year veteran of the resource market, with special expertise in energy, metals and mining stocks. He has been editor of a widely circulated resource newsletter, and contributed numerous articles to Kitco.com, BNN Bloomberg and the Financial Post. Krauth holds a Master of Business Administration from McGill University and is headquartered in resource-rich Canada.

 

Disclosure:
1) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the article preparation. The author was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Do These Explanations Make Sense for This Intraday Stock Market Turn?

By Elliott Wave International

The market “is not propelled by … external causality”

On Oct. 19, the DJIA had been trading higher for much of the morning, but by the last hour of trading, the index was more than 400 points in the red.

During that last hour of trading, a major financial website offered this explanation (CNBC):

Dow drops more than 400 points as stimulus uncertainty grows and coronavirus cases rise

Also toward the end of that day’s trading, the Wall Street Journal said:

U.S. Stocks Fall on Stimulus Worries

Well, these explanations seem to make sense. However, one must also consider that the lack of progress on another stimulus package and an increase in coronavirus cases are nothing new.

Moreover, the stock market has seen advances when bad news on either or both fronts were grabbing headlines.

For example, on August 12, Barron’s said:

The S&P 500 Closed Just Below a New High

U.S. stocks gained on Tuesday, despite the lack of progress in efforts to negotiate another stimulus package …

And, on Sept. 25, Barron’s said:

The Dow Rises Despite Virus …

Note that word, despite. Even in cases when the news clearly doesn’t fit the market action, news outlets still try to tie one to the other. You see it all the time. It’s hard to blame them, because almost everyone is conditioned to expect the news to drive the market.

But getting back to our example, it seems questionable that stimulus uncertainty or COVID-19 developments caused the DJIA’s slide on Oct. 19. Indeed, it didn’t; a change in market sentiment did.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experiences of life. The path of prices is not a product of news.

So, what does determine the path of market prices?

The answer is, market psychology, which unfolds according to the paths described by the Elliott Wave Principle. This illustration shows the basic design in both bull and bear markets:

As Elliott Wave Principle: Key to Market Behavior says:

One complete cycle consisting of eight waves … is made up of two distinct phases, the five-wave motive phase … and the three-wave corrective phase. … When an initial eight-wave cycle ends, a similar cycle ensues, which is then followed by another five-wave movement.

When you look at the news to gauge what’s next for the market, you are by definition putting yourself one step behind. First, something must happen, then the market is supposed to react — and only then you can act.

By contrast, when you track wave patterns in market charts, you can see what pattern is underway now, so you can predict what pattern is next — news or no news. Now you are one step ahead!

So, look to Elliott wave analysis rather than the news for insights into the market’s next big move.

Once again, let’s return to Elliott Wave Principle: Key to Market Behavior:

It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

The ability to identify such junctures is remarkable enough, but the Wave Principle is the only method of analysis that also provides guidelines for forecasting.

Learn more about how the Elliott wave model can help you navigate widely traded financial markets by reading the online version of Elliott Wave Principle: Key to Market Behavior for free.

Follow this link to get started: Elliott Wave Principle: Key to Market Behavior — unlimited, free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Do These Explanations Make Sense for This Intraday Stock Market Turn?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Trump’s trade war – what was it good for? Not much

By Rebecca Ray, Boston University 

– The 2016 election was a referendum on free trade, which many blamed for destroying millions of American manufacturing jobs. In 2020, it could be about the merits of trade wars.

During President Donald Trump’s first term, he tore up deals, launched a trade war with China and renegotiated NAFTA. His campaign claims the war was a success and that his policies were bringing back manufacturing jobs – until the pandemic arrived – and so voters should give him another four years.

His Democratic rivals disagree.

“You lost that trade war,” Sen. Kamala Harris snapped during her debate with Vice President Mike Pence, citing the loss of 300,000 manufacturing jobs during Trump’s presidency and bankrupt farmers.

So who’s right?

As an economist who researches international economic policy, I believe Trump’s impulse to rethink trade policy was understandable. If free trade hurt American workers, it stands to reason that putting up barriers to trade – even being willing to “go to war” – might protect those workers.

But wars can backfire – and trade wars are no different.

Free trade’s losers

Economic theory tells us that free trade means a greater availability of cheaper goods because everything will be produced where it can be made least expensively.

That sounds like a great deal for consumers and exporting industries like agriculture that find more buyers for their products. But it’s a raw deal for manufacturing workers as factories move to countries like Mexico and China with lower labor costs.

That’s what happened after the North American Free Trade Agreement became law in 1994 and China joined the World Trade Organization in 2001.

In each case, manufacturing workers were among the big losers as employment in the sector plunged from just under 18 million in 1990 to a little over 14 million in 2004.

The tide turns against trade

As a result, many politicians became more cautious about supporting free trade deals.

When he was a senator in 1993, former Vice President Joe Biden and many other Democrats voted to ratify NAFTA. A little over two decades later, when a free trade bill with Central America and the Dominican Republic came up for a vote, Biden and nearly every Democrat voted no. The bill barely passed.

And although Biden’s administration signed the Trans-Pacific Partnership in 2016 – which would have created the world’s largest free-trade zone – opposition among leading Democrats as well as Trump imperiled its passage in the Senate, leading to the U.S.‘s withdrawal in 2017.

When Trump launched his presidential campaign in 2016, opposition to trade deals like NAFTA was one of his signature issues. At a time when Republican leaders mostly were staunch supporters of free trade, his promise to bring manufacturing jobs back to the U.S. helped him win the primary – and ultimately the presidency – as a growing number of voters began to see trade as bad for Americans.

And as president, he followed through on his pledge and unilaterally imposed tariffs on a range of Chinese products – a list that now totals US$550 billion worth – as well as on most aluminum and steel imports. Thus, Trump’s trade wars began.

My research with colleagues at Boston University shows that trade agreements have indeed hurt U.S. workers. But Trump’s trade wars have not solved the offshoring problem that they were designed to fix.

The trouble with trade wars

Trump has claimed “trade wars are good and easy to win.”

Trump seems to have based this on the assumption that America’s trading partners would not retaliate. He was wrong.

Over many rounds of tit-for-tat, China has retaliated repeatedly by placing tariffs on $185 billion of U.S. exports, most notably agricultural products. After U.S. soybean farmers saw their largest market dry up, the Trump administration was forced to spend $23 billion to offset some of their losses. All told, more than one-third of farm income will come from government subsidies in 2020.

And when the Trump administration planned to impose steel tariffs on Canada earlier this year, America’s northern neighbor vowed retaliation, which would have hurt U.S. exporters. So Trump backed down.

That’s the problem with trade wars. Intended to protect a country’s own workers, they wind up doing a lot of self-inflicted damage, as retaliatory tariffs drive up the cost of exports, hurting businesses and workers at home as well as abroad.

At the same time, U.S. policy seems to have lost sight of the original enemy: the offshoring of American jobs, which has continued to grow. The 2017 tax cut, for example, actually made offshoring more profitable and attractive – making it even harder to achieve the primary goal of the trade war.

Trade wars pay off only if they have a clear vision and lead to meaningful changes in how everyone does business. That hasn’t happened either.

While Trump did reach a “phase one” deal with China in January, it actually looks like it will make the offshoring problem even worse. As part of the truce, the U.S. agreed to reduce its tariffs on Chinese goods and China said it would buy a lot more American products, especially soybeans.

While it may make up for some of the damage caused by the trade war – such as by aiding ailing soybean farmers – it will make offshoring easier by making it more advantageous and profitable for American companies to transfer operations to China. That’s because China also agreed to stop requiring foreign companies that seek to do business within its borders to transfer technology to domestic partners.

A better way to protect workers

One notable exception to all this is the U.S.-Mexico-Canada Agreement, Trump’s replacement for NAFTA that became law in July.

That deal is likely to prevent more offshoring to Mexico because of bipartisan support for labor and environmental provisions that raise minimum Mexican automaker wages.

This points to one of the best ways to actually stop manufacturing offshoring: Negotiate trade agreements that set higher labor and environmental standards for all signatories. This not only helps workers and communities in other countries get better treatment, but also makes U.S. workers more competitive by raising the cost of doing business there. That makes American companies less likely to move operations overseas.

The evidence suggests the best way to limit offshoring is through negotiation and cooperation, not war.The Conversation

About the Author:

Rebecca Ray, Senior Academic Researcher, Boston University

This article is republished from The Conversation under a Creative Commons license. Read the original article.